DCIT, CENTRAL CIRCLE - 6(2), MUMBAI vs. ADARSH INDUSTRIAL ESTATE P. LTD, MUMBAI

आदेश / O R D E R PER BENCH: These cross appeals in 2963/Mum/2019, 2888/Mum/2019 & 2964/Mum/2019 for A.Yrs.2013-14 & 2014-15 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-54, Mumbai in appeal Nos. CIT(A)-54/IT-10375/DCCC- 6(2)/2017-18 & CIT(A)-54/IT-10378/DCCC-6(2)/2017-18 respectively dated 12/11/2018 & 11/02/2019 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 153C of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/12/2017 by the ld. Dy. Commissioner of Income Tax, Central Circle 6(2), Mumbai (hereinafter referred to as ld. AO).

M/s. Adarsh Industrial Estate Pvt. Ltd., Addition of Rs.2,36,07,250/- as income from on money may be deleted 1. The Ld. CIT(A) erred in confirming the addition of Rs.2,36,07,250/- being 25% of on money of Rs.9,44,29,000/- without appreciating that the income, if any, quantified on the amount of on money ought to be taxed only in the year/s in which project has completed construction in accordance to the conditions prescribed as per the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated @25% of on money and taxed in the year of receipt is unjustified and liable to be deleted.

2. The Ld. CIT(A) failed to appreciate that relevant working as per the conditions prescribed in the Revised Guidance Note of 2012 issued by ICAI was duly filed before the Ld. CIT(A) and according to which, the income, if any, quantified in respect of on money could not be taxed in the relevant year as the conditions and parameters prescribed in Revised Guidance Note of 2012 issued by ICAI for taxing income from project were not satisfied in the relevant year and hence, whatever income quantified from the construction project ought to be taxed in accordance with the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated from on money and taxed in the year of receipt is unjustified and liable to the deleted.

3. Without prejudice to the above, the Ld. CIT(A) has erred in estimating the income @25% of on money received without appreciating the fact that as per parallel books of account, the overall group had incurred huge loss and income from on money was estimated @12% in other group entities before the Hon’ble Settlement Commission and the same was accepted @12% and hence, the income from on money may be estimated @12% as against estimated @25% by the Ld. CIT(A) and accordingly, relief may be given to the appellant.

4. The Appellant craves leave to add, alter, amend or any of the above grounds of appeal.

2.1. The Revenue has raised the following grounds of appeal before us for A.Y.2013-14:-

1. “Whether on the facts and circumstances of the case and in law the CIT(A) erred in holding that the cash received by the assessee was in the nature of business receipt and could not be treated as income u/s.68 when the assessee did not discharge its onus and the identity, genuineness of the transaction and creditworthiness of the parties have remained unexplained? 2. Whether on the facts and circumstances of the case and in law the CIT(A) erred in restricting the disallowance @25% of the cash received when no evidence of expenditure of balance 75% of the cash was produced by the M/s. Adarsh Industrial Estate Pvt. Ltd.,

assessee and therefore genuineness and allowability of the same could not be examined?

2.2. The assessee has raised the following grounds of appeal before us for A.Y.2014-15.

Addition of Rs.7,26,90,505/- as income from on money may be deleted 1. The Ld. CIT(A) erred in confirming the addition of Rs.7,26,90,505/- being 25% of on money of Rs.29,07,62,020/- without appreciating that the income, if any, quantified on the amount of on money ought to be taxed only in the year/s in which project has completed construction in accordance to the conditions prescribed as per the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated @25% of on money and taxed in the year of receipt is unjustified and liable to be deleted.

2. The Ld. CIT(A) failed to appreciate that relevant working as per the conditions prescribed in the Revised Guidance Note of 2012 issued by ICAI was duly filed before the Ld. CIT(A) and according to which, the income, if any, quantified in respect of on money could not be taxed in the relevant year as the conditions and parameters prescribed in Revised Guidance Note of 2012 issued by ICAI for taxing income from project were not satisfied in the relevant year and hence, whatever income quantified from the construction project ought to be taxed in accordance with the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated from on money and taxed in the year of receipt is unjustified and liable to the deleted.

3. Without prejudice to the above, the Ld. CIT(A) has erred in estimating the income @25% of on money received without appreciating the fact that as per parallel books of account, the overall group had incurred huge loss and income from on money was estimated @12% in other group entities before the Hon’ble Settlement Commission and the same was accepted @12% and hence, the income from on money may be estimated @12% as against estimated @25% by the Ld. CIT(A) and accordingly, relief may be given to the appellant.

