9911796707
TMI Blog2011 (4) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... d - If assessee is able to show the nexus that interest bearing funds or part thereof was given as advance on which assessee has earned interest, to that extent netting can be allowed. If assessee is not able to establish such nexus of interest bearing funds and advances on which assessee has earned interest netting will not be allowed and interest income to that extent would be taxed separately. This ground of assessee is, therefore, allowed but for statistical purposes. Regarding interest free advances - In our considered view this issue is also required to be examined afresh from the point of view of nexus. AO has to show that interest bearing funds were advanced as interest free to these partners. If it is so then rather taxing interest income, part of interest expenditure can be disallowed. But where assessee has sufficient personal capital or interest free funds then no such addition can be made. With these observations we restore this issue also to the file of AO. As a result, appeal filed by the assessee is partly allowed and partly allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- Total Rs.10,00,00,000/- However, the assessee did not declare the said sum of ₹ 10 crores in the return of income nor paid taxes thereon. Notices u/s 142(1) were issued but there was no compliance. Thereafter notice u/s 148 was issued on 19.2.2009 to file return for this Asst. Year . The return of income was filed in response to above notice on 22.3.2009 declaring total income at Rs.NIL. The AO further noticed a remark by the auditor in para 3 of form No,3CD of audit report as under :- "Assessee firm has declared ₹ 10 crores in the course of survey conducted u/s 133A under the Income-tax Act, 1961 on 19.09.2007 entry made in the books of accounts have been verified with reference to the statement recorded during the survey. The receipt of ₹ 10 crores by way of booking advance are represented against as revenue expenditure and assets." Thereafter the AO gave a detailed show cause notice to the assessee mainly calling for his explanation for not declaring ₹ 10 crores in the return of income as promised/stated by him during the course of survey. The detailed show cause notice and the reply of assessee are quoted in the assessment order in para 4.2 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us heads have also been given. (2) The disclosure made by the assessee has not been disputed and has not been retracted. (3) The assessee has incorrectly shown the above sum of ₹ 10 crores as advances in the books and has passed corresponding debit entries as investment made in WIPs etc. The assessee has thus by passing above entries nullified the effect of disclosure. (4) The assessee has, as per bifurcation given, shown a payment of ₹ 2.10 crores as 'on money' for purchase of land which is not recorded in the books. Similarly, the disclosure of ₹ 5 crores and ₹ 2 crores being unaccounted investment in Model Town Park, Magob, Surat and expense has no relation with the advances as they are unaccounted investment on the date of survey. In any case the investment/expenditure incurred by the assessee has no co-relation with advance, if any. (5) What is declared by the assessee is unaccounted investment/expenditure which has to be taxed u/s 69C separately. The ld. CIT(A) relied on the decision of Hon. Gujarat High Court in Fakir Mohamed Haji Hasan vs. CIT (2001) 247 ITR 290 (Guj). Thus once it is deemed income then it has to be taxed separately and no expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r books of account upto the date of the survey and, therefore, in the nature of deemed income against which, as seen in the earlier paras, no deduction or set off is allowable. Accordingly, the first ground of appeal is dismissed." 9. Against this order of ld. CIT(A), the ld. AR for the assessee submitted that - (1) In the statement recorded by authorised officers during the course of survey assessee has clearly stated that it has received 'on money' against the booking of flats and it has been invested/spent in the manner whose details are also given by the assessee. (2) Thus assessee has given the source of expenditure/investment which is the receipt of 'on money' against booking of flats. (3) The statement of Shri Ravi Khandelwal should not be read in isolation and entire statement should be read as a whole. Then it would be clear that on one hand Shri Ravi Khandelwal referred to receipt of 'on money' on booking of flats and on the other hand he referred to investment/expenditure out of such 'on money'. (4) The assessee has not retracted the statement and he has all the intention to declare the same in the year of income in appropriate year. It was a mistake on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He was under lot of mental pressure due to survey and could not realize as to when this amount should be legally offered for taxation and when it should be legally assessed. (9) Once assessee has offered the same in the year when revenue accrued, it should not be again taxed in Asst. Year 2008-09 as it will amount to double taxation. 10. Against this, the ld. DR submitted that it is the assessee who himself declared the sum as his income for Asst. Year 2008-09 in the statement recorded during the course of survey on 19.9.2007 and he has not retracted this statement then assessee should not be allowed to revert back and say that it would not be taxable now in Asst. Year 2008-09 but would be taxable in Asst. Year 2009-10 or 2010-11 when flats were allegedly sold. The ld. DR referred to the statement of Shri Ravi Khandelwal and in particular question no.26, 27 & 28 thereof and answers to them to support his argument that it is Shri Ravi Khandelwal himself who has said that this amount is his income for Asst. Year 2008- 09. The relevant part of statements are as under :- Q: 26: Today on 19.9.2007 during the course of survey in the Model Town Park, we have seen the loose papers file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the unaccounted income earned in year 2007-08 by M/s D.R. Construction, after consulting my father Shri Vishwanath Khandelwal and others. In this regard, we disclose that whatever papers are being impounded have been seen by us, totaled by us and even on totaling and understanding the different items shown in the paper which is of our Model Town Park which is being constructed by M/s D.R. Construction. In this project, whatever investment and stock on site