9911796707
TMI Blog2017 (6) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... for scrutiny assessment and notice under section 143(2) was issued on 31.7.2012 and served upon the assessee. It is pertinent to mention that a survey under section 133A of the Act was conducted at the business premises of the assessee on 18.10.2010. During the course of survey, two papers were found from the pocket of one of the partners which were inventorised as annexure B/1 and these papers were impounded. Statement of Shri Mukesh Patel, one of the partners of the assessee-firm was recorded wherein he admitted that the assessee firm has earned unaccounted income of Rs. 26.10 crores over and above its regular income. The assessee has given bifurcation of this Rs. 26.05 crores in the projects. 4. On scrutiny of the accounts, it revealed to the AO that the assessee has only offered a sum of Rs. 1,14,55,933/- as unaccounted income instead of Rs. 26.05 crores. He observed that out of Rs. 26.10 crores, declared by shri Mukesh Patel, Rs. 5.00 lakhs was on account of cash discrepancies. Thus, the AO had issued a detailed show cause notice dated 25.3.2014. Copy of the show cause notice has been reproduced in the assessment order. 5. The assessee has replied show cause notice. Reply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate world of Surat City. What actually happens it that the seller and the buyer enter into a written agreement called Satakhat, mentioning the details of the property, rate of transaction and schedule of payment etc. duly singed by the parties i to transaction. And then, a diary is maintained to keep the record of installments as and when paid by the customers. It may be noted that one of such diaries was also found during the course of Survey proceedings in case of the assessee company. It is |an open secret that, since these documents are the evidences of actual rate of transaction including the unaccounted portion, the assesses maintain them secretly at some less known secret premises. Thus, on every installment received from the customer, the said diary gets updated. The unaccounted portion is much higher than the accounted portion therefore, paid up much before the accounted portion of consideration and hence significant risks and rewards get transferred to the buyer much earlier than what is apparently is shown on date of actual transfer. Taking the date of sale deed would, therefore, frustrate the logic embedded in the Accounting Standards. In the instant case, a material ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guiding principles regarding maintenance of proper and acceptable books of accounts are envisaged by section 145 of the Income Tax Act, 1961. Section 145 of the Income Tax Act, 1961 casts triple onus on the assessee to maintain books of account in such manner as to meet the following the three criteria. (1) Satisfaction about the correctness of the accounts (2) Satisfaction about the completeness of the accounts (3) Regularity in following the method of accounting provided in sub-section (1) of section 145 or accounting standards as notified under sub-section (2) of section 145. 15.2 Thus Section 145 of the IT. Act puts the triple onus on the assessee to provide for an maintain the correctness, completeness and regularity of the method of accounting strictly to the satisfaction of the Assessing Officer. The failure to meet one of the requirements of section 145 of the Income Tax Act, 1961 renders the books maintained by the assessee liable to rejection on account of incorrectness or incompleteness or irregularity. 15.3 From the perusal of Profit & Loss Account of the assessee, it is seen that it has offered Rs. 1,14,55,933/- as income disclosed during survey for the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be no cherry picking. (Addition on account of income disclosed during survey-Rs. 24,90,44,067/-) 16. During the course of survey proceeding, excess cash of Rs. 478036/- was also found. In reply of question No. 10 of the statement recorded during the survey, an amount of Rs. 5,00,000/- was voluntary offered over and above the uncounted income Against the said discrepancy of Rs. 4,78,036/-. In response to specific query regarding the treatment of Rs. 5,00,000/-, the assessee stated that separate entry for the said difference in the amount of cash was not passed and that Rs. 5,00,000/- is voluntarily offered as additional income of the current year in order to peace of mind and avoid protracted litigation. In this regard it is submitted that it is only after this discrepancy was brought to light before the assessee, that he offered the cash difference of Rs. 5,00,000/- as income. Accordingly Rs. 5,00,000/- is hereby added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the IT. Act are initiated for furnishing inaccurate particulars of income and thereby leading to concealment of income. (Addition on account cash discrepancy during survey-Rs. 5,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 26.05 crores, cannot be treated as income in isolation unless the expenditure/investment part also correspondingly exists. The method of accounting disclosed by appellant also supports this principle. It is undisputedly following the AS- 9, wherein income is recognized at the time of transfer of ownership of immovable property by executing registered sale deed and handing over of possession to its customers. In the light of these facts, it has to be decided that when the income out of such receipts would accrue to the appellant. In my opinion, on money (undisclosed income) is part and parcel of money received on sale of flats. The amounts received by cheque/cash prior to actual transfer of flats to the purchasers would be in the nature of advance and cannot be said to have accrued to the appellant. Appellant has incurred expenditure/investment in different projects in different years but income to it would accrue only when the flats are sold to the buyers. Any advance money received by appellant can never be its income. It would only be a liability shown in the balance sheet as advances from the customers and would be adjusted against the sale proceeds of the flats when flats ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red deed is executed. Some receipt of earnest money and advance receipt of money towards transaction would not by itself partake the character of taxable income as the registered