2025 (3) TMI 1455 - AT - Income Tax

Treatment to amount found in diary and surrendered by the director - HELD THAT - As no exercise has been made by the Assessing Officer as to hold that the surrender made by the assessee was not proper. No explanation was offered by the assessee before the AO but the same was made before the Ld. CIT (A) which was also considered by the CIT (A) and in the first round of the litigation same was partly accepted also who too was partly satisfied with the explanation and sustained addition by giving relief to the tune of Rs. 1.16 crores. It was the claim of the assessee that the surrender made in the assessment year under consideration was a gross revenue figure and not the net undisclosed income and thus there is a scope for allowing expenditure incurred to earn the undisclosed gross revenue. Therefore in our considered opinion a lump sum addition of Rs. 10 Lacs can be applied to cover all the possibilities of revenue leakage as well as to satisfy the claim of the assessee about the expenditure incurred. Once it is settled that the amount surrendered is a gross undisclosed income there can t be a full amount addition and only the element of profit can be added into the same. Thus addition to the extent of Rs. 10 Lacs out of Rs. 1.35 Cr. is sustained in addition to the income already disclosed voluntarily by the assessee. In these terms Ground No. 3 raised by the assessee is partly allowed. Method of accounting followed by the assessee - as categorically asked by the AO that by the assessee is not following percentage completion method. In response to this the assessee submitted that companies consistently following the completed contract method there was a discussion w.r.t. ICDS also as provided in section 145 of the Act - HELD THAT - The facts of case are being governed by the accounting standard 9. It is further observed that the method of accounting adopted by the assessee is being followed consistently since in section and the same has been accepted by the revenue in past. In view of this on the one hand AS-7 is not applicable in the case of the assessee on the other hand as per AS-9 the assessee is consistently following the method and calculating its profits on project completion method this fact is not under challenged either by the revenue or by the assessee. It is also being to our notice that the assessee had already offered to tax the income earned from the Project Completion Method in subsequent A.Y 2016- 17 and A.Y 2017-18. In view of the above it is transpired that the transactions of the immovable property transfer are governed by the special provisions of the Transfer of Property Act 1882 ( TPA for short) where under every transfer of an immovable property requires compulsory registration under the provisions of the Registration Act 1917 and the transfer is considered completed only when the entire consideration is received by the seller from the buyer and thereafter possession is handed over to him. Even the cases of part performance u/s. 53A of TPA 1882 cannot be considered to be a complete transfer in the context of the present case. Further no title can be validly transferred to the buyer by merely entering into a Sale Agreement in as much as the Sale Agreement cannot confer any legal title of ownership to the proposed buyer. The buyer may make the payment and comply with the conditions of the Agreement or may not. There is no prohibition upon a buyer to complete the transaction. Pertinently the so called binding Agreement does not provide for forfeiture of money and therefore the amounts have been refunded in full because of the right of the buyer to get the booking cancelled and also keeping in mind the commercial ground realities. In view of these peculiar facts circumstances therefore it will not be logical and justifiable to recognize the revenue by a prudent businessmen until the transaction come to a conclusion by receiving of the entire payment. AO has not brought any special reason as to why he is taking a departure from the past settled history between the assessee and the Department in as much as all along in the past the assessee declared the results (Net Profit) by consistently following the Project Completion Method only and the policy as stated above and accordingly the ROI was filled. In view of the above the facts of the matter and the ratio as laid down in the case CIT v. Excel Industries Limited 2013 (10) TMI 324 - SUPREME COURT are similar. The facts discussed (supra) are not under challenge by either of the parties to the disputes and legal position goes in favour of the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

(i) Whether the assessment orders passed under sections 143(3)/254 read with section 153B(1)(b) for A.Y. 2013-14 and 2017-18 were devoid of jurisdiction, making them void ab initio.

(ii) Whether the approval granted under section 153D was mechanical and without application of mind, rendering the assessment order invalid.

(iii) Whether the additions made by the Assessing Officer (AO) for Rs. 1,16,10,000/- and Rs. 3,71,74,468/- were justified and in accordance with the law.

(iv) Whether the method of accounting followed by the assessee, particularly the Project Completion Method, was appropriate and consistently applied.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Jurisdiction of Assessment Orders

- Legal Framework: The relevant sections under consideration are sections 143(3), 254, and 153B(1)(b) of the Income Tax Act, 1961, which govern the assessment procedures following a search action.

- Court's Interpretation: The Tribunal found that the assessment orders were passed in compliance with the directions issued by the coordinate bench in the first round of litigation. The orders were not found to be legally tenable as the earlier orders had merged with the coordinate bench's decision.

- Conclusion: The Tribunal dismissed the grounds challenging the jurisdiction of the assessment orders for A.Y. 2013-14 as they were not legally tenable.

Issue (ii): Validity of Approval under Section 153D

- Legal Framework: Section 153D mandates that approval must be obtained before passing an order under section 153B.

- Court's Interpretation: The Tribunal did not find sufficient evidence to conclude that the approval was mechanical or without application of mind.

- Conclusion: The Tribunal dismissed the grounds challenging the validity of the approval under section 153D.

Issue (iii): Additions Made by AO

- Legal Framework: The assessment of undisclosed income and the application of section 144 for best judgment assessment were considered.

- Court's Interpretation: The Tribunal noted that neither the Revenue nor the assessee could substantiate their claims regarding the figure of Rs. 1.35 Cr. The Tribunal relied on the principle of taxing real income and the judicial pronouncement in Brij Bhushan Lal Parduman Kumar vs. CIT.

- Conclusion: The Tribunal allowed a partial addition of Rs. 10 Lacs, considering it a reasonable estimate of income, and dismissed the full addition of Rs. 1.35 Cr.

Issue (iv): Method of Accounting

- Legal Framework: The Tribunal considered the applicability of Accounting Standards 7 and 9, and the consistency of the Project Completion Method followed by the assessee.

- Court's Interpretation: The Tribunal found that AS-7 was not applicable as the assessee was not a construction contractor. The Project Completion Method was consistently followed and accepted by the Revenue in the past.

- Conclusion: The Tribunal upheld the method of accounting followed by the assessee and dismissed the Revenue's appeal challenging it.

3. SIGNIFICANT HOLDINGS

- The Tribunal emphasized the principle of taxing real income and the necessity of reasonable estimation in cases where the exact figures are not substantiated.

- The Tribunal concluded that the full amount of Rs. 1.35 Cr. could not be added as undisclosed income, and only a reasonable profit element should be considered.

- The Tribunal upheld the consistent application of the Project Completion Method by the assessee, noting its acceptance in past assessments and the lack of justification for changing the method.

- The Tribunal dismissed the Revenue's appeal, supporting the assessee's method of accounting and the principle of avoiding double taxation.