2013 (10) TMI 752 - AT - Income Tax

Assessment done outside the search material Held that - Scope of assessment remains limited to the search material and other issues not considered at the time of making the assessment u/s 143(3) of the Act - The company is represented through its Directors, therefore, material found at the residence of the Director is relevant and has to be considered for making the assessments u/s 153A Decided in favor of Revenue. Disallowance of commission paid out of books of accounts Applicability of section 69C of the Income Tax Act - Amount paid for commission during the year is less than the amount of bills of commission seized by the department at the time of search and therefore an addition of difference amount was made by the AO Held that - CIT (A) has granted part relief by deleting the addition of Rs.2,72,21,668/- - There was mistake in addition by way of duplication of same amount on account of various seized papers. There was also overlapping of addition among various financial years - No fresh evidence was filed. Assessing Officer had failed to consider the seized material in its entirety - Assessee has failed to explain the reasonable explanation with regard to the commission, therefore, confirmed the order of Commissioner(A). The issue of estimation of the profit by Revenue Authorities - Assessing Officer has not made any addition but estimated the profits - The assessee has recognized the sales of the plot when the possession of the plot is transferred to the customer and full consideration for the plot had been received. The assessee was following the project completion method which has been accepted by the department in the earlier years Held that - The Assessing Officer adopted percentage completion method while assessee is adopting project completion method - The plots are being sold and the payment is being received within a period of 45 days to six months. The assessee is adopting project completion method regularly. The only presumption of the Assessing Officer is differing the payment of taxes and on that basis, the Assessing Officer has adopted the percentage completion method - There was no sufficient material with the Assessing Officer which could establish that the assessee was differing the payment of taxes by adopting the project completion method. Assessee was consistently following this method which is a recognized method of accounting income in the business of real estate development Decided against the Revenue.

Summary

Issues Involved:

1. Legality of the CIT(A)'s order.
2. Deletion of addition regarding disallowance of commission.
3. Estimation of profit.
4. Assessment framed outside the search material and after the change of opinion.
5. Violation of Rule 46A.

Detailed Analysis:

1. Legality of the CIT(A)'s Order:

The revenue challenged the correctness of the CIT(A)'s order, arguing it was incorrect in law and facts. The tribunal dismissed the general grounds raised by the revenue, stating they did not require adjudication.

2. Deletion of Addition Regarding Disallowance of Commission:

The CIT(A) deleted Rs.2,72,21,668/- out of the total addition of Rs.4,62,09,068/- made by the AO concerning disallowance of commission. The tribunal upheld this deletion, noting that the CIT(A) had thoroughly analyzed the seized materials and found duplicity and overlapping in the AO's additions. The CIT(A) also provided detailed explanations for each disputed amount, confirming only Rs.1,89,87,400/- as unexplained. The tribunal found no violation of Rule 46A, as the CIT(A) had relied on materials already available with the AO.

3. Estimation of Profit:

The AO estimated the profit at Rs.3,89,49,700/- using the percentage completion method, while the assessee declared Rs.1,81,84,890/- using the project completion method. The CIT(A) and the tribunal upheld the project completion method, noting that the assessee consistently followed this method, which is recognized in real estate development. The tribunal cited the Delhi High Court's judgment in Manish Buildwell's case, emphasizing that no evidence suggested the assessee deferred tax payments.

4. Assessment Framed Outside the Search Material and After the Change of Opinion:

The assessee contended that the assessment was framed outside the search material and after a change of opinion. The tribunal dismissed this ground, referencing its earlier decision in the assessee's own case, where it was held that the assessment was based on seized materials found at the Director's residence, which were relevant for making assessments under section 153A.

5. Violation of Rule 46A:

The revenue argued that the CIT(A) admitted additional evidence in violation of Rule 46A. The tribunal dismissed this claim, clarifying that the CIT(A) only considered materials already available with the AO and did not admit any fresh evidence.

Conclusion:

The tribunal dismissed both the revenue's appeal and the assessee's appeal, while allowing the cross objection filed by the assessee. The tribunal upheld the CIT(A)'s order, confirming that the project completion method was correctly applied and that the CIT(A) appropriately handled the disallowance of commission and estimation of profit. The tribunal also found no violation of Rule 46A in the CIT(A)'s proceedings.