2023 (12) TMI 1228 - AT - Income Tax

Addition u/s 69A - taxability at higher rate of tax u/s 115BBE - on-money in respect of 100% of unit is brought on record - HELD THAT - As incriminating material is not found relating to each and every unit. AO extrapolated the rate in respect of all 384 units. No independent investigation of facts was carried out by AO during assessment proceedings. There is no refinance in the assessment order that the search party while preparing appraisal report suggested collection of on money in respect of all the units. There is no allegation of AO that units were sold below the Jantri rate. No other independent evidence or material to substantiate the on-money in respect of 100% of unit is brought on record. 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 As in CIT Vs B. Nagendra Baliga 2014 (6) TMI 114 - KARNATAKA HIGH COURT held that the Assessing Officer has not entitled to extrapolate undisclosed income detected in the course of search for a particular period to entire block period on estimate basis. The Coordinate Bench of Tribunal in ACIT Vs M/s Amar Corporation Ltd. 2011 (3) TMI 1676 - ITAT AHMEDABAD and in Sayan Textiles Park Ltd. 2015 (4) TMI 184 - ITAT AHMEDABAD also held that question of extrapolation can only arise only in a situation when the documents give an indication that it was a regular occurrence in a systematic manner. Thus, in view of aforesaid factual and legal discussion, we uphold the order of ld. CIT(A) on our aforesaid observations. In the result, grounds of appeal raised by revenue as well as assessee are dismissed. Taxing of addition u/s 115BBE - We find that no such provision was invoked by AO while making addition in the assessment order. We further find that combination this bench in case of Dagina Jewellers ( 2023 (4) TMI 1277 - ITAT SURAT held that when the source of income was explained and is apparently established, hence section 115BBE is not applicable for such business receipts. It was held that the provisions of Sections 68 and 69 are not applicable for trading transactions like deposit of cash out of cash sales and excess closing stock. While giving such finding, we have made reliance on the decision of Shilpa Dyeing Printing Mills Ltd, 2015 (7) TMI 691 - GUJARAT HIGH COURT Thus, in view of aforesaid position, the Assessing Officer is directed to tax the addition under normal provision/rate applicable on assessee. In the result, the ground No. 2 of appeal is allowed.

Summary

Issues Involved:
1. Confirmation of addition under Section 69A of the Income Tax Act.
2. Application of Section 115BBE of the Income Tax Act.
3. Estimation of profit from on-money.
4. Taxation of undisclosed income.

Summary:

Issue 1: Confirmation of addition under Section 69A of the Income Tax Act

The assessee, a partnership firm engaged in real estate development, was subject to a search action under Section 132, which revealed various incriminating documents indicating on-money transactions. The Assessing Officer (AO) estimated the total on-money at Rs. 175.30 crores and applied a net profit rate of 30%, resulting in a taxable profit of Rs. 52.59 crores. The AO provided a set-off of Rs. 13 crores disclosed under IDS-2016, leaving Rs. 39.59 crores as taxable profit. The CIT(A) reduced the net profit rate to 13%, considering the project's location on the outskirts of Surat and the already declared profit under IDS-2016. The Tribunal upheld the CIT(A)'s decision, noting that incriminating material was not found for all units and the AO's extrapolation was not justified.

Issue 2: Application of Section 115BBE of the Income Tax Act

The assessee argued that the addition should be treated as business income and taxed at normal rates, as the AO did not specifically invoke Section 115BBE in the assessment order. The Tribunal agreed, citing precedents where business receipts were not taxed under Section 115BBE when the source of income was explained. The Tribunal directed the AO to tax the addition under normal provisions applicable to the assessee.

Issue 3: Estimation of profit from on-money

The CIT(A) allowed a 15% reduction on the gross on-money for negotiation and payment terms and applied a 13% net profit rate, considering the project's location and previous declarations under IDS-2016. The Tribunal upheld the CIT(A)'s estimation, noting that uniform rates for all units were not justified, and no independent investigation supported the AO's extrapolation.

Issue 4: Taxation of undisclosed income

The Tribunal emphasized that the addition for undisclosed income should be based on actual evidence and not extrapolated estimates. It referenced legal precedents that restrict extrapolation to periods directly related to the incriminating documents. The Tribunal upheld the CIT(A)'s decision to restrict the addition to 13% of on-money receipts and directed the AO to tax the addition under normal rates.

Conclusion:

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, directing the AO to tax the addition under normal provisions and rates applicable to the assessee. The findings were applied consistently to related appeals involving joint ventures and other assessment years.