M/S. RUNWAL DEVELOPERS P. LTD.,MUMBAI vs. DCIT CENT. CIR. -4(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 09.06.2017 of Commissioner of Income Tax Appeal [CIT(A)] relevant to Assessment Year 2015-16.

The grounds raised by the assessee are under:- i. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs.16,74,14,102/- as alleged on money received on sale of flats, without considering the facts and circumstances of the case ii. On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not appreciating the fact that the appellant is following the Project Completion Method to recognize the income from the projects, hence on money is to be taxed in the year of completion of the relevant project from where the same has been earned. iii. On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of 2 M/s. Runwal Developers Pvt. Ltd. Rs.4,48,03,316/- as allegedly lower income offered on project completed, without considering the facts of the case. iv. On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not appreciating the fact that the profits offered to tax during the course of the search action were estimated profits for the entire project. v. On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not appreciating the fact that for the Projects whose profits were offered to tax during the course of the search, there was still closing stock lying, profits on which would accrue in future periods on sale of the same. vi. On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the claim of expenses of Rs.1,23,67,631/- from the business income on the alleged plea that the said expenses were claimed by the appellant against the Income from House Property, without considering the facts and circumstances of the case. vii. On the facts and circumstances of the case as well as in Law, Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in not appreciating the fact that while computing the income, the appellant has already disallowed the expenses, which was related to the rental income.”

At the outset the Ld. AR of the appellant company submitted that ground Nos. 1 to 5 are covered by the decision of coordinating bench in the case of sister concern M/S Runwal Homes Pvt. Ltd. of the assessee company and ground Nos. 6 & 7 is covered by its own case in earlier year.

The facts in brief are that the assessee company is engaged in the business of Builders and Developers of residential, commercial and mall complexes and running and managing mall & renting of premises etc. During the year assessee filed the return of income on 30.10.2015 declaring an income of Rs. 12,27,61,810/-. A search action was conducted on the Runwal Group including the assessee on 17.11.2014. Mr. Sandeep Runwal, one of the directors of the company in the statement recorded u/s 132(4) of the Act admitted and surrendered undisclosed income of Rs. 21.22 crore on account of acceptance of on money on sale of flats and undisclosed income of project

The issue raised in the 1st Ground is against the confirmation of addition of Rs. 16.74 crore on account of on money taken on sale of flats sold during the financial year 2014-15. The amount has been worked out during the course of search and statement of various employees, which were confronted to Mr Sandeep Runwal a director of the assessee who has admitted the same in the statement recorded during the course of search. Mr Sandeep Runwal a director of the assessee has admitted a sum of Rs. 17.94 crore out of which only Rs. 1.20 crore was offered to tax by the assessee and balance 16.74 crore was added by the AO in the assessment framed as the assessee has failed to return the said income in the return of income filed u/s 139(1) of the Act. The on money as admitted during search was calculated on estimation basis taking highest rate of sale during the financial year 2014-14 relevant to assessment year 2015-16, which is evident from the annexures which are part of statement recorded U/s 132(4) of the Act.

The ld AR submitted before the bench that in the case of M/s Runwal Homes Pvt. Ltd., sister concern of the appellant company, similar disclosure was made which was also calculated on estimation basis without any supporting seized material and Hon’ble Tribunal vide assessment year 2015-16 vide order dated 20/12/2017 deleted additions which were made purely on estimation basis. Accordingly, he prayed to following the said decision of coordinated bench , the addition made on estimation without any incriminating materials/supporting evidences may kindly be deleted.

On the contrary Ld DR submitted that in the case of appellant, there were evidences in the form of payment made to contractors of the project to the extent of Rs. 8.64 crore which was paid out of on-money received on sale of flats, hence contentions of the appellant that no evidences found is not correct. The said cash payments have been admitted by the contractors in the statement recorded by the search team.

In the rejoinder, AR submitted that during the course of search, disclosures were made in the hands of various group concern, part of which was offered in the Return of Income and part confirmed in the order passed by Hon’ble ITAT, which has been accepted by the assessee. In case of one of the group concern Runwal Homes Pvt. Ltd. such on money as confirmed by ITAT was to the tune of Rs. 16.62 crore. In addition to this, the assessee has also offered a sum of Rs. 1.20 crore and one of the Director Mr. Subhash Runwal also offered 1.20 crore in the 5 M/s. Runwal Developers Pvt. Ltd. return of income filed for A Y 2015-16. Hence there are sufficient cash balance available in the hands of group to telescope the alleged payments made to the contractors as the said contractor has admitted that payments were received from various employees and group entities. Accordingly, he stated that contentions of Ld DR that the expenses relates to appellant is without any basis. The ld AR also referred to the statement of the contractors to justify the telescoping. The ld AR therefore prayed before the bench that the ground no 1 may be allowed as being covered by the order of the coordinate bench in the case of sister concern as stated hereinabove.

