ASSISTANT COMMISSIONER OF INCOME TAX, PUNE vs. BHUJBAL BROTHERS CONSTRUCTION COMPANY, PUNE

First, we shall take up the appeal of the assessee in for adjudication. ITA No.2137/PUN/2024 – By Assessee : 5. The assessee has raised the following grounds of appeal :-

At the time of hearing, Ld. Counsel of the assessee furnished a letter wherein it has been stated that the assessee do not want to press ground nos.1, 2 and 8 of its appeal. Accordingly, ground nos.1, 2 and 8 are dismissed as not pressed.

In ground no.3, the assessee has challenged the order passed by Ld. CIT(A) wherein he has estimated 5% net profit on gross receipts instead of 3% as requested by the assessee. In this regard, we find that Ld. CIT(A) has restricted the addition of 20% net profit as estimated by the Assessing Officer to 5% and accordingly substantial relief has been granted by observing as under :- “13.1 I have considered the facts of the case, submissions made by the appellant and the remand report of the AO. There is no dispute on the fact that the appellant was developing projects namely Forest Mist, Vatika and Misty Trail. It is also not under dispute that the project namely Forest Mist was 85% complete, project namely Vatika was 95% complete and project namely Misty Trail was 65% complete. It is also an undisputed fact that during the assessment proceedings or Special Audit, the appellant did not produce its books of accounts nor it filed any P&L account. It is also seen from the assessment order that the AO repeatedly requested the appellant to file project-wise details for working out net profit by following the percentage of completion method as prescribed by ICAI in its guidance note. However, despite of repeated opportunities, no such details were filed during the assessment proceedings. Now, during the appellate proceedings, the appellant has filed an unaudited profit and loss account indicating that the firm had incurred a loss of Rs.5,78,09,682/-. However, no supporting documents for this P&L Account has been filed. The appellant has not substantiated the basis on which the revenue has been recognized and neither any supporting documents for various expenses debited in the P&L account have been filed. The appellant has also failed to explain as to why the same could not be produced before the Special Auditor or the AO. The appellant has also not filed the project-wise working of revenue recognized by it by following the percentage of completion method. In such situation, the said P&L Account which is based upon unaudited books of accounts and is unsigned, cannot be accepted. Thus, the working of business profit of the appellant for the year under consideration cannot be determined on the basis of this unaudited P&L account. 13.2 On the other hand, it is seen that the appellant has not disputed the extant of percentage of work completion for three projects under discussion. Neither the appellant has disputed the amount of advances received by it for each of these three projects namely Forest Mist, Vatika and Misty Trail. The appellant has taken an alternate ground that it had earned net profit rate of 3% during AY 2015-16 which stands accepted in the assessment completed u/s. 143(3) of the Act and therefore the same NP rate can be applied on the revenue estimated by the AO. In this manner, the appellant has requested that the net profit from these three real estate projects may be restricted to Rs.2,58,00,000/- for the year under consideration. 13.3 I have considered this alternate contention of the appellant. A perusal of the assessment order suggests that the AO has not given any basis of adopting the NP rate @20% for the year under consideration. It is a well-settled legal position that while completing the best judgement assessment, the income must be estimated on some reasonable basis and the AO cannot adopt any unreasonable profit rate. A perusal of assessment order suggests that no basis for adopting the NP rate of 20% is mentioned in the assessment order. On the other hand, a perusal of statement of the partner of the appellant firm, recorded during the survey operation on 16.11.2018, suggests that at that time, GP rate was estimated @18%. Once, the GP rate was estimated @18%, NP rate cannot exceed the same and therefore the estimated NP rate of 20% as adopted by the AO, appears to be excessive. 13.4 It is also seen from the P&L Account filed for AY 2015-16 that NP rate of about 3% was declared by the appellant at a turnover of Rs.28.42 crore which has been accepted by the AO while completing the assessment u/s. 143(3) of the Act on 26.12.2017. 13.5 It is further seen that after completion of assessment for the year under consideration, the AO had completed the assessment u/s. 143(3)

We have heard Ld. Counsels from both the sides and perused the material available on record. From perusal of the above order of Ld. CIT(A), we find that in assessee’s own case for assessment year 2016-17 on the similar facts and circumstances of the case, the Assessing Officer has also estimated net profit at the rate of 5% on gross turnover. It is worthwhile to mention here that for assessment year 2016-17 the books of accounts were also not maintained and regular return of income was also not furnished by the assessee.

