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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO & SHRI D.S. SUNDER SINGH
O R D E R
Per Shri D.S.Sunder Singh, Accountant Member :
These appeals are filed by the revenue against the different orders of the Commissioner of Income Tax (Appeals) [CIT(A)]-3, Visakhapatnam in Appeal No.147 & 148/2019-20/CIT(A)-3/ VSP/2019-20 dated 16.09.2019
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur for the Assessment Year (A.Y.) 2015-16 and 2016-17. Since the grounds of appeals and the issues are common in both the appeals, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. For the sake of convenience, we extract facts from the appeal for the A.Y.2015-16 which is identical for both the years except difference in amounts.
Brief facts of the case are that for the A.Y.2015-16, the assessee filed the return of income declaring total income of Rs.10,08,910/- on 28.09.2015. The assessee is engaged in construction of apartments and Shri Paruchuru Satish Kumar is main person of the group ‘Premier’ and also partner in the firm. A search u/s 132 was conducted on 29.11.2017 in “Premier” group and the assessee’s case is covered u/s 133A of the Act. The assessee is also one of the group concerns of Premier group. During the course of survey, incriminating material in the form of a small note book was found and impounded as Annexure A/KC/Guntur/6, which contained the details of actual sale consideration received on sale of flat and sale consideration admitted in the books of accounts and offered for registration. The Assessing Officer (AO) in respect of one of the flats found that against the total sale consideration of Rs.33,30,000/-, the assessee had received the sum of Rs.22.20 lakhs through banking channels and was offered for taxation /
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur registration and a sum of Rs.11.10 lakhs was received in cash which remained unaccounted. A statement was recorded during the course of survey covering the incriminating material page No.1 to 19 of Annexure A/KC/Guntur/1 which contain the details of flat wise sales and one of the partners, Shri Kakumanu Madhava Rao stated that they have accepted cash over and above the registered value which was not accounted in the books of accounts. The assessee quantified the total sum of unaccounted cash receipts at Rs.7,37,04,000/- and admitted the additional income of Rs.8 crores, clear of all the expenditure debited to profit & loss account and agreed to pay taxes. Later a statement u/s 131 was recorded by DDIT (Inv). During the course of recording the statement u/s 131, another partner Sri Rajendra Babu appeared and confirmed the contents of the statement recorded from Shri Kakumanu Madhava Rao during the course of survey and confirmed the additional income of Rs.8.00 crores as declared during the survey. However, subsequently, the assessee did not file the return of income admitting the additional income declared during the course of survey. Therefore, notice u/s 148 was issued by the AO and in response to the notice issued, the assessee filed the return of income admitting total income of Rs.75,61,810/- i.e. estimating 30% of the 13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur undisclosed receipts of Rs.2,18,43,000/- as income which worked out to Rs.65,52,900/-.
2.1. Similarly, for the A.Y.2016-17, the assessee filed the return of income declaring total income of Rs.73,70,630/-. According to the assessee, it has received the additional receipts for the A.Y.2015-16 Rs.2,18,43,000/- and for the A.Y.2016-17, Rs.2,38,06,000/- and has admitted the income @30% on the total undisclosed receipts declared during the course of survey. When the AO called for the explanation as to why the entire additional receipts should not be taxed as income, the assessee explained that initially he was in a state of confusion and erroneously admitted the additional receipts as income. He further stated that what was admitted during the course of survey was undisclosed receipts quantified as per the incriminating material but not the income. He further stated that there was unaccounted expenditure incurred which was also found during the course of survey and impounded as per Annexure page 8 to 13 relating to additional work and also the agreements which shows that the additional works have been executed by the assessee as well as outside persons and additional receipts were related to additional works and works carried out by the outside persons. The Ld.AR further stated that while quantifying the income, unaccounted expenditure and the additional works undertaken
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur by the outside persons to whom the payments were made out of unaccounted receipts was not considered by the assessee due to oversight. The assessee further stated that in this line of business, generally there are two agreements, first agreement was for sale semi finished flat and the second agreement is for completion of the remaining construction or additional works. The buyers will do the additional works on their own or by engaging outside persons or entrust to the assessee. The total sale consideration consists of cost of semi finished flat and cost of additional works. In the assessee’s case, loose papers found during the course of survey establish the said practice. During the course of survey, statements was recorded estimating the difference @Rs.1000/- per sq.ft for residential flat and Rs.1500/- per sq. ft in respect of commercial building for working additional receipts, without any basis and the assessee has signed the statements without understanding the same. He further submitted that there was no corroborating evidence found to establish that the entire additional receipts constitute income, whereas the evidences found during the survey indicated the unaccounted expenditure met out of unaccounted receipts. Therefore, the assessee submitted before the AO to accept the additional income admitted by the assessee @30% of the undisclosed receipts. However, the AO not being impressed with the explanation of the 13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur assessee, treated the entire additional receipts as undisclosed income, accordingly, assessed the sum of Rs.2,28,51,910/- for the A.Y.2015-16 and Rs.2,40,34,830/- for the A.Y.2016-17.
