Loading judgment…
Facts
A search and seizure operation was conducted on the assessee, a real estate company, leading to the discovery of discrepancies and deleted/modified receipts. The Assessing Officer (AO) made additions based on estimated profit rates on disclosed and deleted turnover. The assessee filed its return admitting higher income after the search.
Held
The Tribunal held that the CIT(A) correctly followed a precedent case ('Skill Promoters') by applying a uniform profit rate of 15% to deleted/modified receipts, as the Revenue failed to demonstrate any significant factual differences. The AO's higher profit estimation of 20% was not justified by evidence.
Key Issues
Whether a uniform profit estimation rate should be applied to disclosed and deleted/modified receipts, and if the CIT(A) erred in reducing the profit estimation from 20% to 15%.
Sections Cited
153A, 142(1), 143(2), 270A, 271D, 269SS, 28(vi)(a)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
O R D E R PER LALIET KUMAR, J.M:
This appeal is filed by the Revenue feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals) – 12, Hyderabad dated 29.06.2024 for the AY 2020-21.
The grounds raised by the Revenue read as under :
2 ITA 806/Hyd/2024
“1. Whether on the facts and circumstances of the casc and in law, the ld. CIT(A) erred in ignoring the fact that the deleted receipts would not have been offered to tax but for the search operations conducted by the revenue? 2 Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that the profit is the same on declared turnover and undeclared turnover? 3 Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in ignoring the fact of cash component in deleted receipts?”
The brief facts of the case are that assessee is a Private Limited Company incorporated on 22.12.2016 and is engaged in the business of real estate which involves sale of open plots. The assessee is one of the companies in Spectra Group of companies. The assessee had filed its original return of income on 15.02.2021 declaring total income of Rs.8,54,19,450/- for the Asst. Year 2020- 21. A search and seizure operation u/s. 132 was conducted in Spectra Group of Companies on 23.03.2021. During the course of search and seizure operation conducted, certain incriminating material pertaining to the assessee was seized. Subsequently, the AO issued notice u/s. 153A to the assessee. In response to the notice, the assessee filed its return of income on 12.02.2022 admitting total income of Rs.25,61,39,210/-. Thereafter, AO issued notices u/s. 142(1) and 143(2) of the 1.T. Act. In response to notices issued, the assessee furnished relevant information and after verification of the information furnished by the assessee and the material available on record, the AO completed the assessment interalia making additions towards estimation of income @ 15% on 3 ITA 806/Hyd/2024 disclosed turnover, estimation of income @ 20% on deleted receipts and estimation of income as per AS-9 of ICA. Accordingly, Assessing Officer completed the assessment u/s 143(3) r.w.s. 153A of the Act dt.31.03.2023.
Aggrieved by this order, the assessee has filed the appeal, before the LD.CIT(A), who granted part relief to the assessee.
Aggrieved with the order of LD.CIT(A), the Revenue is now in appeal before us.
Before us, Ld.DR has drawn our attention to para 21 of the assessment order whereby the Assessing Officer has made addition in the hands of the assessee for an amount of Rs.14,45,40,000/-, which is to the following effect :
“21. It is seen during the year under consideration the assessee had shown turnover of Rs.98,81,27,262/- in its return of income. The deleted receipts the assessment under consideration are Rs. 72,27,00,000/-. Accordingly the profit is estimated @ 15% on disclosed turn over which comes to Rs.14,82,19,089 (15% Rs.98,81,27,262). However as far as the deleted receipts are concerned, the point to point to matching of expenditure from days sheets is not possible which makes a justification of estimation of profit on these receipts on higher percentage. Having regard to facts and circumstances of the case, profit on deleted receipts is estimated @ 20% on delete receipts which comes to Rs. 14,45,40,000/- (20% of Rs.72,27,00,000/-). Penalty u/s.270A is initiated separately for mis-reporting of income. Proposals u/s.271D shall be submitted to the Joint Commissioner of Income Tax, separately for violation of provisions of Section 269SS by spectra group for acceptance of cash of Rs.254,19,56,861/- For A.Y. 2020-21.”
