2017 (12) TMI 1216 - AT - Income Tax

Addition on money received on sale of flats - search and seizure action u/s. 132 - statements recorded during the course of the search - Held that - The undisputed facts before us are that search and seizure action u/s. 132 of the IT Act took place on 17.11.2014 on the assessee as well as its group company. The assessee submitted return of income on 31.10.2015 declaring total income of ₹ 13,48,82,480/-, which was subsequently revised to ₹ 13,45,71,200/- on 7.07.2016 and finally revised the return on 30.12.2016 by including therein a sum of ₹ 72,50,000/- and paid taxes thereon. The sum of ₹ 72,50,000/- declared by the assessee relate to the Chestnut project, single building project completed during the year in respect of which evidence was found during the course of the search for on money received and it was also surrendered by the assessee company during the course of the search and is included in the sum of ₹ 63,39,52,372/- added by the Assessing Officer to the assessee s income. We noted that the AO while computing the total income of the assessee has considered the revised return declared by the assessee at ₹ 13,45,71,200/- Therefore, the addition of ₹ 72,50,000/- has to be confirmed and, accordingly, we confirm the said addition of ₹ 72,50,000/-.The assessee has also included the said amount in its revised computation and paid taxes thereon on 27.12.2016. Addition made on the basis of estimating the sale consideration in respect of the flats - Held that - From the documents in the booking, it is evident that different flats and different shops have been booked at different rates by the assessee. From page 443 of the paper-book, as found during the course of search, the assessee has given discount on the bookings at different rates to different customers. We noted that in respect of two shops although the base rate has been mentioned @21,000 per sq. ft, the assessee has given discount around ₹ 4150 per sq. ft. and booked the shops @17500 per sq. ft including the club charges of ₹ 750/-. Similarly, in respect of flat also we noted that the base rate has been mentioned @12,000/- per sq. ft and after adding floor rise, club charges, infra charges etc., total rate came to ₹ 14375 per sq. ft. and the assessee has also given discount of ₹ 1000/- and ultimately booked the flat @13,350 per sq. ft. Even on the same very page had the details of the flats which had been booked @ 14550/-, 14300/- and ₹ 13225/- per sq. ft. Therefore, the conclusion drawn by the Assessing Officer while making the addition is based just on assumption as if the assessee the assessee has sold all the flats @15750 per sq. ft. In view of this fact, we delete the addition of ₹ 33,47,33,101/- made on the basis of estimating the sale consideration in respect of the flats @15750/- per sq. ft. and ₹ 9,97,40,450/- based on the presumption as having being booked shops @26000/-. Project completion method has been followed consistently by the assessee. Both the projects relating to the flats and the shops in respect of which the evidence were found for receipt of on-money by the assessee were not completed during the year. Since these projects were not completed during the year, the amount received by the assessee is merely a booking amount i.e. only the advance received for booking of the flat/shop. These amounts therefore in our view cannot be added during the impugned assessment year. We are of the view that the project completion method is one of the method of accounting where the expenses identifiable with the project are to be allowed in the year when the project is completed. Similarly, the receipt from the project is to be accounting for as income only in the year in which the project is completed. Direct the AO to make the addition in respect of these on-money in the respect assessment years in which the projects have been completed. Estimation of income - Income tax imposed on the real income and not on the income which have estimated by the assessee - Held that - Material except the estimated profit computed during the course of the search that the actual profit from the said project was much more that the actual profit shown by the assessee. Income tax has not be levied or vested on the estimated profit, it has to be levied on the real income derived by the assessee. In our view, no addition can be made by the Assessing Officer merely on the basis of the statement of the assessee recorded during the course of the search until and unless there are corroborative evidence to support that the assessee has derived income whatever was estimated during the course of the search. No cogent material or evidence was brought to our knowledge by the learned DR. We, therefore, set aside the order of the CIT(A) on this issue and delete the addition made by the Assessing Officer to the extent of ₹ 12,04,18,428/-

Issues Involved:
1. Addition of ?63,39,52,372 as alleged on-money received on the sale of flats.
2. Non-appreciation of the Project Completion Method for recognizing income.
3. Addition of ?12,04,18,428 as allegedly lower income on the completed project.
4. Non-appreciation of estimated profits offered during the course of the search action.

Issue-wise Detailed Analysis:

1. Addition of ?63,39,52,372 as Alleged On-Money Received on Sale of Flats:
The assessee appealed against the addition of ?63,39,52,372, which was based on alleged on-money received from the sale of flats. The search and seizure action under Section 132 of the Income Tax Act revealed discrepancies between the sale rates recorded in the ERP system and the manual booking forms. The Assessing Officer (AO) noted that the actual sale rates were higher than those recorded in the books, leading to the conclusion that on-money was received. The AO added the on-money to the assessee's income based on statements from various employees and the Director, who accepted the receipt of on-money. The CIT(A) upheld this addition. However, the Tribunal found that the AO's estimation was based on assumptions and not supported by concrete evidence. The Tribunal deleted the addition of ?33,47,33,101 and ?9,97,40,450, which were based on estimated rates without incriminating documents. The Tribunal directed the AO to verify the actual on-money received as per seized material and adjust the addition accordingly.

2. Non-Appreciation of the Project Completion Method for Recognizing Income:
The assessee argued that it follows the Project Completion Method for recognizing income, and therefore, on-money should be taxed in the year of project completion. The Tribunal agreed with the assessee, noting that both the projects (Runwal Greens Towers and Runwal Symphony) were not completed during the assessment year. The Tribunal cited several judicial precedents supporting the Project Completion Method and directed the AO to tax the on-money in the respective years when the projects were completed.

3. Addition of ?12,04,18,428 as Allegedly Lower Income on the Completed Project:
The AO added ?12,04,18,428 to the assessee's income, stating that the profit from the Runwal Chestnut project was estimated at ?25.46 crores during the search, but the assessee declared only ?13.41 crores. The CIT(A) upheld this addition. The Tribunal found that the estimated profit was based on incomplete and preliminary figures. The actual profit, as per the audited accounts, was ?13.49 crores. The Tribunal emphasized that income tax should be levied on real income, not on estimated figures. The Tribunal deleted the addition of ?12,04,18,428, noting that the AO did not reject the assessee's books of account nor provided any evidence of higher actual profit.

4. Non-Appreciation of Estimated Profits Offered During the Course of the Search Action:
The assessee contended that the estimated profits offered during the search were not accurate and were made under coercion to buy peace with the department. The Tribunal agreed, stating that no addition should be made solely based on statements recorded during the search without corroborative evidence. The Tribunal noted the CBDT Circular advising against obtaining confessions during searches and emphasized the need for material evidence to support any addition. The Tribunal found no substantial evidence to support the AO's additions and accordingly deleted them.

Conclusion:
The Tribunal partly allowed the assessee's appeal, deleting the additions based on estimated on-money and estimated profits, and directed the AO to verify and adjust the actual on-money received as per the seized material. The Tribunal upheld the Project Completion Method for recognizing income and emphasized the need for concrete evidence to support any additions made by the AO.

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