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Facts
A survey u/s 133A revealed an unrecorded investment of Rs. 1,25,85,257/- in construction projects by the assessee firm. The Assessing Officer added this amount u/s 69C and also made an addition for Gross Profit (GP) difference. The assessee contested the double taxation, GP estimation, and the subsequent rectification proceedings under Section 154 for applying Section 115BBE.
Held
The Tribunal found that details regarding the declaration of additional income and its treatment in accounts required verification. It restored both the quantum appeal (ITA No.1378/PUN/2024) and the rectification appeal (ITA No.1833/PUN/2024) to the file of the Assessing Officer for fresh adjudication after allowing the assessee an opportunity to be heard.
Key Issues
Whether the addition of unrecorded investment u/s 69C led to double taxation; whether the GP estimation was justified; and whether rectification proceedings u/s 154 for applying Section 115BBE on undisclosed income were legally sound.
Sections Cited
139(4), 133A, 69C, 154, 115BBE, 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
is against the order of Ld. CIT(A) in upholding the rectification proceedings u/s 154 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) initiated by the Assessing Officer.
Facts of the case, in brief, are that the assessee is a registered Partnership Firm engaged in business of construction of real estate mainly residential complex.
It filed its return of income under section 139(4) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 15.03.2019 declaring total income Rs.1,30,15,770/-. The return was selected for compulsory scrutiny. In this case, a survey u/s 133A was conducted on 10.08.2017, during which a copy of valuation certificate issued by Regd. Valuer as on 31.07.2017 was found. On comparison of actual cost of construction as per valuation certificate and construction cost as per the books of account it was noticed that there was a difference of Rs.1,25,85,257/-. The partner in his statement agreed that there is more investment than appearing in the books of account to the extent of Rs.1,25,85,257/- and this investment is made in 3 of its projects which are not recorded in the books of account. It was also admitted that the said unrecorded investment is out of its current income for the F.Y. 2017-18 and the total income of the firm as on 10.08.2017 is Rs.22,66,873/-. The firm through its partner had also stated that Rs.1,25,35,277/- is the additional income apart from its regular income.
3. The Assessing Officer during the course of assessment proceedings noted that the assessee filed its return of income on 15.03.2019 declaring total income of Rs.1,30,15,770/-. The case was selected for scrutiny. The Assessing Officer in the assessment order made addition of Rs.1,25,85,357/- u/s 69C of the Act being the unrecorded investment as found during the course of survey. He also made addition of Rs.45,22,535/- on account of Gross profit difference.
So far as the addition of Rs.1,25,85,357/- u/s 69C is concerned, the Assessing Officer noted that since the assessee has accepted during the course of survey that such amount has gone into investment but it is not explained or offered to tax earlier, hence, he added the same u/s 69C. He further noted that debit in the Profit and Loss Account of the same amount as labour expenses is an attempt to nullify the offer of income by the assessee.
So far as the addition of Rs.45,22,535/- on account of GP difference is concerned, the Assessing Officer on comparison of the trading accounts for assessment years 2017-18 and 2018-19 noted that the GP for assessment year 2017-18 is 41.59% and GP for assessment year 2018-19 is 16%. He noted that the GP for the pre-survey period i.e. from 01.04.2017 to 10.08.2017 is 22.47% whereas the GP for post-survey period is 13.28%. On being asked by the Assessing Officer to explain the reason for shortfall in the GP, it was submitted that the estimates of the projects were revised and this caused decrease in the GP. It was claimed that the construction cost in respect of Dwarka Adreno proejct was revised from Rs.679.30 lakhs to Rs.779.20 lakhs. Similarly, the revised construction cost of Dwarka Ravji project was from Rs.544.61 lakhs to Rs.624.70 lakhs. The assessee also filed a certificate from the Engineer and it was claimed that on the basis of certificate it had revised and accordingly the cost increased which resulted in shortfall of GP.
However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He computed the GP rate of assessee from the various projects for the last five years. Rejecting the various explanations given by the assessee, the Assessing Officer estimated the GP on sale of Rs.8,67,47,000/- at 20%. Since the assessee had shown the GP of Rs.1,28,26,865/- as against the GP of Rs.1,73,49,400/- determined by him by adopting GP rate of 20%, he made the addition of Rs.45,22,535/- being the difference.
Subsequently, the Assessing Officer initiated 154 proceedings on the ground that instead of applying the provisions of section 115BBE of the Act, the normal provisions for taxing the amount was applied. He, therefore, passed a rectification order invoking the provisions of section 69C r.w.s. 115BBE of the Act.
