2017 (4) TMI 1090 - AT - Income Tax

Undisclosed income earned from sale of row houses - return filed in response to notice under section 158BC - Held that - We are of the opinion that the assessee in fact did charge on money in relation to booking/sale of flats. However, the entire receipts on account of on money charged by the assessee on sale/booking of flats cannot be the undisclosed income of the assessee for the block period because what can be taxed under Chapter XIV-B is undisclosed income and not the undisclosed receipts, during the course of hearing before the Revenue Authority. Assessee has brought evidence on record to support that he had to pay a sum of ₹ 38 lakhs to the erstwhile organizer of NTC and further a amount of ₹ 21.91 lakhs for the land to various persons and it had also to spend a sum of ₹ 158 lakhs on the cost of construction for which necessary deduction has to be allowed. In any case what can be taxed is the profit which could have been earned by the assessee on the alleged unaccounted receipts amounting to ₹ 1,32,91,840/- and not the entire amount. Further, the AO has not brought any material on record that the assessee in fact had made any initial investment of ₹ 15 lakhs as alleged. In any case even if it is assumed that the assessee did make an initial investment of ₹ 15 lakhs which is to be taxed under section 69C the corresponding deduction will have to be allowed u/s 37 of the Act as the investment was made in acquisition of business assets and as such the amount spent, was for the business of the assessee. The assessee has himself offered 8 per cent profit on the total receipts which should be considered fair and reasonable. In any case it is to be seen that after the exhaustive search and obtaining the discloser of ₹ 17 lakhs the search party has been able to find any unaccounted assets except those which have been referred to in the statement of the assessee and a broad breakup of which was given by the assessee in his statement aggregating to ₹ 17 lakhs. These assets are by way of application of the unaccounted income which have been earned by the assessee from Hare Krishna Apartment project, part of which was reflected on the piece of paper found during the course of search against which the assessee himself has offered a sum of ₹ 17 lakhs as his unaccounted income. Thus, it is clear that-the assets found at the time of search were the application of the unaccounted income of ₹ 17 lakhs which was offered to tax by the assessee in his return filed in response to notice under section 158BC. Thus, AO was not justified in making the addition as the concealed income of the assessee because the profit earned on the unaccounted receipts on the basis of the special provisions at 8 per cent as per section 44AD of the Act will be less than the amount of ₹ 17 lakhs disclosed by the assessee as undisclosed income in the return filed in response to notice under section 158BC. - Decided in favour of assessee.

Summary

Issues:
1. Allowance of relief on undisclosed income from sale of row houses.
2. Allowance of deduction for expenses contrary to section 69C of the Act.

Issue 1 - Relief on Undisclosed Income:
The appeal was filed by the department against the order of the Commissioner of Income Tax(Appeal) regarding the allowance of relief to the assessee on the undisclosed income earned from the sale of row houses in the Manav Row House project. The department contested the relief of Rs. 39,24,800 allowed by the Ld.CIT(A) out of the addition of Rs. 44,60,000 made by the Assessing Officer. The investigation revealed discrepancies in the income declared by the assessee from the project. The assessee claimed to have sold plots and offered income from those sales in the return for A.Y. 2006-07. However, the department argued that the undeclared income from the sale of row houses should be added to the total income. The CIT(A) partly allowed the appeal, considering the facts and evidence presented by the assessee, and determined the income from the project at Rs. 3,36,000, directing the AO to include this amount in the income computation.

Issue 2 - Deduction Contrary to Section 69C:
The second ground of appeal related to the allowance of deduction in respect of expenses at 88% of the sale consideration, amounting to Rs. 49,19,345, which was contrary to the provisions of section 69C of the Act. The department argued that such deductions were not permissible under the law. The assessee contended that the income from construction of plots had been duly offered for tax in various financial years, and detailed income pertaining to the project was provided. The AO, however, was not satisfied with the explanations provided by the assessee and made additions to the total assessed income. The CIT(A) considered the evidence and legal provisions, including the judgment of the jurisdictional High Court and ITAT, and concluded that the AO's additions were not justified. The CIT(A) directed the AO to delete the addition of Rs. 1,47,91,840 as concealed income, following the principles laid down in the aforementioned judgments.

In conclusion, the ITAT dismissed the department's appeal based on the observations of the High Court and ITAT (Mumbai) orders, finding no justification for the AO's additions. The judgment emphasized the importance of considering the totality of facts and circumstances in determining undisclosed income and allowable deductions, in line with the provisions of the Income Tax Act.