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2017 (4) TMI 1513 - AT - Income TaxAddition u/s 69C - addition on account of the bogus purchases from the suppliers whose names appear in the Website of the Sales Tax Department, Maharashtra - HELD THAT - Bringing our attention in the case of Nikunj Eximp Enterpries P Ltd 2013 (1) TMI 88 - BOMBAY HIGH COURT and case of CIT vs. Simit P Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT Ld Representatives of both parties submitted that given the cited judgments and other orders of the Tribunal, restriction of the addition to 12.5% of the said purchases would meet the both ends of justice. On hearing both the parties and perusing the orders of the Revenue, we are of the considered opinion that AO should be directed to restrict the addition to 12.5 % of the entire purchases Correctness of the claim of deduction u/s 80IB(10) in respect of the profits of the Radha Govind project - Whether FAA is justified in allowing the said deduction when there is area and ownership violation, if any, of a couple of flats ie Flats No. 901 and 902 in the said building? - HELD THAT - On perusal of the orders of the Revenue Authorities and the paper books filed along with the written submissions, we are of the view that AO should be directed to examine the date of approval of the project in question and apply the said decisions on the said clause in Ex. Emgeen Holdings (P) Ltd 2011 (7) TMI 199 - ITAT MUMBAI . AO shall grant reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Accordingly, relevant grounds are partly allowed for statistical purposes. Unaccounted receipts‟ - on money earnings for entire project based on the said diaries/documents in the year AY 2010-11 - Addition calculated from the impounded material in the form of Annexures A1 to A9 - basis of the said addition income is the entries in the diary (Annexure A1 to A4) maintained by the assessee - HELD THAT - We approve the finding of the CIT(A) relating to deletion of receipts of ₹ 6.26 crores and also the amended project completion method followed by the assessee. Assessee did not wait to offer the income of Radha Govind building in the year of completion. Rather, Assessee offered the same in the current year. He however, did not offer any income on account of relatable on money‟. Therefore, regarding confirming of the addition we find CIT(A) is not consistent with the recognized profits of the said Radha Madhav building. In quantifying the said sum CIT(A) considered the AY specific on money receipts‟ and expenditure instead of building-wise unaccounted receipts/ expenditure. In our view, there is need for slight amendment to the order of the CIT (A) on this issue. We proceed to examine this part in the following paragraphs. Addition of entire On money Receipts - Income recognition - HELD THAT - In the process, what has happened is that the assessee recognized the accounted profits in the year under consideration ie the year of completion of the building and not the project per se and the on money income in the year of completion of the project. This part of the approach of the assessee is not in tune with the method of recognizing the income - order of the CIT(A) needs correction to the extent that the entire income relatable to the Radha Govind both accounted and unaccounted income, needs to be taxed in the year under consideration. Therefore, in principle, we approve the finding of the CIT(A) in deleting such addition - we do not approve the addition of the entire on money receipts made by the AOs repeatedly in AYs 2009-10 and 2010-11. Why to tax on money of two other building in this year? - Why must the CIT(A) consider the on money receipts of the other two buildings in this year when their related accounted profits is offered to tax in the next AY , the year of completion of the project? In our view, such calculation is not proper for the reason the principle of offer of the building-specific-income is vitiated. The reason includes that the on-money receipts relatable to the other two buildings (Radha Krishna and Radha Madhav) whose income is not recognized in this year should be considered in the relevant year of completion of the said two buildings. In amended project completion method adopted by the assessee, it is not proper to tax any on money of the said two building in this year and the same should be in the year where relevant accounted money is offered to tax ie in the next year, the year of project completion. Quantification of On money of Radha Govind building for taxing in the current year of income recognition - If the assessee offered any on money to tax relating to Radha Govind building in next AY, in compliance of the sworn statements, AO must grant corresponding relief in next year to avoid double taxation of same income twice. Thus, the principle is (i) whole of the income of the Radha Govind ( ie both accounted and unaccounted) needs to be tax in this year of income recognition and (ii) whole of the legal expenditure of the said building ( ie both accounted and unaccounted) based on the diaries needs to be allowed in favour of the assessee. AO cannot selectively ignore certain expenditure appearing on the impounded documents for any whimsical reasons. Now, we shall undertake to examine the deductibility of the unaccounted profits of the said building when the same were not audited by the Auditor and not filed in Form no 10CCB in the next paragraph. Whether the deduction available in respect of on money when the Audit Report does not cover the same? - Here is procedural issues relating to Audit Report. As argued by the Ld DR, the said net on money if any of the building Radha Govind is outside the Audit Report in Form 10CCB and thereby such on money income becomes ineligible for deduction u/s 80IB(10) of the Act for want of Audit Report. To the extent of such on money, there is no Audit Report. Assessee has not filed the revised Audit Report if any even before the appellate authorities. Therefore, relevant arguments of Ld AR are not approved fully. Further, we are aware about the existence of many helpful decisions on this issue in favour of the assessee and against the revenue. In principle, the deduction is allowable on such income. But the issue is existence of the Mandatory Audit Report covering the said on money receipts of this building. As such, CIT(A) has not given any categorical finding on this issue. Further, none of the decisions cited by the Ld AR has dealt with this issue of Audit Report. CIT (A) needs to adjudicate this part of the issue afresh after granting a reasonable opportunity of being heard to the assessee. the assessee may file revised audit report to perfect the deficiency and AO may consider the same before allowing the deduction. Accordingly, relevant grounds of the revenue are partly allowed for statistical purposes.
