2020 (1) TMI 475 - AT - Income Tax

Addition on account of on-money receipts by the assessee on the basis of the statements recorded on oath u/s 131 of the buyers of the residential units - contention of the assessee inasmuch as the statement of a few buyers of the residential units cannot be extrapolated for considering the treatment of on-money receipts by the assessee - HELD THAT - Hon ble Gujarat High Court in the case of CIT V. Ashland Corporation 1981 (7) TMI 57 - GUJARAT HIGH COURT and in CIT v. Motilal C Patel Company 1988 (4) TMI 36 - GUJARAT HIGH COURT held that it is settled law that no addition no addition can be made purely based on statement recorded during survey. CIT (A) was justified in deleting the addition made on account of estimation of on-money. We observe that decision of Calcutta High Court in the case of Amal Kumar Chakraborty v. CIT 1992 (8) TMI 11 - CALCUTTA HIGH COURT relied by the revenue is not applicable as in that case statement were relied However in the case of on-money of 12 crores has been disclosed based on statement of units holder. Therefore the receipt of on-money has been taxed and disclosed by the assessee. Further where ratio of the Jurisdictional High Court have been applied wherein they have held that only profit embedded in on-money receipts is to be taxed and not the entire receipts. Hence said decision has no application in the case of the assessee - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition made on account of on-money receipts by the assessee.
2. Acceptance of the assessee's contention regarding the extrapolation of on-money receipts.
3. Application of the principle falsus in uno falsus in omnibus in taxation.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made on Account of On-Money Receipts:

The Revenue challenged the CIT(A)'s decision to delete the addition of ?5,97,63,776/- made on account of on-money receipts. The assessee-company, engaged in the construction and development of residential units, was subjected to a survey under section 133A. During the survey, statements under oath were recorded from 22 buyers, with 17 admitting to on-money payments totaling ?58,31,000/-. The Managing Director of the assessee-company disclosed ?12 crores as undisclosed income. The AO extrapolated this data to all 432 units, estimating the total on-money receipts at ?17,97,63,776/-. The CIT(A) found that only the profit embedded in such receipts should be taxed, not the entire amount. Applying a 15% profit margin, the CIT(A) concluded that the disclosed ?12 crores exceeded the estimated profit of ?2,68,64,566/-, thus deleting the additional ?5,97,63,776/-.

2. Acceptance of the Assessee's Contention Regarding Extrapolation:

The AO's extrapolation of on-money receipts from the statements of 17 buyers to all 432 units was contested by the assessee. The CIT(A) agreed with the assessee, noting that the AO's method was based on assumptions and lacked direct evidence. The CIT(A) emphasized that additions should be based on actual evidence of unaccounted assets or materials found during the survey. The CIT(A) relied on precedents from the Gujarat High Court and ITAT, which held that only the profit embedded in on-money receipts is taxable, not the entire receipts.

3. Application of the Principle Falsus in Uno Falsus in Omnibus:

The Revenue cited the case of Amal Kumar Chakraborty v. CIT to argue that the principle falsus in uno falsus in omnibus should apply, meaning that if part of a witness's testimony is false, the entire testimony should be disregarded. However, the CIT(A) and ITAT found this principle inapplicable. The ITAT noted that the assessee had already disclosed ?12 crores based on statements and evidence, and the jurisdictional High Court's rulings supported taxing only the profit embedded in on-money receipts. The ITAT upheld the CIT(A)'s decision, finding no infirmity in the deletion of the additional ?5,97,63,776/-.

Conclusion:

The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?5,97,63,776/-. The ITAT agreed that only the profit embedded in on-money receipts should be taxed, and the assessee's disclosure of ?12 crores was more than sufficient to cover the estimated profit. The application of the principle falsus in uno falsus in omnibus was deemed inapplicable in this context.