We have heard both the parties and perused the materials/records as placed before us including the coordinate bench decision in the case of M/S Runwal Homes Pvt Lts AY 2015-16. Where is finding In this case before us an adhoc rate of Rs. 25,000/- in case of shops and Rs. 14970/- in case of flats were applied to arrive at on-money amount. In the above case Hon’ble Coordinating Bench has deleted the addition as the same was purely on presumptions and estimation without any supporting evidences as the AO has applied adhoc rate on all the flats sold without any materials or finding as to the unrecorded asset / unrecorded expenses found to support the said addition. The operative part of the decision is reproduced as under:- “We have gone through the answer to question nos. 16, 17 and 18. We notedthat in reply to question no.16, Director of the assessee company stated thatinitially the project was joint venture with HDFC Limited. Subsequently, whenthe market has become more competitive and due to the opening of theforest land they had to sell aggressively, in order to achieve the numbersfrom the calendar year 2014 and, therefore, in order to accommodate fewcustomers who wanted to pay part consideration in cash, they accepted cashfor few units. He has categorically stated that prior to that date they havenever accepted any cash. In reply to question no.17,

So far as the issue of estimation of on money on the flats and shops are concerned , undoubtedly the addition has go as the same is based upon estimation and presumption without any materials/evidences being brought on records by the authorities below. The case of the assessee is squarely covered by the decision of the coordinate bench as referred and reproduced above as there is no basis and no corroborating materials other than the statements recorded u/s 132(4) of the Act during the course of search of the few individuals including one director of the assessee. However the ld. DR has referred to the cash expenses of Rs. 8.64 Crores made out of on money which the ld AR has claimed to have paid out of on money offered to tax in the returns of the assessee , director of the Assessee Mr Sandeep Runwal and other sister concerns. The ld AR referred to a few questions and answers in the statement recorded of the contractor Shri Himmatmal G. Patel Senghani. Further the contractor in his statement also admitted that the payments were made by the assessee and its group companies over the year. For the sake of ready reference we would like to reproduce the relevant portion of the said statement as under:- “Q.13 Please go through page no. 36 to 64 of Annexure A1 and comment on the same.

In our view the above facts, the setting off or telescoping can be allowed only after verification whether the cash was available in the group concerns/directors/assessee. Therefore the issue is restored to the file of the AO to examine and decide it as per facts. So far as the addition on estimation basis by applying adhoc rate of Rs. 25,000/- in case of shops and Rs. 14970/- in case of flats are concerned on the basis of which the on-money was arrived at, the same is without any basis and has to be deleted. The case of the assessee is covered by the decision of coordinating Bench in case of Runwal Homes Pvt. Ltd(supra). Accordingly we hereby direct AO to restrict addition only where direct evidences of accepting on money received from customers found during the search. The AO will also verify availability of cash flow with the assessee group as stated above and if any shortage is noticed , a further addition to the extent of such shortage may be further added in the hands of appellant. Hence, we set aside the issue to the AO for limited

In the result ground 1 is allowed for statistical purpose.

The issue raised in the second ground of appeal is against decision of ld. CIT(A) who has confirmed the action of Learned Assessing Officer without appreciating the fact that the appellant has been following the Project Completion Method to recognize the income from the projects and hence on money is to be taxed in the year of completion of the relevant project from where the on money has been earned.

The facts are that the assessee is following project completion method to recognize income from sale of units. During the year under consideration the following projects were going on:- 1. Runwal Anthurium Commercial 2. Runwal Anthurium Residential 3. Runwal Symphony 4. R Square During the year, Runwal Anthurium Commercial as well as residential and Runwal symphony were completed and income offered in the return filed for A Y 2015-16. The assessee claimed that on-money received on sale of flats can not be assessed to tax in the year of receipt but in the year of completion as the assessee is following project completion method when income from the said project is offered to tax. Out of three projects two

Ld AR vehemently submitted before the bench that the on money has to be taxed in the year of completion of the project when the income is offered to tax and not in the year of receipt. The ld AR relied upon the decision of the coordinate bench in sister Concern case M/S Runwal Homes Pvt Ltd (Supra) wherein the coordinating Bench has held that unrecorded receipts can not be treated differently than the recorded receipts and both the type of income should be taxed in the year of completion of project. The ld AR therefore prayed that the second ground may be allowed accordingly. The ld DR relied on the orders of authorities below.