Issues Involved:
1. Justification of CIT(A) in restricting the addition to ?5,10,410/- instead of ?6.23 crore. 2. Correctness of deletion of addition under Section 69C of the Income Tax Act concerning bogus purchases. 3. Correctness of the claim of deduction under Section 80IB(10) of the Income Tax Act for the profits of the Radha Govind project. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in Restricting the Addition to ?5,10,410/- Instead of ?6.23 crore: The Revenue contested the CIT(A)'s decision to restrict the addition to ?5,10,410/- instead of ?6.23 crore based on unaccounted receipts and expenditures discovered during a survey action. The assessee had unaccounted receipts worth ?6,65,19,715/- and unaccounted expenditures of ?5,01,65,977/-, including illegal payments of ?88,19,000/-. The AO added ?6,22,67,448/- as "income not accounted for" and allowed relief of ?42,52,267/- for cash payments below ?20,000/-. The CIT(A) restricted the addition to ?5,10,410/- by considering the unaccounted receipts and expenditures for the current year only and following the principle of consistency from the previous year's assessment. The Tribunal upheld the CIT(A)'s approach but directed the AO to re-examine the building-wise unaccounted receipts and expenditures for proper quantification. 2. Correctness of Deletion of Addition under Section 69C of the Income Tax Act Concerning Bogus Purchases: The AO made an addition of ?29,26,940/- for unexplained expenditure under Section 69C by way of "bogus purchases" from suppliers listed on the Sales Tax Department's website. The CIT(A) deleted this addition. The Tribunal, referencing various judgments, concluded that restricting the addition to 12.5% of the total purchases would be just. Consequently, the AO was directed to restrict the addition to 12.5% of ?29,26,940/-, partially allowing this part of the Revenue's appeal. 3. Correctness of the Claim of Deduction under Section 80IB(10) of the Income Tax Act for the Profits of the Radha Govind Project: The AO denied the deduction under Section 80IB(10) for the Radha Govind project's profits, citing violations in the specified area and ownership of two flats. The CIT(A) allowed the deduction, and the Tribunal was tasked with adjudicating whether this was justified. The Tribunal considered various judgments supporting proportionate allowance of deduction and the prospective application of clause (f) to Section 80IB(10). The Tribunal directed the AO to examine the project's approval date and apply relevant decisions, granting the assessee a reasonable opportunity to be heard. The Tribunal also noted that the net "on money" receipts related to Radha Govind should be taxed in the current year, with corresponding relief granted in the next year to avoid double taxation. The Tribunal emphasized the need for an audit report covering the "on money" receipts for the deduction to be valid under Section 80IB(10). Conclusion: The appeal of the Revenue was partly allowed. The Tribunal upheld the CIT(A)'s decision to restrict the addition concerning unaccounted receipts and expenditures, with directions for re-examination. The Tribunal partially allowed the Revenue's appeal on bogus purchases by restricting the addition to 12.5%. The Tribunal directed the AO to re-examine the claim of deduction under Section 80IB(10) for the Radha Govind project, emphasizing the need for an audit report covering the "on money" receipts.
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