THARIF BUILDERS P. LTD,KOZHIKKODE vs. THEACIT, KOZHIKKODE

Per CHANDRA POOJARI, AM:

These three appeals filed by the assessee are directed against the common order

of the CIT(A)-III, Kochi dated 06/06/2019 arising out of the order passed u/s.

143(3) r.w.s. 153A of the I.T. Act and pertain to the assessment years 2014-15 to

2016-17.

together and are being disposed of by this common order.

I.T.A. Nos. 487-489/Coch/2019

Whether the AO is justified in making assessment under the provisions of section 153A of the Act, which requires the carrying out of the search u/s. 132 of the Act in compliance of the Income Tax Rules 112. In the absence of any search conducted on the appellant, the assessment u/s. 153A is illegal and void.

The representation of the revenue has given a copy of search warrant in Form No.45 dated 26/02/2016 but no search was conducted by the authorized officer in the Appellants premises but at the same time authorization for survey is given on 26/02/12016 which was carried out on 29/02/2016. Since the survey was authorized on the date of search on 26/02/2016 and the survey was conducted on 29/02/2016 after omitting the search the assessment proceedings should be under survey and not under search.

In view of the survey u/s. 133A and in the absence of conducting search inspite of mentioning the of the appellant company in the search warrant u/s. 132, the assessment u/s. 153A is illegal and void.

The copy of the search warrant in Form No. 45 produced by the representative of the revenue is incomplete and in the absence of search

I.T.A. Nos. 487-489/Coch/2019

warrant in Form No. 45 with complete details, the documents provided by revenue is incomplete.

4.1 The assessee has filed petition accompanied by an affidavit for admission of the

additional grounds. The Ld. AR submitted that additional ground which goes to the

root of the matter in dispute may be admitted by the Tribunal. It was submitted

that the assessee came to know about the possession of the search warrant only on

the date of hearing of this appeal i.e. 09/03/2020. As such, after going through the

search warrant, the assessee came to know that the search was not in accordance

with section 132 of the I.T. Act r.w.s. 153A of the Act. Hence, the Ld. AR

submitted that there was reasonable cause for not raising the additional ground on

earlier occasion.

4.2 The Ld. DR, on the other hand, submitted that there is a valid search warrant

executed on 29/02/2016 as per which search was carried out u/s. 132 of the I.T.

Act and also the assessee is aware of the search warrant at the time of carrying out

the search. Therefore, it is not correct to say that the assessee was not aware of

the search warrant as it was given by the search parties at the time of carrying out

search. Hence, there is no merit in the plea of the assessee and it is to be rejected.

4.3 We have heard the rival submissions and gone through the petition filed by the

assessee. The Tribunal while dealing with the subject-matter of the appeal in

exercise of its power, it may allow the party to take up a new ground of appeal. In

other words, the Tribunal has power to permit the assessee to raise a new ground 3

I.T.A. Nos. 487-489/Coch/2019

of appeal, not set forth in the memorandum of appeal, even without formal

amendment of the grounds set forth in the memorandum of appeal provided that a

new ground does not involve a further investigation into the facts. This power of

Tribunal is spelt out in r. 11 of ITAT Rules, 1963. Hon'ble Punjab & Haryana High

Court has held in the case of Vijay Kumar Jain vs. CIT (1975) (99 ITR 349) (P&H)

that the Tribunal may allow a party to press a ground which he does not press

before the first appellate authority although he has taken and included in the

grounds of the first appeal. The proposition of law on the issue of admission of

additional or new grounds by first appellate authority was laid down by the Hon'ble

Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR

(SC) 66 : (1991) (187 ITR 688) (SC) and Hon'ble Supreme Court in the case of

National Thermal Power Co. Ltd. vs. CIT (229 ITR 383) held that the same will

apply to appeal before Tribunal Hon'ble Allahabad High Court in the case of CIT vs.

Mohd. Ayyub & Sons Agency (1992) 197 ITR 637 (All) has held that the power of

the Tribunal to permit any party to the appeal to raise the question of jurisdiction,

which goes to the root of the matter and does not involve further investigation into

facts, cannot be disputed on the plain reading of r. 11 of the ITAT Rules, 1963.

Indeed, on such a plea being taken, the Tribunal is under a statutory obligation not

only to entertain the plea but also to decide the same after providing sufficient

opportunity of being heard to the other side. Similar views have been taken by

Hon'ble Delhi High Court (i) in the case of CIT vs. Mahalaxmi Sugar Mills Co. Ltd.

(1993) (200 ITR 275) (Del), (ii) Hon'ble Bombay High Court in the case of

Ahmedabad Electricity Co. Ltd. vs. CIT (1992) 106 CTR (Bom) 78 ; (1993) (199 ITR 4

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351, 367) (Bom) and (iii) Hon'ble Rajasthan High Court in the case of Mewar Sugar

Mills Ltd. vs. CIT (1993) (203 ITR 415) (Raj). The Hon'ble Bombay High Court in

the case of Baby Samuel vs. Asstt, CIT (2003) 184 CTR (Bom) 140 : (2003) (262

ITR 385) (Bom) has held that when an issue was not specifically taken in the

memorandum and grounds of appeal but mentioned in the written submissions filed

before the Tribunal and specifically argued at the time of the final hearing of the

appeal, the Tribunal cannot refuse to adjudicate upon that issue on the merits of

the ground that no such ground has been taken specifically in the grounds of

appeal. Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd.

(supra) has held :

"...The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT (A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) is too narrow a view to take off the powers of the Tribunal."

4.4 Thus, the settled legal position, which emerges from the aforesaid judicial

pronouncements, is that the purpose of assessment proceeding is to tax/assess the

taxable liability/income of the assessee correctly in accordance with law and if the

assessee is entitled to certain relief, deduction or benefit, the assessee should not

I.T.A. Nos. 487-489/Coch/2019

be denied or deprived of it, even if the claim pertaining to the same is made for the

first time before the Tribunal during pendency of appeal before it. In the present

case, the issue raised in additional ground is legal issue which goes to the root of

the matter and for deciding the legal issue no new facts are required to be

considered as all the facts are already recorded in the orders of the authorities

below. Admittedly, at the time of hearing of this appeal by this Tribunal on

09/03/2020, the Ld. AR handed over a copy of search warrant issued to the

assessee. On earlier occasion, at the time of execution of search warrant, the copy

of the same was not furnished to the assessee and only acknowledgment was

obtained at the back of the search warrant on 29/02/2016. Hence, there is merit in

the argument of the Ld. AR that the assessee was not in possession of search

warrant on earlier occasion. Being so, after getting the copy of the search warrant,

the assessee has filed the additional ground. Hence, we find reasonable cause in

filing the additional ground on 10/03/2020 and the same is admitted. Accordingly,

we admit the additional ground for adjudication.

questioning the validity of assessments on the reason that there is no valid search

in the case of assessee and only materials gathered in the course of survey action

was used to frame assessments. Hence, these grounds are adjudicated collectively.

5.1 The facts of the case are that search and seizure action was conducted in the

case of the assessee company, its group concerns and its Directors on 29/02/2016 6

I.T.A. Nos. 487-489/Coch/2019

and 21/04/2016 on the basis of search warrant dated 26/02/2016 and 19/04/2016

issued by DIT (Inv.), Kochi and JDIT (Inv.), Kochi respectively. Search u/s. 132 of

the I.T. Act was carried on at the business premises of the assessee company and

at residences of its Directors. Notices u/s. 153A were issued for the assessment

years 2010-11 to 2015-16 and notice u/s. 142(1) was issued for the assessment

year 2016-17 on 25/09/2017, requiring the assessee to file the returns of income for

the assessment year 2010-11 to 2016-17. In compliance to this, the assessee filed

return of income for assessment year 2011-12 to 2016-17. The assessee had not

filed return of income for assessment year 2010-11, citing the reason that the

company was incorporated on 29/07/2010 and hence, was not in existence during

F.Y. 2009-10 relevant to A.Y. 2010-11. All the ROIs filed in response to notice u/s.

