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TMI Blog2013 (11) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) must have some material/data to support the estimation of the Net profit of the Project. Other side of determination of material based net profit is obviously granting of relief on account of the hidden expenditure for earning of said net profit of the project. Scope of Reasonable Expenditure - Held that:- The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO’s conclusions on this issue are certainly erroneous. Reasonableness of 40% adopted by the CIT(A) - Held that:- the search material based-NP percentage stands on higher pedestal and hence superior and credible in quality and acceptability vis a vis the 40% picked up by the CIT(A) from nowhere and without any basis. In that sense, the basic requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the AO. The appellant was not apprised about the proposed addition and the case was not made out in spite of specific requests made in this respect. 3. The Ld CIT (A) has erred in law and in facts in confirming the addition of Rs. 4,64,31,144/- being alleged cash receipt on account of booking of units in the project Prime Mall . 4. The Ld CIT (A) has erred in law and in facts in confirming the taxing of alleged cash receipt in the year of booking in total disregard to the Project Completion Method of Accounting followed by the appellant and accepted by the Department. 5. The Ld CIT (A) has erred in law and in facts in enhancing the income of Rs. 1,62,50,900/- being alleged on money computed @ 40% of sales as per books of accounts amounting to Rs. 4,06,27,251/-. 6. The Ld CIT (A) has erred in law and in facts in not granting the appropriate set off of returned income of the project amounting to Rs. 5,11,69,416/- before partner s remuneration and interest declared in the AY 2006-2007. 7. The Ld CIT (A) has erred in law and in facts in not granting the appropriate set off of income of the project amounting to Rs. 58,80,990/- declared in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimated profits is rightly done etc. (ii) if the issue of sale of the car parking is rightly decided; (iii) confirming of the addition of Rs 2,85,000/- being alleged unexplained credits u/s 68 of the Act in respect of loan taken from Nenbai Gala; (iv) allowability of deduction of Rs. 4,55,000/- being compensation charges. The issues relating to enhancement by the CIT(A) and failure to grant set off towards the income offered by the assessee in other AYs are consequential in nature. However, the core issue mentioned at sl no (i) above is commonly agitated in appeals by the assessee as well as the revenue. 5. Briefly stated, relevant facts relating to all the appeals under consideration are that the assessee belongs to the Prime Group of cases which is engaged in the business of construction. During the years, the assessee undertook the project of construction of Prime Mall . There was search and seizure action u/s 132 of the Income Tax Act, 1961 (in short ITA ) on 20.4.2006 (AY 2007-08) at the residential and business premises of the directors/ partners/ related persons/ group cases. The project-Prime Mall (project) is located at Irla, Vile Parle (W), Mumbai and Shri Praful Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -112 ( L refers to lower ground floor and G refers to upper ground floor) showing the carpet area and super built area. It also mentions purchase rates and name of the parties. Annexure-F refers to sales of shops and their rates etc. Annexure-G refers to correspondence between the assessee and Shri Surendra Rikibda, Pune in connection with Shop No.F-72; Annexure-H refers to Shop Nos. L-83 and L-92 involving Anil and Augustin; Annexure-I relates to list of shops for which allotment letter was issued and it contains the area, total consideration and rate per sq.ft. Annexure-J is hand written details relating to some shops giving particulars of value of the shop, due, received and balance. Annexure-K is a provisional statement of Estimated Conservative Profitability of the Project Prime Mall showing estimated net profit of the project and the percentage thereof at Rs 38.73 Cr and 47.41%. the figure of 47.41% is wrongly calculated and correct working if done, the correct percentage figure is lessor. and finally, Annexure-L relates to another similarly worked out statement showing the estimated net profit of the project at Rs. 33.93 Cr which works out to net profit percentage of 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, AO made elaborate discussion in her order granting detailed insight into the modus operandi or manner of earning of on money out of the transaction of sale of the shops/units. She also mentioned specific cases of transactions for affirming the conclusion that the assessee suppressed the turnover of sales to the tune of 65% of the actual sales turnover. The contents of para 6 with its sub-paras running into (i) to (xxv) are exhaustive and it is space consuming to narrate the same here in this order. To sum up the findings of the AO, we rely on the following conclusions as summed