4 ITA 806/Hyd/2024 6.1 The Ld.DR had further drawn our attention to paras 6.2 and 6.3 at page 49 of the order of LD.CIT(A), which is to the following effect :
“6.2 During the course of appeal proceedings, the appellant has made similar submissions which were made during the assessment proceedings before the AO. The same have been summarized above in paragraphs 6.1.5 and 6.1.6. 6.3 I have considered the assessment order and submissions of the appellant. It is seen that the Rs.14,45,40,000/- on account Assessing Officer made the addition of estimation of income 20% on deleted receipts. With regard to this addition, the following observations are made: (i). The appellant has initially admitted the profit @8% on the turnover declared in the original return of income filed for the AY 2020-21. Subsequently, a search action was conducted in case of the appellant and some discrepancies were found in the books of the appellant by the search team and some deleted/ modified receipts were also found. In order to cover the discrepancies, the appellant has admitted the profit @15% on the turnover (including on deleted/ modified receipts) during search proceedings and filed return of income in response to notice u/s 153A of the Act declaring the same. Therefore, it is seen that the appellant has admitted higher rate of profit margin (from 8% to 15%) in consequence to search proceedings and duly complied with the statement given during search proceedings. (ii). The Assessing Officer has accepted this estimation of profit @15% on the turnover declared by the appellant for the AY 2020-21, but did not accept the estimation of profit at same rate of 15% on deleted/ modified receipts/ turnover. It is seen that once the Assessing Officer has accepted the profit margin @15% on the declared turnover then, even if, some turnover receipts were deleted/ modified, the uniform rate of profit margin should be adopted, unless there is other incriminating evidence on record shows otherwise. (iii). In the present case, the estimation of profit at higher rate of 20% is not based on any corroborative evidence on record. (iv). There should not be different estimation of profit on similar kind of receipts/ turnover in the same business in case of same assessee.
5 ITA 806/Hyd/2024 v) The Hon'ble Hyderabad ITAT in the case of Skill Promoters case (ITA No 628/Hyd/2022) held as under in relation to the profit estimation on suppressed turnover: *14.6. Considering the totality of the facts of the case and considering the fact that the assessee has already offered the additional income to the tune of Rs.6.00 crores in the retum of income filed for A.Y 2016-17 to 2019-20, we modify the order of the learned CIT (A) and direct the Assessing Officer to adopt the profit rate of 15% on the unaccounted receipts of Rs.68.17 crores" for the A.Y 2016-17 to 2020-21, the details of which are already given at Para No. 13.11." In view of the above observations, and respectfully following the decision of the Hon'ble Jurisdictional ITAT and also in my considered opinion, the profit on deleted/ modified receipts should be estimated @15% and not 20%. Since for the AY 2020-21, the deleted/ modified receipts are Rs.72,27,00,000/- the profit on these deleted/ modified receipts is hereby estimated at Rs. 10,84,05,000/- (15% of Rs.72,27,00,000/-. Accordingly, the addition of Rs. 10,84,05,000/ made by the AO is hereby confirmed and the remaining addition of Rs.3,61,35,000/- (addition of Rs. 14,45,40,000/- made by the AO - profit of Rs. 10,84,05,000/ estimated @15%) is hereby deleted. The ground no.4, 5 & 6 of the appeal are partly allowed.”
Per contra, the ld.AR submitted that during the course of search, it was noticed by the Assessing Officer that in response to Question No.17, that for the F.Y. 2020-21 relevant to A.Y.2021-22, the assessee has shown the revenue of Rs.101.47 crores and further, there was no occasion of deleted / modified receipts for an amount of Rs.72.27 crores. The assessee has declared the income at 15% over the turnover which includes the deleted / modified receipts for an amount of Rs.26.06 crores. Out of that, the assessee has declared income of Rs.8.99 crore and the assessee has offered the additional income of Rs.17.07 crore. During the year under consideration, the assessee was given a show cause notice to submit a note on the deleted / modified receipts of 6 ITA 806/Hyd/2024 Rs.72.27 crores during the F.Y. 2019-20 and it was argued whether these receipts were offered in the books of account or not. In reply to the show cause notice, assessee as recorded by the Assessing Officer in Para 14.1 has admitted that receipt of Rs.72.27 crore was with respect to deleted / modified receipts, which are not considered as receipts for the audited financial statements of the company.