153A were selected for scrutiny. The details of notices issued and the ROIs filed by

the assessee are as follows:

Sl. Asst. Date of issue of Date of Returned Date of issue No. year notice u/s. filing the income (Rs.) of notice u/s. 153A/142(1) ROI 143(2)/142(1) 01 2010-11 25.09.2017 Not filed 02 2011-12 25.09.2017 31.10.2017 (-)85,042 08/11/2017 03 2012-13 25.09.2017 31.10.2017 95,390 08/11/2017 04 2013-14 25.09.2017 02.11.2017 (-)26,08,780 08/11/2017 05 2014-15 25.09.2017 31.10.2017 (-)15,59,520 08/11/2017 06 2015-16 25.09.2017 31.10.2017 Nil 08/11/2017 07 2016-17 25.09.2017 13.09.2017 (-)26,81,692 27/10/2017

The Assessing Officer observed that as per section 153A of the I.T. Act, where

search is initiated u/s. 132 in the case of a person, the Assessing Officer shall issue

notice to such person and assess or reassess his total income in respect of each of

six assessment years preceding the assessment year relevant to previous year in

I.T.A. Nos. 487-489/Coch/2019

which search is conducted. Thus, after going through the seized material as well as

documents collected during the search u/s. 133A of the I.T. Act, the Assessing

Officer completed the assessments u/s. 143(3) r.w.s. 153A of the I.T. Act for A.Ys

2014-15 to 2016-17 vide order dated 30/12/2017 as per details given below:

Assessment Year Total Income Tax demanded 2014-15 28,56,35,976 15,53,40,290 2015-16 15,17,67,094 7,30,79,550 2016-17 1,11,37,131 48,97,400 Total 44,85,40,201 23,33,17,240

5.1.1 On appeal, the CIT(A) observed that during search proceedings on a group of

assesses and premises, both proceedings u/s. 133A and 132 of the I.T. Act are a

common phenomenon. Where commercial enterprises/premises, not involving

seizure of valuables are concerned, action u/s. 133A is contemplated whereas

residences and premises where valuables are likely to be seized are covered u/s.

132 of the Act. Thus, the CIT(A) observed that some premises in the case of an

assessee may be covered u/s. 133A and others u/s. 132 of the Act. In this case,

there was a survey u/s. 133A in respect of Tharif Builders P. Ltd., besides a warrant

u/s. 132 of the I.T. Act was also issued on 26/02/2016 by the DIT(Inv.), Kochi in

the case of M/s. Tharif Builders Pvt. Ltd., Shri P.K. Mohammedkutty Haji, Shri

Hamza Puthukkudy and on the basis of the above warrant of authorization search

was carried out at the residence of Shri P.K. Mohammedkutty Haji on 29/02/2016.

According to the Assessing Officer, warrant u/s. 132 of the I.T. Act was issued on

19/04/2016 by the JDIT(Inv.), Kochi in the case of M/s. Tharif Builders P. Ltd. and 8

I.T.A. Nos. 487-489/Coch/2019

search was conducted on 21/04/2016 at the office premises of M/s. Tharif Builders

P. Ltd. The assessee and the builder had common Directors namely, Shri P.K.

Mohammedkutty Haji and Shri Hamza son of Shri P.K. Mohammedkutty Haji. Since

the incriminating documents were seized during the course of search on the

assessee company relating to Ponmundam Properties, the CIT(A) held that the

proceedings initiated u/s. 153C in the case of M/s. Ponmundam Properties Pvt. Ltd.

after recording the satisfaction and obtaining the approval of JCIT, Central, Kochi

are in consonance with the Income Tax Act. Accordingly, he rejected the contention

of the assessee that an assessment u/s. 153A cannot be done in the case of a

survey u/s. 133A of the Act.

5.2 Against this, the assessee is in appeal before us. The Ld. AR submitted that

search warrant in Form No.45 was issued on 26-02-2016 in the name of Shri

Mohammedkutty Haji, Shri Hamza Puthukudi and Tharif Builders Pvt Ltd and the

place of search was the residence of Shri Mohammedkutty Haji. It was submitted

that on the same date on 26-02-2016 an order for survey u/s.133A in respect of

Tharif Builders Pvt. Ltd. was also issued and on 29-02-2016 search was conducted

in the residential premises of Shri Mohammedkutty Haji and survey u/s.133A was

also conducted in the assessee’s business premises on the same date. According to

the Ld. AR, as per the orders of search on 26-02-2016, the residence of Shri

Mohammedkutty Haji was covered by the search warrant and conducted the search

on 29-02-2016 as per Rule 112 of I.T.Rules, 1962 and the survey, as per order

dt.26-02-2016, was conducted on the assessee company on 29-02-2016. Hence, 9

I.T.A. Nos. 487-489/Coch/2019

the claim of the Assessing Officer that the search was conducted in the assessee’s

business premises was not justified. According to the Ld. AR, there were no

impounded documents indicating any concealment of income received from the

assessee’s premises by the survey u/s.133A of the Act, but two sheets of papers

were received from the residence of Sri Mohammedkutty Haji regarding the receipt

of consideration by cheque and cash in respect of 20 agreements for the sale of

shop rooms. The Ld. AR submitted that the assessments were completed without

any reference to the seized document and the assessments were completed on the

presumption that entire building was sold for a consideration of Rs. 62,47,79,873/-

and a Net Profit of Rs. 45,77,22,783/- was treated as income of the assessee

company.

5.3 The Ld. AR submitted that as per the search warrant, no search was carried out

in the assessee company’s premises as claimed by the Assessing Officer, no search

warrant was issued on 19-04-2016 and no search was conducted either on 29-02-

2016 or on 21-04-2016 as claimed by the Assessing Officer. Further, it was

submitted that no panchanama in the name of the assessee company was produced

by the revenue before the Bench, even after specific request by the assessee’s

representative in this respect. It was submitted that even though the search was

authorized in the name of the assessee company, no search was carried out and

survey u/s.133A was conducted in the assessee’s business premises. The Ld. AR

submitted that authorization for the search on the assessee company and survey

u/s.133A on the assessee company were ordered on the same date 26-02-2016. 10

I.T.A. Nos. 487-489/Coch/2019

The authorized officers opted for the survey u/s.133A in the assessee’s business

premises and no search was carried out as per Rule 112 of Income Tax Rules, 1962.

According to the Ld. AR, the search should be carried out in the presence of

panchas and no panchanama was prepared for search in the case of the assessee

company. The Ld. AR relied on the judgment of the Madras High Court in the case

of G.K. Senniappan (284 ITR 220) wherein it was held thatmaterial gathered in the

course of survey u/s. 133A cannot be regarded as relevant material for the purposes

of computation of undisclosed income u/s. 158BB. It was held that as per the said

section, the undisclosed income of the block period has to be computed on the basis

of evidence found as a result of search or requisition of books of account or other

documents and such other material or information as are available with the

Assessing Officer should be relatable to such evidence. Thus, any other material

cannot form basis for computation of undisclosed income of the block period. In

support of his contention, the Ld. AR also relied on the following decisions of the

Tribunal:

Thus, it was submitted that since the assessee was subjected to survey u/s.133A on

29/02/2016, the assessment u/s.153A is illegal and void.