up by the CIT (A) vide para 3.20 of the impugned order. They are as under: The basis of huge addition made by the AO is mainly based on the allegations mentioned herein below:- (i) The appellant is engaged in selling the units on super built-up basis where as loading on carpet area is 100% and that the agreement is made for carpet area. The loading to carpet area is nothing but alleged on-money received. (ii) Based on the impugned loose papers, the AO has drawn presumption that alleged on-money is inherent in the nature of appellant s business and presumed that the same is to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found by the search party regarding acceptance of part of the sale consideration in cash by the assessee, relates to various shops and is respect of sale transactions executed at various points of time. Thus it is not a case where the assessee has received on-money only in respect of a particular sale transaction or in respect of sales affected during a particular point of time. The clinching evidences gathered by the search parties (which contains entries in respect of sale transactions effected over a period of time, right from the year 2004 onwards) clearly indicate the general modus operandi adopted by the assessee while effecting sale of shops (ie acceptance of a considerable portion of the sale consideration in cash). It is for this reason that the addition on account of receipt of on-money is being made in all the AYs, where the assessee has declared sale of shops. 10. In view of the above discussion, the unrecorded component of the sale consideration is being added back to the total income of the various AYs concerned as under: (column 4 of this modified table is relevant) AY No. of units sold Sales as per Books of account (Rs.) On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 64,60,89,975/- Income from Other Sources Unsecured loan u/s 68 (as discussed above) Rs. 12,48,150/- Total income Rs. 64,73,38,125/-" For AY 2007-2008: 14 .. Income from house property (as per statement) Rs. 26,89,568/- Income from business Rs. 31.91,426/- Addition on account of consideration Received in cash Rs. 34,05,58,400/- Rs. 34,37,49,826/- Income from other sources Rs. 17,00,000/- Total income s.34,81,39,394/-" 11. Thus, to sum up, relying on the discoveries in the search, AO brought out a patter on the way the assessee sells super built up area to the customers and accounts only the sales relatable to the carpet area and not the sale relatable to the super built up area. Based on the seized papers appended to the assessment order, AO made out that the assessee collects the unaccounted portion in cash and outside the books and further, AO quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the said para 3.20 is reproduced here under: 3.20. The appellant has submitted the details as and when called by the Assessing Officer from time to time and has cooperated with the department whole-heartedly throughout the assessment proceedings. Not only so the partners / directors appeared before the Assessing Officer during the assessment proceedings from time to time. The Assessing Officer has conjured up sordid saga of allegations to cover up the failure in making enquiry and made a case of high pitch assessment by picking holes in the loose paper, which are picked and chosen to suit her convenience. The same is evident from the fact that the assessments for the AY 2004-2005, 2005-2006, 2006- 2007 and 2007-2008 have been made on presumptions making huge additions of Rs. 112.02 Cr as tabulated herein below. The Assessing Officer deemed it very convenient to adopt short cut to estimate income on percentage basis on the year wise sales of the units in the project Prime Mall . Assessment Year Accounted Sales in Rs. Addition of income @ 65% of total sales . 2004-05 4,06,27,251 7,54,50,609 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole of the 65% of the profits of the assessee, the CIT (A) worked out the total turnover of the assessee ie accounted as well as unaccounted sales of the assessee, for all these four assessment years and arrived at the figure of Rs. 167,23,42,426/- (accounted sales @ 35% works out to Rs. 58,53,19,849/- + unaccounted turnover @ 65% worked out to Rs. 108,70,22,577/- = Rs. 167,23,42,426/-). On the issue of what constitutes reasonable percentage of net profit that should be applied to the unaccounted turnover, CIT (A) analyzed various decisions that suggest the reasonable percentage of profit in respect of assessees with similar business operation. Of course, assessee relied on various decisions in support of adopting only 5% of gross receipts as a reasonable income as per the decision of Hon ble Bombay Bench of ITAT in the case of Mrs. Mehroo N Irani vs. ACIT; 8% of the gross profit unaccounted income instead of fully taxing it in the absence of evidences of expenditure ie decision of Hon ble Gujarat High Court in the case of ITO vs. Anand Builders (ITA No.52 of 2002), the Revenue s SLP was dismissed as reported in 265 ITR 337 (Statutes); 15% profit rate of on-money is reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as additional