2015 (9) TMI 908 - AT - Income Tax

Revision u/s 263 - determination of the income of the assessee by the A.O. from Sai Royal Residency ( SRR ) Project - as per CIT(A) A.O. failed to take into consideration the value of un-sold plots as well as to make disallowance under section 40A(3) and also allowed deduction on account of land development expenditure without verifying any documentary evidence - Held that - The profit as indicated in the said working amounting to ₹ 3,98,88,000 was adopted by the A.O. as net profit of the Sai Royal Residency project rejecting the stand of the assessee that further expenditure on account of litigation, bank interest etc., was incurred by it. In the working of partners account, the said profit was stated to be taken as per P & L account, but no such P & L account giving the details of working of the said profit was either found during the course of survey or was brought on record by the A.O. even during the course of assessment proceedings. There is thus nothing available on record to show that the estimation of income of the assessee from Sai Royal Residency project as finally done by the A.O. was without taking into consideration the value of the unsold plots. Moreover, the figure of profit appearing in the relevant working of partners accounts was a net profit for the year under consideration available for distribution to the partners as indicated in the relevant impounded documents and the same ought to have arrived at after taking into consideration all the relevant facts and figures including the value of un-sold plots. It therefore cannot be said that the income of the assessee from Sai Royal Residency project as finally estimated by the A.O. did not take into consideration the value of un-sold plots as alleged by the Ld. CIT. Expenditure on account of land development allegedly allowed by the A.O.- Held that - As already observed that the income of the assessee from the Sai Royal Residency project was estimated by the A.O. on the basis of the working of partners capital account found recorded in the relevant impounded documents and the working made by the A.O. taking gross profit at ₹ 5,33,38,000 and presuming the balance amount of ₹ 1,34,50,000 being difference between the gross profit and net profit as expenditure incurred towards land development was just to support the said estimation. The said balance amount treated as land development expenditure thus was never claimed by the assessee and it therefore cannot be said that there was an error in the order of the A.O. in allowing the same. A.O. allowing the land development expenditure and land cost paid in cash without considering the applicability of the provisions of section 40A(3) - Held that - As observed the income of the assessee from Sai Royal Residency project in the present case was determined by the A.O. on estimated basis, we are of the view that no separate disallowance under section 40A(3) was called for and there was no error in the order of the A.O. in not making such disallowance separately as alleged by the Ld. CIT. We therefore agree with the contention of the Ld. Counsel for the assessee that the manner and method in which the income of the assessee from Sai Royal Residency project was determined by the A.O. on estimated basis was not appreciated by the Ld. CIT in proper perspective while pointing out error nos. 1 to 3, which were actually not there. Taking the sale consideration of land at Aushapur at ₹ 1.25 crores instead of ₹ 3.75 crores for the purpose of computing the profit - Held that - As it is observed that this issue was duly examined by the A.O. during the course of assessment proceedings and identified the probable events that took place in connection with the relevant transactions and found that the 5.00 acre of land at Aushapur was sold by the assessee to M/s. ETA Star Property Developers Ltd., for an apparent consideration of ₹ 1.25 crores and although the amount of ₹ 3.75 crores was paid by ETA Star Property Developers Ltd. to M/s. Poornodaya Industries Limited, what the assessee actually received was only ₹ 1.1 crore while the balance amount was lying in the three bank accounts of M/s. Poornodaya Industries and its associates which were under attachment of the Court. Accordingly, the sale consideration of the property was taken by the A.O. at ₹ 1.25 crores and after reducing the cost of acquisition of the land amounting to ₹ 45,37,500, the balance amount of ₹ 79,62,500 was brought to tax by him in the hands of the assessee. The sale consideration of ₹ 1.25 crores thus was adopted by the A.O. by applying his mind to all the relevant facts of the case including especially the fact that the consideration as stated in the relevant agreement was ₹ 1.25 crores out of which the assessee had actually received only ₹ 1.10 crores. As rightly contended by the Ld. Counsel for the assessee, a possible view in the matter thus was taken by the A.O. after taking into consideration all the relevant facts of the case while adopting the sale consideration of ₹ 1.25 crores and it is not permissible to the Ld. CIT to substitute his own view in place of the possible view taken by the A.O. under section 263. - Revision orders set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Estimation of income from Sai Royal Residency project.
2. Consideration of value of unsold plots.
3. Allowance of land development expenditure without verification.
4. Applicability of Section 40A(3) for cash payments.
5. Adoption of sale consideration for land sold to M/s. ETA Star Properties.

Detailed Analysis:

1. Estimation of Income from Sai Royal Residency Project:
The assessee, a partnership firm engaged in real estate, developed two projects: Sai Royal Residency (SRR) and Highway Heights. For SRR, the total sale consideration was shown as Rs. 12.26 crores, but survey material revealed it to be Rs. 15.33 crores. The A.O. treated Rs. 5.30 crores as gross profit and Rs. 3.98 crores as net profit, based on impounded documents. The assessee's objections regarding additional expenses were not accepted due to lack of documentary evidence, leading to the taxation of Rs. 3.98 crores as estimated profit.

2. Consideration of Value of Unsold Plots:
The Ld. CIT noted that the A.O. did not consider the value of unsold plots while estimating the gross profit. However, the Tribunal found that the profit estimation by the A.O. was based on impounded documents showing net profit and did not specifically exclude the value of unsold plots. Therefore, the Tribunal concluded that the A.O.'s estimation implicitly included all relevant factors, including unsold plots.

3. Allowance of Land Development Expenditure Without Verification:
The A.O. presumed land development expenditure of Rs. 1.34 crores to support the profit estimation. The Tribunal noted that this amount was not claimed by the assessee but was an assumption by the A.O. to justify the net profit figure. Hence, there was no error in the A.O.'s order regarding this allowance.

4. Applicability of Section 40A(3) for Cash Payments:
The Ld. CIT pointed out that the A.O. allowed cash payments for land acquisition without considering Section 40A(3). The Tribunal referred to judicial precedents stating that when income is estimated, specific disallowances under Section 40A(3) are not required. Consequently, the Tribunal held that the A.O. was correct in not making separate disallowances under Section 40A(3).

5. Adoption of Sale Consideration for Land Sold to M/s. ETA Star Properties:
The A.O. adopted Rs. 1.25 crores as the sale consideration for land sold to M/s. ETA Star Properties, based on the registered deed and actual receipts. The Ld. CIT argued that the sale consideration should be Rs. 3.75 crores as per impounded material. The Tribunal found that the A.O. had thoroughly examined the facts and adopted a possible view based on the actual transaction details. Therefore, substituting the Ld. CIT's view was not justified.

Conclusion:
The Tribunal concluded that the A.O.'s order was neither erroneous nor prejudicial to the interests of the Revenue. The Ld. CIT's revision under Section 263 was not justified, and the original assessment order was restored. The appeal of the assessee was allowed.