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2022 (6) TMI 408 - AT - Income TaxEstimated income from sale of plots by extrapolation of income detected during the course of search to remaining period - CIT(A) opined that the AO is erred in extrapolating sale price of plots from Rs.400/- to Rs.1,458/- per sq.ft. and made additions towards differential sale consideration - CIT(A) opined that the AO is erred in extrapolating sale price of plots from Rs.400/- to Rs.1,458/- per sq.ft. and made additions towards differential sale consideration - whether the AO is right in estimation of sales revenue from sale of plots by extrapolating sale price of few plots to remaining plots sold during the relevant period to other parties? - HELD THAT - The assessee has explained the reasons for difference in sale price received from other parties, when compared to price agreed between the assessee and Mr.M.A.Salim as per the sale agreement. The first reason given by the assessee is that Mr.M.A.Salim is a real-estate Agent who negotiates sale of price with the assessee and gets commission. Secondly, there is a time gap of 8-10 months between the properties sold to other parties and agreement to sale entered into with Mr.M.A.Salim. It is a well-known fact in real estate segment that there is a quick appreciation in property prices which depends upon various factors, including location of the property, size of the property and buyer demand. There cannot be any uniformity in rates of properties like any other goods. Therefore, on the basis of one agreement to sale with one person, there cannot be any estimation of income to remaining plots or properties sold during the relevant period when evidences clearly prove that the assessee has sold the properties for the rate specified in the registered Sale Deed. In this case, except agreement to sale for one plot with Mr.M.A.Salim, the AO does not have any other credible evidence to support his estimation of income by extrapolation of rate on the basis of agreement to sale with Mr.M.A.Salim to remaining plots sold during the block period. In our considered view, the estimation made by the AO towards undisclosed income of under reporting of sales Revenue from sale of plots, is purely a guess work, which is based on the suspicion and surmises, but not based on any material evidences. AO is completely erred in estimating sales Revenue from sale of plots for all the three assessment years. CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and thus, we are inclined to uphold the findings of the Ld.CIT(A) and accordingly, the appeals filed by the Revenue are dismissed for all the three assessment years. Correct head of income - income under which surplus derived from sale of land - whether it is under the head income from capital gains as claimed by the assessee or it is under the head income from business or profession as considered by the AO - HELD THAT - Considering assessee is in the business of real estate and thus, profit derived from sale of properties is assessable under the head income from business or profession , but not under the head capital gains as claimed by the assessee. The Ld.CIT(A) after considering relevant facts has rightly rejected the arguments of the assessee and sustained the findings of the AO in assessing profit under the head income from business or profession and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. Addition u/s.69C as unexplained expenditure - during the course of search, a document in the nature of agreement with one Mr.D.Sabapathy, was found, which was marked as ANN/VJ/LS/S - HELD THAT - There is no dispute with regard to the seizure of agreement between the assessee and Mr.D.Sabapathy, the person was supposed to direct and produce a motion picture. The dispute with regard to payment alleged to have been made to the party and source of said payment. According to the AO, a sum of Rs.24 lakhs paid to the party was unexplained. It was the explanation of the assessee before the AO that although, the agreement specifies payment of Rs.24 lakhs, but, in fact, the assessee had paid a sum of Rs.4 lakhs only and remaining amount, the assessee could not arrange. There are contradicting facts. The AO claims that the assessee has made payment of Rs.24 lakhs, whereas, the assessee claims that he has paid a sum of Rs.4 lakhs. The facts need to be examined. Therefore, we are of the considered view that this issue needs to be go back to the file of the AO for fresh examination. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the issue. Disallowance u/s.40A(3) for payment in cash in excess of prescribed limit - only argument of the assessee is that there was a business exigency in making cash payment in as much as the film shooting was carried out in remote places, where there is no banking facility and because of this, the assessee was compelled to make payments in cash - HELD THAT - We find that the arguments of the assessee that its case falls under exceptions as per Rule 6DD(g) of Income Tax Rules, 1962, goes unexplained. The assessee neither filed any evidences to prove its arguments that where payment is made, is not served by a banking facility nor justified its explanation that shooting was carried out in remote places, where there is no banking facility. Therefore, we are of the considered view that there is no error in the reasons given by the authorities below to make additions towards cash payment u/s.40A(3) of the Act. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. Disallowance u/s.40(a)(ia) - non-deduction of TDS - assessee has incurred certain expenditure under the head garbage cleaning charges paid without deduction of tax at source - HELD THAT - We find that as per the provisions of Sec.40(a)(ia) of the Act, if assessee proves with necessary evidences that the payee had included the sum paid by the assessee without deduction of tax at source in the return of income and paid necessary taxes, then sum paid without deduction of taxes, cannot be disallowed u/s.40(a)(ia) of the Act. But, from the orders of the authorities below, these facts are not forthcoming. Further, the assessee has taken this argument for the first time before the Tribunal. Therefore, we are of the considered view that the issue needs to go back to the file of the AO for further verification. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in accordance with law.