income of the appellant on account of on-money received after allowing set off of unaccounted expenditure of the appellant instead of 65% estimated by the AO. 16. From the above it is evident that the CIT (A) agreed with the assessee s contentions that there are some unaccounted payments, hidden payments and other payments which cannot be claimed as business expenditure. Although, such expenditures are incidental to run the construction business, to get sanctions of the project from various authorities and purchase of land for construction and eviction of the illegal occupants and vacation of the legal tenants etc. From the above, it is evident that the CIT (A) was with the AO in matters of arriving at the total sale consideration received, accounted or unaccounted, at Rs. 167,23,42,426/-. He was also with the AO in quantifying the unaccounted sales at Rs. 108,70,22,577/-. However, he departed from the AO s working that the total 65% of unaccounted sales is the income of the assessee. He arrived at the taxable profits of the project for the AY 2004-05 to 2007-08 at Rs. 66,89,36,953/- adopting the 40% as the net profit. In the process, the CIT (A) allowed 60% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d areas and Summaries of the stand of the Party c. Decision of the Tribunal a. Arguments of the Parties 20. During the proceedings before us, Shri Vijay Mehta, Ld Counsel for the assessee narrated the above facts and mentioned there are number of apparent mistakes in the order of the AO. Referring to para 2 of the AO, he mentioned that the numbers mentioned against each of the floor of the Prima Mall and also the sales turnover for the AY 2006-07 require corrections. Further, he explained the manner, in which AO made the addition of Rs. 108.7 Cr which is 65% of the extrapolated gross sales (35% was accounted) and the manner the best judgment assessments done by her without formally rejecting the books of accounts and the Project Completion Method consistently followed by the assessee. Ld Counsel is also critical of the way the extrapolation was done to all the shops merely based on the scanty data dug out from the Annexures-A to L. Further, Ld Counsel was critical of the conclusions inferred by the AO and CIT(A) based on the incomplete and incomprehensive data available from these questionable Annexures-A to L. Annexure wise submission of Ld Counsel is briefly discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount and also filed the affidavits of the concerned parties. Assessee itself filed an affidavit furnishing all the relevant documents. 20.3. Regarding Annexure-C, AO alleged that the assessee sold the units on the super built up area whereas, the agreement were made on the carpet area and assessee allegedly recorded sale consideration to the extent of 30% to 40% and balance consideration received in cash. In this regard, assessee submitted that the said annexure was some rough appropriation of the proposed sales consideration of the block deal with M/s. ABC Corporation for sale of all these shops/units. As per the allotment letter issues to M/s. ABC Corporation, for block deal of units on first floor and ground floor, Rs. 10 Cr was received against units at first floor, whereas in the seized paper the said amount was apportioned against the unit of ground floor. 20.4. Regarding Annexure-E, AO alleged that the same proves 100% loading on carpet area to determine super built up area. In this regard, assessee submitted that in a project like Mall there will be heavy loading on carpet area of shops because of large commonly used space by the public. But that does not prove that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tements after Audit by the statutory auditors. In this regard assessee submitted that the projections were only for the purpose of getting financial assistance from the banks and the net profit disclosed was the actual profit. It was mentioned that the Net profit percentage mentioned 41.41% is statistically wrong due to calculation mistakes. As per the Counsel, these figures are incomplete and inconclusive and not dependable. Refering to Annexure-L, Ld counsel stated that the same is prepared subsequent to Annexure-K and comparatively the same is latest in time and mentioned that it refers to net profit percentage of 28.18% and again it is an incomplete and inconclusive. In this regard, Sri Mehta, mentioned that the interest expenditure relating to unsecured loans is more than Rs 72.84 lakhs which can be evidenced from the books. If such expenditure is considered, the projected percentage of net profit shall have to be accordingly adjusted downwards from 28.18%. Further, he also mentioned that the sale of car parking is not real entry as the car parking was never sold in the commercial projects of this kind. With the exception of these papers, there is no evidence what so ever to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as confirmed by the CIT (A). In continuation, Ld Counsel mentioned that the CIT (A) erroneously and arbitrarily considered 40% of the turnover as the profits of the project Prime Mall and the same is