2020 (4) TMI 900 - AT - Income Tax

Addition u/s 69C - telescoping of the said addition out of the available of funds with assessee - assessee is developing a township known as Ensara Metropark at Nagpur. The project was in progress during the year and the entire cost incurred was shown as work in progress - HELD THAT - In this case the cash generated during the year out of over invoicing was ₹ 5,46,20,000/- and it has been admitted by Shri Sanjay Kothari during the course of recording of statement under section 132(4) of the Act that the source of these expenses were out of the cash generated through over invoicing. AO has failed to bring on record any evidence to the effect that these expenses of ₹ 2,19,96,000/- were incurred out of some other source or the cash generated of ₹ 5,46,20,000/- was invested or incurred on some other activity. Therefore, under these circumstances, the only possible presumption is that the expenditure was incurred out of the funds available with the assessee generated through over invoicing. This has been admitted by the CEO of the project Shri Sanjay Kothari in the statement recorded under section 132(4) and therefore we can reasonably held that assessee is entitled to benefit of telescoping of ₹ 2,19,96,000/-. The case of the assessee finds support from the several decisions referred to by the assessee during the course of hearing. In the case of CIT vs. K.SREEDHARAN 1992 (6) TMI 24 - KERALA HIGH COURT has held that if a intangible addition made in the earlier year is as good as other disclosed income of the assessee and it would be treated as available for investment from the year in which such addition was made. Thus the assessee has available source with it to incur the cash expenses which was not in any way controverted by the AO by bringing on record any cogent and substantive materials or evidences and accordingly we set aside the order of Ld. CIT(A) and direct the AO to allow the telescoping and delete the addition. Disallowing the setting off the loss against the assessed deemed income under section 69C - HELD THAT - We observe that the income assessed under section 68/69C is eligible to be adjusted against any brought forward loss or depreciation. The position is clarified by the board s circular No.11/2019 dated 19.06.2019 which provides for setting off of loss/depreciation against the income assessed under section 69C of the Act provided it relates to any assessment years prior to A.Y. 2017-18 and the same ratio has been laid down in the various decisions relied upon by the assessee. Accordingly, we hold that whatever income is assessed after giving effect to ITAT order is subject to set off against the loss/depreciation of the current year and also brought forward loss/brought forward depreciation of the earlier year. Addition made on account of On money - Whether transactions of receipt of on money as evidenced by the receipts issued to the buyers were duly recorded in the books of accounts? - HELD THAT - After perusing the material on record, we observe that the assessee has duly accounted for all the receipts issued to the customers from whom the said cash was received and duly recorded in the books of accounts of the assessee. Since the project Ensara Metropark was at the development stage and whatever explained was incurred was shown as work in progress at the year end and also no revenue was offered to tax. We find that assessee has duly accounted for all these entries in the books of accounts and thus the mere fact that the money has been received in cash by the assessee would not justify the order of Ld. CIT(A) confirming the order of AO wherein it has been held that money received by issuing various receipts represent the on money. The stand of the authorities below appears to be contrary to the facts on record as the money which has been alleged to be on money is duly recorded in the books of accounts. In such a scenario we are not in agreement with the conclusion drawn by the Ld. CIT(A) and accordingly we direct the AO to delete the addition. Assessee appeal allowed.

Summary

Issues Involved:

1. Addition under Section 69C of the Income Tax Act, 1961.
2. Telescoping of additions with available funds.
3. Setting off of losses against deemed income under Section 69C.
4. Addition on account of "on money" received.

Issue-wise Detailed Analysis:

1. Addition under Section 69C of the Income Tax Act, 1961:

The assessee challenged the addition of ?2,19,96,000/- made by the Assessing Officer (AO) under Section 69C as unexplained expenditure. The AO's addition was based on findings from a search and seizure operation, which revealed that the assessee generated cash through over-invoicing sub-contracts and land deals. The AO concluded that ?2,19,96,000/- was unexplained expenditure not recorded in the books of accounts. The CIT(A) upheld this addition, stating that the assessee failed to substantiate the availability of cash to explain the expenses and did not provide a cash flow chart to support the claim.

2. Telescoping of Additions with Available Funds:

The assessee argued that the unexplained expenditure should be telescoped with the cash generated through over-invoicing. The assessee contended that the cash generated from over-invoicing was used to incur the expenses, and thus, adding the same amount under Section 69C would result in double taxation. The Tribunal found that the AO did not provide evidence to show that the cash generated was used elsewhere. The Tribunal allowed the benefit of telescoping, directing the AO to delete the addition of ?2,19,96,000/-. The Tribunal relied on various judicial precedents which support the principle of telescoping, where the source of expenditure is explained by cash generated through other means.

3. Setting off of Losses against Deemed Income under Section 69C:

The assessee sought to set off current year’s loss and brought forward unabsorbed losses against the deemed income under Section 69C. The AO and CIT(A) denied this set-off, relying on the Gujarat High Court judgment in Fakir Mohammed Haji Hasan, which held that additions under Section 69C are deemed income and do not fall under any specific head of income. The Tribunal, however, referred to subsequent decisions and a CBDT circular allowing such set-offs for assessment years prior to 2017-18. The Tribunal directed the AO to allow the setting off of losses against the income assessed under Section 69C.

4. Addition on Account of "On Money" Received:

The AO added ?40,00,000/- and ?63,65,000/- for A.Y. 2014-15 and A.Y. 2015-16, respectively, as on money received on the sale of flats. The assessee contended that these amounts were recorded in the books as advances from customers and no income was recognized as the project was still in progress. The CIT(A) upheld the AO’s addition. However, the Tribunal found that the receipts were duly recorded in the books and there was no evidence to suggest these were not accounted for. The Tribunal directed the AO to delete the addition, concluding that the amounts were properly recorded and did not represent unaccounted on money.

Conclusion:

The Tribunal allowed the appeals of the assessee, directing the AO to delete the additions under Section 69C by allowing telescoping and setting off losses against deemed income. The Tribunal also directed the deletion of additions made on account of on money, as the amounts were duly accounted for in the books of the assessee. The judgments emphasize the importance of substantiating claims with proper documentation and the applicability of judicial precedents in interpreting tax laws.