2017 (2) TMI 107 - AT - Income Tax

Determination of on-money receipts as per the disclosure made by the assessee before the Settlement Commission - Held that - There is no dispute that the Settlement Commission has agreed with the contentions of the assessee that the entire amount of on-money receipts cannot be considered as income of the assessee. Accordingly the Settlement Commission has estimated the income from on-money receipts @ 17% in AY 2005-06. Since the assessing officer has estimated the on-money receipts as per the disclosure made before Settlement Commission, we are of the view that the Ld CIT(A) was justified in estimating the income from the on-money receipts @ 17% for this year also by following the order passed by the Settlement Commission. Accordingly we confirm the order passed by Ld CIT(A). Accordingly we reject the appeal filed by the revenue. Revision u/s 263 - penalty proceedings u/s 271(1)(c) - Held that - We notice that the assessee has furnished explanations before the assessing officer during the course of penalty proceedings three times, viz., on 22.12.2011, 24.12.2011 and 15.05.2012. It is not the case of Ld CIT that the assessing officer has dropped the penalty proceedings without considering the explanations of the assessee, meaning thereby, the AO was convinced with the submissions made by the assessee and accordingly dropped the penalty proceedings. It is pertinent to note that the Ld CIT did not discuss anything about the explanations furnished by the assessee before the AO and did not show that the said explanations are not acceptable in law. Under these set of facts, we are of the view that there is merit in the contentions of the assessee that the assessing officer has taken a possible view of the matter and hence the order passed by the AO dropping the penalty proceedings cannot be considered to be prejudicial to the interest of the revenue. In view of the foregoing discussions, we are of the view that there is merit in the contentions of the assessee that the revision order passed by Ld CIT u/s 263 of the Act for AY 2004-05 is not valid - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?20,00,000 and ?41,95,100 for AY 2003-04.
2. Estimation of on-money receipts for AY 2006-07.
3. Validity of revision order u/s 263 for AY 2004-05.

Detailed Analysis:

1. Addition of ?20,00,000 and ?41,95,100 for AY 2003-04:
The revenue appealed against the deletion of ?41,95,100 by the CIT(A), while the assessee supported the CIT(A)'s order. The AO had reopened the assessment based on a settlement application where the assessee declared ?20,00,000. Additionally, the AO added ?41,95,100 as unexplained cash payments to suppliers. The CIT(A) upheld the ?20,00,000 addition but deleted the ?41,95,100 addition, explaining that the payments were temporary and part of a business strategy to manage cash flow. The ITAT agreed with the CIT(A), noting that the ledger accounts supported the temporary rotation of funds and that the Settlement Commission's estimation of income included unaccounted expenditures. Thus, the ITAT confirmed the CIT(A)'s order and rejected the revenue's appeal.

2. Estimation of on-money receipts for AY 2006-07:
The AO estimated on-money receipts at ?1,19,87,810 based on the assessee's disclosure before the Settlement Commission. The CIT(A) referred to the Settlement Commission's decision for AY 2005-06, which estimated net profit at 17% of on-money receipts, and applied the same rate, reducing the addition to ?44,46,333. The ITAT upheld the CIT(A)'s decision, agreeing that the entire amount of on-money receipts could not be considered as income and confirming the 17% estimation. Thus, the ITAT rejected the revenue's appeal.

3. Validity of revision order u/s 263 for AY 2004-05:
The AO had assessed an additional ?24,00,000 based on the assessee's settlement application but dropped penalty proceedings. The CIT revised the order, directing the AO to levy a penalty of ?7,20,000, arguing that the AO's decision was erroneous and prejudicial to the revenue. The assessee contended that the AO had considered detailed explanations and that the CIT's revision was invalid. The ITAT found that the AO had taken a possible view by considering the assessee's explanations and that the CIT had not shown the explanations to be unacceptable. Additionally, the ITAT noted that the assessee had only received booking advances in AY 2004-05, with sales starting in AY 2005-06. Therefore, the ITAT set aside the CIT's revision order, deeming it invalid.

Conclusion:
The ITAT dismissed the revenue's appeals and the assessee's cross objections for AY 2003-04 and 2006-07, while allowing the assessee's appeal for AY 2004-05, setting aside the CIT's revision order.