unheard in this line of business, considering the unaccounted and hidden expenditure of the project. In this regard, Ld Counsel brought to our notice that such hidden expenditure of Rs. 4.55 lacs unaccounted in the books of account which was paid as compensation to the tenants for vacating the premises occupied by them. Ld Counsel also take an objection to the manner in which the best judgment assessment was made without formally rejecting the books of account and adopting 40% as the profit segment of the turnover. Further, Ld Counsel raised an objection to the manner Project Completion Method was rejected by the Revenue and estimating the year wise profits based on the Percentage Completion Method basing on the sale of shops effected on yearly basis. Further, he also pointed out certain mistakes in determining the number of shops sold in each year and filed a copy showing correct number of shops sold in each of the assessment year under consideration. 24. In support of his ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues in that case have come to end based on the disclosure u/s 132(4) of the Act. Whereas in the instant case, the disclosures made u/s 132(4) and other statements were retracted and, therefore, the facts of the present appeals are distinguishable from that of the Neptune group cases. Ld Counsel relied on various decisions in favour of his above submissions. Ld Counsel also filed copies of orders establishing the finality in their cases. Further, Ld Counsel mentioned that the assessee offered certain portion of the income in the various assessment years and sought direction to ensure that income is not taxed more than one assessment year. 27. Referring to a submission filed in the form of letter to the Tribunal, at the end, Ld counsel categorically stated that the assessee has decided to not press on the argument relating to exercise of extrapolation and determination of the gross sales turnover of Rs 167.23 cr and prayed for ordering for downward revision of 40% adopted by the CIT(A) to 15% at the maximum and sought for bringing finality on the litigation. Otherwise, the assessee prayed for deciding the reasonable net profit percentage of the project Prime Mall. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R relied on the orders of the AO. 30. We have heard the parties and perused the orders of the revenue. The annexures to the assessment order were also perused. To start with, the details of the undisputed facts are narrated here and the same are that assessee-firm constructed a Prime Mall and its Super Built up and carpet areas are 1,33,386 sq ft and 66,693 sq ft respectively. The project is completed in the AY 2006-07 and on following project completion method of accounting, the firm filed the returns of income for the AY 2006-07 and 2007-08 declaring the net profit at 15.50% and 11.76%. The average of the said NP percentages works out to 13.63%. There is no dispute about the genuineness of the seized papers and the contents therein annexed to the assessment orders. At the end of the hearing proceedings, Ld Counsel categorically mentioned about the concessions given by the assessee with reference to the issue of extrapolation and consequent generation of 65:35 formula of unaccounted sales: accounted sales turnover and therefore, for deeming of Rs 167.23 cr as the actual sales turnover of the assessee out of the project. Otherwise, the Annexures K and L, under the sub-heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, but for the concessions narrated above, and in principle, the assessee disputes the AO s (i) allegation of collection of the on money in cash, (ii) attempt of considering the Annexures A to L as basis for coming to the conclusion that the assessee has loaded the carpet area price with the unaccounted price in cash relatable to the super built up area; (iii) the extrapolation of the seized material to the entire project; (iv) disputes the AO s conclusion that the accounted and unaccounted turnovers for the said four AYs 35% and 65% respectively; (v) the AO s conclusion in taxing whole of the impugned unaccounted on money equivalent of 65% of the gross sales instead of adopting the fixed % of the same; (vi) denial of deduction towards the unaccounted expenditure in the process, AO has not followed binding judgments cited by the assessee; (vii) for different reasons, the parties disputes the NP 40% as taxable profits of the project; (viii) there are other miscellaneous disputes too. 32. At the end of the first appellate proceedings, the assessee got partial relief on some of the disputed facts narrated above. So far as the disputes at (i) to (iv) above are concerned, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs 167.23 cr (accounted sales as per books at Rs 58.53 cr + unaccounted sales estimated at Rs 108.70cr) is extremely on high side. Of course, it is the case of the assessee submitted that he shall not press the issues relating to extrapolation issues, derivation of 35:65 formula relating to accounted and unaccounted sales of the project; determining the gross turnover of sales at Rs 167.23 cr, provided reasonable percentage as approved by various decisions cited is adopted for determining the net profit of the project and grant statutory deduction u/s 40b of the Act thereafter. 