2022 (1) TMI 340 - AT - Income Tax

Additions towards addmission of Unaccounted receipts - to be assessed to tax on gross basis, or as held by the ld.CIT(A), only the profit element embedded in the total receipts is required to be taxed. - HELD THAT - As documentary evidence exhibiting acceptance of unaccounted receipts was found. This was admitted by the director of the assessee-company, therefore, cumulative setting of these two aspects, it suggests that there was unaccounted receipts. AO is not harping upon statement of the Director only, which otherwise without oath. The assessee never disputed the discovery of unaccounted receipts. It disputed quantum of income embedded in those receipt. Therefore, these case laws do not help the assessee. This fact has been recognized by two letters written by the assessee-company and as referred by the AO. As far as the proposition that entire extra-collection should not be termed as profit of the assessee-company, rather profit embedded in such receipts is required to be assessed as income is concerned, we are of the view that there is no dispute with regard to the proposition that whenever unaccounted receipts unearthed during any investigation, then the gross receipts are not to be taxed. But this situation is applicable only when simultaneously some evidences are being found exhibiting unaccounted expenditure. AO has specifically asked the assessee to give details of expenditure which were not incorporated in the books. He asked for flat-wise details of work done along with relevant measurement sheets/bills. In other words, the assessee must have maintained details for controlling overall expenditure. Those details might not be part of regular books of accounts, but they may goad the AO to estimate what is the nature of work; how much expenditure probably would have been incurred by the assessee; even under estimation. No such things were submitted by the assessee. To be more specific, there should be corresponding details of unaccounted expenditure. CIT(A) proceeded on altogether different analogy and estimated that unaccounted expenditure might not have been incurred by the assessee against this unaccounted receipts, and therefore, only profit element ought to be worked out. To this effect, there is no evidence produced by the assessee rather before filing of return. As again admitted of taxability of gross amount. - We reverse finding of the ld.CIT(A) and restore that of the AO. - Decided in favor of Revenue.

Summary

Issues Involved:
1. Deletion of addition made on account of unaccounted receipts of ?16,01,00,000.
2. Taxation of unaccounted receipts: gross receipts vs. profit element.

Detailed Analysis:

1. Deletion of Addition Made on Account of Unaccounted Receipts of ?16,01,00,000:
The Revenue challenged the deletion of the addition of ?16,01,00,000 made by the Assessing Officer (AO) on account of unaccounted receipts. The AO had based the addition on the unaccounted cash receipts of ?20,01,00,000 found during a survey under section 133A of the Income Tax Act, 1961. The Director of the assessee-company admitted to these unaccounted receipts during the survey. However, in its return, the assessee offered only ?4,00,00,000 to tax, claiming it represented the current year's income from extra construction receipts.

The assessee argued that the unaccounted receipts were advances for extra work on flats and should be taxed based on the percentage of completion method. The AO rejected this, noting that no evidence of unaccounted expenditure was found during the survey or provided during the assessment. The AO concluded that the entire unaccounted receipt should be taxed in the year it was discovered.

2. Taxation of Unaccounted Receipts: Gross Receipts vs. Profit Element:
The core issue was whether the gross unaccounted receipts should be taxed or only the profit element embedded in those receipts. The AO argued for taxing the entire unaccounted receipts of ?20,01,00,000, citing the lack of evidence for unaccounted expenditures. The assessee contended that only the profit element should be taxed, as the receipts included advances for extra work and related expenses.

The CIT(A) sided with the assessee, stating that only the profit element should be taxed. The CIT(A) observed that the assessee had accounted for the unaccounted collection in its books and deposited ?15,84,00,000 in bank accounts by 31-3-2012. The CIT(A) noted that the unaccounted receipts were for extra work required by members, which could be completed over 2-3 years, and thus, only an estimated profit should be taxed.

The Tribunal, however, reversed the CIT(A)'s decision, emphasizing that the AO had rightly rejected the assessee's claim due to the lack of evidence for unaccounted expenditures. The Tribunal noted that the assessee had admitted to the unaccounted receipts and proposed to pay taxes on them before filing the return. The Tribunal concluded that the gross amount of unaccounted receipts should be taxed, as the assessee failed to provide details of unaccounted expenditures.

Conclusion:
The Tribunal allowed the Revenue's appeal, ruling that the entire unaccounted receipts of ?20,01,00,000 should be taxed, reversing the CIT(A)'s decision to tax only the profit element. The Tribunal emphasized the lack of evidence for unaccounted expenditures and the assessee's prior admission of the unaccounted receipts as income.