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2021 (7) TMI 1277 - AT - Income TaxAddition u/s 68 - On-money received by the assessee - addition being 25% of on money plus accommodation entries - determination of profit element on the on-money receipts which has to be brought to tax - HELD THAT - As per M/S. TULIP LAND DEVELOPERS P. LTD. VERSUS DY. CIT CENTRAL CIRCLE-6 (2) MUMBAI 2021 (2) TMI 1170 - ITAT MUMBAI it is not in dispute that the assessee had incurred certain business expenses out of such on-money which are kept outside the books of accounts. Hence it will be just and fair that only the profit element embedded on any such undisclosed transaction could be brought to tax on an estimated basis. The assessee had already pleaded that onmoney transactions were offered by the assessee s group concerns @12% of on-money receipts before the Hon ble Income Tax Settlement Commission and the same has been accepted by the Settlement Commission. Hence the data and information was indeed available with the ld. CIT(A) to have some rational basis to make profit estimation in the hands of the assessee herein by following 12% thereof from the order of Hon ble Income Tax Settlement Commission. Accordingly we direct the ld. AO to add only 12% of on-money receipts as undisclosed income of the assessee for the year under consideration.
Issues Involved:
1. Taxability of on-money received by the assessee. 2. Determination of the profit element on on-money receipts. 3. Validity of reopening of assessment. 4. Addition of income from on-money, inflation of expenses, and accommodation entries. Detailed Analysis: 1. Taxability of On-Money Received by the Assessee: The primary issue was whether the on-money received by the assessee is chargeable to tax in the year of receipt or in the year of completion of the project. The Tribunal referred to a search and seizure action under section 132 of the Income Tax Act, 1961, conducted at the Ahuja Group, which revealed that the group maintained parallel books of accounts and received on-money in various construction projects. The Assessing Officer (AO) brought the entire on-money receipts to tax under section 68 of the Act for the year under consideration. However, the Commissioner of Income Tax (Appeals) [CIT(A)] held that only the profit element of the on-money receipts should be taxed, estimating it at 25%. The Tribunal, following a precedent set in the case of Tulip Land and Developers Pvt. Ltd., directed that the profit element be taxed at 12% of the on-money receipts, aligning with the method of accounting followed by the assessee, which was the project completion method. 2. Determination of Profit Element on On-Money Receipts: The Tribunal examined whether the entire on-money is taxable at 100% or only the profit element. The CIT(A) had estimated the profit element at 25%, but the Tribunal, referencing the decision in Tulip Land and Developers Pvt. Ltd., concluded that the profit element should be taxed at 12%. This decision was based on the method of accounting followed by the assessee and supported by the decision of the ACIT vs. ISA Enterprises, which held that income should be assessed based on the method of accounting followed by the assessee. 3. Validity of Reopening of Assessment: In ITA No.2972/Mum/2019 for A.Y.2009-10, the assessee challenged the validity of reopening of assessment. However, this ground was not pressed by the assessee during the hearing and was dismissed as not pressed. 4. Addition of Income from On-Money, Inflation of Expenses, and Accommodation Entries: The Tribunal addressed the addition of Rs. 20,48,291 as income from on-money, inflation of expenses, and accommodation entries. The CIT(A) confirmed the addition at 25% of the aggregate amount. However, the Tribunal referred to the case of M/s. Bhalachandra Trading P. Ltd., where it was held that only the profit element at 12% should be taxed, following the precedent set by the Income Tax Settlement Commission. The Tribunal directed the AO to assess the income from on-money and inflated expenses at 12%, consistent with the method followed by the assessee's group concerns. Separate Judgments Delivered: The Tribunal delivered separate judgments for different assessment years, but the rationale and decisions were consistent across cases. For instance, in ITA No.2973/Mum/2019 for A.Y.2010-11 and ITA No.2974/Mum/2019 for A.Y.2011-12, the Tribunal applied the same reasoning and directives as in the earlier cases, emphasizing the uniform application of the 12% profit element for taxation. Conclusion: The Tribunal consistently ruled that only the profit element of on-money receipts should be taxed at 12%, aligning with the method of accounting followed by the assessee and the decisions of the Income Tax Settlement Commission. The appeals of the assessee were partly allowed, with the Tribunal directing the AO to apply the 12% profit element for assessing the income from on-money and inflated expenses.
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