35. In our opinion, per contra, the case of the Revenue is that the order of the AO must be upheld without any changes and the addition of Rs 108.70 cr over the four AYs must be confirmed after set aside the impugned order of the CIT(A). C. Tribunal s Decision on the said core issue for AYs 2004-05 to 2007-08 36. We have examined the above mentioned divergent stands of parties in disputes. Further, we have also considered the concessions offered by Ld Counsel for the assessee. On considering the same, we find that what constitutes reasonable percentage of net profit is a matter of dispute and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in principle, the opprobrium of Ld Counsel against the use of the contents on Annexures A to L stands disapproved. In the process, we disapprove the arguments of ld Counsel that the unaccounted sales turnover should be restricted to Rs 21.35 cr, the on money relatable to the tainted shops. In this regard, we adopt the ratio of Apex Court s judgment in the case of HM Esuf Ali H M Abdul Ali reported in 90 ITR 271, where the unaccounted turnover of sale for the period of 19 days was extrapolated to full year for estimating the escaped turnover and for making additions and the same was approved by the Hon ble SC in principle in the penalty proceedings. This proposition shall apply to the facts of the present case and unaccounted turnover of Rs 21.35 cr which is equalant of nearly 13% of Rs 167.23 cr of estimated gross sale turnover. Assessee failed to establish that on money issue does not arise in other untainted units/shops of the project. Relevant extract of Held portion is extracted as under: In estimating any escaped turn, it is inevitable that there is some guess work. The AO while making the best judgment assessment, no doubt, should arrive at his conclusion wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here as under: 41. Best judgment assessment: The provisions of section 144 and 145 (3) of the Act lays legal foundation for the impugned assessments. In the instant assessments made u/s 143(3) rws 153A of the Act, the AO rejected the books results informally in view of the incompleteness and inaccuracies in the books and also in view of the contents of the Annexures- A to L appended to her orders. In principle and in spirit, the assessments made are best judgment assessments. Despite the opprobrium displayed by Sri Mehta against the AO s order and the Annexures, the assessee has not seriously contested the issue of rejection of books and therefore, there is no need to delve into this issue formally. However, Sri Mehta mentioned that the process of determination of NP as part of making of best judgment assessment should not be an arbitrary (Kachwala Gems 288 ITR 10 (SC). The whims and fancies of the AO should not play any role in the matter of such assessment but it should be based on some material either produced by the assessee or collected by the Investigation wing or AO. It should be based on fair and reasonable basis. The Court would not call for proof for establishing the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO s conclusions on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue s appeals are dismissed. 43. Reasonableness of 40% adopted by the CIT(A): Thus, we have so far finalized the issue of gross sales turnover and the need for granting set off the unaccounted or hidden expenditure against the estimated turnover and the principles of reasonability is the underlying factor in these matters. Now, we shall examine if CIT(A) is justified in estimating the net profit at the rate of 40% of the gross sales of the project Prime Mall and if the test of reasonableness is cleared. Generally, applying 40% as the profit percentage is seen as on the higher side as held by the Hon'ble High Court of AP in the case of R Narayana Rao and Others reported in 338 ITR 625 (AP). In this regard, although an element of guess work is part of such best judgment assessment, AO must desist from being arbitrary and AO must ensure that his judgment ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit at 2% of the estimated sales or 16% of the purchase price would be reasonable 44.2. Of course, the above case and its ratio of the judgment is distinguishable on facts in view of entirely different industry. Nevertheless, when it comes to the reasonableness of 40%, the Hon ble High Court of AP is categorical in stating that, in the high margin business like the arrack trading, adopting 40% is arbitrary and irrational . But the underlined presumption of Hon'ble High Court of AP is that the arrack business like in the construction business, equally huge hidden or unaccounted expenditure is a common occurrence and there would not be evidences with assessees to demonstrate before judicial forum. Therefore, in our considered opinion, CIT(A) has not provided any reasoning or base for picking up the said 40% and therefore, his decision on this limited issue is completely