The ld.AR further submitted that during the proceedings, the assessee has declared 15% on the deleted / modified receipts, and despite that, the Assessing Officer, as mentioned hereinabove, vide Para 21 of his order, has estimated the profit made an addition of 20% on the deleted / modified receipts.
In rebuttal, the Ld.DR has submitted that the Assessing Officer while passing assessment order has held that the matching of expenditure in respect to the deleted / modified receipts is not permissible and therefore, has estimated 20% on the deleted / modified receipts for an amount of Rs.14,45,40,000/-. The Ld.DR further submitted that the LD.CIT(A) relying upon the decision of the Co-ordinate Bench of the Tribunal in the case of Skill Promoters in has reduced the profit from 20% to 15% and deleted the remaining addition. It was submitted that the case of the Skill Promoters (supra) is not parametria similar to the case of the assessee, as the assessee is engaged into
7 ITA 806/Hyd/2024 real estate development whereas in the Skill Promotors, the assessee is not engaged into real estate development.
The ld.AR has submitted that during the course of search in the premises of the assessee, a Sandisk Pendrive of 8 GB was found and seized Annexure A/SIEPL/OFF/PenD/01, which contain Day Sheets in the form of excel sheets. In the said Day Sheets, there was a detail of the expenditure incurred against the deleted / modified receipts. Furthermore, the ld.AR has submitted that there was no basis for the Assessing Officer to estimate the profit @ 20% on the deleted / modified receipts when the assessee itself has declared the profit @ 15%. For the above said purposes, ld.AR has drawn our attention to Para 6.1.4 to 6.1.5 of the order passed by the LD.CIT(A), which is to the following effect :
“6.1.4 During the course of assessment proceedings, the Assessing Officer han Issued a show notice to the appellant to submit a note on deleted/ modified receipts of Rs.72.27 crores during the FY 202019-20 and whether these receipts were offered in the books of accounts or not and to submit a note on project wise gross profit & justification on such gross profit. Further, the appellant was also asked to show cause as to why the books of accounts should not be rejected and as to why revenue recognition methodology should not be reworked. In response, the appellant submitted that the deleted/modified receipts of Rs.72.2 Cr for the year under consideration were not considered as receipts in the audited financial statements of the Company and also, corresponding expenditure relating to the deleted/modified receipts were also not recorded in the books of account of the Company and the appellant company has offered income @15% on deleted/modified receipts during the course of search proceedings and accordingly offered the same in the income tax return filed under section 153Aof the Act. 6.1.5 With regard to the profit estimation, the appellant submitted that the profits for the respective projects had been derived after considering the cash payments made to Landlords and expenses incurred towards the development expenditure at the sites and the revenue recognition of 8 ITA 806/Hyd/2024 the Company was to record sales only at the time of registration in the name of the Customer. Further, the appellant stated that the reason for such revenue recognition was that the Company offered the plots to its customers on EMI basis and there were multiple defaults and delays in payments of monthly EMIs by the Customers and also, there were multiple instances of cancellatons by the Customers due to various reasons. Hence, the appellant company recognized sale only on registration of plot in the name of customer and till the time of sale, all the expenditure incurred by the Company towards site development had been accounted for as "Capital Work-in-progress" and only on registration, a proportionate cost was debited to P&L account. The appellant further submitted that after considering the deficiencies, omissions found during the search proceedings, it had offered a net margin of 15% (including on deleted/ modified receipts) and paid taxes accordingly.”
