2020 (5) TMI 584 - AT - Income Tax

Assessment u/s. 153A - survey action u/s. 133A - HELD THAT - In view of the uncontroverted and admitted statement given on behalf of the assessee u/s. 133A and the documents impounded during the survey, which were also virtually admitted by the assessee, there was no error in the order of the Tribunal in accepting the materials on record in order to arrive at an assessment. We cannot say that there was no search action u/s. 132 of the Income Tax Act so as to frame assessments u/s. 153A of the I.T. Act. The assessments were also based on material gathered during the course of survey u/s. 133A - See HOTEL MERIYA 2010 (5) TMI 556 - KERALA HIGH COURT - we are inclined to dismiss this ground of the assessee. Unaccounted sale receipts in the form of cash - Estimating the collection of cash outside the books - HELD THAT - We direct the Assessing Officer to give due credit towards cost of construction relating to the unaccounted sale receipts collected by the assessee which was included in the work in progress that was shown by the assessee in its balance sheet. With this observation, we remit the issue in dispute to the file of the Assessing Officer for limited purpose of re-quantification of the addition in respect of unaccounted cash receipts unearthed by the Department during the course of search/survey action. The Assessing Officer is directed to compare the above cost of construction with the work in progress shown by the assessee in its balance sheet. Total work in progress shown by the assessee in its books of accounts in each assessment year is to be apportioned between accounted collections and unaccounted collections in their respective ratio so as to arrive at correct undisclosed income of assessee for each assessment year. The resultant figure would be the undisclosed income of the assessee for each assessment year and there is no question of taking any percentage of it as income of assessee as argued by ld. AR. assessee is only entitled for proportionate deduction towards cost of construction and accordingly AO has to recompute the unaccounted income for all three Assessment Years after giving an opportunity of hearing to the assessee. It is needless to say that the addition made by the Assessing Officer herein is not u/s. 69 or 69A of the I.T. Act. It is with reference to the unaccounted sale receipts which is part of the assessee s turnover. Being so, the restriction imposed u/s. 69 or 69A of the I.T. Act with regard to granting of deduction towards expenditure does not apply.

Summary

Issues Involved:
1. Validity of Assessment under Section 153A.
2. Estimation of Cash Collection Outside Books of Accounts.
3. Recognition of Construction Expenses and Work in Progress.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The primary issue was whether the assessment under Section 153A of the Income Tax Act was valid given that the assessment was based on a survey under Section 133A rather than a search under Section 132. The assessee argued that the assessment under Section 153A was illegal as no search was conducted on their premises, only a survey. The Tribunal noted that search and seizure actions were conducted on the assessee company and its directors on 29/02/2016 and 21/04/2016 based on search warrants dated 26/02/2016 and 19/04/2016. The Tribunal found that the assessments were framed on the basis of incriminating documents found during the search and statements recorded. The Tribunal upheld the validity of the assessments under Section 153A, dismissing the assessee's contention.

2. Estimation of Cash Collection Outside Books of Accounts:
The second issue concerned the estimation of cash collections outside the books of accounts at ?32,87,986/- without support from any seized documents. The Assessing Officer estimated the total sale value of the constructed area at ?62,47,79,873/- and found that ?30,75,54,977/- was collected in cash, which was not accounted for in the books. The CIT(A) recalculated the total income by considering the floor-wise average rate per square foot and found that the assessee had collected ?8,72,06,601.2/- as on-money, which was not disclosed in the books. The Tribunal agreed with the CIT(A) that the unaccounted cash collections should be considered as income but directed the Assessing Officer to re-quantify the addition after giving due credit towards the cost of construction related to the unaccounted sales.

3. Recognition of Construction Expenses and Work in Progress:
The third issue was whether the CIT(A) erred in not considering the construction expenses of ?16,11,88,680/- spent by the appellant up to 31/03/2016. The CIT(A) observed that the entire building was not sold during the assessment years 2014-15 to 2016-17 and that substantial work was still pending. The CIT(A) found that the total floor area sold up to 31/03/2016 was 25,971.79 sq. ft., and the balance area remained unsold. The Tribunal directed the Assessing Officer to give due credit towards the cost of construction related to the unaccounted sale receipts and to compare the cost of construction with the work in progress shown in the balance sheet. The Tribunal remitted the issue for re-quantification of the addition, ensuring that the proportionate deduction towards the cost of construction was granted.

Conclusion:
The Tribunal upheld the validity of the assessments under Section 153A, directed the Assessing Officer to re-quantify the unaccounted cash collections after considering the cost of construction, and allowed the assessee's appeal partly. The assessments were based on valid search actions, and the unaccounted cash collections were to be treated as income with appropriate deductions for construction costs.