2024 (2) TMI 926 - AT - Income Tax

Unaccounted income on sale of plots in cash - estimation of Net profit - estimation on the on- money received by the assessee - assessee submitted that the entire on-money is taxed by the Ld. Assessing Officer whereas the profit element at 8% embedded therein is only taxable in the hands of the assessee HELD THAT - Assessee company was incorporated on 01.04.2010 and developed residential 358 plots in Phase-I ranging from 500 to 1398 sq. yds. and 397 plots in Phase-II ranging from 150 to 300 sq.yds. Price of the plots are determined based on the improvements/growth of particular area are based on its infrastructure, development, public utilities, etc. Market value of the land and Jantry value differs from place to place. More unaccounted moneys are utilized on sale and development of lands/plots which are converted from Agricultural to Non- Agricultural purpose. In such cases it is impossible to estimate the net profit unless the method adopted in manufacturing activities. Therefore the claim of the assessee that net profit is to be adopted in the land development transactions, wherein on-money was received by the assessee is legally not tenable. Assessee failed to disclose the proper details of expenses, development charges, etc. before the lower authorities even in the second round also. Therefore the claim made by the assessee to adopt net profit method on the on-money received by it, in real estate transaction is hereby rejected and the case laws relied before us are clearly distinguishable, which are not relating to development of plots. Decided against assessee.

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 16.42 crores as unaccounted income.
2. Appropriateness of taxing the entire on-money received versus only the profit element.
3. Validity of the telescoping benefit claim by the assessee.
4. Confirmation of the disclosure amount by the Commissioner of Income Tax (Appeals).

Summary:

Issue 1: Legitimacy of the Addition of Rs. 16.42 Crores as Unaccounted Income
The assessee company, involved in developing residential plots, was subjected to a search action under section 132 of the Income Tax Act, 1961, resulting in the seizure of various documents and statements. The Director admitted that Rs. 16.42 crores was unaccounted income from the sale of plots in cash. Despite this, the assessee failed to substantiate the details during assessment proceedings, leading the Assessing Officer to add Rs. 16.42 crores as total income and initiate penalty proceedings.

Issue 2: Appropriateness of Taxing the Entire On-Money Received
The assessee argued that only the profit element embedded in the on-money should be taxed, citing several case laws. However, the Tribunal held that in land development transactions, it is impossible to estimate net profit accurately due to the nature of the business. Therefore, the claim to adopt a net profit method was rejected, and the entire on-money received was deemed taxable.

Issue 3: Validity of the Telescoping Benefit Claim
During the set-aside proceedings, the Assessing Officer verified the assessment records of the group concerns and concluded that the income disclosed by other group members was based on independent evidence. The assessee failed to correlate the source of income with the application in other group concerns. Consequently, the claim for telescoping benefits was disallowed due to a lack of supporting evidence.

Issue 4: Confirmation of the Disclosure Amount by the Commissioner of Income Tax (Appeals)
The Commissioner of Income Tax (Appeals) observed that the disclosure of Rs. 16.42 crores was for the entire Shreem group and not just the appellant. The CIT(A) confirmed the addition of Rs. 1.40 crores for the assessment year 2013-14 and Rs. 2.40 crores for 2014-15, stating that the remaining amount had already been taxed in the hands of other group members. The Tribunal upheld this decision, dismissing the appeals filed by the assessee and the Revenue.

Conclusion
The Tribunal dismissed the appeals filed by the assessee and the Revenue, upholding the additions made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals). The entire on-money received was deemed taxable, and the claim for telescoping benefits was disallowed due to insufficient evidence.