5.4 The Ld. DR submitted that there was search action u/s. 132 of the I.T. Act on

29/02/2016 and 21/04/2016 on the basis of search warrant dated 26/02/2016 and

21/04/2016 issued by DIT (Inv.), Kochi and JDIT (Inv.), Kochi respectively. The Ld.

I.T.A. Nos. 487-489/Coch/2019

DR submitted that the search action was carried on in the business premises of the

assessee company and the residences of the Directors of the Group concern.

According to the Ld. DR, the contention of the Ld. AR is totally misconstrued and

this additional ground is to be rejected. The Ld. DR submitted that there was

search action u/s. 132 of the I.T. Act along with survey u/s. 133A of the I.T. Act on

29/02/2016. and the materials gathered during the course of survey u/s. 133A of

the I.T. Act could also be used while making assessment u/s. 153A of the I.T. Act.

The Ld. DR relied on the following cases laws:

5.5 Regarding joint warrant, the Ld. DR submitted that there is specific provision

u/s. 192 as per which warrant which is issued jointly is valid and the Assessing

Officer is well within his jurisdiction of making assessment u/s. 153A of the Act. He

relied on the judgment of the Kerala High Court in the case of CIT vs. Khyber Foods

(23 taxmann.com 27) wherein it was held that where a common search warrant

was issued for searching several assesses, in pursuance of which return was filed

and assessment was contested only on merits, assessment order could not be set

aside on ground that search warrant was invalid.

I.T.A. Nos. 487-489/Coch/2019

5.6 We have heard the rival submissions and perused the record. In this case,

there was search action u/s. 132 of the Act on the business premises of the

assessee company and residences of its Directors on 29/02/2016 and 21/04/2016

on the basis of search warrant dated 26.02.2016 and 19.04.2016 issued by

DIT(Inv.), Kochi and JDIT(Inv.), Kochi respectively. In addition to this, there was

survey action u/s. 133A of the I.T. Act on 29/02/2016. The Ld. AR has placed copy

of Form No. 45 dated 26/02/2016 wherein it was stated as follows:

“If a summons under the sub-section (1) of section 37 of the Indian Income Tax Act, 1922, or under sub-section 131 of the Income Tax Act, 1961, or a notice under sub section (4) of section 22 of the Indian Income Tax Act, 1922 or under sub-section (1) of section 142 of the Income Tax Act, 1961, is issued to Shri Mohammed Kutty Haji @ Tharif Mall, Shri Hamza Puthukudy, Tharif Builders Pvt. Ltd. (name of person) to produce or cause to be produced books of account or other documents which will be useful for, relevant to, proceedings under the Indian Income Tax Act, 1922, or under the Income Tax Act, 1961, he would not produce or cause to be produced such books of accounts or other documents as required by such summons or notice.”

The Ld. DR has also placed copies of Panchnamas on record to prove thatsearch

was carried out in the presence of panchas and panchanamas were prepared for

search in the case of the assessee company. As per panchanama, the books of

accounts marked as CHN/IT/023/15-16/RR/A1 to 12 was impounded on 01/03/2016

and the books of accounts marked as CHN/IT-CIT/023/CS/A1 to 16 was impounded

on 26/04/2016. Statements were recorded from Shri P.J. Hamza on 10/06/2016 and

from Shri Abdul Basheer on 29/02/2016 at Kozhikode. The Assessing Officer has

made the additions on the basis of following materials:

I.T.A. Nos. 487-489/Coch/2019

Sl. No. Impounded/seized material Description Number 1. CHN/ADI/CLT/23/CM/A-4 Registration Form/term sheet/Customer Data pages 2 to 12, impounded Sheet used by M/s. Nue Town for booking from the office of M/s. shop rooms Tharif Builders Pvt. Ltd., Kozhikode 2. CHN/IT-CLT/023/CS-01 Computer printout having breakup of page 98, seized from the amount received in cash and cheque for the residential premises of Shri sale of shop rooms Mohammedkutty Haji, Tirur 3. CHN/IT-CLT/023/CS-01 Manuscript table data showing breakup of page 158, seized from the cash and cheque portion adopted in the sale residential premises of Shri of shop rooms in Tharif Mall Mohammedkutty Haji, Tirur

5.7 In our opinion, there is no error in framing assessments u/s. 153A of the I.T.

Act on the basis of the seized records. The assessments were framed by the

Assessing Officer on the basis of the incriminated documents found during the

search and statement recorded during the course of search. Being so, the

Assessing Officer is completely justified in framing the assessments u/s. 153A of the

I.T. Act. For this proposition, reliance is placed on the judgment of the

Jurisdictional High Court in the case of Travancore Diagnostics P. Ltd. vs. ACIT

(390 ITR 167) wherein it was held that when suppression had been found from the

documents and the statement on record, the Assessing Officer was completely

justified in adopting those figures for the whole year and for the next year which

was based on sound rationale, since from the statement on behalf of the assessee,

the suppression was found to be continued. In view of the uncontroverted and

admitted statement given on behalf of the assessee u/s. 133A and the documents

impounded during the survey, which were also virtually admitted by the assessee, 14

I.T.A. Nos. 487-489/Coch/2019

there was no error in the order of the Tribunal in accepting the materials on record

in order to arrive at an assessment. Reliance is also placed on the judgment of the

Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537) wherein

it was held as under:

“(ii) That the partner of the assessee had in unambiguous terms stated that 20 per cent of the sales outturn was suppressed and only 80 per cent was recorded in the account books and it was the practice from the very beginning. So, it was just and appropriate to presume that there was uniform concealment of income in all the assessment years during the block period. Hence the assessee was liable to be assessed during the block period at a uniform rate.”

Hence, we cannot say that there was no search action u/s. 132 of the Income Tax

Act so as to frame assessments u/s. 153A of the I.T. Act. The assessments were

also based on material gathered during the course of survey u/s. 133A of the I.T.

Act. In view of the above judgments of the Jurisdictional High Court, we are

inclined to dismiss this ground of the assessee. Thus, the additional ground for all

the assessment years is rejected.

5.8 Regarding common Ground No. 1, this ground and the additional ground raised

by the assessee is one and the same. Hence, this ground of appeals raised by the

assessee for all the assessment years is rejected.

collection of cash outside the books of accounts at Rs.32,87,986/- without the

I.T.A. Nos. 487-489/Coch/2019

support of any seized documents and not giving due credit or deductions towards

work in progress relating to unaccounted cash receipts.

6.1 The facts of the case are that the assessee was engaged in the business of

builder and developer. During the period under consideration the assessee had

undertaken construction and sale of a commercial building by the name of Tharif

Mall at Tirur. The assessee had entered into ‘development agreement’ dated

18/12/2012 for constructing a shopping mall on the land belonging to M/s.

