2020 (12) TMI 18 - AT - Income Tax

Unaccounted receipts as income - Survey u/s 133A - loose sheets were found disclosing the unaccounted receipts which were received in cash as well as cheque - assessee had admitted the entire undisclosed receipts as income for various assessment years, however, offered only 30% of the undisclosed receipts as income in the return filed in response to notice issued under section 148 - HELD THAT - From the finding of the CIT(A) as well as the submissions made by the assessee before the AO and during the course of assessment proceedings, it is observed that the unaccounted cash expenditure was not considered while admitting the additional income. The assessee admitted the entire cash receipts as additional income and the department has accepted the same without going into further details of unaccounted expenditure. AO also did not work out the cost of construction of additional works for the flat and arrived at the profit. In normal practice, the AO should consider the expenditure for construction of the flats including cash expenditure and arrive at the cost of construction. From the total sale proceeds i.e. cash receipts as well as bank receipts, cost of construction required to be reduced and net profit required to be brought to tax. AO may also go into the details of unaccounted expenditure and make addition invoking the relevant provisions of the Act. AO has not done such exercise in this case. AO also did not consider the unaccounted expenditure incurred though the evidences are available in the impounded material. AO also did not refer the cost of construction to the departmental valuation and simply estimated the unaccounted receipts @1000/- per sq.ft in respect of residential area and ₹ 1500/- per sq.ft in respect of commercial area without arriving at the actual cost of construction with accounted expenditure and the unaccounted expenditure which is baseless. Also incumbent upon the AO to arrive at the accounted receipts and unaccounted receipts and the actual expenditure incurred. No such exercise was done by the AO and simply taxed the entire unaccounted receipts which were offered by the assessee at the time of survey. When there is evidence available with regard to unaccounted expenditure and receipts, taxing the entire unaccounted receipts as income is unjustified. Hence, estimation of income made by the assessee which was accepted by the Ld.CIT(A) appears to be reasonable, hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.

Summary

Issues Involved:
1. Whether the entire additional receipts discovered during the survey should be taxed as income.
2. Whether the estimation of 30% of the undisclosed receipts as income by the assessee is reasonable.

Detailed Analysis:

1. Taxation of Entire Additional Receipts:

The case involves the taxation of additional receipts discovered during a survey conducted under section 133A. The assessee, engaged in the construction of apartments, was found to have unaccounted cash receipts from the sale of flats. The Assessing Officer (AO) discovered that against a total sale consideration of ?33,30,000/-, only ?22.20 lakhs were accounted for through banking channels, while ?11.10 lakhs were received in cash and remained unaccounted. The assessee admitted to unaccounted cash receipts totaling ?7,37,04,000/- and declared an additional income of ?8 crores during the survey.

However, the assessee later retracted, stating that the additional receipts were not entirely income but included unaccounted expenditures. The AO, not convinced by this explanation, treated the entire additional receipts as undisclosed income and assessed ?2,28,51,910/- for A.Y. 2015-16 and ?2,40,34,830/- for A.Y. 2016-17.

2. Reasonableness of 30% Estimation of Undisclosed Receipts:

The Commissioner of Income Tax (Appeals) [CIT(A)] found that in the real estate business, certain expenditures are incurred outside the books of accounts and thus, the entire unaccounted receipts cannot be treated as income. The CIT(A) accepted the assessee's estimation of 30% of the undisclosed receipts as income, considering it a reasonable estimation based on the nature of the business and the evidence of unaccounted expenditures found during the survey.

Tribunal's Decision:

During the appeal, the Revenue argued that the AO rightly taxed the undisclosed receipts as income, supported by the incriminating material and statements recorded during the survey. The assessee, on the other hand, supported the CIT(A)'s order, emphasizing that the additional receipts included expenditures for additional works and that only 30% should be considered as income.

The Tribunal noted that the AO had estimated additional receipts without a basis and did not account for the actual cost of construction and unaccounted expenditures. The CIT(A) observed that the assessee had entered into agreements for semi-finished flats and additional works, and some cash receipts were used for registration purposes and expenditures outside the books. The Tribunal found that the AO did not adequately consider the unaccounted expenditures, nor did he refer the cost of construction to departmental valuation.

The Tribunal upheld the CIT(A)'s decision, finding the estimation of 30% of the additional receipts as income reasonable. It dismissed the Revenue's appeal and the assessee's cross objections, stating that taxing the entire unaccounted receipts as income was unjustified given the evidence of unaccounted expenditures.

Conclusion:

The Tribunal concluded that the estimation of 30% of the undisclosed receipts as income, as accepted by the CIT(A), was reasonable and upheld the CIT(A)'s order, dismissing the Revenue's appeal and the assessee's cross objections. This decision was pronounced in the open court on 23rd November 2020.