is their and the on-money taken from buyers (which has not been disclosed in the books) aggregates to ₹ 10,00,00,000/- (10 crores) which is over and above the regular or different from the regular income of Ms D.R. Construction for FY 2007- 08 (Asst. Year 2008-09). We have accepted in answer 27 and its disclosure is as under Unaccounted investment in respect of 17 towers which are under construction at model town park (Annexure A2/16 of impounded diary page 57 & 58 Rs.5,00,00,000/- The stock of shed, sand, cement etc. at the model town park site Rs.90,00,000/- The loose papers at the model town site office relating to the project which were impounded Rs.2,00,00,000/- Payment made for purchase of land of Model to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the WIP a/c. The appellant has, thus, by passing the above entries in the books of a/c post survey, nullified the effect of disclosure of income of ₹ 10 crores made during the course of survey. The moot question arising, therefore, is whether the income offered by the appellant at the time of survey can be shown as advances received from the customers and taken to WIP a/c. by making corresponding debits under various expense heads. It is seen that out of ₹ 10 crores of disclosure made, ₹ 2.10 crores only related to payment of 'on money' made in cash during the year through the brokers for purchase of land for Model Town Park, Magob, Surat which is not recorded anywhere in the books of a/c. of the appellant firm on the date of survey. Thus, as far as this amount is concerned, partner of the firm himself admitted that on the date of survey it is 'on money' payment made for purchase of land not recorded in the books of a/c., which clearly means that this amount has been paid out of the books of a/c as on the date of survey and, therefore, could not have been brought by the appellant in the regular books of a/c by way of advances and making corresponding debit in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tue of deeming provisions of section 68, 69, 69A, 69B & 69C the expenditure incurred by the assessee as admitted by him in the statement recorded u/s 133A will not form part of book profit but would be taxed as deemed income separately. He also emphasized upon the observation of the Hon. Court from that judgment as referred to by ld. CIT(A) on pages 20 & 21 of his order. (5) The ld. DR further pointed out that in view of above decision of Hon. Gujarat High Court, the expenditure so incurred by the assessee outside the books would be deemed income and no other expenditure would be allowed as set off against it including the expenditure which is taxed as deemed income u/s 69C. He submitted that unaccounted expenditure taxed as deemed income cannot be set off against the same expenditure otherwise provisions of section 69C would become otiose. (6) The ld. DR submitted that the project completion method on which assessee is heavily relying on, cannot be invoked in the construction cases. The project completion method in respect of contracts entered into above projects undertaken after 1.4.2003 cannot be applied. The revised accounting standard AS-7 pointed out that project completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is given. (iii) Statement is not retracted which still stands. (iv) Not offering disclosure amount as on money, now, is only an after thought. (v) The certificate of auditor is self serving and cannot be relied upon that sum of ₹ 10 crores is on money. (vi) Stand of ld. CIT(A) that this sum is taxable u/s 69C is correct. (vii) It is not possible to collect sum of ₹ 10 crores from 130 persons. No details of such persons are given. (viii) Apparently the date of application of money is earlier as compared to date of collection. (ix) If sum of ₹ 10 crores is treated as credit in the books as on money and since it is not explained it should be alternatively taxed u/s 68. (x) No deduction u/s 80IB should be allowed as it is not proved that ₹ 10 crores is booking receipt. (xi) The decision of Hon. Gujarat High Court in Radhy Developers is not applicable which was applicable prior to 1.4.99 and not in Asst. Year 2008-09. (xii) There is an amendment in the Act in section 69 C by way of insertion of proviso which prohibits allowing any expenditure against deemed income taxed under section 69C. (xiii) According to the ld. DR such expenditure which is treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of statement referred to above, that he has received 'on money' on booking of flats which has been spent as per details given above. Both the elements i.e. receipt of 'on money' and incurring of expenditure/investment are stated in the statement. Revenue is relying merely on one part of the statement that assessee has made unaccounted investment and, therefore, it should be taxed u/s 69C whereas assessee is emphasizing that expenditure is only out of 'on money. The statement is not retracted. Shri Ravi Khandelwal has also stated that sum of ₹ 10 crores is his income for Asst. Year 2008-09 but the same has not been declared in the return filed in response to notice u/s 148(1) wherein the income is declared NIL. The assessee has sought now to take the stand that the sum of ₹ 10 crores is not an income for Asst. Year 2008-09 but would be the income when flats are sold. It has also taken the stand that it is following project completion method and, therefore, entire income/expenditure would be taxed only when project is completed which is not in Asst. Year 2008-09. Further, after examining AS-7 we are of the considered view that this would be applicable to builder and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed or inference cannot be drawn from part of the statement. If investment/expenditure is accepted to have been made outside the books on the basis of statement given by Shri Ravi Khandelwal then receipt of 'on money' on booking of flats should also be accepted on the basis of same statement unless heavier evidence in the form of supporting evidence which could only show the incurring of expenditure/investment outside the books but no receipt of on money are produced before us, which in fact is not done, if there were any. Therefore, the factum of receipt of 'on money' is to be accepted in the same way as factum of income/expenditure is accepted on the basis of same statement of Shri Ravi Khandelwal. No reasons are advanced as to why only the factum of incurring expenditure/investment should alone be accepted and not the receipt of 'on money'. The ld. DR had emphasized