In ground no.4, the assessee has challenged the order passed by Ld. CIT(A) wherein he estimated 5% net profit on unrecorded sales of Rs.38,18,000/-. In this regard, we find that Ld. CIT(A) has deleted the addition of Rs.38,18,000/- made by the AO & restricted the same to 5% net profit only on above unrecorded sales of Rs.38,18,000/- by observing as under :- “15. I have considered the facts of the case, submissions of the appellant and the comments made by the AO. The appellant has not disputed the findings that the sales to the extent of Rs.38,18,000/- was not recorded in its books of accounts. The only contention of the appellant is that only profit element embedded in such sales should be considered as income and not the entire sale receipts. I have considered this contention of the appellant. As discussed above, in the present case, the income of the appellant has been determined by applying a net profit rate to the total turnover of the appellant, thus the comments of the AO that in the absence of any evidences for expenses, the contention of the appellant should not be accepted, does not have any force. Since the income in the present case is being estimated by applying a net profit rate to the turnover of the appellant, therefore it will only be fair that the said amount of Rs.38,18,000/- (which is not recorded in the books of accounts), should be added to the turnover estimated by the AO in para 9.3 of the assessment order and thereafter net profit rate of 5% should be applied for determining the income on such sales. The ground no. 4 raised by the appellant is PARTLY ALLOWED.”

In ground no.5, the assessee has challenged the order passed by Ld. CIT(A) wherein he has confirmed the order passed by the Assessing Officer wherein the difference of Rs.1,07,39,310/- in stamp duty value and registry value of certain flats/ shops has been added to the income of the assessee as per section 43CA of the IT Act. In this regard, we find that Ld. CIT(A) has dismissed this ground by observing as under :- “17. I have considered the Special Audit report and it is seen that in the Annexure-4 to this report, the Special Auditor has given 7 instances wherein the sale consideration is lower than Stamp Duty Valuation. The only argument of the appellant is that there was massive recession during the year and therefore, it had to sell the units at a value lower than the Stamp Duty Valuation. This argument of the appellant is factually incorrect because had it been the case, most of the units sold by the appellant during the year would have been sold at a value lower than the Stamp Duty Valuation but this is not the case and there are only few instances where the sale consideration is lower than the Stamp Duty Valuation. Accordingly, the contention of the appellant cannot be accepted and the addition of Rs.1,07,39,310/- made by the AO u/s. 43CA of the Act is upheld. The ground no. 5 raised by the appellant is DISMISSED.”

We have heard Ld. Counsels from both the sides and perused the material available on record. From perusal of the above order, we find that Ld. CIT(A) has dismissed this ground by observing that the assessee has only argued that due to massive recession during the year some units are sold lower than the stamp duty valuation and therefore he dismissed the said ground raised by the assessee. In this regard, we find that the assessment order was passed ex-parte i.e. in the absence of assesse, thereafter in first appeal before Ld. CIT(A) it was contended by the assessee that due to market position certain units were sold at a price lower than the stamp duty valuation. We find that no specific request was made by the assessee before Ld. CIT(A) to refer the matter to the DVO for valuation of the impugned flats/shops which were sold at lower than the stamp duty valuation. However, we also find that Ld. CIT(A) could have referred the matter to the DVO on his own, but the need to refer the valuation of the impugned property to the DVO arises only if there are no similarly situated or comparable property, but in the instant case only a few flats/ shops were sold at a value lower than the stamp duty valuation and rest of the units were sold at regular prices, therefore there was no occasion for Ld. CIT(A), to refer the matter to the DVO. Accordingly, we do not find any substance in the arguments of Ld. Counsel of the assessee that the matter of valuation of some of the flats/ shops should be referred to the DVO. Accordingly, we do not find any error in the order passed by Ld. CIT(A) wherein he confirmed the order passed by the Assessing Officer wherein the addition of Rs.1,07,39,310/- was made by him as per section 43CA of the IT Act since they were sold at a price lower than the stamp duty valuation. Accordingly, ground no.5 raised by the assessee is dismissed.

In ground no.6, the assessee has challenged the order passed by Ld. CIT(A) wherein Ld. CIT(A) has confirmed the addition made by the Assessing Officer regarding unrecorded cash sales of Rs.23,09,494/- despite the facts that books of accounts have been rejected and profit is estimated at percentage basis. In this regard, we find that Ld. CIT(A) has confirmed the addition of Rs.23,09,494/- made by the Assessing Officer on account of unrecorded cash sales by observing as under :-

We have heard Ld. Counsels from both the sides and perused the material available on record. From perusal of the above order, we find that the survey proceedings were conducted at the premises of the assessee and the assessee himself has accepted the receipt of above cash of Rs.23,09,494/- from various purchasers, since the same was not recorded in the books of accounts, the Assessing Officer added the whole of the amount as income of the assessee and Ld. CIT(A) also confirmed the same. In this regard, we find that the books of accounts have already been rejected and net profit of 5% has been estimated by Ld. CIT(A) on business receipts. In these circumstances, we deem it appropriate to delete the addition of Rs.23,09,494/- & estimate the net profit at 5% on above cash sales and accordingly direct the Assessing Officer to delete the addition of Rs.23,09,494/- and add 5% net profit of Rs.1,15,475/- as income of the assessee on above unrecorded cash sales. Accordingly, ground no.6 raised by the assessee is partly allowed.