Ponmundam Properties Pvt. Ltd., a group concern of the assessee company. Both

these companies had common Directors, viz. Shri P.K. Mohammedkutty Haji, Shri

Hamza, son of Shri P.K. Mohammedkutty Haji. As per the development agreement,

67 shop rooms having total saleable area of 8214.08 sq. ft./78,624.28 sq ft were to

be constructed and the land owner was entitled to get possession of 27% of total

saleable area on first and second floor of the Mall as consideration for its land and

the sale of shops in the Mall was entrusted by the assessee builder vide agreement

dated 10/03/2014 to a exclusive broker M/s. Neu Town Property Management &

Developers for marketing and identifying potential customers, negotiating and

finalizing terms and conditions for sale of shops in the Mall. After analysis of the

seized documents, statements of directors and broker, the Assessing Officer found

that sale values of the shops in the Mall were suppressed in the accounts of the

assessee and in all the cases roughly 50% of the sale value was accounted for in

the books of accounts. The details of on-money are as follows:

I.T.A. Nos. 487-489/Coch/2019

Name Room No. Area Total Cash Cheque Agreement Value Amount Abdul Azeez Porakkotupalathu 3 589.26 5430820 2715150 2715670` 2960080 Abdul Latheef 4 587.48 5331381 2664222 2667159 2907203 Abdul Rahiman Mele Veetil 212 419.85 3065000 1565000 1500000 1635000 Anitha Ashraf Ashitha Abitha 2 550.79 4782790 2391395 2391395 2606621

Antony Philip&Marykutty K.J. 304 567.48 4026500 1972000 2054500 2239405 Niyaz Abdul Nazer 6 512.62 4476240 2238120 2238120 2439551 Jayarajnarangoli 5 559.34 5155558 2577780 2577778 2809778 Chonori Ahamed Haneefa 101-A 493.43 4588899 2300000 2288899 A H Kochumon 202 550.79 4597995 2300000 2297995 1703769 Mohammed Koya K.V. 204 605.5 501962 2540981 2540981 1873033 Ali Yusuf Kunchu 301-A 493.25 3601455 1800000 1801455 Ali Yusuf Kunchu 301-B 494.82 3602186 1800000 1812186 Mohamed Naufal 302 550.79 4133679 2050000 2083679 Nahla Yusuf 316-A 426.18 3111114 150000 1561114 RifadAliminhaj 316-B 426.18 3111114 150000 1561114 Riyaz Kochu Mon 401-A 493.43 3092326 1500000 1592326 Sreekumar 403 589.26 3712000 1856000 1856000

6.1.1 Floorwise average rate per sq. feet is as follows:

Name Room Floor in Area Received Agreemen Total Sale Average Round Percentage No. the in cash t Value Considerati Rate Per ed to of sale Mall on sq. mtr. proceeds received in cash Abdul Azeez 3 ground 589.26 2715150 2960080 5675230 9631.11 Porakkotupalathu Abdul Latheef 4 ground 587.48 5331381 2907203 5571425 9483.6 Anitha Ashraf Ashitha Abitha 2 ground 550.79 2391395 2606621 4998016 9074.27 9100 47.84

Niyaz Abdul 6 ground 512.62 2238120 2439551 4677671 9125.03 Nazer Jayarajnarangoli 5 ground 559.34 2577780 2809778 5387558 9631.9 Average sq ft rate 2799.49 12586667 13723233 26309900 9398.1 applicable in ground floor Chonori Ahamed 1A First 493.43 2300000 2517789 4817789 9763.88 9000 47.74 Haneefa Abdul Rahiman 212 second 419.85 1565000 1635000 3200000 7621.77 Mele Veetil A H Kochumon 2 second 550.79 2300000 2527794 4827794 8765.22 Mohammed Koya 4 second 605.5 2540981 2795079 5336060 8812.65 K.V. Average sq ft rate second 1576.14 6405981 6957873 13363854 8478.88 7600 47.94 applicable in second floor Antony 304 third 587.48 1972000 2239405 4211405 7168.59 Phillip&Marykutt y K.J. Ali Yusuf Kunchu 1A third 493.25 1800000 1981601 3781601 7666.23 Ali Yusuf Kunchu 1B third 494.82 1800000 1993405 3793405 7666.23 Mohamed Naufal 2 third 550.79 2050000 2292047 4342047 7883.31 17

I.T.A. Nos. 487-489/Coch/2019

Nahla Yusuf 16A third 426.18 1550000 1717225 3267225 7666.3 RifadAliminhaj 16-B third 426.18 1550000 1717225 3267225 7666.3 Average sq ft rate Third 2978.8 10722000 11940908 22662908 7608.07 7100 47.31 applicable in third floor Riyaz Kochu Mon 1A Fourth 493.43 1500000 1751558 3251558 6589.7 Sreekumar 3 Fourth 589.26 1856000 2041600 3897600 6614.4 Average sq ft rate Fourth 1082.69 3356000 3793158 7149158 6603.14 6500 46.94 applicable in fourth floor

Based on the above 2 tables the total sale consideration received by the group is

worked out as below:

Floor Sold Area in Sq. Rate Per Sq Ft in Total Sale Price % Of Sale Price Out of Sale Ft. in Each Floor the Floor Collected Collected in Cash Proceeds Amount Collected in Cash Ground Floor 15508.34 9100.00 14,11,25,894 47.84 7,75,14,628 First Floor 18066.4 9000.00 16,25,97,60047.74 47.74 7,76,24,094 Second Floor 17105.75 7600.00 13,00,03,700 47.94 6,23,23,774 Third Floor 15696.74 7100.00 11,14,46,854 47.31 5,27,25,507 Fourth Floor 12247.05 6500.00 7,96,05,825 46.94 3,73,66,974 Total 78624.28 62,47,79,873 30,75,54,977

6.1.2 Thus, it was found that the assessee had made sales amounting to

Rs.62,47,79,873/- out of which Rs.30,75,54,977/- was collected in cash which was

not accounted in the books of account. The bifurcation of the above amounts is as

follows:

Assessment Years Sale Value (Rs.) 2014-15 39,24,98,837/- 2015-16 21,12,16,375/- 2016-17 2,10,64,661/- Total 62,47,79,873/-

6.1.3 The Assessing Officer estimated the gross profit and the Total Income as

follows:

I.T.A. Nos. 487-489/Coch/2019

Narration Rupees in Crores A Total sale value 62,47,79,873/- B Sale proceeds received in cash (not reflected 30,75,54,977/- in the books of accounts C Gross amount accounted in the books of the 30,75,63,673/- company (A-B) D Cost to the company for the construction of 16,11,88,680/- mall E Cost of land 35,01,250/- F Gross profit (accounted portion)(C-(D+E) 14,28,73,743/- G Less commission paid in cash to selling agent 35,00,000/- (1%) H Net profit (in the books of accounts) (F-G) 13,93,73,743/- J Cash Portion 31,83,49,040/- Total Income (H + J) 45,77,22,783/-

A.Ys-wise sales

Profit AY Value (Rs.) Profits recognized Difference (Rs.) by Assessee

2014-15 39,24,98,837 23,12,16,375 13,55,106 28,61,95,226

2015-16 21,12,16,375 15,47,40,175 29,73,081 15,17,67,094

2016-17 2,10,64,661 16,13,453 1,38,18,823

Total 62,47,79,873 45,77,22,783 59,41,640 45,17,81,143

I.T.A. Nos. 487-489/Coch/2019

Assessing Officer had assumed that the full constructed area of 78624.28 sq. ft. of constructed area in the ground floor, 1st floor, 2nd floor, 3rd floor and 4th floor was

not only sold during the assessment years 2014-15, 2015-16 and 2016-17, but also

the construction was completed. According to the CIT(A), the Assessing Officer

estimated the total sale value for these assessment years at Rs.62,47,79,873/-. The

sale value was arrived at by multiplying 78,624.28 sq. ft. area treated as sold by the

rate per sq. ft. for the relevant floor area to arrive at Rs.62,47,79,873/- as total sale

value for the three assessment years, 2014-15, 2015-16 and 2016-17 as follows:

Floor Sold are in sq. Rate per sq. ft. Total sale price ft. in each floor in the floor collected Ground floor 15508.34 9,100 14,11,25,894 First floor 18066.40 9,000 16,25,97,600 Second floor 17105.75 7,600 13,00,03,700 Third floor 15696.74 7,100 11,14,46,854 Fourth floor 12247.05 6,500 7,96,05,825 Total 78624.28 62,47,29,873