Issues Involved:
1. Estimation of income from the sale of plots by extrapolation of income detected during the course of search. 2. Head of income under which surplus derived from the sale of land should be taxed. 3. Addition of Rs.20 lakhs under Section 69C of the Income Tax Act, 1961, as unexplained expenditure. 4. Disallowance of Rs.3.5 lakhs under Section 40A(3) of the Income Tax Act, 1961, for payment in cash in excess of the prescribed limit. 5. Disallowance of certain expenses under Section 40(a)(ia) of the Income Tax Act, 1961, for non-deduction of TDS. Detailed Analysis: 1. Estimation of Income from Sale of Plots by Extrapolation: The Revenue's appeals for the assessment years (AYs) 2008-09, 2010-11, and 2011-12 centered on the estimation of income from the sale of plots by extrapolating the income detected during the search to the remaining period. During the search, a sale agreement was found indicating a sale price of Rs.1,458/- per sq.ft., whereas the assessee sold other plots at Rs.400/- to Rs.800/- per sq.ft. The Assessing Officer (AO) extrapolated the higher rate to all sales, estimating undisclosed income. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, citing judicial precedents that disallow such extrapolation. The Tribunal upheld the CIT(A)'s decision, noting that extrapolation based on a single piece of evidence is not legally sustainable. 2. Head of Income for Surplus from Sale of Land: The assessee argued that the surplus from the sale of land should be taxed as capital gains, while the AO and CIT(A) treated it as business income. The Tribunal found that the assessee and his family were engaged in real estate development, converting agricultural land into residential plots, indicating a business venture. The Tribunal upheld the CIT(A)'s decision to tax the income as business income, not capital gains. 3. Addition of Rs.20 Lakhs under Section 69C: During the search, an agreement was found indicating a payment of Rs.20 lakhs to a film director, which the assessee could not explain. The AO added this amount as unexplained expenditure under Section 69C. The assessee claimed only Rs.4 lakhs were paid. The Tribunal remanded the issue back to the AO for fresh examination, directing the AO to verify the actual payment and source. 4. Disallowance under Section 40A(3): The AO disallowed Rs.3.5 lakhs for cash payments exceeding the prescribed limit under Section 40A(3), which the assessee claimed were made in remote areas without banking facilities. The Tribunal found the assessee's explanation unsubstantiated and upheld the disallowance, noting the lack of evidence to support the claim of business exigency. 5. Disallowance under Section 40(a)(ia): The AO disallowed expenses for garbage cleaning services due to non-deduction of TDS. The assessee argued that the recipient had included the payments in their income and paid taxes. The Tribunal remanded the issue to the AO for verification, directing the AO to ascertain whether the recipient included the payments in their income and paid the necessary taxes. Conclusion: The Tribunal dismissed the Revenue's appeals for all three assessment years, upheld the CIT(A)'s decision on treating the surplus from the sale of land as business income, remanded the issues of unexplained expenditure and TDS disallowance for further verification, and upheld the disallowance under Section 40A(3).
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