arbitrary and irrational and not sustainable. Consequently, the AO s decision of considering 65% of the total sales as the income of the assessee is also arbitray and irrational and hence, the same is not approved. Having held 40% as unreasonable due to the arbitrary and irrational nature, we need to fish out rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... longs to the assessee and to the project under consideration. Thus, we have different NP% from three different sources namely (a) returns of the assessee sources are assessee s books of accounts on the project under consideration; (b) judgmental laws suggesting 5% to 15% and other percentages as offered by the assessee and (c) Annexures-L appended to the Assessment orders - seized material directly on the project. Thus, we have two sources of NPs directly on the project which is the subject matter ie Average NP of 13.63% on one side and 28.18% on the other. There is no dispute on the first and however, on the NP of 28.18%, there are number of disputes and therefore, we shall discuss them in the succeeding paragraph. 47. Use of the data from the seized papers: Annexure K and Annexure L are the seized papers and formed part of the assessment orders. Both these annexures are identically titled as Provisional statement of estimated conservative Profitability of the Project , Project Prime Mall of M/s Prime Developers. These statements contain exhaustive working on the profitability qua the gross sale consideration. Prima facie, it is obvious that Annexure L with NP of 28.18% is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent one and also in the absence any incriminating material to suggest such sale, the sales figure in Annexure-L goes down to Rs 117.42 cr instead of Rs 120.42cr. Prima facie, we agree with the views of Sri Mehta on this issue. (b) Regarding Finance cost (interest cost) , Sri Mehta mentioned that it is another area that requires adjustment. Elaborating the same, he mentioned that the Ann-L mentions the figure of Rs 5,51,82,000/- against actual finance cost of Rs 8,28,22,000/-. If the above adjustments are allowed, the sales turnover shall be Rs 117,41.80 lakhs against Rs 120,41.80 lakhs (Rs 120.41.80 lakhs minus Rs 300 lakhs) and cost of project will shoot up to Rs 8925.02 lakhs against Rs 8648.62 lakhs. In our opinion, considering the actual, the assessee s request for adjustment to that extent is allowable. In principle, we agree with the Sri Vijay Mehta s contention that the NP figure of 28.18% needs to be revised to 24% (23.99%) for ascribing reasonability to the data from Annexure-L. 51. Reasonable NP of the Project = Average of Returns based NPs Adjusted NP from Annex-L: In the preceding paragraphs, we have discussed occurrence of various NP percentages from at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for each of the AYs ie 2004-05 to 2007-08 adopting the above reasonable NP of 17.08% over year-wise sales accrued, which finally forms part of the gross sales turnover of Rs 167.23 cr. As per our calculations, the such sales for the said four AYs works out to Rs.11,60,77,860, Rs 7,72,42,857, Rs 95,50,85,669, Rs 52,39,36,000 (= Rs 167.23 cr) respectively. The net profits for the same AYs after subtracting returned profits works out to Rs 1,98,26,099/-, Rs 1,31,93,080/-, Rs 11,13,17,134/-, Rs 6,79,31,788/-. AO may adopt correct figures if necessary. As regard to the ground relating to project completion method, since this is not pressed before us, the basis adopted in the impugned order of the CIT(A) remains undisturbed. The grounds relating to enhancement and the prayer for setting off of income offered in AY, the same becomes academic exercise in view of our above calculations. AO shall verify the above calculations considering the related conclusions in the order while giving effect to the order. That leaves the other dispute relating to allowing deduction in respect of the statutory deduction u/s 40b of the Act from the estimated profit. 53. Statutory Deductions u/s 40b of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration to partners and interest to partners (AY: 2005-06) - Teja Constructions vs. ACIT 129 TTJ 57 (UO) / 36 DTR 220 (Hyd.) (Trib.) 55. The above Judgments are directly relevant for deciding the assessee s grounds in the matter and in that sense of the matter, in principle, the issue stands covered and in favour of the assessee. The perusal of the impugned order does not provide any reason for denial of such statutory deduction u/s 40b of the Act. Even before us, revenue has not filed any contrary decision in support of the denial of deduction on accounts of remuneration and interest to the partners. Accordingly, relevant grounds are allowed in favour of the assessee. Thus, the issues relating to determination of taxable profits of the Project Prime Mall and related issues raised before us by the parties are partly allowed pro-tanto. 56. In the process, the revenue s core grievances raised in its ground 1 and 2 that the Rs 108.70 cr should be the profits of the assessee s project-Prime Mall and against the grant of set off of the unaccounted expenditure against the estimated income of the project without support of evidences are dismissed. 