2023 (11) TMI 183 - AT - Income Tax

On-Money received - undisclosed income on account of inflated purchase price of flat - WhatsApp chat relating to the rates of flat was treated as incriminating material found during the search - rate mentioned in the mobile communication were resulted in generation of unaccounted income by way of on-money - AO by calculating the difference of sale price and the price negotiated by partner with the customers, made a estimation of on money with respect of 31 flats booked for the impugned assessment year - CIT(A) deleted the addition - HELD THAT - Though before us, the ld. AR of the assessee submits that the purchase party of flat No. C-603 was called, however, there is no such averment in the assessment order about calling of such purchaser either at the time of assessment or in post search investigation. We find that such fact was brought on record during first appellate stage by the assessee. Such fact is not controverted either by AO in raising various grounds of appeal or in the statement of fact filed in support of various grounds of appeal nor by the ld. CIT-DR at the time of making submission before us. We find that in CIT Vs Standard Tea Processing Co. Ltd. 2013 (7) TMI 539 - GUJARAT HIGH COURT held that the addition for undisclosed income on account of inflated purchase price can be made only for the period to which document found during the search is related and not for the entire block period. We also concur with the finding of ld. CIT(A) that alleged incriminating material in the form of message was in respect of seven flats only. From the submission of assessee filed before the ld. CIT(A), we find that there was huge difference of time gap between the date of alleged communication and the date of booking as explained by assessee. AO has not counter such explanation of assessee by bringing corroborative evidence. AO worked out the addition in a strait jacket formula that the assessee has received on money in respect of each and every square feet or developed by assessee which is far from imagination in an ordinary manner. With this aforesaid observation, we affirm the order of ld. CIT(A). In the result, the grounds raised by revenue are dismissed. Unexplained money receipt from the project Crystal Heights - assessee made declaration at the time of survey/search action - HELD THAT - Considering the fact that the ld. CIT(A) has not accepted the addition on the basis of interpolation of figure of booking for all three years. At the same time, the ld. CIT(A) has confirmed the addition with respect to booking of seven flats, in absence of any supporting of corroborative evidence. However, keeping in view the possibility of revenue leakage, in our view, 10% of figure of on money estimated by ld. CIT(A) would be sufficient to meet the end of justice. In the result, grounds of cross objection raised by assessee is partly allowed.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of "On-Money" received.
2. Sufficiency of incriminating material for concluding the receipt of on-money.
3. Taxability of on-money on the actual receipt basis versus the year of executing the registered document.
4. Application of taxability of on-money to the entire project.
5. Justification of addition based on extrapolation of on-money.
6. Consideration of the "Human Probability Test" in income tax proceedings.
7. Directions regarding chargeability of on-money receipt in the year of executing the registered document.

Summary:
1. Deletion of Addition on Account of "On-Money" Received:
The Assessing Officer (AO) made additions based on the difference between the documented sale price and the alleged on-money received, calculated from WhatsApp messages indicating higher rates for seven flats. The CIT(A) deleted these additions, stating that the WhatsApp chats did not provide sufficient evidence of on-money transactions for all flats and lacked corroborative material.

2. Sufficiency of Incriminating Material:
The CIT(A) noted that the WhatsApp chats related to only seven flats and were incomplete, lacking details such as buyer names, flat areas, and actual receipt dates. The CIT(A) emphasized the need for corroborative evidence beyond the incriminating material to prove the receipt of on-money, as established in CIT Vs Maulik Kumar K Shah.

3. Taxability on Actual Receipt Basis:
The CIT(A) upheld that income accrues only when the sale is materialized, not at the time of booking. The assessee followed the project completion method of accounting, recognizing revenue at the time of executing the sale deed or handing over possession, consistent with CIT Vs Shivalik Buildwell Pvt. Ltd. and CIT Vs Happy Home Corporation.

4. Application to Entire Project:
The CIT(A) rejected the AO's extrapolation of on-money receipts to the entire project, noting that the WhatsApp chats pertained to only seven flats. The Tribunal concurred, finding no scope for extrapolation without cogent evidence, as supported by CIT Vs Standard Tea Processing Co. Ltd. and CIT Vs B. Nagendra Baliga.

5. Justification of Addition Based on Extrapolation:
The Tribunal affirmed the CIT(A)'s finding that extrapolation was unjustified without rejecting the assessee's books of account and without evidence of systematic receipt of on-money. The AO's addition based on a straight formula was deemed speculative and unsupported by concrete evidence.

6. Consideration of "Human Probability Test":
The CIT(A) and Tribunal found that the AO's reliance on human probability and preponderance of probabilities was insufficient without corroborative evidence. The Tribunal emphasized the need for fair and reasonable assessment, aligning with judicial precedents like Dhakeshwari Cotton Mills Ltd. Vs CIT.

7. Directions on Chargeability of On-Money Receipt:
The CIT(A) did not issue specific directions regarding the chargeability of on-money in the year of executing the registered document, as the addition itself was found unwarranted based on the evidence available.

Conclusion:
The Tribunal dismissed the revenue's appeals for A.Y. 2014-15 and 2015-16, affirming the CIT(A)'s deletion of additions. For A.Y. 2016-17, the Tribunal partly allowed the assessee's cross-objection, reducing the addition to 10% of the on-money estimated by the CIT(A), considering the possibility of revenue leakage. The Tribunal emphasized the need for corroborative evidence and adherence to established accounting principles for recognizing income.