2020 (10) TMI 269 - AT - Income Tax

Difference between form 26AS and the amount shown in the profit and loss account - leakage of revenue during the period of joint development - HELD THAT - It is the case of the assessee that an agreement was entered with an intention of developing the above property jointly as business venture and the income from the said activity was offered to tax by the following the percentage of completion method. AO was of the view that the assessee cannot adopt percentage of completion method as it is not in the business of developing the property but only was the land owner of the property. Difference amount contained in form 26AS and shown in the profit and loss account was brought to tax. This is an issue which requires to be decided having regard to the terms of the joint development agreement and the intention of the parties to the agreement. Intention of the parties can be gauged from the entries made in the books of account. Entries in the books of account clearly goes to show that the assessee is only a partner in the development of scheduled property of the agreement. No addition can be made based on a mere difference between form 26AS and the amount shown in the profit and loss account and in the absence of any reconciliation and corroborative evidence. It is not the case of the Revenue that there is leakage of revenue during the period of joint development, it is a case of tax neutral. No addition is warranted and the Assessing Officer is directed to delete the addition. - Decided in favour of assessee.

Summary

Issues:
- Appeal against order of CIT(A) for AY 2016-17
- Addition of discrepancies in income and TDS
- Application of percentage of completion method
- Discrepancy between form 26AS and profit/loss account
- Justification of addition by AO
- Interpretation of joint development agreement

Analysis:
1. The appeal was filed against the CIT(A)'s order for the assessment year 2016-17. The assessee contested the addition of discrepancies in income and TDS made by the Assessing Officer. The assessee argued that the joint development agreement with M/s. Dugar Housing Ltd. allowed income recognition based on the percentage of completion method. However, the AO disagreed, stating that the assessee was merely a landowner, not a developer. The disagreement centered on the interpretation of the joint development agreement.

2. The CIT(A) upheld the AO's decision, prompting the assessee to appeal. The appellant reiterated that the joint development agreement authorized income recognition using the percentage of completion method. The Departmental representative contended that as a landowner without direct business involvement, the assessee couldn't apply the said method.

3. Upon review, the Tribunal found that the joint development agreement aimed at a business venture. The income was consistently recognized using the percentage of completion method. The Tribunal emphasized that the entries in the books of account supported the assessee's active role in the development. It was noted that the discrepancy between form 26AS and the profit/loss account alone wasn't sufficient grounds for addition, especially without further evidence or reconciliation. The Tribunal concluded that no addition was justified, directing the AO to remove the disputed amount.

4. Consequently, the appeal was allowed in favor of the assessee for the assessment year 2016-17. The Tribunal's decision was pronounced on March 9, 2020, in Chennai, setting aside the addition made by the AO based on the joint development agreement and the application of the percentage of completion method.