57. Accordingly, from the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the original creditor is there to defend the transaction, in our opinion, assessee must be given another opportunity to file relevant details to support the creditworthiness and genuineness of transaction too. Accordingly, ground nos. 9 and 10 raised by the assessee are allowed for statistical purposes. 61. In the revenue s appeal for the AY 2004 - 05, the only other stand alone issue left for adjudication relates to Car parking issue and the Ground 3 of the appeal vide ITA No. 323/M/2010 are relevant. 62. During the assessment proceedings, AO observed from Annexure L and K that assessee considered a sum of Rs 3 crores as sales of car parking and the same are not disclosed in the books of accounts. AO also found that the stock of the parking space also does not appear in the closing stock statement submitted by the assessee. Accordingly, AO made addition of Rs.3,00,00,000/- on account of undisclosed sale of car parking. Para 11 of the assessment is relevant and the same read as under: 11. Moreover, the seized materials clearly indicate that the assessee has sold the parking lot of the Mall for the total consideration of Rs 3 crores. However, the sale of such pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontents of Annexure K and L, Ld DR in general and with special reference to C. Profitability in particular, the counsel read out the said section C relating to Profitability and highlighted the item Car Shop (200 @ 150000)---300.00 (lakhs) which formed part of the estimated turnover of Rs 120.42cr . Ld DR relied on the same and mentioned that the addition of Rs 3 cr is required to the confirmed. On the other hand, Ld AR for the assessee is of the opinion that these annexures relating to Provisional statement of estimated conservative Profitability of the Project , Project Prime Mall of M/s Prime Developers. Search action has not yielded any material to suggest that the car parking area is for sale. Further, he mentioned that in principle, the assessee is not allowed to sell the car parking area. 66. We heard the parties and perused the orders of the revenue and the annexures appended to the assessment order. With the exception of Annexure K and L, there is no other source of information to the AO relating to the impugned issue relating to sale of the car parking . Based on the scanty information, AO made the said addition of Rs 3 crores merely based on the said provisiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee) 70. Ground no.10 and 11 relate to the addition of Rs. 12,48,150/- on account of unexplained cash credits u/s 68 of the Act involving Shri Kishore Lehrani. During the assessment proceedings, AO observed that the unsecured loan of Rs. 13,40,86,756/- outstanding in the balance sheet as on 31.3.2006, includes loan amount of Rs. 12,48,150/- shown in the name of Shri Kishore Lehrani. AO further observed that, despite various opportunities granted, the assessee could not establish the identity / creditworthiness of the lender (Shri Kishore Lehrani) and has not discharged the onus in proving the genuineness of the transaction. Accordingly, AO made addition of Rs. 12,48,150/- on account of unexplained cash credits u/s 68 of the Act. On appeal, during the first appellate proceedings, CIT (A) confirmed the addition made by the AO of Rs. 12,48,150/- vide para 5.3 of his order which is reproduced here under: 5.3. I have considered the reply of the appellant and perused the assessment order. The appellant has failed to produce the confirmation of the creditor, Mr. Kishore Lehrani during the assessment proceeding before the Assessing Officer and also in the appellate proceeding be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, AO made an addition of a sum of Rs. 17,00,000/- out of total cost of Rs. 50,00,000/- as unaccounted income of the assessee for the AY 2007-2008. On appeal, during the first appellate proceedings, CIT (A) deleted the addition made by the AO of Rs. 17,00,000/- and para 5.8 is relevant in this regard which is reproduced here under: 5.8. The appellant has explained that during the search and seizure operation, cash of Rs. 19,49,727/- was available with the assessee as per its cash book on the date of search. The appellant has filed copy of cash book in which the cash balance of rs. 19,49,727/- was available on the date of search. This fact was also confirmed by Shri Praful Satra in his statement recorded during the search and seizure operation. The AO has already made addition of Rs. 50,00,000/- in the hands of Shri Prekji T Shah in AY 2007-2008 as unexplained cash found during the search on substantive basis.This addition of Rs. 50,00,000/- also include cash of Rs. 17,00,000/- pertain to the appellant, which has been claimed in the assessment proceeding in the case of Shri Premji T Shah. But the Assessing Officer has not accepted this explanation being afterthought and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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