Against which the assessee went on appeal before the CIT(A) and reiterated the submissions before the CIT(A). The Ld.CIT(A) considered the submissions of the assessee and found that in this line of business, certain expenditure was incurred outside the books of accounts, therefore, there is no justification to hold that the entire unaccounted receipts as unaccounted income. Accordingly, viewed that estimation of 30% of the undisclosed receipts as income is reasonable estimation, accordingly accepted the income offered by the assessee and allowed the appeal of the assessee.
Against which the department is in appeal before this Tribunal. During the appeal hearing, the Ld.DR submitted that survey u/s 133A was conducted in the assessee’s premises and during the course of survey, incriminating material was found containing the details of unaccounted receipts for the A.Y.2012-13 to 2017-18. The assessee had accepted the said sum of Rs.8 crores as additional income for the A.Ys. comprising 2012- 13 to 2017-18 as per the details given under :
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur
Total additional Additional Additional Commercial Residential undisclosed F.Y. income @ income (in SFT) (in SFT) income 2500 @1000 (1)+(2) 2012-13 350 5,25,000 4395 43,95,000 49,20,000 2013-14 2100 31,50,000 5775 57,75,000 89,25,000 2014-15 7190 1,07,85,000 11058 1,10,58,000 2,18,43,000 2015-16 3412 51,18,000 18688 1,86,88,000 2,38,06,000 2016-17 0 0 14011 1,40,11,000 1,40,11,000 2017-18 700 10,50,000 4747 47,47,000 57,97,000 Advances taken, unsold 552 sft (Residential) 6,98,000 6,98,000 Total 13752 2,06,28,000 58764 5,93,72,000 8,00,00,000
Since the assessee had accepted the additional income during the course of survey and subsequently ratified the statement recorded during the course of survey in the statement u/s 131 by another partner Sri Mittapalli Rajendra Babu, the Ld.DR argued that the AO rightly taxed the undisclosed receipts as income. The Ld.DR further submitted that the undisclosed income assessed by the AO is supported by the evidences found during the course of survey and also fortified by the statement recorded from the partners, therefore, the Ld.CIT(A) erred in allowing the appeal of the assessee and accepting the profit of 30% offered by the assessee, hence, requested to set aside the order of the Ld.CIT(A) and uphold the order of the AO.
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur
On the other hand, the Ld.AR vehemently supported the order of the Ld.CIT(A).
We have heard both the parties and perused the material placed on record. In the instant case, survey u/s 133A was conducted and during the course of survey, loose sheets were found disclosing the unaccounted receipts which were received in cash as well as cheque. Cash the receipts worked out to Rs.7,93,95,000/- as discussed in the assessment order. The assessee had admitted the entire undisclosed receipts as income for various assessment years, however, offered only 30% of the undisclosed receipts as income in the return filed in response to notice issued under section 148 of the act. The Ld.CIT(A) accepted the income admitted by the assessee as justified in his order. For the sake of clarity and convenience, we extract relevant part of the order of Ld.CIT(A) in para No.5.2 which reads as under : “5.2) 1 have considered the assessment order and submissions of the appellant. I have gone through the material placed before me also. It is seen that the material impounded during the course of survey contained flat wise details of names of purchaser, area, consideration in cash and cheque related to the real estate project under taken by the appellant firm. The total amount of cash receipts according to the notings is Rs,.7,37,04,000/-. The partners of the firm separately accepted the same and offered to Rs.8.00 crores as additional income on account of the above net of all expenses. The above was calculated as @ Rs. 1500 per Sq. ft for commercial area and @ Rs. 1000 per Sq. it for the residential area of the project. The appellant has retracted the admission given above: A copy of retraction letter is filed before me. The assessee filed the return of income
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur in response to notice u/s.148, the income which was offered to tax in earlier return filed. Later on the same was revised to offer additional income @ 30% on the additional receipts admitted by the appellant in the statement recorded for each year while arriving at Rs.8.00 crore as additional income. The appellant's contention is that though additional amounts in cash was received the same is for additional works carried on in the semi finished flats/areas. The appellant has incurred expenses for the same and total receipts do not constitute income of appellant and profit thereon estimated @ 30% was offered to tax. The offer @ 30% of the receipts was not accepted by Assessing Officer on account of the fact that the appellant could not produce the evidences for the expenditure claimed. On perusal of the material, it is seen that the actual amounts as per registered documents differ in some cases from the cheque/bank amounts shown in the notings as brought : out by the appellant. In case of some of the buyers - Mr. Pallapothu Srinmnarayana (Flat No, 112), Mr. Thiruveedula Leela Purushotham (Flat No.113), M/s.ASK & Parthy (Flat No.121A), Mrs.Kolluru Satyadevt (Flat Nc). 12113) the cash component indicated is 80% to 90% of the consideration which cannot be true in view of the Registered Value to be paid in cheque finally. Further, the material impounded (Annexure A/KC/GUNTUR/ 1) itself contain certain details of cash expenditure in form of payment for electrician Mr. Narasimha Rao to the true of Rs.4,14,350/- up to 30/09/2013 which shows that such expenditure is incurred by the appellant. The Annexure A/KC/GUNTUR/7 also contain details of certain cash expenses though no such claim was made during the statement recorded of the appellant, the claim cannot be negated keeping in view the nature of business of the appellant and also the details contained in the notings as mentioned above. In view of the above, there is some justification in the claim of the appellant that the entire additional receipts cannot constitute income of the appellant. The decision relied on by the appellant also lay down the above proposition subject to facts of the case. On the basis of factual position as above and the legal position as above and the legal position as contended by the appellant, it is held that offer of income on estimated basis, not the entire receipts, by the appellant is justified. Next question that consideration is what percentage of such receipts is to be estimated as income. Going by the trade practice of the real estate business and the percentage of income estimated by various judicial fora, the income offered @ 30% of additional receipts is reasonable and the same be accepted. Accordingly, the Assessing Officer is directed to estimate income @ 30% of the additional receipts and accept the income as offered by appellant in the revised return. The grounds are treated as allowed.”
