2022 (3) TMI 219 - AT - Income Tax

Estimation of profit - Profit percentage @30% in respect of advances received from the project in earlier years - search and seizure action u/s. 132 - HELD THAT - Revenue in the instant case has not doubted the profit percentage of 30% offered by the assessee for the year under consideration. The assessee has also not retracted the said offer of profit percentage @30%. But since projected receipts and actual receipts were substantially different, there was no occasion for the assessee to keep up its commitment given in the statement u/s. 132(4) - Hence, we are in complete agreement with the arguments advanced by the ld. AR in this regard. In view of the aforesaid observations, we have no hesitation in holding that the revenue had not made any case at all for taxing the opening balance of advances received against construction project as on 31/03/2012 by applying the differential profit percentage of 14% during the year under consideration. Accordingly, the ground No. 1 raised by the assessee is allowed. Chargeability of interest u/s. 234B and 234C of the Act which are consequential in nature. The law is now very well settled that interest u/s. 234C of the Act should be only on the returned income and not on the assessed income. Penalty u/s. 271(1)(c) of the Act which would be premature for adjudication at this stage and hence dismissed.

Summary

Issues:
1. Justification of confirming addition made by the ld. AO by estimating profit percentage @30% in respect of advances received from the project in earlier years.
2. Chargeability of interest u/s. 234B and 234C of the Act.
3. Initiation of penalty u/s. 271(1)(c) of the Act.

Analysis:

Issue 1:
The appeal in ITA No. 2001/Mum/2018 for A.Y. 2013-14 questions the justification of confirming the addition made by the ld. AO by estimating the profit percentage at 30% in relation to advances received from the project in earlier years. The dispute arose from a search and seizure action under section 132 of the Income Tax Act, 1961, where the assessee projected sales receipts at ?75 Crores with a profit percentage of 30% based on a seized document. However, the actual receipts were significantly lower at ?13,47,25,000. The ld. AO applied a differential profit percentage of 14% to the advances received as of 31/03/2012, resulting in a tax liability of ?17,28,09,395. The Tribunal found that the revenue lacked grounds to tax the opening balance of advances by applying a different profit percentage, especially since the assessee consistently offered profit percentages ranging from 16% to 30% in subsequent years.

Issue 2:
The second ground raised by the assessee pertains to the chargeability of interest under sections 234B and 234C of the Act. It was clarified that interest under section 234C should only be levied on the returned income, not the assessed income. This principle was upheld as settled law, ensuring that interest calculations align with the income declared in the return.

Issue 3:
The third ground challenges the initiation of penalty under section 271(1)(c) of the Act. The Tribunal deemed this issue premature for adjudication at the current stage and dismissed the challenge. The decision on penalty imposition was deferred to a more appropriate time, indicating that further proceedings would be required to address this aspect fully.

In conclusion, the appeal of the assessee was partly allowed, with the Tribunal providing detailed analysis and rulings on each issue raised. The judgment underscored the importance of accurate profit estimation, appropriate interest calculations, and the timing of penalty assessments under the Income Tax Act, 1961.