7.1 Thus, according to the CIT(A), the total sale value was estimatedat

Rs.62,47,79,873/- and from this sale, the proceeds received in cash was estimated

at Rs.30,75,54,977/- which was reduced to arrive at the cheque amount.The CIT(A)

observed that the cost of construction of Mall at Rs.16,11,88,680/- was reduced

which is the actual amount spent as per the books of accounts of the assessee upto

31/03/2017. From the above, the CIT(A) found that the cost of land at

Rs.35,01,250/- was reduced, in spite of the fact that there was no cost of land paid

as per the development agreement since 27% of the constructed area was the 20

I.T.A. Nos. 487-489/Coch/2019

compensation for transferring 73% of the land right. According to the CIT(A), the

commission paid to selling agent was at 1% at Rs.35,00,000/- was reduced by the

Assessing Officer. As a result of above, the net profit in the books of account was

Rs.13,93,73,743/- and the cash portion which was also an estimated amount at

Rs.31,83,49,040/- was added and the total amount of Rs.45,77,22,783/- was

arrived at. The total income arrived at apportioned assessment year wise is as

follows:

A.Y. Total income 2014-15 28,75,50,332 2015-16 15,47,40,175 2016-17 1,54,32,276 Total 45,77,22,783

7.2 The CIT(A) called for lay out plan and floor wise details which were furnished

by the assessee. From this, the CIT(A) summarized the above as follows:

Floor Area as per Area earmarked Area for which Balance Asst. Order for land owner agreement entered (unsold as on upto 31.03.2016 31.03.2016) Ground floor 15,508.34 - 7,285.36 8,222.98 First floor 18,066.40 11,094.00 5,904.07 1,068.33 Second floor 17,105.75 - 5,207.13 804.62 Third floor 15,696.74 - 4,869.15 10,827.59 Fourth floor 12,247.05 - 2,706.08 9,540.97 Total 78,624.28 22,188.00 25,971.79 30,464.49

7.3 Therefore, the CIT(A) held that the computation adopted by the Assessing

Officer was not consistent with the facts of the case as the entire building floor area 21

I.T.A. Nos. 487-489/Coch/2019

of 78624.28 sq. ft. was not sold during the A.Y. 2014-15, 2015-16 and 2016-17.

The floor area sold up to 31/03/2016 was 25971.79. According to the CIT(A) the

area of 22188 sq. ft. was not handed over to the land owner in the completed

condition, as per the development agreement with the land owner up to

31.03.2016. The balance floor area of 30464.49 owned by the assessee remained

unsold as on 31/03/2016. This is evidenced by the occupancy certificate in respect

of first and the second floor of the building which was received only on 09/11/2016

(A.Y. 2017-18). The CIT(A) observed that major works were still pending as on

15/01/2019 and the assessee had been following an accounting system wherein the

expenditure and the revenue after routing through the P&L account was capitalized

as work in progress and only a certain portion of the revenue was offered as income

after the same was recognized by assessee as relating to completion of the

concerned shop. Since substantial amount of work was still to be undertaken in the

mall before the shops can be recognized by the assessee for profit purposes, the

CIT(A) was of the view that the construction was incomplete and it is not possible

to arrive at the profits for the above assessment years. According to the CIT(A), the

Assessing Officer made a wrong presumption that not only the construction work

was completed but also that the complete floor area was constructed and finished,

local certification obtained and possession handed over to the buyer. From the lay

out plan, the CIT(A) observed that 30465sq. ft. of saleable area relating to the

share of the assessee was not allotted and sold during the A. Ys 2014-15 to 2016-

17.

I.T.A. Nos. 487-489/Coch/2019

7.4 The Ld. AR submitted before CIT(A) that the building construction with a total

area of 78,624.28 sq. ft was only partly completed as on 31-03-2016 relating to AY

2016-17. The Ld. AR submitted that in these assessment years, the project was not

completed and it is only work in progress shown by the assessee in its balance

sheet. Even if there are unaccounted collections in the form of cash, it cannot be

treated as the income of the assessee. It takes the character of advance received by

way of cheque. The receipt of money in cash cannot be treated as income of the

assessee. The income will be recognized only on completion of project and

registration of sale deed in favour of the purchaser. He also submitted that the

assessee has not obtained occupancy certificate and the major works are pending

for completion. He drew our attention to the following works which are required as

on 31-03-2016 for the completion of the project. The details of the works to be

completed are as under:

Details of works to be completed:

1 Parking Building Work Electrical Work 2 Panel Work 3 4 DG purchase 5 Theater work 6 Light Inside civil work 7 Electrical connection 8 Balance works of Lift & Escalators 9 10 Food court finishing 11 Transformer 12 AC Work 13 Air ventilation 14 Flooring work 15 SS Hand rail work - Corridor 23

I.T.A. Nos. 487-489/Coch/2019

16 Fire Protection System 17 Painting Work 18 False Ceiling work VDF flooring in parking area including 19 painting 20 Structural Glazing work & glass work 21 Interlock 22 Outside cladding work 23 Poster Box 24 Seating Plaza 25 FTTH 26 Electrical building & STP Tank 27 Compound wall 28 Biogas 29 MS Structural Steel work DG 30 Drainage 31 Escalator cladding 32 Cabling work of CCTV & PA System 33 Plumbing Work 34 STP Work 35 Toilet PD Door work 36 Hand Rail – Stairs 37 Plumbing Work 38 LPG line 39 Housekeeping machines 40 Signage including parking floor Boom barrio, Metal detector, Traffic mirror, Air curtain, Walky talky 41 42 Opening doors - Stair & Toilet entry AC/LED PLATFORM SETTING INSIDE FALSE CEILINGS 43 44 Light String work 45 Water treatment plant 46 Glass bridge 47 Cabling Work FTTH 48 Motor 49 Well 50 Groove work 51 Shop front glass supported work 52 Pathway

I.T.A. Nos. 487-489/Coch/2019

53 SS cladding in lift 54 External Signage

7.5 Thus, it was submitted before the CIT(A) that the Assessing Officer assumed

that the full area of 78,624.28 sq ft are completed during the AY 2014-15, 2015-16

and 2016-17 and estimated the sale value at Rs.62,47,79,878/- which is not

justified.

7.6 Further, from the development agreement, the CIT(A) found that the assessee

had not purchased 40028.59 sq. fit but had entered into development agreement

with Ponmudam Properties Pvt. Ltd. for developing the Mall in lieu of the aforesaid

land the assessee would part with 27% of the total built up floor area to the land

owner company as a sale consideration for the aforesaid land. Thus, it was

observed that the land does not come to vest with the assessee company till such

time the 27% of the total constructed and finished floor area, along with the

tenancy arrangements, as per the development agreement is handed over to the

land owner company. During the relevant assessment years, the assessee company

had not been able to fulfil the term and condition of the development agreement by

virtue of which the transfer of land from the land owner company to the assessee

company can be said to have been done and hence, no amount for the aforesaid

land can be accounted for in the hands of the assessee company during the

relevant assessment years. Hence, the CIT(A) accepted this ground of appeal of

the assessee.

