2022 (1) TMI 1330 - AT - Income Tax

On-money received from its business of real estate development - on-money components on the sale of the bungalows - assessee had received on-money on sale of the property in the course of business and there was nothing to demonstrate any expenditure incurred out of the same by the assessee - Assessee plead restricting the addition to the profit element embedded in the same - HELD THAT - We therefore agree with the ld.counsel for the assessee that making addition of the entire on-money received by the assessee would not be justified. Though we are of the view that the onus is on the assessee to show what expenses have been incurred by it in cash, which have also remained unexplained, but at the same time noting the fact that bungalows sold by the assessee were not hi-end properties, but small sized bungalows the component of the on-money received on the same @ 50% of the booked price is on a palpably very high side. We are of the view it would be just and reasonable to restrict the addition to the extent of profit element embedded in this transaction only. The AO is directed to restrict the addition by estimating GP on the on money receipts, at the higher of the rate in this line of business or as agreed to by him before us @ 15% thereof. We may add here that our above decision may not be treated as precedent in any other case having been rendered in the peculiar facts and circumstances of the case demonstrated before us by the ld.counsel for the assessee. Appeals of the assessee are partly allowed.

Summary

Issues:
Appeals against common order passed by CIT(A) under section 250(6) of the Income Tax Act, 1961 regarding addition made to income on account of alleged on-money received by assessee from real estate development.

Analysis:
The appeals involved a challenge against the confirmation of addition to the income of the assessee on account of alleged on-money received from real estate development business. The appeals were consolidated due to the similarity of the issue across three assessment years. The primary contention of the assessee was to restrict the addition of on-money to the profit element embedded in the transactions. The ld.counsel for the assessee argued that a significant portion of the cash received was not income but was utilized for expenses, emphasizing that the profit margin on the properties sold was not as high as claimed by the revenue. The revenue, however, opposed this argument, asserting that the documents and circumstances indicated on-money receipts without corresponding expenditures by the assessee.

The consolidated order detailed the findings from the search action conducted under section 132 of the IT Act, revealing incriminating documents related to on-money transactions in the housing projects undertaken by the appellant. The Assessing Officer (AO) identified discrepancies in the sale prices and amounts received, attributing the differences to on-money receipts. For each assessment year, the AO calculated the on-money amounts and added them to the total income of the assessee. The ld.CIT(A) upheld these additions, prompting the assessee's appeal on the grounds of restricting the addition to the profit element only.

Upon examination of the facts and contentions presented, the tribunal agreed with the ld.counsel for the assessee that adding the entire on-money received as income would be unjustified. Considering the size and nature of the properties sold, the tribunal found it improbable for the profit margin to be as high as claimed by the revenue. Hence, the tribunal directed the AO to restrict the addition by estimating the gross profit on the on-money receipts at a specified rate, set at 15% or as agreed upon. The tribunal emphasized that this decision was based on the peculiar circumstances of the case and should not be considered a precedent for other cases. Consequently, all three appeals of the assessee were partly allowed in line with the above decision.

In conclusion, the tribunal's judgment addressed the issue of alleged on-money receipts in real estate transactions, emphasizing the need to consider the profit element while restricting the additions to the income of the assessee. The decision provided a nuanced approach by balancing the onus on the assessee to explain expenses with the improbability of high profit margins in the context of the properties sold.