2021 (6) TMI 420 - AT - Income Tax

Addition as income from on money - Year of assessment - addition based on seized material emanating out of the search - CIT(A) holding that the cash received by the assessee was in the nature of business receipt and could not be treated as income u/s.68 - whether CIT(A) erred in restricting the disallowance @25% of the cash received when no evidence of expenditure of balance 75% of the cash was produced by the assessee and therefore genuineness and allowability of the same could not be examined? - HELD THAT - As decided in M/S. TULIP LAND DEVELOPERS P. LTD. VERSUS DY. CIT, CENTRAL CIRCLE-6 (2) , MUMBAI 2021 (2) TMI 1170 - ITAT MUMBAI as duly mentioned by the ld. AO in the remand report and merely because PAN was not mentioned and the confirmation from those parties for making payment of on-money to the assessee was not available, the ld. AO had not accepted to the contentions of the assessee in the remand report. CIT(A) on these facts and circumstances accepted to the plea that the on-money receipts should get taxed only as business receipt of the assessee as it is admittedly received from the sale of flats to various parties by the assessee and thereafter, proceeded to estimate the profit element thereon @25% as against 100% adopted by the ld. AO. While doing so, we find that the ld. CIT(A) had categorically stated that the provisions of Section 68 cannot be made applicable to the said on-money receipt. Since the nature and source of credit being on- money receipt received from sale of flats had been duly accepted by the ld.AO in the remand report, the same would construe only business receipt and not cash credit u/s.68 of the Act and accordingly, the ground No.1 raised by the Revenue for both the years on this limited aspect, deserves to be dismissed.t. Addition equal to 25% of the on money received - At what rate of the on money should be brought to tax? - Following Tribunal case in the sister concern cases of the assessee group 2021 (2) TMI 1095 - ITAT MUMBAI on identical facts and circumstances emanating out of the same seized material and same search, we direct the ld. AO to add only 12% of the on-money receipts as undisclosed income of the assessee. Accordingly, the grounds raised by the Revenue are dismissed and the grounds raised by the assessee are partly allowed.

Summary

Issues Involved:
1. Addition of income from on-money receipts.
2. Applicability of Section 68 of the Income Tax Act, 1961.
3. Estimation of profit percentage on on-money receipts.

Detailed Analysis:

1. Addition of Income from On-Money Receipts:
The primary issue in these appeals is the addition of income from on-money receipts. The assessee argued that the income quantified from on-money should be taxed only in the year when the project is completed, as per the Revised Guidance Note of 2012 issued by ICAI. The Ld. CIT(A) confirmed the addition of 25% of on-money receipts without considering the project completion method. The Tribunal, however, supported the assessee’s contention, citing multiple precedents where income was assessed in the year of project completion. The Tribunal directed that the income from on-money should be taxed in the year of project completion, not in the year of receipt.

2. Applicability of Section 68 of the Income Tax Act, 1961:
The Revenue contended that the cash received by the assessee should be treated as income under Section 68, as the identity, genuineness, and creditworthiness of the parties remained unexplained. However, the Tribunal noted that the nature and source of the on-money receipts were established as business receipts from the sale of flats. The Tribunal emphasized that once the nature and source of the credit are proved, Section 68 cannot be applied. The Tribunal upheld the CIT(A)'s view that the on-money receipts should be treated as business receipts and not cash credits under Section 68.

3. Estimation of Profit Percentage on On-Money Receipts:
The assessee argued that the income from on-money should be estimated at 12%, as was accepted for other group entities by the Hon’ble Settlement Commission. The CIT(A) had estimated the profit at 25%. The Tribunal found merit in the assessee’s argument, noting that the Settlement Commission had accepted a 12% profit rate for other group entities. The Tribunal directed the AO to apply a 12% profit rate on the on-money receipts, aligning with the Settlement Commission’s findings.

Conclusion:
The Tribunal's judgment addresses the issues of adding income from on-money receipts, the applicability of Section 68, and the appropriate profit percentage to be applied. The Tribunal ruled in favor of the assessee by directing that the income from on-money should be taxed in the year of project completion and at a 12% profit rate. The Tribunal also dismissed the Revenue's contention to apply Section 68, affirming that the on-money receipts are business receipts. The appeals by the Revenue were dismissed, and the appeals by the assessee were partly allowed.