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur 6.1. It is observed from the order of the Ld.CIT(A) as well as the AO that at the time of survey, the additional receipt was estimated @1000/- per sq.ft in respect of residential building and Rs.1500/- per sq.ft. in respect of commercial building without any basis. The AO accepted the difference without working out the actual cost of construction and sale consideration of the flats. The assessee submitted during the course of assessment proceedings that they have entered into two agreements from the flat buyers, one for registration of semi finished building and second one for completion of semi finished flats and additional works. The above additional works agreements and evidences for unaccounted expenditure were also found during the survey and impounded as page No.8 to 13 of Annexure marked as A/KC/Guntur/1. The Ld.CIT(A) also observed that in certain cases, the assessee stated to have been received the cash component of 80-90% of sale consideration, which cannot be true since the Registered Value to be paid in cheque. Therefore, viewed that the entire cash considerations is neither unaccounted nor can be treated as undisclosed income, since, some of the cash receipts also required to be accounted for registration purpose and also in the books of accounts. The Ld.CIT(A) also found certain cash bills are pending and certain cash expenditure was paid outside the books of accounts. From the above finding of the Ld.CIT(A) as well as the 13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur submissions made by the assessee before the AO and during the course of assessment proceedings, it is observed that the unaccounted cash expenditure was not considered while admitting the additional income. The assessee admitted the entire cash receipts as additional income and the department has accepted the same without going into further details of unaccounted expenditure. The AO also did not work out the cost of construction of additional works for the flat and arrived at the profit. In normal practice, the AO should consider the expenditure for construction of the flats including cash expenditure and arrive at the cost of construction. From the total sale proceeds i.e. cash receipts as well as bank receipts, cost of construction required to be reduced and net profit required to be brought to tax. The AO may also go into the details of unaccounted expenditure and make addition invoking the relevant provisions of the Act. The AO has not done such exercise in this case. The AO also did not consider the unaccounted expenditure incurred though the evidences are available in the impounded material. The AO also did not refer the cost of construction to the departmental valuation and simply estimated the unaccounted receipts @1000/- per sq.ft in respect of residential area and Rs.1500/- per sq.ft in respect of commercial area without arriving at the actual cost of construction with accounted
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur expenditure and the unaccounted expenditure which is baseless. Similarly it is also incumbent upon the AO to arrive at the accounted receipts and unaccounted receipts and the actual expenditure incurred. No such exercise was done by the AO and simply taxed the entire unaccounted receipts which were offered by the assessee at the time of survey. Therefore, we are of the considered opinion that when there is evidence available with regard to unaccounted expenditure and receipts, taxing the entire unaccounted receipts as income is unjustified. Hence, estimation of income made by the assessee which was accepted by the Ld.CIT(A) appears to be reasonable, hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.
The assessee has filed cross objections. Since the appeals of the revenue are dismissed, the cross objections filed by the assessee become infructuous, hence, dismissed.
In the result, appeals of the revenue as well as the cross objections of the assessee are dismissed.
13/Viz/2020, CO No.06/Viz/2020 and 07/Viz/2020, A.Y.2015-16 and 2016-17 M/s Kedareswara Constructions, Guntur
Order pronounced in the open court on 23rd November, 2020.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसिंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नििधंक /Dated : 23.11.2020 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. रधजस्व/The Revenue – Deputy Commissioner of Income Tax , Central Circle-1, Guntur 2. निर्धाऩरती/ The Assessee– M/s Kedareswara Constructions, #D.No.198-30, Flat No.120, Sri Kanyaka Parameswari Enclave, Etukuru Road, Guntur 3. The Pr.Commissioner of Income Tax (Central), Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ड फ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, Visakhapatnam