4. The Appellant craves leave to add, alter, amend or any of the above grounds of appeal.

2.3. The Revenue has raised the following grounds of appeal before us for A.Y.2014-15:-

M/s. Adarsh Industrial Estate Pvt. Ltd.,

1. “Whether on the facts and circumstances of the case and in law the CIT(A) erred in holding that the cash received by the assessee was in the nature of business receipt and could not be treated as income u/s.68 when the assessee did not discharge its onus and the identity, genuineness of the transaction and creditworthiness of the parties have remained unexplained? 2. Whether on the facts and circumstances of the case and in law the CIT(A) erred in restricting the disallowance @25% of the cash received when no evidence of expenditure of balance 75% of the cash was produced by the assessee and therefore genuineness and allowability of the same could not be examined?

4. The facts in brief are that the assessee filed the return of income on 16.10.2016 by declaring income at nil. A search action under section 132(1) of the Act was conducted in Ahuja Group cases on 25.06.2015 and incriminating data/papers were found in the form of loose sheets relating to various transactions of the assessee. The search was extended to Ahuja Group Associates and residences of their directors and also Mr. Sunil Chaudhary, driver of the promoter of the group Shri Jagadish Ahuja. During the course of search parallel books of accounts were found of Ahuja Group at the residence premises of Mr. Sunil Chaudhary, the driver of the promoter. A statement of Mr. Sunil Chaudhary was also recorded under section 132(4) of the Act and he admitted the said documents were belonging to the Ahuja Group. During the M/s. Adarsh Industrial Estate Pvt. Ltd., course of search proceedings the statement of Shri Jagadish Ahuja principal promoter of Ahuja Group was also recorded. During the course of search it was found that the assessee has received cash to the tune of Rs.1,82,50,000/- as per details below: Date Particular V. Type Debit Credit 17-03-2015 Sanjay Agrawal Cash Sales – 10,00,000 Bhiwandi A/c Bhiwandi Project 23-03-2015 Kailash Devnani Cash Sales- 22,50,000 Bhiwandi Bhiwandi Project 08-04-2015 Sanjay Agrawal Cash Sales - 20,00,000 Bhiwandi A/ c Bhiwandi 20-04-2015 D. Mangni Bhiwandi Cash 50,00,000 Ac SalesBhiwandi Project 24-04-2015 D. Mangni Bhiwandi Cash Sales 30,00,000 Ac Bhiwandi 20-05-2015 D. Mangni Bhiwandi Cash 50,00,000 Ac SalesBhiwandi Total 1,82,50,000 5. Accordingly, a show cause notice was issued to the assessee as to why the cash received as on money of Rs.1,82,50,000/- should not be added as income of the assessee as unexplained cash credit under section 68 of the Act. The assessee submitted vide letter dated 29.11.2017 that there was only one project at hand in plot bearing survey No.92/2, 92/4, 92/7(P) near Bhadvad Talab of village Temghar, Taluka Bhiwandi District, Thane which is at initial stage and as such there is no question of assessing the income during the year. The assessee submitted that it has not entered into any sale agreement with any customer nor any registration of sale agreement has taken place and therefore the question of assessing the income does not arise in the current year. The assessee also submitted that since the assessee is following project completion method and therefore no income arose during the year from the project until the same is completed or substantially completed. Without prejudice, the assessee submitted that if at all the so called on money received is to be taxed, the entire sum can not be taxed and only the net income there from could only be assessed and brought to tax. The AO, not being convinced with the contentions of the assessee, added a sum of Rs.2,15,00,000/- under section 68 of the Act by framing assessment under section 143(3) of the Act dated 23.12.2107.

the year of receipt. The Ld. A.R. relied on a series of decisions in defence of his arguments as under:

