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2021 (10) TMI 656 - AT - Income TaxAddition u/s 68 or business receipts - on money receipts - CIT(A) justification in holding that the cash received by the assessee was in the nature of business receipt and could not be treated as income under section 68 - HELD THAT - As decided in in assessee s own Group company viz., Sai Ashray Developers Pvt. Ltd. 2021 (6) TMI 662 - ITAT MUMBAI as held that issue for our consideration is squarely covered in favour of the assessee and against the Revenue.
Issues Involved:
1. Justification of treating cash received as business receipt. 2. Applicability of Section 68 of the Income Tax Act. 3. Year of taxability of on-money received. 4. Percentage of on-money to be taxed. Detailed Analysis: 1. Justification of Treating Cash Received as Business Receipt: The primary issue was whether the cash received by the assessee should be treated as business receipt or income under Section 68 of the Income Tax Act, 1961. The assessee, involved in the construction business, had received on-money in a project named "Sion O2". During a search operation, incriminating data, including parallel books of account, were found, indicating tax evasion. The Assessing Officer (AO) proposed to tax the on-money as unexplained cash credit under Section 68. However, the assessee argued that the on-money was part of business receipts and should be taxed as such. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted this argument, stating that the on-money was recorded in parallel books as business receipts and not as unexplained cash credit. 2. Applicability of Section 68 of the Income Tax Act: The AO initially taxed the on-money under Section 68, which deals with unexplained cash credits. The assessee contended that since the on-money was related to business transactions, it should not be taxed under Section 68. The CIT(A) concurred, noting that the on-money was recorded in parallel books as cash sales from respective projects, thus qualifying as business receipts. Consequently, the CIT(A) ruled that the on-money should be treated as business receipts and not as unexplained cash credit under Section 68. 3. Year of Taxability of On-Money Received: The assessee argued that the on-money should be taxed in the year of project completion or when corresponding sales are shown. The CIT(A) rejected this, noting that the assessee had admitted to receiving on-money without providing specific details of the transactions. The CIT(A) emphasized that if the project takes an inordinate time to complete or is abandoned, the on-money would never be taxed. Therefore, the CIT(A) held that the on-money should be taxed in the year of receipt. 4. Percentage of On-Money to be Taxed: The CIT(A) addressed the issue of the percentage of on-money to be taxed. The assessee argued that only the net profit from the on-money should be taxed, not the entire amount. The CIT(A) noted that the assessee's group had offered 12% of the on-money as income before the Settlement Commission, which was accepted. However, the CIT(A) decided that only 25% of the on-money should be taxed, based on various judicial precedents. This decision was influenced by the fact that not all cash expenses could be substantiated, and some expenses might be disallowed under Section 40A(3) of the Act. Conclusion: The Tribunal upheld the CIT(A)'s decision to treat the on-money as business receipts and not as unexplained cash credits under Section 68. It also agreed that the on-money should be taxed in the year of receipt. However, the Tribunal directed that only 12% of the on-money should be taxed, aligning with the Settlement Commission's acceptance in similar cases. The appeals filed by the assessee were partly allowed, and those by the Revenue were dismissed.
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