2017 (9) TMI 1284 - AT - Income Tax

Accrual of income - assessee under the tripartite agreement has sold right to develop and sell incentive FSI under the Letter Of Intent (LOI) by Slump Rehabilitation Authority (SRA) - JV agreement - Held that - It is only when conditions of LOI are fulfilled that the assesse can give away title to the free sale building. In the circumstance till the conditions of LOI are fulfilled transfer is not complete and income does not accrue to the assesse. We find from the facts of the case that lot of work in accordance with LOI was pending as on the date of tripartite agreement. Accordingly, we are of the view that principal amongst the conditions pending completion is construction of rehabilitation building no 4 and many temples and places of worship and the CIT(A) has rightly held that income under the tripartite agreement has not accrued to the assesse - Revenue s appeal is dismissed. Telescoping to net profit addition against addition on account of negative peak - Held that - We are of the view that the assessee himself admitted that profit @10% i.e. net profit on gross contract receipt can be confirmed as estimated by the AO but the consequential telescoping of the available cash balance amount to ₹ 14,48,166/- in this year is to be allowed, giving effect to the balance of pooled cash account and further effecting the negative peak cash credit in current and in subsequent assessment years. We find the plea of the assessee is quite reasonable that the estimated net profit @ 10% is to be upheld and excess is to be allowed to be set off against negative peak cash in current assessment year as well subsequent assessment years. The assessee have filed complete details, the AO can verify and allow the same. We direct the AO accordingly. Addition of negative cash balance - non adjusting the cash balance in the balance of Jawahar B Purohit pooled cash account - Held that - We find that as regards to the loan brought from various persona and the same are depicted at page 234 of the assessee s paper book whereby the assessee has issued bearer cheques in their name and cash was withdrawn by the assessee and confirmation is filed at the stage of assessment despite the fact that in the books of accounts the amount are still outstanding, the cash received by the assessee from these debtors is available with the assessee and qua this amount, the assessee s pooled cash account should be increased and peak benefit should be allowed. Addition on account of agricultural income, not accepted and treated the same as income from other sources - Held that - We find from the facts of the case that search was carried out on 16.11.2009 and there is no incriminating material were found during the course of search relating to agricultural income and accordingly, by following the decisions of Hon ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015 (5) TMI 656 - BOMBAY HIGH COURT). Accordingly, we confirm the deletion and the appeal of Revenue is dismissed.

Summary

Issues Involved:

1. Disallowance under Section 40(b) and 40(a)(ia) of the Income Tax Act.
2. Addition of unsecured loans as unexplained cash credit under Section 68.
3. Addition of undisclosed advances.
4. Disallowance of work-in-progress.
5. Addition of negative peak cash balance.
6. Agricultural income treated as income from other sources.
7. Addition related to tripartite agreement for selling development rights.

Detailed Analysis:

1. Disallowance under Section 40(b) and 40(a)(ia):

The common issue in these cross appeals pertains to disallowances made by the AO under Section 40(b) for excess remuneration and under Section 40(a)(ia) for non-deduction of TDS on transport charges. The Tribunal found that the disallowances were not based on any seized material but were made on the basis of entries in the regular books of account. It was held that since the original assessment was completed and not abated, the issue is covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. Therefore, the Tribunal directed the AO to delete the entire disallowance of excess remuneration and TDS-related disallowances.

2. Addition of Unsecured Loans as Unexplained Cash Credit under Section 68:

The AO had added unsecured loans as unexplained cash credits under Section 68, but the Tribunal found no incriminating material was found during the search relating to these cash credits. The Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd., which states that completed assessments cannot be disturbed unless material gathered during the search establishes contrary facts. Therefore, the Tribunal allowed the appeal of the assessee and directed the deletion of these additions.

3. Addition of Undisclosed Advances:

The AO had made additions on a protective basis, which were confirmed by the CIT(A) on a substantive basis in the case of another individual. The Tribunal found that the AO had rightly deleted the addition while giving appeal effect to the order of CIT(A) in the case of the substantive addition. Hence, the Tribunal allowed the appeal of the assessee.

4. Disallowance of Work-in-Progress:

For the AY 2006-07, the AO had made disallowances reducing the value of work-in-progress. The Tribunal found that these disallowances were not based on any incriminating material found during the search. Since the original assessment had not abated, the Tribunal held that the issue is covered by the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. Therefore, the Tribunal partly allowed the appeal of the assessee, confirming only the disallowance based on seized material.

5. Addition of Negative Peak Cash Balance:

The Tribunal dealt with multiple years where the AO had made additions to the negative peak cash balance. The Tribunal found that the AO had not given effect to the available cash balances and other adjustments. The Tribunal directed the AO to allow the excess of net profit addition to be set off against the negative peak cash balance in the pooled cash account for all the years.

6. Agricultural Income Treated as Income from Other Sources:

For the AYs 2005-06 and 2006-07, the AO had treated agricultural income as income from other sources. The Tribunal found that there was no incriminating material found during the search relating to the agricultural income, and the original assessments were completed. Therefore, the Tribunal held that the issue is covered by the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. and confirmed the deletion of the additions by the CIT(A).

7. Addition Related to Tripartite Agreement for Selling Development Rights:

The AO had added ?20 crores received under a tripartite agreement for selling development rights, treating it as income of the year. The Tribunal found that the agreement required the assessee to fulfill certain obligations, and the right to the incentive FSI would accrue only on completion of these obligations. Since the conditions of the LOI were not fulfilled, the income did not accrue to the assessee in the relevant year. Therefore, the Tribunal confirmed the order of the CIT(A) deleting the addition.

Conclusion:

- The Tribunal allowed the appeals of the assessee regarding disallowances under Sections 40(b) and 40(a)(ia), additions of unsecured loans under Section 68, and negative peak cash balance adjustments.
- The Tribunal confirmed the deletion of additions related to agricultural income and the tripartite agreement for selling development rights.
- The Tribunal partly allowed the appeals regarding disallowance of work-in-progress and other adjustments based on seized material.