2016 (1) TMI 175 - AT - Income Tax

Estimation of income at 8% - Held that - A.O. could not reject the books of account and estimate the income at 8% without there being any basis in doing so. In view of the above we agree with assessees grounds on the issue and delete the estimation of income as made out by the A.O. It is also seen that in A.Y. 2005-06 assessee declared income at more than 8%. As assessee s business income varies on year to year basis and the assessee is disclosing the incomes on the basis of the entries in the books of account there seems no justification in rejecting the books of account on assumptions and presumptions. In view of this keeping the above facts in mind and principles of law we cannot approve the rejection of books of account and estimation of income in the impugned assessment years - Decided in favour of assessee. Accrual of income - Addition on the basis of receipts from M/s. SSCPL - Held that - What A.O. has done in the assessment is to bring to tax the amounts received by the assessees on the basis of receipt in respective assessment years ignoring that if it is a capital gain transaction on transfer of property the capital gains occurs when the transfer is complete or deemed to be complete. If the terms of agreement have been fulfilled by the developer/ builder the capital gain is to be brought to tax in the year in which the agreement was concluded i.e. in this case in the year 2007-08. In case the terms of the agreement are not fulfilled and the agreement has not been implemented as per the terms then there can be no transfer in strict sense capital gain does not arise even though certain advances were received. If it is a business transaction A.O. missed the point that assessees herein have paid an amount of 20 lakhs at the time of agreement as initial payment which will be a deduction along with subsequent expenditure if any so as to arrive at the correct income. Just because the parties herein have received certain amounts in different assessment years they cannot be brought to tax on receipt basis without understanding the nature of payments. In view of this without giving any findings on the respective contentions we are of the opinion that these issues are to be examined in detail to arrive at proper conclusions. Therefore in the interest of both parties we restore the issue to the file of A.O. to re-examine The contention that agreement has not been fulfilled because no permissions have been received and land was not developed also requires examination by the A.O. It is also to be verified whether the amounts received by the assessee is over and above the amounts payable as per the agreement or not. In such case the nature of receipt by the assessees has to be examined vis- -vis entries and claims made in the case of SSCPL who paid the amounts by way of cheques. - Decided in favour of assessee for statistical purposes

Summary

Issues Involved:
1. Application of provisions of section 153C.
2. Estimation of income at 8% on the turnover.
3. Additions based on receipts from M/s. SSCPL.

Issue-wise Detailed Analysis:

I. Application of Provisions of Section 153C:
The appeals contest the application of section 153C when no material facts were found on some issues and certain additions were confirmed consequent to the impounding of agreements found in a search. The search and seizure operations at SSCPL's premises led to proceedings under section 153C against the assessees, who had not disclosed certain transactions to the department. The primary contention is whether the additions made by the A.O. in the assessment orders were justified.

II. Estimation of Income at 8%:
In A.Ys. 2004-05, 2006-07, 2007-08, and 2008-09, the A.O. rejected the books of account and estimated income at 8% based on turnover. The assessee argued that there was no incriminating material from the SSCPL search and that the originally filed returns, which were accepted, should not be rejected. The Ld. Counsel cited the Hon'ble Delhi High Court decision in CIT vs. Kabul Chawla, arguing that additions should not be made without relevance or nexus to the seized material. The Ld. D.R. referenced the jurisdictional High Court decision in Gopal Lal Bhadruka vs. DCIT, asserting that the A.O. could consider material other than what was found during the search.

The Tribunal concluded that the A.O. could not reject the books of account and estimate income at 8% without any basis, as there was no material other than the return filed by the assessee. The principles laid out by the Hon'ble Delhi High Court in CIT vs. Kabul Chawla were applied, emphasizing that completed assessments can only be interfered with based on incriminating material unearthed during the search. Consequently, the Tribunal deleted the estimation of income made by the A.O. and allowed the assessee's grounds on this issue.

III. Additions Based on Receipts from M/s. SSCPL:
The assessees entered into an agreement to purchase property in 1997 and later entered into a development agreement with SSCPL in 2006. The A.O. contended that the amounts received by the assessees from SSCPL were commission and brought them to tax in the year of receipt. The assessees argued that these amounts were advances as part of the development agreement and should be considered for capital gains tax when the transfer is complete.

The Tribunal noted that the A.O. needed to examine whether the amounts received were part of the agreed consideration or over and above the amounts payable. The Tribunal highlighted the need to determine if the transactions were business or investment-related and whether the capital gains could be brought to tax in A.Y. 2007-08. The Tribunal restored the issue to the A.O. to re-examine the nature of transactions, the source of funds, and the compliance with the agreement terms.

The Tribunal also directed the A.O. to verify the assessees' claims regarding the non-fulfillment of the agreement due to lack of permissions and development. The nature of receipts and their treatment in SSCPL's books of account were to be examined. The Tribunal set aside the orders of the A.O. and CIT(A) and restored the issues for re-consideration.

Conclusion:
The Tribunal allowed the appeals related to the estimation of income at 8% and partly allowed the appeals concerning the additions based on receipts from SSCPL for statistical purposes. The orders were pronounced in the open court on 13.11.2015.