2020 (11) TMI 448 - AT - Income Tax

Money received on sale of flats - estimation of on money on the flats and shops - amount has been worked out during the course of search and statement of various employees, which were confronted to Mr Sandeep Runwal a director of the assessee who has admitted the same in the statement recorded during the course of search - HELD THAT - The setting off or telescoping can be allowed only after verification whether the cash was available in the group concerns/directors/assessee. Therefore the issue is restored to the file of the AO to examine and decide it as per facts. So far as the addition on estimation basis by applying adhoc rate of ₹ 25,000/- in case of shops and ₹ 14970/- in case of flats are concerned on the basis of which the on-money was arrived at, the same is without any basis and has to be deleted. The case of the assessee is covered by the decision of coordinating Bench in case of Runwal Homes Pvt. Ltd 2017 (12) TMI 1216 - ITAT MUMBAI . We hereby direct AO to restrict addition only where direct evidences of accepting on money received from customers found during the search. AO will also verify availability of cash flow with the assessee group as stated above and if any shortage is noticed a further addition to the extent of such shortage may be further added in the hands of appellant - we set aside the issue to the AO for limited purpose of quantification of undisclosed income on the basis of incriminating materials/evidences and examining the availability of cash in the group. Ground 1 is allowed for statistical purpose. Income recognition - whether appellant has been following the Project Completion Method to recognize the income from the projects and hence on money is to be taxed in the year of completion of the relevant project from where the on money has been earned? - HELD THAT - As perusing the material on record including the decision of the coordinate bench in the case of Runwal Homes Pvt Ltd. 2017 (12) TMI 1216 - ITAT MUMBAI on this issue, since out of three projects two already completed during the year and recorded receipts already offered to tax in this year, hence unrecorded income shall also be taxable on all the units which are offered to tax in this year which has been rightly done so. However, qua the R Square project which was not completed during this year, the unrecorded receipts from the will also be liable to be taxed in the year of completion of project as held by the coordinating Bench in sister concern case . Income offered as per books of account on the completed projects is lower vis a vis income estimated as per tentative profit and loss account prepared at the time of search - HELD THAT - As perusing the facts on records including the impugned orders and decision of the coordinate bench in 2017 (12) TMI 1216 - ITAT MUMBAI wherein assessee has explained reason of difference between estimated profit at the time of search and profit as per audited books of accounts. We note that the AO did not point out any defect or any unsustainable claim in the assessment order nor did he bring any substantive materials on the record to prove to the contrary. Under these circumstances we do not concur to the conclusion of the authorities below on this issue. Disallowing the claim of expenses from the business income - said expenses were claimed by the appellant against the Income from House Property - HELD THAT - In assessee s own case in A Y 2010-11 2011-12, noted method and manner of disallowance of expenses to the extent these were claimed as deduction u/s 24 of the Act. The coordinate bench has held that notional claim u/s 24 of the Act can not be basis for disallowance by the AO while assessing the income from bsuiness. In this case it has been decided that the AO has to arrive at actual figure of expenses incurred to earn rental income which are debited to the profit and loss account in order to make disallowance. Therefore, following the decision of coordinating bench, we are setting aside the issue for limited purpose to work out actual expenses debited to profit Loss account relating to the rental income and restrict the disallowance to the same only. Accordingly, this ground of appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Addition of ?16,74,14,102/- as alleged on-money received on sale of flats.
2. Recognition of on-money income under the Project Completion Method.
3. Addition of ?4,48,03,316/- as allegedly lower income offered on project completion.
4. Disallowance of expenses of ?1,23,67,631/- from business income claimed against Income from House Property.

Detailed Analysis:

Issue 1: Addition of ?16,74,14,102/- as Alleged On-Money Received on Sale of Flats
The assessee contested the addition of ?16.74 crore made by the Assessing Officer (AO) based on statements recorded during a search operation. The AO estimated the undisclosed income by comparing the sale rates of flats/shops sold during the same period in the group concern and framed the assessment at ?34,73,46,860/- against the returned income of ?12,27,61,810/-. The assessee argued that similar additions in the case of its sister concern, M/s Runwal Homes Pvt. Ltd., were deleted by the Tribunal as they were based on estimations without supporting seized material. The Tribunal found that the addition was made purely on presumptions and estimations without any supporting evidence. The Tribunal directed the AO to restrict the addition only where direct evidence of on-money received from customers was found and to verify the availability of cash flow within the group to justify the alleged payments made to contractors.

Issue 2: Recognition of On-Money Income Under the Project Completion Method
The assessee followed the Project Completion Method for recognizing income from its projects. The AO taxed the on-money in the year of receipt, whereas the assessee argued it should be taxed in the year of project completion. The Tribunal, following the decision in the sister concern's case, held that unrecorded receipts should be taxed in the year of project completion. Since two projects were completed during the year and income was offered to tax, the Tribunal directed the AO to tax unrecorded receipts from the completed projects in the year of completion and not in the year of receipt.

Issue 3: Addition of ?4,48,03,316/- as Allegedly Lower Income Offered on Project Completion
The AO added ?4,48,03,316/- to the income, stating that the profit offered as per books was lower than the estimated profit prepared during the search. The assessee explained that the difference was due to the apportionment of finance costs in the audited profit and loss account, which was not considered in the tentative profit and loss account prepared during the search. The Tribunal found that the AO did not point out any defect in the audited books or bring any substantive material to prove otherwise. The Tribunal, following the decision in the sister concern's case, directed the AO to delete the addition, as income tax should be levied on real income, not on estimated income.

Issue 4: Disallowance of Expenses of ?1,23,67,631/- from Business Income Claimed Against Income from House Property
The AO disallowed expenses of ?1,23,67,631/- claimed by the assessee against business income, stating that these expenses were claimed against Income from House Property. The assessee argued that in earlier years, the issue was examined and the matter was restored to the AO to quantify the actual expenditure incurred. The Tribunal noted that the AO should arrive at the actual figure of expenses incurred to earn rental income and restrict the disallowance to the same. The Tribunal set aside the issue to the AO for limited purposes to work out actual expenses debited to the profit and loss account relating to the rental income.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal directed the AO to:
1. Restrict the addition of on-money to cases with direct evidence and verify the cash flow within the group.
2. Tax unrecorded receipts in the year of project completion.
3. Delete the addition of ?4,48,03,316/- as the income should be based on audited books, not on estimations.
4. Quantify and disallow only the actual expenses related to rental income.