2014 (11) TMI 316 - AT - Income Tax

Nature of receipt - Non accounting of capital receipt - Addition of amount received from M/s Alokik Township Corporation Held that - There was nothing to suspect the genuineness of the agreement - the view taken by CIT(A) cannot be accepted that the MOU was only a facade prepared to give the colour of refundable advance to the receipt of ₹ 3.00 crores - the assessee has received the impugned amount of ₹ 3.00 crores as advance from M/s ATC in pursuance of MOU entered between the assessee and M/s ATC the advance is described as refundable advance in the MOU and the terms of repayment of advance are also provided - The tax authorities have not brought anything on record to show that the above said amount is not refundable at all - the refundable advance of ₹ 3.00 crores received by the assessee constitutes capital receipt in the hands of the assessee, which is not liable to tax under any of the provisions of the Act - Non accounting of capital receipt, which is otherwise not taxable in pursuance of the provisions of the Act, may not have any immediate implication so far taxation is concerned - the assessee is liable to refund the advance amount in terms of MOU - The addition of balance amount is also liable to be deleted, since the MOU was genuine one and also a refundable advance thus, the order of the CIT(A) is set aside and the AO is directed to delete the addition of ₹ 3.00 crores pertaining to the advance amount received from M/s ATC. Assessment of unaccounted cash received on sale of plots Held that - The AO has drawn certain inferences on the chart found during the course of survey - the assessee has shown that the computation made by the AO, if followed in some other cases, would give the selling rate of ₹ 3,950/- and ₹ 4000/- per Sq. yard - the AO has reached conclusions about the selling rate of plots only on surmises and conjectures without bringing any credible evidence on record assessee rightly contended that mere receipt of advance would not give rise to any income element - the assessee had proposed to execute sale agreements only in the subsequent years after the receipt of necessary approvals, meaning thereby the assessee has received only advances during the year, which are liable to refunded the AO was not justified in presuming that the assessee had received 30% of sale consideration as advance in the form of cash without accounting for the same - CIT(A) was not justified in confirming this addition, the addition is set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Assessment of Rs. 3.00 crores received from M/s Alokik Township Corporation.
2. Assessment of Rs. 1,40,27,025/- as unaccounted cash receipts on sale of plots.
3. Validity of interest charged under sections 234B and 234C of the Income Tax Act.
4. Validity of initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assessment of Rs. 3.00 crores received from M/s Alokik Township Corporation:

The first issue pertains to the addition of Rs. 3.00 crores received from M/s Alokik Township Corporation (ATC). The assessee entered into a Memorandum of Understanding (MOU) with ATC for the development of agricultural land in Jaipur. The MOU specified that Rs. 3.00 crores was paid as a refundable advance, with Rs. 2.00 crores received by cheque and Rs. 1.00 crore in cash. The AO assessed Rs. 1.00 crore as unaccounted receipt, while the CIT(A) enhanced the addition to Rs. 3.00 crores, deeming the MOU a facade. The Tribunal held that the MOU was genuine, and the Rs. 3.00 crores was a refundable advance, thus not taxable as income. The Tribunal directed the AO to delete the addition of Rs. 3.00 crores.

2. Assessment of Rs. 1,40,27,025/- as unaccounted cash receipts on sale of plots:

The second issue involves the assessment of Rs. 1,40,27,025/- as unaccounted cash receipts from the sale of plots. The AO inferred from impounded documents that the assessee sold plots at Rs. 3,200/- per sq. yard and received 30% of the sale consideration in cash. The assessee contended that these were advances and not sales, and most bookings were canceled with refunds issued. The Tribunal found that the AO's conclusions were based on surmises without credible evidence and that mere receipt of advances does not constitute income. The Tribunal directed the AO to delete the addition of Rs. 1,40,27,025/-.

3. Validity of interest charged under sections 234B and 234C of the Income Tax Act:

The third issue concerns the validity of interest charged under sections 234B and 234C of the Act. The Tribunal noted that the charging of interest is consequential and did not find it necessary to adjudicate this issue.

4. Validity of initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act:

The fourth issue pertains to the validity of initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal stated that this ground requires no adjudication as the penalty proceedings would take their own legal course.

Assessment Year 2007-08:

For the assessment year 2007-08, the only effective ground was the addition of unaccounted receipts representing alleged receipt of 30% of sale consideration in cash. The Tribunal, consistent with its view for AY 2006-07, held that the addition of Rs. 2,11,63,821/- was not justified and directed the AO to delete the impugned addition. The other grounds related to the validity of charging interest under sections 234B and 234C and the initiation of penalty proceedings were not addressed.

Conclusion:

Both appeals filed by the assessee were allowed, with the Tribunal directing the deletion of the additions made by the AO and CIT(A). The order was pronounced in the open court on 7th Nov, 2014.