2021 (3) TMI 565 - AT - Income Tax

TDS u/s 194C - Disallowance u/s.40(a)(ia) - Receipt of payment to Government exchequer was not furnished before the AO and ld CIT(A) - HELD THAT - It is discernible that the assessee has already deposited the TDS alongwith interest before completion of assessment. We also note that a person is liable to pay interest under section 201(1A) for failure to deduct tax at source or delay in payment of tax deducted at source and interest under section 206C(7) is levied for failure to collect tax at source or delay in payment of tax collected at source. In this case, the assessee has already deposited the TDS alongwith interest to the Government exchequer, as is evident from the challan, placed before the Tribunal. Thus no loss is caused to the revenue. Hence, allow this ground of appeal of the assessee. Accrual of income - addition treating 15% of total advances received from customers as income of the appellant - HELD THAT - As the advance from customers at the end of the relevant preceding financial period and the opening balance brought forward from the preceding financial year(F.Y. 2012-13) cannot be taken for estimating and taxing the profit element therein in the hands of the assessee in present assessment year 2014-15. Although as also concluded above that the profit element embedded in the amount during the financial period 2013-14 can be taxed by the AO in the hands of the assessee for assessment year 2014-15 but at the same time, I have no hesitation to hold the profit percentage of 15% of total advance amount from customers is very high, unreasonable and excessive and simultaneously also observe that the prayer of assessee that the profit may be estimated @ 5% is also very unreasonable and thus not acceptable. Considering the entire facts and circumstances of the case and to take care of all possible leakage of revenue, direct the AO to estimate 10% of amount of advance received from customers during the relevant financial year 2013-14 relevant to assessment year 2014-15 only. The AO is direct to recompute the profit as per the direction given above - Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Addition of income under Section 28 by treating advances received from customers as income.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia):
The first issue pertains to the addition of ?41,84,879/- made by disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. The assessee argued that the TDS along with interest was deposited on 31.3.2015, before the completion of the assessment, and supported this claim with a challan. The Revenue contended that the TDS was not deducted at the time of payment to contractors, and therefore, the entire amount was disallowed. The Tribunal noted that the assessee had deposited the TDS amount along with interest before the assessment was completed, as evidenced by the challan. The Tribunal concluded that no loss was caused to the revenue and allowed the assessee's appeal on this ground.

2. Addition of Income under Section 28:
The second issue concerns the addition of ?1,68,54,180/- by treating 15% of total advances received from customers as income. The assessee, engaged in the real estate business, followed the project completion method for revenue recognition and argued that advances from customers are liabilities, not income. The Assessing Officer (AO) rejected the assessee's books of account, estimating income at 15% of the total advances received, due to the lack of supporting documents. The Tribunal acknowledged that the assessee consistently followed the project completion method, and profits should be recognized only upon the transfer of property title. The Tribunal referred to precedents, including the Gujarat High Court's decision in CIT vs Shivalik Buildwell Pvt Ltd., which supported the assessee's method. However, the Tribunal found the AO's estimation of 15% profit on the total advances, including opening balances, to be excessive and unreasonable. The Tribunal directed the AO to exclude the opening balance and estimate the profit at 10% of the advances received during the relevant financial year, thereby partly allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal on the first ground, concluding that the TDS was deposited before the assessment's completion, causing no revenue loss. On the second ground, the Tribunal partly allowed the appeal by directing the AO to estimate the profit at 10% of the advances received during the relevant financial year, excluding the opening balance from previous years. The final order was pronounced on 12/3/2021.