2022 (6) TMI 564 - AT - Income Tax

On money receipts - additions based on the disclosure made before the Settlement Commission, however, the application was rejected by the commission - CIT(A) deleted the additions in excess of gross profit @30% on the On-money receipt - Allegation that the assessee miserably failed to produce documents w.r.t. expenses incurred against the above receipts of On-money - HELD THAT - Assessee has failed to point out the deficiency of Revenue and the working of undisclosed income. Neither it was claimed to be excessive as because the assessee was also not been able to give any proper working of undisclosed/excess income earned by it from various projects undertaken by it. The assessee has further failed to give any factual details so as to substantiate that on-money was not charged and received by it on booking/sale of units in its various project. Neither the actual figure of on-money receipt during the year under consideration from customers has been placed before the authorities below by the appellant. On this premise we do not find any irregularities and/or wrong in not interfering by the CIT(A) with the computation as on-money receipt by the appellant during the year under consideration on booking to sale of units in the project Narayan Shrushti made by the Ld. AO. So far as the other aspect of addition on gross amount of on-money receipt or gross/net profit related to such on-money receipt to be treated as unaccounted/undisclosed income of the appellant is concerned we find that the assessee made a request before the First Appellate Authority for restricting addition to 15% of the alleged on-money being the rate of net profit. As a settled principle of law that where it is found that the assessee is charging on-money/premium in respect of booking of flats, the entire receipts on account of on-money/premium charged would not to be treated as the undisclosed income of the assessee but only net profit rate could be applied on unaccounted sales/receipt for the purpose of making addition. It is also the ratio decided by the Jurisdictional High Court in the case of CIT vs. President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT as also relied upon by the Ld. A.R. before us. It is a practice of the real estate market that cash over and above the consideration in cheques are collected from the customers but the developers have to incur various unaccounted expenses in regard to the procurement of land and approval of the projects by various authorities too and therefore, the estimated profit of on-money/premium amount collected from the customers is to be brought to tax instead of adding the gross amount of on-money/premium to the total income. In fact, the Ld. CIT(A) also carefully took into consideration this particular aspect of the matter and profit at 30% of the gross amount of on-money receipt has been treated as unaccounted income by him and the same was rightly added in the computation of total income of the assessee which in our considered opinion is just and proper and also at par with the ratio laid down by the Jurisdictional High Court as discussed hereinabove. We do not find any ambiguity in such order passed by the CIT(A) so as to warrant interference. Hence, the order passed by the Ld. CIT(A) is hereby upheld. The appeal filed by the Revenue is, therefore, found to be devoid of any merit and thus, dismissed.

Summary

Issues Involved:
1. Validity of the addition of gross on-money receipts as undisclosed income.
2. Estimation of profit percentage on on-money receipts.
3. Rejection of the Settlement Commission application.
4. Adequacy of evidence and cross-examination rights.

Detailed Analysis:

1. Validity of the Addition of Gross On-Money Receipts as Undisclosed Income:
The Revenue argued that the entire on-money receipt of Rs. 3,67,95,791/- should be added as undisclosed income since the assessee failed to produce documents related to expenses against these receipts. The assessee contended that only the profit element of on-money receipts should be taxed, not the gross amount. The Tribunal observed that the AO had painstakingly examined incriminating materials and worked out the unaccounted income from various projects. The CIT(A) noted that the AO did not rely solely on the Settlement Commission application but also on other incriminating materials found during the search.

2. Estimation of Profit Percentage on On-Money Receipts:
The CIT(A) estimated the profit at 30% of the gross on-money receipts, resulting in an addition of Rs. 1,10,38,738/- instead of the entire Rs. 3,67,95,791/-. The assessee argued for a 15% profit rate, citing jurisdictional ITAT and High Court decisions, which held that only the profit element should be taxed. The Tribunal upheld the CIT(A)'s decision, noting that it was in line with judicial precedents and market practices where developers incur unaccounted expenses.

3. Rejection of the Settlement Commission Application:
The assessee's application to the Settlement Commission was rejected due to substantial understatement of income and lack of full and true disclosure. The Tribunal noted that the Settlement Commission's rejection was based on detailed analysis and investigation, which the AO considered in the assessment. The CIT(A) also found no merit in the assessee's argument that the proceedings under Section 153C were invalid due to lack of incriminating material.

4. Adequacy of Evidence and Cross-Examination Rights:
The assessee requested cross-examination of customers who confirmed the actual sale prices of their flats, which matched the impounded documents. The AO provided copies of these statements to the assessee. The Tribunal found that the assessee failed to substantiate its claim that on-money was not charged and did not provide any working of undisclosed income. The CIT(A) noted that the assessee did not discharge its onus to rebut the Department's findings.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to restrict the addition to 30% of the gross on-money receipts, considering it just and proper. The appeals preferred by the Revenue were dismissed, and the order of the CIT(A) was upheld. The Tribunal found no irregularities in the computation of undisclosed income and agreed with the CIT(A)'s rationale for estimating profit at 30%.