I.T.A. Nos. 487-489/Coch/2019

portion of the proposed mall was unsold and the assessee was in receipt of

undisclosed income from its various purchasers. According to the CIT(A), the seized

records revealed that the shops on each of the floor there are documented proof for

the amount of on-money received and the ratio of the on-money received in cash

bears a specific ratio to the cheque amount received for each of the floor, as

computed by the Assessing Officer. The CIT(A) observed that the average on-

money component for each of the shops allotted, in each of the floors, was

computed by the Assessing Officer by extrapolating the findings of the seized

documents for all the shops sold. In view of these facts, the CIT(A) opined that the

total income of the assessee company will have to be computed during each of the

relevant assessment years in order to take into account the on-money receipts of

the assessee. According to the CIT(A), the Assessing Officer had worked out the

floor percentage of sale proceeds collected in cash which is unaccounted in the

books of accounts of the assessee company. Since the whole amount of cash money

was received by the assessee at the time of signing of the agreement to sale, the

CIT(A) computed the floor wise cheque amount received, % of sale proceeds

collected in cash and the total sale proceeds collected in cash for each A.Ys as

follows:

I.T.A. Nos. 487-489/Coch/2019

Summary of Total Collection in Cash Assessment years 2014-15 2015-16 2016-17 Total amount Sl. Floor Cheque % of sale Cheque Sale Cheque Sale Cheque Sale received in No. % proceeds amount proceeds amount proceeds amount proceeds cash (5+7+9 1 collected received collected in received collected in received collected in 10 2 in sale 4 cash 6 cash 8 cash (8/2*3) 3 (4/2*3) (6/2*3) 9 5 7 1a Ground 52.16 47.84 - - 31288966 28697548.6 - - Floor 1b. First 52.26 47.74 - - 1739112 15887747.8 2802586 2560188.59 18447936.4 Floor 2a Second 52.06 47.94 6979542 6427184.85 6915583 68287.53 1781210 1640246.01 144357.18 Floor 2b Third 52.69 47.31 2054500 18447218 9493104 8442984.44 5618400 5044723.93 15332430.2 Floor 3a Fourth 53.06 46.94 - - 4675679 4136380.93 1204543 1065609.66 5201990.59 Floor Total 8271906.65 57232949.3 10310768.2+ 87206601.2 5090977 = 15401745.2

8.1 From the above, the CIT(A) observed that the assessee had collected an

amount of Rs.8,72,06,601.2/-on-money which was undisclosed in the books of

accounts of the assessee during the relevant assessment years. Since the aforesaid

amount was not disclosed in the books of accounts of the assessee, the same being

revenue receipts collected for the purpose of business just like the amount collected

in cheque from the various purchasers, the CIT(A) held that it cannot be capitalized

and have to be offered to taxes separately during the relevant assessment years.

According to the CIT(A), the assessee had already booked and capitalized all the

concerned expenses as work in progress against the disclosed receipts and the on-

money collected had no load of any expenses and being not recorded in the books

of accounts was freely available to the assessee as income of the relevant

assessment years. The CIT(A) stated that the assessee had returned the income

I.T.A. Nos. 487-489/Coch/2019

for A.Y. 2014-15, 2015-16 and 2016-17 as Rs. (-) 5,59,250, Nil, Rs. (-) 26,81,692/-

respectively. The CIT(A) treated the aforesaid on-money received by the assessee

as income from other sources and hence, the same was added to the returned

income of the assessee for the relevant AYs in order to arrive at the total assessed

income:

Total Income Assessed Particulars Assessment Years

2014-15 2015-16 2016-17 1. ROI (-)5,59,250 Nil (-)26,81,692 2. Undisclosed on- 82,71,906.65 5,72,32,949.3 1,54,01,745.2 money received by the appellant which cannot be capitalized and will be taxed during the relevant AYs 3. Total income 2,43,15,152.85* 5,72,32,949.3 1,27,20,053.2 assessed

*error in the figure in CIT(A) order which is corrected.

8.2 The CIT(A) directed the Assessing Officer to compute the income of the

assessee for the relevant assessment years i.e., 2014-15 to 2016-17 at

Rs.27,28,736/-, Rs.6,74,35,704/- and Rs.1,38,38,144/- respectively.

8.3 Against this, the assessee is in appeal before us. The Ld. AR submitted that the

assessee is a private limited company engaged in the development of commercial

building with several shop rooms. The Ld. AR submitted that the land of the project 28

I.T.A. Nos. 487-489/Coch/2019

belonged to Ponmundam Properties Pvt. Ltd. and the building construction was

done as per development agreement between the land owner and the assessee

company. It was submitted that in respect of the landowner, Ponmundam

Properties Pvt Ltd, the Assessing Officer completed the assessment on the

assumption that the full properties were sold as per the development agreement.

According to the Ld. AR, the property was given to the developer, the assessee

company only for the purpose of construction and no sale of the land-right had

taken place. The Ld. AR submitted that the Assessing Officer overlooked the fact

that no registration or transfer was done by the land owner to any person. The Ld.

AR submitted that the Ponmundam Properties Pvt Ltd had filed appeal before the

Commissioner of Income Tax (Appeals)-III, Kochi and entire assessment was

cancelled, as per order dated 10-04-2019 in ITA No. 46,47,48/C/CIT (A)-III/ 2018-

19 for the reason that there was no transfer of property and the income fixed at Rs.

16,55,60,466/- and the tax demand Rs.9,47,77,960/- were totally cancelled. The

Revenue has not filed any appeal to the Income Tax Appellate Tribunal, Cochin

Bench, Kochi and the matter has become final.

8.4 The Ld. AR submitted that the Assessing Officer and the CIT(A) had not relied

upon any seized material or impounded material for the purpose of assessment, but

completed the assessment assuming that entire built-up area is sold at value as

fixed by the assessee. In fact, the building is yet to be completed and only

agreements are entered into with 50 customers for an area of 25971.79 sq ft. and

I.T.A. Nos. 487-489/Coch/2019

no property was sold by registered document to the customers. It was submitted

that the land-right was also not transferred to the customers by the land-owner,

Ponmundam Properties Pvt Ltd. The Ld. AR submitted that the CIT(A) rejected the

assessment orders and relied upon the seized documents regarding 20 agreements

for the receipt of consideration in cash and estimated the receipt of consideration in

cash on a theory of probability and possibility. It was submitted that the CIT(A)

without any evidence, whatsoever, estimated probable cash receipt from customers

without any evidence and enquiry and the CIT(A) has not considered the method of

accounting followed by the assessee for considering the receipt of amount from

customers as liability in the Balance Sheet and only 8% of the receipt was

considered as the income of the assessee for the respective assessment years. The

Ld. AR submitted that the total expenditure incurred in respect of various projects in

progress amounted to Rs.14,59,82,871/- and has been classified as project work in

progress. During the year receipt of income was recognized on Tharif Mall project at

8% as gross profit considering the low profitability and slowdown in the overall

market scenario.

8.5 The Ld. AR submitted that the assessee company had entered into agreement

with the buyers of the shopping area to the extent of 25,911.79 sq ft as follows:

Summary Floor Area in Sq.ft Ground 7285.36 First 5904.07

I.T.A. Nos. 487-489/Coch/2019

Second 5207.13 Third 4869.15 Fourth 2706.08

Total 25971.79

8.6 The Ld. AR submitted that the CIT(A) rejected the assessments completed by

the Assistant Commissioner of Income Tax of the total sale of the properties given

before the completion of the building and without the support of any registered

document. The CIT(A) found that 50 agreements were entered with the customers

for the sale of the floor area, even before the completion of the project as under:

Assessment No of Agreement Total Area in Sq.ft year

2014-15 3 2694.96 2015-16 37 18848.72 2016-17 10 4428.11 Total 50 25971.79

8.7 The Ld. AR submitted that out of the above 50 agreements the details of sale

and receipt of consideration by cheque and cash are found in respect of

20agreements only, from the documents seized at the time of search, from the

residence of Shri P.K.Mohammedkutty Haji, the Chairman of the company. In

respect of these 20 agreements for a total of 9471.43sq.ft. as detailed below

Rs.3,52,21,109/- was received by cheque and Rs. 3,60,42,509/- was received by

I.T.A. Nos. 487-489/Coch/2019

cash and the total amount received is Rs. 7,12,63,618/- in respect of the floor area

as under:

Details in respect of 20 agreements

A. Y Sq ft sold By cheque as per By cash as per books seized documents AY 2014-15 587 20,54,500 19,72,000

AY 2015-16 4456.32 1,84,28,528 1,75,50,673

AY 2016-17 4428.11 1,47,38,081 1,65,19,836

Total 9471.43 3,52,21,109 3,60,42,509

8.8 In respect of the remaining 30 agreements the total floor area of 16500.36 .sq

ft. the Ld. AR submitted that Rs.5,82,26,337/- was received by cheque. The Ld. AR

submitted that the CIT(A) estimated the probable receipt of cash in respect of

remaining 30 agreements without evidence. According to the Ld. AR, the CIT(A)

found Rs. 5,82,26,337/- was received by cheque as per books and estimated the

receipt of cash Rs. 5,12,01,107/-.

