2020 (12) TMI 721 - AT - Income Tax

Additions on account of unaccounted on-money - unaccounted receipts - it is the case of the assessee that the statement of Managing Partner has been fully honoured and aforesaid on-money receipts in aggregate were bifurcated into two financial years and credited to the Profit and Loss Account of the respective financial years appropriately - HELD THAT - As taken note of averments made in the statement of Shri Bharat K. Gadhiya recorded u/s 132(4) of the Act and also various evidences found in search. On consideration of these facts, the CIT(A) found the action of the Assessing Officer to be arbitrary and uncalled for. We note that the additions, if accepted, will result in increase in staggering net profit upto 52% which is ostensibly abnormal and out of sync with line of the business. CIT(A) has, in our view, rightly analysed the facts and inter alia observed that major component of expenditure is in the form of interest and remuneration to the partners which have not been doubted by the AO. CIT(A) has rightly concluded the issue in favour of the assessee having regard to the facts and law appreciated - Appeal of the Revenue is dismissed.

Summary

Issues:
Challenge to deletion of additions on account of unaccounted on-money.

Analysis:
1. The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the deletion of additions of ?2,87,55,600 on account of unaccounted on-money in the assessment order for the Assessment Year 2014-15.
2. The assessee firm, engaged in real estate business, developed a housing project named "Aqua Polaris." A search under section 132 of the IT Act revealed unaccounted receipts through on-money charged on the sale of flats. The Managing Partner confessed to unaccounted receipts, leading to a total disclosure of ?3.76 crores for two assessment years.
3. The Assessing Officer made additions based on the unaccounted on-money receipts, leading to a total addition of ?2,87,55,600 for the AY 2014-15. The CIT(A) found merit in the assessee's plea and deleted the additions made by the Assessing Officer for both the assessment years.
4. The CIT(A) considered incriminating documents seized during the search and statements of customers. The main issue was whether the entire on-money receipts or only the income embedded could be taxed. The CIT(A) concluded in favor of the assessee, citing that the disclosed income was part of the turnover, and the Assessing Officer did not object to the turnover or the claimed expenses.
5. The Revenue challenged the CIT(A)'s decision for the AY 2014-15 before the Tribunal. The Revenue argued that the assessee's statement during the search should be upheld, and the unaccounted receipts should not be offset by expenses. The assessee countered, stating that the disclosed on-money receipts were appropriately accounted for in the financial statements.
6. After considering the submissions, the Tribunal noted the dispute over taxing the entire on-money receipts or only the income embedded. The Tribunal agreed with the CIT(A)'s analysis, finding the Assessing Officer's additions would result in abnormally high profits and were unjustified. The Tribunal upheld the CIT(A)'s decision in favor of the assessee, dismissing the Revenue's appeal.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the facts, arguments, and conclusions reached by the authorities involved.