7. The Ld. D.R., on the other hand, relied on the order of authorities below: 8. We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the assessee is found to have received on money from the buyer of flats/properties on the basis of documents which have been found during the course of search and the on money received by the assessee in two years A.Y. 2014-15 & 2015-16 of Rs.32,50,000/- and Rs.1,50,00,000/- respectively. However, we find that in the assessment the AO has added Rs.2,15,00,000/- which is a typographical error and correct amount is Rs.1,50,00,000/-. We have also cross verified this from the order of settlement commission and submissions before the Ld. CIT(A) who has partly allowed the appeal of the assessee by sustaining the addition equal to 25% of the on money received by the assessee. The Ld. A.R. has argued before the Bench that since in the sister concerns cases on money has been brought to tax @ 12% by the settlement commission, therefore the same rate should be applied to assess the on money in the hands of the assessee also. We find the arguments of the assessee quite convincing and cogent and are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to assess the same by applying 12% on Rs.1,50,00,000/- and that too in M/s. Adarsh Industrial Estate Pvt. Ltd.,

the year when the regular income of the assessee is assessed to tax as per the regular method of accounting. In deciding so we find support from the decision of the ACIT vs. ISA Enterprises (supra) wherein it has been held that income has to be assessed on the basis of method of accounting followed by the assessee. The operative part is reproduced as under:

“7. We have heard the rival submissions and perused the relevant materials on record. We give the reasons for our decision in the succeeding paragraphs. Having gone through the return of income filed by ISAE for the AY 2008-09 to AY 2014-15, we find that it is following the project completion method. It filed its return of income for the AY 2014-15 on 04.04.2015 declaring total income of Rs.4,45,00,710/-. The above income has been accepted without any variation by ACIT-20(1), Mumbai in the assessment dated 28.12.2016 completed u/s 143(3) of the Act. Now it would be apposite to discuss the cited two decisions. In the case of M/s Jalaram Jagruti Development Pvt. Ltd. (supra), the issue before the Hon'ble Bombay High Court was the following: "Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal in law, was right in holding that receipts of Rs.3,46,250/- recorded in the documents seized during the course of search were reflected in the books of accounts and could be taxed only in the year in which the project was completed?" The Hon'ble High Court held that: "The finding of fact recorded by the Tribunal is that the receipts in question had direct nexus with the project of the assessee and that the said cash receipts have been offered to tax in the AY 2008-09, since the assessee was following the project completion method. Once the cash in question has already been assessed to tax, the question of taxing the same assessment year in question AY 2005-06 does not arise." 7.1 In M/s M/s Guruprerana Enterprises (supra) the following questions of law were raised before the Hon'ble Bombay High Court: a) "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition holding that the assessee has not actually received any cash receipts and the declaration made by the partner of the firm was towards total sale receipts and not towards income for the year? b) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition holding that the project completion method was applicable on account receipts of Rs.5 crores even though the assessee had not accounted the receipts in the regular books of accounts? c) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the addition of Rs.5 crores itself had failed to follow the norms of accounting standard

M/s. Adarsh Industrial Estate Pvt. Ltd., regarding disclosure of receipts as per the AS-7 and as per section 145 of the I.T. Act, 1961?" The Hon'ble High Court held as under: "Counsel for the parties state that the income which is disputed in the present proceedings has been offered to tax on the basis of the project completion method during the assessment year 2009-10 and the same has been accepted by the revenue. In these circumstances, we see no reason to entertain the proposed question of law as the entire exercise would be academic. In the above view, the questions (a) to (c) as proposed cannot be entertained."

1. 1. ACIT vs. Om Construction A.Y. 2006-07 & ors.

2. ACIT vs. Shankar Developers ITA No.6235/M/2012 A.Y. 2003-04 & ors.

In the case of ACIT vs. Om Construction A.Y. 2006- 07 & ors. (supra) the co-ordinate bench of the Tribunal held that where the settlement commission has assessed the income at 12% then a different view can not be taken from that one taken by the settlement commission. The operative part is reproduced as under:

M/s. Adarsh Industrial Estate Pvt. Ltd., “6. We have already noticed that the Hon’ble Settlement Commission has accepted the contentions of the assessee that it has incurred expenses outside the books of accounts and further the impounded materials also show that many expenses have not been accounted for. Under these set of facts, the Hon’ble Settlement Commission has accepted the contention of the assessee that only net profit should be estimated on the amounts received outside the books of account. Accordingly, the Hon’ble Settlement Commission has estimated the net profit at 12% of thereon. The assessments of AY 2005-06 and also the year before us, viz., AY 2006-07 have been taken up for scrutiny only on the basis of survey operations and hence the facts prevailing in both the cases are identical in nature. Hence, we do not find it necessary to take a different view from that one taken by the Hon’ble Settlement Commission. Accordingly, we are of the view that the Ld CIT(A) was justified in estimating the profit at 12% (it is stated that the rate of profit was wrongly mentioned as 17% in the order of Ld CIT(A)).

