1998 (8) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of undisclosed income of Rs. 1,88,59,400 as 'on money'/premium.
2. Validity of the addition of Rs. 1,58,59,400 to the disclosed income.
3. Application of net profit rate on unaccounted sales/receipts.

Summary:

Issue 1: Assessment of Undisclosed Income
The assessee, a partnership firm, was involved in the supervision and booking of flats for two cooperative societies. A search and seizure operation u/s 132(1) against the architect of Uday Towers led to a consequential search against the assessee. The assessee declared an undisclosed income of Rs. 30 lakhs in response to a notice u/s 158BC. However, the AO found evidence suggesting that the assessee charged 'on money'/premium of Rs. 190 per sq. ft., leading to an addition of Rs. 1,88,59,400 for the entire project.

Issue 2: Validity of the Addition
The AO based the addition on a seized paper indicating a higher rate of Rs. 455 per sq. ft. for certain flats, while the documented rate was Rs. 265 per sq. ft. The assessee argued that the extra amount was for additional work, not 'on money'. The AO rejected this explanation, relying on the Supreme Court decision in CST vs. Esufali Abdulali, and made an addition of Rs. 1,58,59,400 after crediting the declared Rs. 30 lakhs. The Tribunal found that the AO's reliance on the seized paper and the presumption u/s 132(4A) was misplaced, as the paper was found with the architect, not the assessee.

Issue 3: Application of Net Profit Rate
The Tribunal noted that even if 'on money' was charged, the entire amount could not be treated as income. Only the net profit rate should be applied to the unaccounted receipts, as per the decision in ITO vs. Gurubachan Singh J. Juneja. The assessee's net profit rate was 1.31%, and applying this to the unaccounted receipts would result in an income less than the Rs. 30 lakhs already declared. Thus, the Tribunal directed the deletion of the additional Rs. 1,58,59,400.

Conclusion:
The appeal filed by the assessee was allowed, and the addition of Rs. 1,58,59,400 was deleted. The Tribunal held that the AO was not justified in making the further addition, as the net profit rate applied to the unaccounted receipts was covered by the undisclosed income already declared by the assessee.