Details in respect of 30 agreements

A. Y Sq ft sold By cheque as per By cash as books estimated by CIT(A) AY 2014-15 2107.96 69,79,542 13,15,986

AY 2015-16 14392.40 5,12,46,795 4,98,85,031

AY 2016-17 0 0 0

Total 16500.36 5,82,26,337 5,12,01,107 32

I.T.A. Nos. 487-489/Coch/2019

8.9 The Ld. AR submitted that this estimate was on the basis of the two sheets of

papers seized from the residence of Shri P.K. Mohammedkutty Haji and adopting

this in assessee’s case should be only u/s 153C of the Act after recording

satisfaction as required under the Act which was omitted by the CIT (A) in the

appellate order.

8.9.1 The Ld. AR submitted that the total amount of consideration received in

cash, out of the 20 agreements, from the seized documents is Rs.3,60,42,509/- as

under:

AY 2014-15 Rs. 19,72,000 AY 2015-16 Rs.1,75,50,673 AY 2016-17 Rs.1,65,19,836 Total Rs.3,60,42,509

As against this, it was submitted that the CIT(A) had estimated a sum of Rs.

8,72,43,526/- as receipt of consideration in cash which resulted in assessing a sum

of Rs.5,12,01,017/- in excess of the actual collection. The Ld. AR submitted that the

CIT(A) considered the amount of Rs.8,72,43,526/- as undisclosed income for all the

3 years together. The Ld. AR submitted that the assessee company was following

the method of account of crediting all the amounts received from the customers as

one of the items of current liabilities and exhibited in the Balance Sheet. It was

submitted that this amount received from the customers comprised of value for the

land right and value for the building and the value of the land right received was

credited to land value of Tharif Mall Payable. Out of the value received for the

building, the Ld. AR submitted that 8% was treated as income in the respective 33

I.T.A. Nos. 487-489/Coch/2019

years and the balance building value was shown as liability. The Ld. AR submitted

that the 8% profit was credited to Profit and loss account under the head income

recognized from Tharif Mall and the same amount was debited to building work in

progress. The Ld. AR drew our attention to the following amount of current liabilities

exhibited in the Balance Sheet of the company:

Construction A.Y. Land value Value

As on 31-03-2014 24,39,190 65,94,852

As on 31-03-2015 2,12,51,511 5,74,57,854

As on 31-03-2016 2,52,33,239 6,82,14,207

8.9.2 The Ld. AR referred to the details of income recognized by crediting Profit

and Loss account and debiting work in progress are as under:

Assessment Income Recognized Year

AY 2014-15 13,55,106

AY 2015-16 29,73,081

AY 2016-17 16,13,453

Total 59,41,640

8.9.3 The ld. AR submitted that the Project expenses was Rs. 16,13,58,086/-. The

total expenditure incurred by the assessee for the 4 assessment years are as under:

I.T.A. Nos. 487-489/Coch/2019

Assessment Year 2013-14 2014-15 2015-16 2016-17 Total 1) Cost of Construction 1,43,06,630 5,92,72,040 5,03,28,871 3,13,39,499 15,52,47,040 2) Indirect Expenses - 7,95,816 4,25,068 3,90,630 16,11,514

3)Depreciation 13,01,688 19,05,472 12,92,372 44,99,532

Total 1,43,06,630 6,13,69,544 5,26,59,411 3,30,22,501 16,13,58,086

8.9.4 The Ld. AR submitted that all the above expenses were only as per the

books of accounts of the assessee company on the basis of which the returns of

income were filed. There were no expenses which were not accounted in the books

of accounts. The Ld. AR submitted that the net profit computed on the basis of

collection and expenditure based on the facts given above will be as follows: -

Collection

Particulars Amount In respect of 20 agreements towards construction cost by cheque Rs 3,52,21,109 In respect of 20 agreements towards construction cost by cash Rs. 3,60,42,509 Total (A) 7,12,63,618

In respect of remaining 30 agreements towards construction cost by cheque Rs. 5,82,26,337

In respect of remaining 30 agreements towards construction cost by cash estimated by CIT(A) Rs 5,12,01,017

Total (B) 10,94,27,354 35

I.T.A. Nos. 487-489/Coch/2019

Total collection from 50 agreements as above by Cheque 9,34,47,446

Total collection from 50 agreements as above by Cash 8,72,43,526

Total C (A+B) 18,06,90,972

Assessment Year wise details are as under: -

Assessment Cheque Cash Amount Total years Amount

2014-15 90,34,042 32,87,986 1,23,22,028

2015-16 6,96,75,323 6,74,35,704 13,71,11,027

2016-17 1,47,38,081 1,65,19,836 3,12,57,917

Total 9,34,47,446 8,72,43,526 18,06,90,972

Expenditure

Total construction cost and expenditure including depreciation is as follows:

Assessment Year

2013-14 2014-15 2015-16 2016-17 Total 1) Cost of Construction 1,43,06,630 5,92,72,040 5,03,28,871 3,13,39,499 15,52,47,040 2) Indirect Expenses - 7,95,816 4,25,068 3,90,630 16,11,514

3)Depreciation 13,01,688 19,05,472 12,92,372 44,99,532

Total (D) 1,43,06,630 6,13,69,544 5,26,59,411 3,30,22,501 16,13,58,086

Net Surplus(E=C-D) =18,06,90,972-16,13,58,086 =1,93,32,886/- Net profit 8% of Rs.19332886 = 1546631/-

I.T.A. Nos. 487-489/Coch/2019

Income already cleared as under:

Assessment Profit Years 2014-15 13,55,106 2015-16 29,73,081 2016-17 16,13,453 Total 59,41,640

8.9.5 The Ld. AR submitted that since substantial portion of the building is yet to

be completed, the net difference between total collection and expenditure

Rs.1,93,32,886/- is not a profit. According to the Ld. AR, the profit portion is

estimated @8% of Rs.1,93,32,886/- is Rs.15,44,631/-. It was submitted that the

remaining amount is to be treated only as advance from the customers for the

future expenditure for the completion of building. The additional profit to be

considered only 8% of Rs.1,93,32,886/- Rs.15,46,631/- as shown above. The

amount to be divided for the assessment years as follows:

Assessment Profit Years 2014-15 131,464 2015-16 10,42,429 2016-17 3,72,738 Total 15,46,631

8.9.6 In view of the above, the Ld. AR submitted that the adoption of

Rs.8,72,43,526/- as the income is incorrect and the above amounts may be

accepted.

