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2021 (5) TMI 950 - AT - Income TaxAddition of on-money - Quantification of the income assessable - assessee argued estimation of the profit element embedded in the on-money receipts @20% by the CIT(A) be substituted by that shown by the assessee @12% - Quantification of the income assessable - HELD THAT - s the receipt of on-money is inextricably interlinked and in fact interwoven with the corresponding sale transaction accounted for by the assessee in its books of account, the same, thus, cannot be divorced therefrom, and the income element therein embedded would be required to be brought to tax in the same year in which the sale transaction had been accounted for or would be accounted for by the assessee as per its regular method of accounting that has been accepted by the department.Our aforesaid view that the conduct of search and seizure operation in a particular year does not lead to an inference that the undisclosed income detected as a consequence thereof has to be taxed in the assessment year relevant to the previous year in which search was conducted, and the accounting of such income have to be made on the basis of the method of accounting followed by the assessee is supported by the order of the ITAT, Pune bench in the case of Dhanvarsha Builders and Developers Pvt. Ltd 2005 (10) TMI 276 - ITAT PUNE-A - We, thus, direct the A.O to subject the income element embedded in the onmoney received by the assessee to tax in terms of our aforesaid observations.The Ground of appeal No. 1 raised by the assessee is allowed in terms of our aforesaid observations Addition w.r.t the income element of the amount of on-money - change in the method of accounting adopted by the assessee - HELD THAT - Where the change in the method of accounting adopted by the assessee is for a bonafide reason and such new method of accounting is thereafter regularly employed by the assessee, no fault can be found with the same. Our aforesaid viewis fortified by the judgment of the Hon‟ble High Court of Bombay in the case of Bajaj Auto Ltd. 2016 (9) TMI 1047 - BOMBAY HIGH COURT .Also, the Hon‟ble High Court of Bombay in its earlier judgment passed in the case of Melmould Corporation 1993 (2) TMI 82 - BOMBAY HIGH COURT relying on the decision of Corporation Bank Ltd. 1988 (8) TMI 90 - KARNATAKA HIGH COURT had held that where the change in the method of accounting is a bonafide one which was thereafter consistently followed by the assessee year after year, then, the change would have to be accepted irrespective of the fact that during the year when the change wsa brought about a deteriment was caused to the revenue. As observed by us hereinabove while disposing off the assessee's appeal above as the receipt of on-money is inextricably interlinked and in fact interwoven with the corresponding sale transaction accounted for by the assessee in its books of account, the same, thus, cannot be divorced therefrom, and the income element therein embedded would be required to be brought to tax in the same year in which the corresponding sale transaction had been accounted for or would be accounted for by the assessee as per its regular method of accounting that has been accepted by the department. Our aforesaid view that the conduct of search and seizure operation in a particular year does not lead to an inference that the undisclosed income detected as a consequence thereof has to be taxed in the assessment year relevant to the previous year in which search was conducted, and the accounting of such income have to be made on the basis of the method of accounting followed by the assessee is supported by the order of the ITAT, Pune bench in the case of Dhanvarsha Builders and Developers Pvt. Ltd. 2005 (10) TMI 276 - ITAT PUNE-A . We, thus, direct the A.O to consider our aforesaid observations while subjecting the income element embedded in the on-money received by the assessee to tax. Additions of on-money made u/s 68 on the basis of notings in loose sheets and data retrieved from the mobiles - HELD THAT - We are unable to comprehend that as to on what basis the revenue is seeking inclusion of loose sheets and data retrieved from mobile phones within the scope and gamut of the definition of books or books of accounts as provided in Sec. 2(12A) of the Act. Alternatively, we also find substance in the observation of the CIT(A), that as both the Investigation wing and the A.O had held that the impugned notings were the on-money received by the assessee on sale of flats/shops in the building projects undertaken by it thus, in absence of any dispute as regards the nature of such receipt, the same, was liable to be assessed as a business receipt and not as an income u/s 68 of the Act. We concur with the view taken by the CIT(A) that now when the A.O had in the assessment order mentioned the flat wise and year wise receipts of on-money thus, the same leaves no iota of doubt that the same were in the nature of business receipts which were inseparable from the assessee‟s business of a builder and developer. Accordingly, on the basis of our aforesaid deliberations, we are of a strong conviction that no infirmity arises from the order of the CIT(A) who in our considered view had rightly concluded that the impugned additions could not have been made u/s 68.
Issues Involved:
1. Addition of on-money receipts. 2. Estimation of profit from on-money receipts. 3. Year of taxability of on-money receipts. 4. Applicability of Section 68 of the Income Tax Act. 5. Applicability of Section 115BBE of the Income Tax Act. 6. Validity of penalty under Section 271D. Detailed Analysis: 1. Addition of On-Money Receipts: The primary issue revolves around the addition of on-money receipts from the sale of flats and shops by various entities within the Ekta group. The Assessing Officer (A.O) made additions based on seized documents and statements recorded during search proceedings, which indicated that the entities received on-money (unaccounted cash) over and above the documented sale price. 2. Estimation of Profit from On-Money Receipts: The CIT(A) accepted the principle that only the profit element embedded in the on-money receipts should be taxed, not the entire amount. The CIT(A) estimated the profit at 20% of the on-money receipts, but the assessee argued that it should be 12%, as offered by them. The Tribunal concluded that the profit element should be estimated at 15% of the on-money receipts. 3. Year of Taxability of On-Money Receipts: The A.O added the on-money receipts in the year of receipt itself. The assessee contended that the on-money should be taxed in the year when the project was completed, and the sale was recognized in the profit and loss account. The Tribunal agreed with the assessee, stating that the income element embedded in the on-money receipts should be taxed in the year in which the corresponding sale transaction is accounted for by the assessee as per its regular method of accounting. 4. Applicability of Section 68 of the Income Tax Act: The A.O invoked Section 68, which deals with unexplained cash credits, to add the entire amount of on-money receipts. The CIT(A) and the Tribunal observed that since the on-money receipts were not found credited in the books of account but were noted on loose sheets and mobile data, they could not be taxed under Section 68. Instead, they should be treated as business receipts. 5. Applicability of Section 115BBE of the Income Tax Act: The A.O applied Section 115BBE, which disallows set-off of any loss against income referred to in Section 68, among others. The CIT(A) and the Tribunal ruled that Section 115BBE, which came into effect from 01.04.2017, was not applicable to the assessment years in question. Moreover, since the on-money receipts were treated as business income, Section 115BBE was not applicable. 6. Validity of Penalty under Section 271D: The A.O imposed penalties under Section 271D for contravention of Section 269SS (acceptance of loans or deposits in cash exceeding the prescribed limit). The CIT(A) and the Tribunal quashed the penalties, citing the lack of evidence to substantiate the receipt of cash as alleged by the A.O. Conclusion: The Tribunal directed the A.O to restrict the addition to the extent of the income element embedded in the on-money receipts at 15% and to tax the income in the year in which the corresponding sale transaction is accounted for by the assessee. The Tribunal upheld the CIT(A)'s view that the on-money receipts could not be taxed under Section 68 and that Section 115BBE was not applicable. The penalties under Section 271D were also quashed due to the lack of conclusive evidence.
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