2024 (9) TMI 524 - AT - Income Tax

Addition made on account of EDC (External Development Charges) paid to HUDA - amount misreported for income purposes in the accounts brought to tax - HELD THAT - From the submissions, we observe that the EDC is nothing but an advance collected to provide common facilities and other services to the prospective flat owners and such provision of services are reimbursable, the same was collected in advance. As and when it is executed, the same are charged to the WIP. Since the project under consideration is not yet completed, the collected advance cannot be charged to profit and loss account. Assessee has collected the same for providing the common services on the approval of HUDA, this is only on the basis of reimbursement and there is no profit element. Therefore, it cannot be form part of Profit and loss Account. Therefore, the findings of ld CIT(A) are just and proper. Therefore, the case law relied by the ld DR also distinguishable. Hence, the grounds raised by the revenue are dismissed. Addition made u/s. 43CA - AO observed that the sales of 136 flats in the complex were made at rates below the circle rate and, therefore, the difference between the actual sale consideration and the circle rate had to be brought to tax as unaccounted income of the Assessee - HELD THAT - We observe that the circle rate for the project of the assessee was not available at the time of completion of the assessment order and it was made available only during the appellate proceedings. The same was submitted before ld CIT(A) and ld CIT(A) having co terminus power, could have remitted the issue back to AO for verification or he can take call to complete the assessment by himself. He chose to complete the same after due verification. No reason to remit the issue once again back to the file of AO, since the ld CIT(A) has remitted the issue back to AO for giving effect after due verification of the facts on record. AO may verify the information submitted by the assessee and pass the relevant order on giving effect to the order of ld CIT(A).There is no need to remit this issue once again to the AO. Accordingly, the grounds raised by the revenue are dismissed. Addition u/s 68 on non providing PAN Numbers of certain flats buyers - AO opined that the sale figure remained unexplained due to the mandatory TDS not having been discharged and added that the creditworthiness, genuineness and identification were missing which would result in an addition - HELD THAT - We observe that the AO made the addition by observing that the assessee has not provided the PAN details of the buyers of 14 flats. Mere non submission of the PAN details will not lead to disallowance u/s 68 of the Act. The ld CIT(A) has considered the relevant facts on record and deleted the addition, since the assessee had already brought on record the relevant details before AO as well as CIT(A). Appeal filed by the revenue is dismissed.

Summary

Issues Involved:
1. Treatment of External Development Charges (EDC) in accounts.
2. Application of Section 43CA of the Income Tax Act for two specific flats.
3. Addition due to non-provision of PAN numbers of certain flat buyers.

Issue-wise Detailed Analysis:

1. Treatment of External Development Charges (EDC) in accounts:
The primary issue revolves around the deletion of the addition of Rs. 1,80,39,139/- made on account of EDC paid to HUDA. The Assessing Officer (AO) argued that the EDC should have been part of the assessee's turnover and routed through the profit and loss account, as per the accounting norms and provisions of Schedule III to the Companies Act, 2013. The AO added the amount to the turnover and returned income of the year, initiating penalty proceedings for under-reporting of income.

The assessee contended that the AO misread the Development Agreement and failed to recognize that the project was ongoing. The method of accounting EDC in the Work In Progress (WIP) Account was consistent with previous years and had been approved by the Department. The EDC was collected from flat buyers and paid to HUDA for various developmental works, and the final balance would be accounted for at the project's closure. The CIT(A) agreed with the assessee and deleted the addition, noting that the EDC was an advance collected for providing common facilities and should not be part of the profit and loss account since the project was not yet completed.

2. Application of Section 43CA of the Income Tax Act for two specific flats:
The second issue pertains to the deletion of the addition made under Section 43CA of the Act, amounting to Rs. 6,29,30,146/-. The AO observed that the sales of 136 flats were below the circle rate, leading to the addition of the difference as unaccounted income. The circle rate chart was not available during the assessment, and the assessment was completed with the available information.

The assessee later provided the circle rates during the appellate proceedings, showing differences only for two flats (B4-304 and A1-801). The CIT(A) directed the AO to apply Section 43CA only for these two flats and consider the assessee's profit-sharing ratio. The Tribunal found no reason to remit the issue back to the AO, as the CIT(A) had already remitted the matter for verification, and the AO could verify the information while giving effect to the CIT(A)'s order.

3. Addition due to non-provision of PAN numbers of certain flat buyers:
The third issue involves the addition of Rs. 7,00,27,585/- due to the non-provision of PAN numbers of certain flat buyers. The AO added the amount, citing unexplained sales due to the absence of mandatory TDS and questioning the creditworthiness, genuineness, and identification of the buyers.

The assessee argued that Section 68 could not be invoked for not mentioning PAN numbers and that the PAN details had been provided twice but ignored by the AO. The CIT(A) verified the material on record and directed the deletion of the addition, noting that the assessee had already submitted the relevant details.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all grounds, dismissing the revenue's appeal. The Tribunal found that the CIT(A) had appropriately addressed the issues, and there was no need to disturb the findings. The appeal filed by the revenue was dismissed, and the order was pronounced in the open court on September 6, 2024.