that there is no evidence/details of receipt of 'on money' then similarly there is no evidence of expenditure/investment outside the books. Therefore, reliance is only placed on the statement of Shri Ravi Khandelwal though it remained unsubstantiated. Only for the reasons that the same is not retracted its content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee against such receipt. Therefore, both 'on money' as well as expenditure/investment has to be separately accounted for/added to the declared receipts and declared expenditure/investment as per books to work out total income accrued to the assessee and total expenditure/investment incurred by it. 15. The next issue comes as to when the income out of such receipt would accrue to the assessee. In our considered view receipt of 'on money' is part and parcel of money received on sale of flats by cheque. The amount received by cheque before actually transferring the flats to the purchasers will be in the nature of advance and cannot be said to have accrued to the assessee. Assessee has incurred expenditure/investment in the project in various years but income to it will accrue only when flats are sold to the buyers. Advance money received by the assessee can never be his income. It would only be a liability shown in the balance sheet as advances from the customers and will be adjusted against the sale proceeds of the flats when flats are transferred to the purchasers. Therefore, accrual of income to the assessee will not arise on the date when it receives cheque or cash against sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 880 (Bom). This authority was cited by the ld. DR for the proposition that if unaccounted income/expenditure is sought to be explained by receipt of 'on money' then such on money remained unexplained and therefore, it should be taxed u/s 68 and such alternative new contention can be allowed by the Tribunal. There is no dispute about this proposition. However, neither unaccounted income/expenditure is recorded in the book nor the 'on money'. Unless a credit is found entered in the books, provisions of section 68 cannot be invoked. (3) CIT vs. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 273 ITR 1 (SC). The ld. AR has referred to this authority. It related to taxing of casual and non-recurring receipts being surrendered of tenancy rights. As per law prior to amendment in section 55(2), Hon. Supreme Court held that if an income is included under any one of the heads as specified in section 14 being items A to E then it cannot be brought to tax u/s 56 as casual and not receipt. If the income cannot be taxed u/s 45 it cannot be taxed at all. The ld. AR sought to draw parallal to the facts of the present case by arguing that if income does not accrue it cannot be taxed. In our considered v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year in which they were received. Unless the title of the assessee is extinguished, the title to the purchaser cannot arise. Both cannot be the exclusive owners of the same property at the same time. It was exiomatic that an agreement to sell does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating in the extinguishment of the title of the vendor and simultaneous creation of the title in the vendee that the assessee earns profit or suffers loss. A transaction which may or may not ultimately result in a completed sale by executing a registered conveyance, is no transaction at all for the purpose of working out profit. Receipt of sum amount would assume the character of income or profit only when the sale transaction is completed in accordance with law. The land does not cease to be the stock-in-trade of the assessee unless and until the sale is completed. Therefore, the amount received by the assessee by way of earnest money and party-payment of the purchase price cannot be treated as its trading receipt -Kunjamal & Sons. In re (1941) 9 ITR 358 (All), Chidambaram Chettiar vs. CIT (1936) 4 ITR 309 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed which may be registered in the same year or may be in the subsequent year. Hon. Supreme Court had occasion to consider the concept of accrual or arising of income in the case of E.D. Sassoon & Co.Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC) wherein it is held that there is no difficulty in understanding what is receipt. It conveys a clear and definite meaning and there cannot be any expression which makes its meaning plain then the word "receiving" itself. The words accrual/arise are not defined in the Act. Accruing is synonymous with arising in the sense of springing as a natural growth or a result. "Accrual" would indicate a sense of growing up by way of addition or increase or as an accession or addition while arise would mean coming into existence or notice or presenting itself. "Accrual" connotes an intangible growth while arise a tangible shape so as to be receivable. From these concepts it follows that accrual is anterior in point of time than arise. Point of taxability in the context of transfer of an immovable property would be the moment when transfer deed is executed and at that moment profit to the assessee would accrue and a right of the assessee to receive consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout setting off of interest income of ₹ 13,39,593/- against interest expenses of ₹ 56,49,225/-. The AO found that interest bearing funds were entirely not utilized for business purposes. Therefore, benefit of netting cannot be given. 20. The ld. CIT(A) confirmed the addition. 21. We have heard the parties. What is required to be found out is that the interest bearing fund were given as advances on which interest income of ₹ 13,35,593/- is earned. If assessee is able to show the nexus that interest bearing funds or part thereof was given as advance on which assessee has earned interest, to that extent netting can be allowed. If assessee is not able to establish such nexus of interest bearing funds and advances on which assessee has earned interest netting will not be allowed and interest income to that extent would be taxed separately. This ground of assessee is, therefore, allowed but for statistical purposes. 22. The third ground relates to addition of ₹ 2,69,690/- as interest on alleged interest free advances. The AO found that following amount is outstanding against various persons :- Sl.No Name of the persons Balance outstanding as on 31.03.2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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