In ground no.7, the assessee has challenged the order passed by Ld. CIT(A) wherein he confirmed the addition of Rs.25,44,381/- regarding unexplained deposits in bank accounts despite the fact that the books of accounts have been rejected and profit is estimated at percentage basis. In this regard, we find that the Assessing Officer has made addition of Rs.48,53,875/- regarding unexplained deposits in bank accounts and Ld. CIT(A) by providing telescopic benefit of other addition of Rs.23,09,494/- has restricted the same to Rs.25,44,381/- by observing as under :- “25. I have considered the facts of the case and the submissions made by the appellant as well as the remand report. This is not under dispute that there were cash deposits amounting to Rs.48,53,875/- in the bank account of the appellant which did not reconcile with the books of accounts at the time of Special Audit. Neither the appellant filed any explanation when the Special Audit report was forwarded to it and show cause was issued by the A.O. During the appellate proceedings, the appellant has tried to submit that the said cash was deposited out of 'cash in hand' but no supporting evidence for same has been filed. Further no explanation has been filed by the appellant that if the said cash deposits were out of accounted cash amount, why the same was not reflecting in the books when Special Audit was under process. Accordingly, the explanation of the appellant that the said cash deposits were made from disclosed 'cash in hand' is rejected.

However, as discussed earlier in this order, the appellant had received cash amounting to Rs.23,09,494/- in the form of on-money which is not accounted in the books of accounts. The said amount has been added to the income of the appellant and such addition of Rs.23,09,494/- has been upheld by me. In this manner, the availability of cash to the extent of Rs.23,09,494/-can be considered out of such unaccounted on-money and therefore to be fair to the appellant, the appellant is being allowed the telescoping benefit of Rs.23,09,494/-. Accordingly, the addition on account of unexplained cash deposits in the bank account is restricted to Rs.25,44,381/- (48,53,875/- - 23,09,494/-). Thus, the addition is upheld to the extent of Rs.25,44,381/-. The ground no. 8 raised by the appellant is PARTLY ALLOWED.”

We have heard Ld. Counsels from both the sides and perused the material available on record. From perusal of the above order, we find that the assessee has deposited certain amounts in its bank accounts and the same was added by the Assessing Officer to the income of the assessee since the same does not find place in its books of accounts. We further find that the books of accounts have already been rejected and net profit has been estimated at the rate of 5% on gross receipts, the question of any addition on the basis of bank deposit does not arise since the net profit has already been estimated at the rate of 5% on gross receipts. In this regard, the assessee has also relied on various decisions. We find force in the arguments of Ld. Counsel of the assessee that once the books of accounts have been rejected and profit has been estimated no separate addition is required on the basis of bank deposit since the bank deposit is result of turnover determined by the Assessing Officer. Accordingly, we direct the Assessing Officer to delete the addition of Rs.48,53,875/- which was reduced by Ld. CIT(A) to Rs.25,44,381/-. Accordingly, ground no.7 raised by the assessee is allowed.

In the result, the appeal filed by the assessee in is partly allowed.

Now, we shall take up the appeal of the Revenue in for adjudication. – By Revenue : 19. The Revenue has raised the following grounds of appeal :- “1) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs. 17,19,80,000/-to Rs. 4,29,95,000/-, without appreciating the fact that profit @ 20% was determined on unaccounted sale of Rs.85.99 Cr, on the basis of documents found and impounded during the survey action showing that significant percentages of various project were completed, assessee's non-cooperation during the assessment proceedings and special audit proceedings, profit ratio based on industry standards and available data. 2) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.38,81,0000/- to 5% of profit, on account of unrecorded sale of flats, without appreciating the fact that the assessee had not recorded this sale in his books of account and no evidence has been furnished by the assessee to establish that corresponding expenses were also not recorded in the books of accounts. 3) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made u/s. 40(a)(ia) of the Act without appreciating the fact that disallowance made on the basis of the special audit report that for the A.Y 2017-18, the assessee had incurred expenditure totalling to Rs.1,52,10,370/- on account of various expenses on which the assessee was liable to deduct TDS but the assessee failed to do so, thereby it was liable for disallowance u/s 40(a)(ia). 4) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the unexplained cash deposits by giving telescoping benefits of on-money received without appreciating the fact that the assessee has failed to submit cogent and reliable evidences to establish that the said cash deposits were made from 'on money' receipts. 5) The appellant craves to add, amend, alter or delete any of the above ground of appeal

We have heard Ld. Counsels from both the sides and perused the material available on record. In the light of detailed and reasoned order passed by Ld. CIT(A) we do not find any error in the order passed by him wherein the disallowance made by the Assessing Officer u/s 40(a)(ia) of Rs.43,63,111/- has been deleted by relying on various judgements of Hon’ble Courts and also of Co- ordinate Benches of the Tribunal. Accordingly, ground no.3 raised by the Revenue is dismissed.

In ground no.4, the Revenue has challenged the order passed by Ld. CIT(A) wherein he provided the telescopic benefit of Rs.23,09,494/- regarding on-money receipts by the assessee and thereby restricting the unexplained cash deposit to Rs.25,44,381/-. Since we have already deleted the whole of the addition of Rs.48,53,875/- made by the Assessing Officer regarding unexplained deposits in bank account, the question of grant of telescopic benefit by Ld. CIT(A) does not arise, accordingly ground no. 4 raised by the Revenue is dismissed.