8. In view of the foregoing discussions, we do not find any reason to interfere with the order passed by Ld CIT(A).”

“13. We heard the parties and perused the record. We notice that the assessing officer has determined the on-money receipts as per the disclosure made by the assessee before the Settlement Commission. There is no dispute that the Settlement Commission has agreed with the contentions of the assessee that the entire amount of on-money receipts cannot be considered as income of the assessee. Accordingly the Settlement Commission has estimated the income from on-money receipts @ 17% in AY 2005-06. Since the assessing officer has estimated the on-money receipts as per the disclosure made before Settlement Commission, we are of the view that the Ld CIT(A) was justified in estimating the income from the on-money receipts @ 17% for this year also by following the order passed by the Settlement Commission. Accordingly we confirm the order passed by Ld CIT(A). Accordingly we reject the appeal filed by the revenue.”

M/s. Adarsh Industrial Estate Pvt. Ltd., 3.1. The first two grounds raised by the assessee for A.Yrs 2013-14 and 2014-15 are covered by the aforesaid order by this Tribunal in the case of Tulip Land & Developers P. Ltd. vs. DCIT dated 10/02/2021 in para 8-9 thereon.

3.2. The third ground raised by the assessee for A.Yrs. 2013-14 and 2014-15 are covered by the aforesaid order by this Tribunal in the case of Tulip Land & Developers P. Ltd. vs. DCIT dated 10/02/2021 in para 11,12 & 13 thereon.

3.3. Similarly, the grounds raised by the Revenue for A.Yrs 2013-14 & 2014-15 are covered by the decision rendered by this Tribunal in the case of Tulip Land & Developers P. Ltd. vs. DCIT dated 10/02/2021 vide para No.13 wherein it was directed to adopt profit element @12% on on- money receipts as the income of the assessee.

3.4. We also find that in yet another group company of the assessee emanating out of the same seized material arising out of same search and on similar addition in the case of Bhalchandra Trading Pvt. Ltd., vs. DCIT in & 2978/Mum/2019 for A.Yrs 2013-14 and 2014-15 respectively dated 25/02/2021 (authored by the undersigned), this Tribunal had directed the Assessing Officer to add only 12% of on-money receipts as undisclosed income of the assessee being the profit element embedded thereon. Once the profit is sought to be taxed, there cannot be any addition that could be made u/s. 68 of the Act. We find that the ground of the Revenue is that the addition should have been made u/s.68 of the Act. In the instant case, the nature and source of credit being on money receipt has been duly established and same has been accepted by M/s. Adarsh Industrial Estate Pvt. Ltd., the Revenue. Once, the nature and source of the credit has been duly proved by the assessee, there cannot be any addition that could be made u/s.68 of the Act. Infact, in the instant case before us, the ld. CIT(A) had indeed called for a remand report exclusively on this aspect of applicability of provisions of Section 68 of the Act from the ld. AO. The ld. AO had indeed accepted the fact that on money receipts had been received by the assessee from sale of flats and even the name of the parties had been duly mentioned by the ld. AO in the remand report and merely because PAN was not mentioned and the confirmation from those parties for making payment of on-money to the assessee was not available, the ld. AO had not accepted to the contentions of the assessee in the remand report. The ld. CIT(A) on these facts and circumstances accepted to the plea that the on-money receipts should get taxed only as business receipt of the assessee as it is admittedly received from the sale of flats to various parties by the assessee and thereafter, proceeded to estimate the profit element thereon @25% as against 100% adopted by the ld. AO. While doing so, we find that the ld. CIT(A) had categorically stated that the provisions of Section 68 cannot be made applicable to the said on-money receipt. Since the nature and source of credit being on- money receipt received from sale of flats had been duly accepted by the ld.AO in the remand report, the same would construe only business receipt and not cash credit u/s.68 of the Act and accordingly, the ground No.1 raised by the Revenue for both the years on this limited aspect, deserves to be dismissed.

3.5. In view of our aforesaid observations and respectfully following the aforesaid decision of the Tribunal in the sister concern cases of the assessee group on identical facts and circumstances emanating out of the same seized material and same search, we direct the ld. AO to add only

M/s. Adarsh Industrial Estate Pvt. Ltd., 12% of the on-money receipts as undisclosed income of the assessee. Accordingly, the grounds raised by the Revenue are dismissed and the grounds raised by the assessee are partly allowed.

Order pronounced on 11/06/2021 by way of proper mentioning in the notice board.