sale deed was executed only in the subsequent year, In this regard, head notes from the judgment are referred as under:- "The land purchased by the assessee which forms part of its stockin- trade, would continue to be so, until and unless it sells it. The business deal in respect of the land would be complete only when the assessee executed a sale deed. Since it was only on completion of the sale transaction that the assessee could be said to have earned profit or suffered loss, the earnest money and part payment of price would not constitute trading receipts for 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 axiomatic 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 simultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmovable properties and the capital assets, in the form of flats, which are stock in trade for it, but, the basic principle of accrual of income will remain the same i.e. profit on sale of flat will accrue to it when flat is in existence and the same is transferred to the purchaser through the transfer deed. 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 appellant would accrue and a right of the appellant to receive consideration for such transfer would arise. Prior to this, whatever the appellant has received from the prospective buyer would only be a liability and the liability as such cannot be treated as income. As mentioned by appellant also in its submissions, merely receiving a sum for future purchase of an immovable property cannot be a sale consideration as property being not in existence. The possession thereof cannot be given to the prospective buyers, therefore, the sum received for being adjusted against sale consideration will continue to carry the character of advance only and a liability in the books of the assessee. Merely because such receipt is not declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merit) but also that it may not have added anything i much to the public coffers. Further, the appellant has disclosed income offered during survey in the subsequent years and paid taxes thereon, therefore, taxing the whole amount of Rs. 26.05 crores in the current year would amount to double taxation which is not permitted as per settled position of law (ITO Vs. Bhavesh Bharatbhai Mehta (2013) (37 CCH 285 Ahd. Trib.). This fact was brought to the notice of AO during the assessment proceedings by the appellant but no comments have been given by her in this regard. Thus, in the case of appellant, same amount of disclosure cannot be taxed twice. ; 4.4 In the light of aforesaid discussion, the conclusion drawn by AO for rejecting the books of account of appellant and maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the books of accounts for which no corresponding expenditure would have to be incurred. The corresponding expenditure would be recorded in the books against the declared profit. Thus, the ld.DR contended that the action at the end of the CIT(A) is not justifiable. 8. As far as reference to Accounting Standard AS-9 made by the assessee is concerned, that is related to things duly accounted in the books. It is something over and above those items. 9. On the other hand, the ld.counsel for the assessee has filed written submissions running into 21 pages. In his first fold of contentions, he submitted that the issue in dispute is covered in favour of the assessee by various decisions. He pointed out that basically taxability of the amounts is not in dispute. As far as rate of tax is concerned, the assessee is being taxed at the same rate in different assessment years. An amount of Rs. 26.05 cores has been offered for taxation and taxes have also been paid. Only dispute is year of taxability. According to the AO, this amount of Rs. 26.05 cores should be taxed in the Asstt.year 2011-12 i.e. year in which disclosure was made by the assessee, whereas on the other hand, the stand of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccounted income of M/s. Happy Home Corporation from its all projects, which I declare voluntarily and which is not recorded in the regular books of accounts. On this amount of Rs. 26,05,00,000/-, we will pay the due income tax in time. This unaccounted income of Rs. 26,05,00,000/- (only rupees twenty-six crores and five lacs) is our income for the current year but which is dependent upon the registration of the sale deed. The aforesaid unaccounted income is over and above the regular income reflected in the regular books and income tax returns." 10. On the strength of the above, he pointed out that certain projects were just started. In other words, leveling of ground was done. At certain projects, construction was made on plinth level only. In such situation, how it can be stated that whole receipts should be recognized as Revenue. This on-money part-takes character of advances. If the assessee has not constructed flats, then it has to return the on-money also. Thus, on-money is depended upon completion of projects. The assessee has been recognizing its revenue on project completion basis. He further drew our attention towards photos which were filed before the AO in order to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partners even while admitting the income. The ld.AO has been unnecessarily ignoring that part of the statement. It is also pertinent to observe that the title in the property would be transferred not in the year in which the assessee received part consideration as earnest money, but it is to be construed in the year, when the sales was registered or possession was handed over to the prospective buyers. On completion of this transaction then only right to receive would crystalise. Though, the ld.counsel for the assessee has made reference to large number of decisions, but most of them are related to those assessees who are trading in the land and Hon'ble Courts have observed that transaction would be construed as complete when sale deed was registered. But there is one decision of Hon'ble Gujarat High Court wherein the assessee was a developer and income has been recognized when possession was delivered or sale deed was executed. We would like to refer to the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Shivalik Buildwell. The assessee was a developer of real estate. It had received booking amount of Rs. 27.85 lakhs. The AO made addition of this amount. On app ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
