2008 (10) TMI 300 - AT - Income Tax

Issues Involved:
1. Calculation of 'On Money' receipts.
2. Validity of the Assessing Officer's formula for calculating 'On Money.'
3. Acceptance of actual 'On Money' receipts as per seized documents.
4. Determination of taxable income from 'On Money.'
5. Treatment of unaccounted expenses against 'On Money.'

Issue-Wise Detailed Analysis:

1. Calculation of 'On Money' receipts:
The primary issue revolves around the calculation of 'On Money' receipts. The Assessing Officer (AO) determined that the assessee was selling shops and flats at a higher price than recorded in the books, using a formula based on seized documents (Annexures A/2 and A/3). The AO concluded that the actual cost was Rs. 1,05,58,800, while the assessee accounted for only Rs. 42,69,751, resulting in an unaccounted difference of Rs. 62,89,049. The AO added Rs. 55,63,200 to the total income of the assessee as undisclosed 'On Money.'

2. Validity of the Assessing Officer's formula for calculating 'On Money':
The CIT(A) disagreed with the AO's use of a formula to calculate 'On Money,' emphasizing that actual seized materials should have been used instead. The CIT(A) noted that Annexure A/3, which contained actual 'On Money' received, should have been the basis for calculation, not any formula. The CIT(A) observed that the AO's approach was flawed as it included 'On Money' for unsold shops, which was illogical.

3. Acceptance of actual 'On Money' receipts as per seized documents:
The CIT(A) accepted the assessee's submission that the actual 'On Money' received was Rs. 11.50 lakhs, which was recorded in Annexure A/3. The CIT(A) found the AO's calculation of Rs. 1,05,58,800 to be incorrect and concluded that the 'On Money' should be Rs. 42,69,752 based on seized materials.

4. Determination of taxable income from 'On Money':
The CIT(A) accepted the assessee's disclosure of Rs. 3.60 lakhs (32% of Rs. 11.50 lakhs) as taxable income from 'On Money,' citing comparable cases and the nature of the business. The CIT(A) referenced the ITAT Ahmedabad Bench decision in Abhishek Corporation v. Dy. CIT, which held that only net profit from 'On Money' should be treated as undisclosed income, not the entire receipts.

5. Treatment of unaccounted expenses against 'On Money':
The AO argued that all expenses were already recorded in the regular books, and thus the entire 'On Money' of Rs. 11.50 lakhs should be treated as income. The CIT(A), however, accepted the assessee's claim that part of the 'On Money' was used for unaccounted expenses related to construction approvals, which are typically not recorded in books.

Separate Judgments:
The case saw differing opinions among the tribunal members. The Accountant Member (AM) disagreed with the CIT(A) and held that the entire 'On Money' of Rs. 11.50 lakhs should be treated as income, as there was no evidence of unaccounted expenses. The Judicial Member (JM) proposed remanding the case back to the CIT(A) for fresh consideration, emphasizing the need to verify the actual 'On Money' received and the corresponding expenses.

Third Member Order:
The Third Member (Vice President) resolved the difference by agreeing with the Judicial Member's view. The matter was remanded back to the CIT(A) for fresh decision, directing the CIT(A) to verify the actual 'On Money' received and determine the taxable income accordingly.

Final Decision:
The appeal of the revenue was treated as allowed for statistical purposes, with the issue of 'On Money' and taxable income remanded back to the CIT(A) for fresh consideration in light of the observations made by the Judicial Member.

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