Lastly, the ld.AR submitted that since the assessee has already relying upon the decision of the co-ordinate Bench of the Tribunal in therefore, the same view may kindly be followed. The relevant portion of the Co-ordinate Bench of the Tribunal in reads as under :
“24. We have heard the rival arguments made by both sides, perused the orders of the AO and the CIT (A) and the Paper Book filed on behalf of the assessee. We find the assessee in the instant case has received total commercial space of 14,42,896 sft in Block A as consideration for developing the entire project. Out of the above, the assessee sold 669150 sft and leased out 532376 sft in different floors. We find the Assessing Officer applying the provisions of section 28(vi)(a) held that the assessee has converted the unsold inventory of 532376 sft into fixed asset and therefore, brought the same to tax as business income. While doing so, the Assessing Officer took the fair market value of the area sold at Page 53 of 55 and others Skill Promoters & Skill Promoters (P) Ltd Rs.5620.71 per sft and accordingly made addition of Rs.78,24,80,921/- to the total income of the assessee details of which are given at Para 21.1 of this order. We find in appeal, the learned CIT (A) after obtaining a remand report from the Assessing Officer and rejoinder of the assessee to such remand report deleted the addition, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the learned CIT (A) in deleting the above addition. It is an admitted fact that the assessee company has entered
9 ITA 806/Hyd/2024 into the development agreement with land owners under JDA in the year 2009 and has treated its share of the built-up area as stock-in- trade. The built-up area received in pursuance of the JDA would be a business asset and has been continuously treated as stock-in- trade. From the balance sheet filed by the assessee, we find that the entire expenses towards development of the project area shown as "work in progress" since inception and continues to be shown as such even for the impugned A.Y. The fixed asset as on 31.3.2019 in the balance sheet is Rs.4.18 cores whereas the inventory is shown at Rs.348.76 crores. We further find the assessee has not claimed any depreciation on the inventory. Further, the assessee has offered the sale of built-up area as income from business and not as a capital gain and the Assessing Officer has accepted the same. We are of the considered opinion that the nature of the built- up area that was received by the assessee being a Developer in lieu of development of the land is stock-in-trade and this nature would continue to be so unless specifically converted into a capital asset. We concur with the findings of the learned CIT (A) that merely because some of the built- up area was leased out for earning rental income does not alter the nature of the asset and it would tantamount to exploitation of the unsold inventory to earn income. In view of the above discussion and in view of the detailed reasoning given by the learned CIT (A) on this issue, we do not find any infirmity in his order holding that provisions of section 28(vi)(a) do not apply to the facts of the case for the impugned A.Y. We therefore, uphold the order of the learned CIT (A) on this issue and the grounds raised by the Revenue are dismissed.
25. In the result, all the appeals filed by the Revenue are dismissed and the appeals filed by the assessee are partly allowed.
We have heard the rival submissions made by both sides and perused the material on record. The core issue in the present case pertains to the profit estimation rate on the deleted/modified receipts. In the present case, the Ld.DR contended that the Assessing Officer has rightly estimated the profit at 20% on the deleted/modified receipts amounting to ₹72.27 crores, citing discrepancies in the expenditure details submitted by the assessee. The Ld.DR also argued that the case of Skill Promoters (ITA No. 628/Hyd/2022) relied upon by the LD.CIT(A) is not fully
10 ITA 806/Hyd/2024 applicable, as the assessee in this case is engaged in real estate development, unlike the assessee in Skill Promoters. On the other hand, the assessee submitted that during the search proceedings, it had voluntarily admitted a profit margin of 15% on both declared and deleted/modified receipts, resulting in additional income of ₹17.07 crores being offered in the return filed under section 153A of the Act. The ld.AR also contended that there was no basis for the AO to adopt a higher profit margin of 20% when a uniform rate of 15% was consistently applied across all receipts. It was also pointed out that the deleted/modified receipts of ₹72.27 crores were not recorded in the audited financial statements, but corresponding expenditure details were supported by a day-sheet discovered during the search. The assessee further argued that the LD.CIT(A)'s reliance on Skill Promoters (supra) was appropriate, as the principle of uniform profit estimation on similar business receipts is applicable, irrespective of the industry and hence, submitted that given the identical nature of the issue in the same view should be adopted in the present case.
After careful considerations of the submissions and arguments on both sides, we find merit in the reasoning adopted by the ld.CIT(A). We are of the opinion that the Ld. CIT(A) has correctly followed the decision in Skill Promoters (ITA No. 628/Hyd/2022), wherein it was held that a uniform profit rate should be applied consistently, based on the facts and circumstances of the case. Since the facts and issues in the 11 ITA 806/Hyd/2024 present case are identical to those in Skill Promoters and also in view of the failure of the Revenue to demonstrate any significant differences in the facts that would justify a deviation from the principle established therein, we deem it appropriate to adopt the same approach in line with the prayer of the assessee to adopt the view taken in ITA No. 628/Hyd/2022. In the absence of any material evidence justifying a higher profit margin of 20%, we uphold the decision of ld.CIT(A) and thereby restrict the profit margin to 15% and accordingly, we dismiss the appeal filed by the Revenue.
In the result, the appeal of the Revenue is dismissed.