I.T.A. Nos. 487-489/Coch/2019

8.9.7 The Ld. AR further submitted that the assessee received the amount by way

of cash towards sale of shops and there is proportionate cost of construction

incurred by the assessee which is to be given deduction. Further, he submitted that

the assessee has treated the cost of construction relating to the total project as

work in progress only taking the portion of these receipts as income in these

assessment years. It was submitted that the assessee had offered income in these

assessment years at lesser of the total cost incurred by the assessee as profit in

these assessment years and the balance was shown as work in progress in the

balance sheet. Accordingly, on the same principles, the income is to be ascertained

on the unaccounted cash receipts on sale of shops.

additions. The Ld. AR submitted that the building construction with a total area of

78,624.28 sq ft was only partly completed as on 31-03-2016 relating to AY 2016-17.

The Ld. AR submitted that in these assessment years, the project was not

completed and it is only work in progress shown by the assessee in its balance

sheet. Even if there are unaccounted collections in the form of cash, it cannot be

treated as the income of the assessee. It takes the character of advance received

by way of cheque. The receipt of money in cash cannot be treated as income of the

assessee. The income will be recognized only on completion of project and

registration of sale deed in favour of the purchaser. He also submitted that the

assessee has not obtained occupancy certificate and the major works are pending

I.T.A. Nos. 487-489/Coch/2019

for completion. He drew our attention to the various works as mentioned in para 7.4

of this order which are required on 31-03-2016 for the completion of the project.

78,624.28 sq. ft are completed during the AY 2014-15, 2015-16 and 2016-17 and

estimated the sale value at Rs.62,47,79,878/- which is not justified. The Ld. AR

submitted that the building construction with a total area of 78,624.28 sq ft was

only partly completed as on 31-03-2016 relating to AY 2016-17. The Ld. AR

submitted that in these assessment years, the project was not completed and it is

only work in progress shown by the assessee in its balance sheet. Even if there are

unaccounted collections in the form of cash, it cannot be treated as the income of

the assessee. It takes the character of advance received by way of cheque. The

receipt of money in cash cannot be treated as income of the assessee. The income

will be recognized only on completion of project and registration of sale deed in

favor of the purchaser. He also submitted that the assessee has not obtained

occupancy certificate and the major works are pending for completion.

78,624.28 sq ft are completed during the AY 2014-15, 2015-16 and 2016-17 and

estimated the sale value at Rs.62,47,79,878/- which is not justified.

I.T.A. Nos. 487-489/Coch/2019

collection of cash outside the books of accounts at Rs.32,87,986/- and also no

deduction could be given towards any expenditure incurred by the assessee as the

additions was made u/s 69A of the I.T. Act and entire unaccounted cash collections

to be considered as income of assessee.

case, the assessee has collected unaccounted sale receipts in the form of cash for

the assessment years 2014-15 to 2016-17. The CIT(A) extrapolated the income on

the basis of the seized documents in respect of 50 agreements and estimated the

undisclosed income for these assessment years. The contention of the Ld. AR is

that these entire unaccounted sale receipts cannot be considered as income of the

assessee in these assessment years and matching principles is to be followed and

deductions towards corresponding cost of construction is to be considered which

was shown as work in progress in the balance sheet. He submitted that the cost of

construction relating to the unaccounted collections which was shown in the books

of accounts of the assessee and reflected in the balance sheet as work in progress.

He drew our attention to the corresponding entry in the Balance Sheet shown as

work in progress in all the assessment years. We have gone through the Balance

Sheet relating to all assessment years and found that there is entry relating to work

in progress in its balance sheet. The assessee has accounted entire cost of

construction incurred by assessee after showing a fixed percentage of income on it

and balance was shown in the balance sheet as work in progress. As seen from the 40

I.T.A. Nos. 487-489/Coch/2019

order of the CIT(A), the entire unaccounted collections were considered by the

CIT(A) as undisclosed income of assessee which is reproduced elsewhere in this

order, we find that there is also clerical mistake in the said computation.

13.1 If we consider the entire income as computed by CIT(A) in the hands of the

assessee, the percentage of profit is worked out at exorbitant rate which is

humanely impossible to earn such a rate of profit by a developer and it gives

distorted picture of the assessee’s business affairs. It means that there is error in

the computation of undisclosed income by the CIT(A). In other words, a part of

work in progress shown by the assessee in its balance sheet is also relating to the

unaccounted cash receipts collected by the assessee. Therefore, we have to

consider the cost of construction relating to the unaccounted sale receipts collected

by way of cash by the assessee. The assessee furnished the details of collections as

well as cost of constructions as below:

Assessment Yearwise details are as under: -

Cheque Assessment Cash Amount Total Amount years Rs. Rs. Rs.

2014-15 90,34,042 32,87,986 1,23,22,028

2015-16 6,96,75,323 6,74,35,704 13,71,11,027

2016-17 1,47,38,081 1,65,19,836 3,12,57,917

Total 9,34,47,446 8,72,43,526 18,06,90,972

I.T.A. Nos. 487-489/Coch/2019

Expenditure

Total construction cost and expenditure including depreciation is as follows:

(in Rs.) Assessment Year 2013-14 2014-15 2015-16 2016-17 Total 1) Cost of Construction 1,43,06,630 5,92,72,040 5,03,28,871 3,13,39,499 15,52,47,040 2) Indirect Expenses - 7,95,816 4,25,068 3,90,630 16,11,514 3)Depreciation - 13,01,688 19,05,472 12,92,372 44,99,532

Total (D) 1,43,06,630 6,13,69,544 5,26,59,411 3,30,22,501 16,13,58,086

13.2 In our opinion, it is proper to consider the above cost of construction after

due verification of it by assessing officer with WIP disclosed by assessee.

Accordingly, we direct the Assessing Officer to give due credit towards cost of

construction relating to the unaccounted sale receipts collected by the assessee

which was included in the work in progress that was shown by the assessee in its

balance sheet. With this observation, we remit the issue in dispute to the file of the

Assessing Officer for limited purpose of re-quantification of the addition in respect of

unaccounted cash receipts unearthed by the Department during the course of

search/survey action. The Assessing Officer is directed to compare the above cost of

construction with the work in progress shown by the assessee in its balance sheet.

13.3 In other words, the total work in progress shown by the assessee in its books

of accounts in each assessment year is to be apportioned between accounted

collections and unaccounted collections in their respective ratio so as to arrive at

I.T.A. Nos. 487-489/Coch/2019

correct undisclosed income of assessee for each assessment year. The resultant

figure would be the undisclosed income of the assessee for each assessment year

and there is no question of taking any percentage of it as income of assessee as

argued by ld. AR. Further, we have already held in earlier para while adjudicating

the common Ground No.1 in the appeals and additional grounds of appeals that

estimation of unaccounted receipts is justified in view of the judgment of the

Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537). Thus,

there is no change in fixation of unaccounted receipts i.e. Rs.8,72,43,526/-and it

does not require to adjudicate the common ground no.2 in all these three appeals

and assessee is only entitled for proportionate deduction towards cost of

construction and accordingly AO has to recompute the unaccounted income for all

three Assessment Years after giving an opportunity of hearing to the assessee. It is

needless to say that the addition made by the Assessing Officer herein is not u/s. 69

or 69A of the I.T. Act. It is with reference to the unaccounted sale receipts which is

part of the assessee’s turnover. Being so, the restriction imposed u/s. 69 or 69A of

the I.T. Act with regard to granting of deduction towards expenditure does not

apply.

I.T.A. Nos. 487-489/Coch/2019

Thus, the ground no.2 is dismissed & ground no.3 is allowed in these three appeals

for all the assessment years.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 19th May, 2020 GJ Copy to: 1.M/s. Tharif Builders, Tharif Arcade, Puthiyara, Kozhikode-673 004. 2. The Assistant Commissioner of Income-tax, Central Circle-2, Kozhikode. 3. The Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Commissioner of Income-tax, Central, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin