2018 (9) TMI 471 - AT - Income Tax

Suppressed Income on sale of plots - sum quantified by the AD on the basis of seized material as Suppressed Turnover - Held that - AO has adopted the value declared in the agreement of sale for registration purpose and not accepted the turnover declared by the assessee in the return of income. Assessee has filed return of income declaring total turnover of sale and contract receipts to the extent of ₹ 3.77 crores and paid the due tax. The turnover already declared by the assessee as per the return of income should be taken as declared turnover. Therefore, we are in agreement with the submissions of AR that the suppressed turnover should be the difference between the turnover found in the document seized and the turnover declared in the return of income i.e. to the extent of ₹ 5,11,00,000/-. Hence, ground raised by the assessee in this regard is allowed. Estimation of income in this line of business - CIT-A restricting the income at 40% of the undisclosed receipts without giving any factual basis which could justify the deduction of 60% allowed against such suppressed receipts - Held that - We are in agreement with the CIT(A) that only income should be estimated and not the whole suppressed turnover as income - income estimation should be realistic and based on the trend in the industry - the income has to be realistic and appropriate to the kind of business of assessee. As noted, assessee has declared only 5.12% of the declared turnover as profit. The coordinate bench has opined that in the general scenario income is estimated at 12.5% in the case of big contracts. In the interest of justice and fairness to both the parties, in our considered view, 10% is reasonable and in line with the Villa Projects in the real estate industry. Accordingly, we direct the AO to estimate income @ 10% of the undisclosed turnover. Accordingly, ground raised by the assessee is partly allowed. Addition made on account of unexplained investment in land - addition in an assessment u/s 143(3) rws 153C without reference to any seized material - Held that - Since no incriminating material was unearthed during the search regarding the purchase of the above land, no addition could have been made to the income already assessed u/s 143(3) of the Act, as held by the Hon ble Delhi High Court in the case of CIT Vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Even the CIT(A) held that when the land is reflected in the balance sheet, which forms a part of the return of income filed by the assessee, the sources are self-evident. He further held that neither does the assessment record show that this issue was even raised and confronted to the assessee during the assessment proceedings. We, therefore, uphold the order of CIT(A) on this issue and dismiss the grounds raised by the revenue in this regard.

Summary

Issues Involved:
1. Quantification of suppressed turnover.
2. Treatment of suppressed turnover as income of the assessee.
3. Estimation of profit percentage on suppressed turnover.
4. Addition on account of unexplained investment in land.

Detailed Analysis:

1. Quantification of Suppressed Turnover:
The case involved a search and seizure operation where incriminating materials were found, leading the Assessing Officer (AO) to quantify the undisclosed income for AYs 2012-13, 2013-14, and 2014-15. The AO quantified the undisclosed income at ?18,75,85,000/-. The AO gave credit for the sale value disclosed as per the agreement while registering Villas, but the assessee appealed against this quantification, arguing that the AO overlooked the turnover disclosed in the return of income, which included both sales and contract receipts. The Income Tax Appellate Tribunal (ITAT) agreed with the assessee that the suppressed turnover should be the difference between the turnover found in the seized documents and the turnover declared in the return of income, amounting to ?5,11,00,000/-.

2. Treatment of Suppressed Turnover as Income:
The AO treated the entire suppressed turnover as the income of the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the assessee's appeal by quantifying the suppressed income at 40% of the suppressed turnover, relying on the decision of the Hon’ble MP High Court in CIT Vs. Sharda Real Estate (P) Ltd. The ITAT agreed that only the income should be estimated and not the entire suppressed turnover. The ITAT directed the AO to estimate the income at 10% of the undisclosed turnover, considering it a reasonable rate for the real estate industry.

3. Estimation of Profit Percentage on Suppressed Turnover:
The CIT(A) had estimated the suppressed income at 40%, whereas the assessee had declared a profit of 5.12%. The ITAT found this estimation unrealistic and referred to similar cases where the profit estimation was around 12.5% for big contracts. The ITAT concluded that a 10% profit estimation on the undisclosed turnover was reasonable and directed the AO to adopt this rate.

4. Addition on Account of Unexplained Investment in Land:
The AO made an addition of ?30,61,000/- as unexplained investment in land, as the assessee failed to furnish supporting evidence. The CIT(A) deleted this addition, noting that the land cost was duly recorded in the books and balance sheet, and the sources were self-evident. The ITAT upheld the CIT(A)’s decision, stating that no incriminating material was found during the search regarding the purchase of the land, and thus, no addition could be made to the income already assessed under section 143(3) of the Act.

Conclusion:
The ITAT allowed the assessee's appeal partly by directing the AO to estimate the income at 10% of the undisclosed turnover and upheld the deletion of the addition made on account of unexplained investment in land. The revenue's appeals were dismissed. The judgment emphasizes the importance of realistic profit estimation and the necessity of incriminating evidence for additions in search cases.