In appeal, the Ld. CIT(A) sustained the additional income of Rs.1,25,85,257/- declared during the survey operation as deemed income u/s 69C of the Act. So far as the adoption of GP at 20% is concerned, he deleted the addition of Rs.45,22,535/-. He, however, upheld the rectification order passed by the Assessing Officer u/s 154 of the Act bringing to tax the additional income of Rs.1,25,85,257/- u/s 69C r.w.s. 115BBE.
Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:
1. Whether AO and CIT (A) both were justified in law in invoking section 69C of Income tax Act, 1961 for the discrepancy between book value and physical value of Work in progress (WIP), amounting Rs.1,25,85,257 without appreciating that firstly it can be taxed only under section 69 to 69B, secondly appellant has already offered the same in profit and loss accounts, thirdly entries in the books of accounts does not nullify the declaration offered under survey and fourthly additions by AO and CIT(A) results into same income being taxed twice.
2. On the facts and circumstances of the case, the AO and CIT (A) both are legally not justified in non accepting the revised estimated cost of the project and calculating the profit based on original estimates.
The assessee craves leave to amend, alter or delete any of the above grounds of appeal 4. It is prayed that the above claims and allowances be allowed. the assessee has raised the following grounds:
1. Whether on facts and circumstances of the case and in law, the AO and CIT (A) is justified in invoking rectification u/s 154 of the Act for applying provision of section 115BBE of the IT Act on undisclosed investment of Rs.1,25,85,257 surrendered during the course of survey proceedings
2. That in the facts and circumstances of the case, the AO and CIT (A) gravelly erred in passing order u/s 154 of the Income-tax Act, 1961 as the issue of taxing undisclosed investment of Rs.1,25,85,257 surrendered during the course of survey proceedings being Business Income has to taxed at Normal Rate or rate under section 115BBE is highly debatable and has wrongly held that it is a mistake apparent form the record. It is not covered u/s 154 of the Income-tax Act, 1961.
3. AO and CIT (A) has erred in calculating interest under section 234A, section 234B and section 234C
4. The assessee craves leave to amend, alter or delete any of the above grounds of appeal.
5. It is prayed that the above claims and allowances be allowed.
The Ld. Counsel for the assessee referring to page 20 of the paper book drew the attention of the Bench to the Profit and Loss Account and submitted that the assessee has separately declared an amount of Rs.1,25,85,257/- as indirect income. Referring to pages 11 and 12 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the bifurcation of various items. Referring to page 7 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the bifurcation of the amount of Rs.1,25,85,257/- being the difference between the value as per the valuation certificate and the books of account which are as under: Sr. No. Name and address of project Difference (cost of project as per Architect certificate (-) cost of project as per books of accounts) 1 Dwarka Adreno, 870-E-Ward, Opp. D.Y. 371459 Patil Medical College, Kasaba Bawada, Kolhapur Dwarka Ravaji, 4th Lane, Rajarampuri, 2 11965700 Kolhapur 3 R.S. No.570/A/3, Plot No.1 to 10, E- 0 Ward, Near Shantiniketan school, Morewadi, Karveer, Kolhapur 4 Dwarka Euro, R.S. No.364/2, Uchgaon, 248098 Taluka – Karveer, Kolhapur Total 12585257
He submitted that an amount of Rs.1,25,85,257/- was separately shown and therefore, the lower authorities without appreciating the facts properly have made the addition which amounts to double addition of the same amount. He accordingly submitted that he has no objection if the issue is restored to the file of the Assessing Officer for verification of the details and decide the issue afresh. He further submitted that since the income is from current year business income, the provisions of section 115BBE of the Act are not applicable. Therefore, the said issue also may be set aside to the file of the Assessing Officer.
Ld. DR heavily relied on the orders of the Assessing Officer and the Ld. CIT(A).
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We find on the basis of declaration by the assessee during the course of survey offering additional income of Rs.1,25,85,257/-, the Assessing Officer made the addition on the ground that the assessee has not declared the same separately. It is the case of the Assessing Officer that by debiting the equal amount under the head ‘labour expenses’ and showing the corresponding work-in- progress, the assessee has nullified the effect of the amount offered during the survey action. We find the Ld. CIT(A) upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that the assessee follows the percentage of completion method and the amount of Rs.1,25,85,257/- debited to direct expenses under the head ‘labour expenses’ is also credited into revenue from sales and to the extent of unsold stock is added to the closing work-in- progress and hence, such entry of debit and credit to Profit and Loss Account has no effect on survey income credited to the Profit and Loss Account separately. Since all these details require verification at the level of the Assessing Officer, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to decide the issue afresh as per fact and law after affording due opportunity of being heard to the assessee as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes. is an appeal against the order of the Ld. CIT(A) in confirming 154 application. Since this is a consequential order, therefore, we also restore this issue to the file of the Assessing Officer for deciding the issue afresh and as per fact and law after affording due opportunity of being heard to the assessee. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 20th March, 2025.