After hearing the rival contentions and perusing the material on record including the decision of the coordinate bench in the case of Runwal Homes Pvt Ltd. AY 2015-16 on this issue, since out of three projects two already completed during the year and recorded receipts already offered to tax in this year, hence unrecorded income shall also be taxable on all the units which are offered to tax in this year which has been rightly done so. However, qua the R Square project which was not completed during this year, the unrecorded receipts from the will also be liable to be taxed in the year of completion of project as held by the coordinating Bench in sister concern case . The 11 M/s. Runwal Developers Pvt. Ltd. relevant findings of the Bench in ITA No. 5621/M/2017, AY 2015-16 is extracted as under:- “The learned AR at this juncture has taken a argument that it is a case where the assessee was following project completion method. Project completion method has been followed consistently by the assessee. Both the projects relating to the flats and the shops in respect of which the evidence were found for receipt of on-money by the assessee were not completed during the year. Since these projects were not completed during the year, the amount received by the assessee is merely a booking amount i.e. only the advance received for booking of the flat/shop. These amounts therefore in our view cannot be added during the impugned assessment year. We are of the view that the project completion method is one of the method of accounting where the expenses identifiable with the project are to be allowed in the year when the project is completed. Similarly, the receipt from the project is to be accounting for as income only in the year in which the project is completed. Since both the project for the flats as well as shops were notcompleted during the year therefore, respectfully following the decision of the Hon’ble Supreme Court in the case of CIT vs. M/S Bilahari Investment (P) Ltd 299 ITR 1 (SC), Special Bench decision of the Mumbai Benches of the Tribunal in the case of Wall Street Construction Ltd. vs. JCIT 101 ITD 156 (SB)(Mum); ITO vs. Panchvati Developers 115 TTJ 139 (Mum) and that of JCIT vs. K Raheja (P) Ltd. 102 ITD 314 (Mum), we delete the addition during the impugned assessment year and direct the AO to make the addition in respect of these on-money in the respect assessment years in which the projects have been completed.”

We, therefore, respectfully following the coordinate bench decision, allow the ground no.2 in favour of the assessee. The AO is directed accordingly.

The issue raised in the ground no. 3 to 5 are inter-related and are being disposed of and decided together. The issue is against the confirmation of addition of Rs. 4,48,03,316/- by the ld. CIT(A) as made by the AO on the ground that the income offered as per books of account on the completed projects is lower vis a vis income estimated as per tentative profit and loss account prepared at the time of search.

The facts in brief are that in these grounds the addition was made on account of profit offered for tax as per books being lower than the profits as per the profit and loss account

In the appellate proceedings the ld. CIT(A) confirmed the order of ld AO.

Ld AR submitted that the issue involved is fully covered by the decision of the coordinate bench in the case of Runwal Homes Pvt. Ltd. (supra) as referred to in ground no. 1.The ld AR therefore prayed that this may kindly be decided accordingly and be allowed. The ld. DR other hand, the ld. DR relied on the orders of authorities below.

After hearing the rival contentions and perusing the facts on records including the impugned orders and decision of the coordinate bench in dated 20/12/2017 wherein assessee has explained reason of difference between estimated profit at the time of search and profit as per audited books of accounts. We note that the AO did not point out any defect or any unsustainable claim in the assessment order nor did he bring any substantive materials on the record to prove to the contrary. Under these circumstances we do not concur to the conclusion of the authorities below on this issue. The case of the assessee is squarely covered by the decision of the coordinate bench in the case of M/S Runwal Homes Pvt Ltd. (Supra) wherein identical issue has been decided by the tribunal in the case of sister concern(supra). The operative part is extracted below:

The issue raised in the ground no. 6 &7 is against the order of ld. CIT(A) who has confirmed the addition as made by the AO by rejecting and disallowing the claim of expenses of Rs.1,23,67,631/- from the business income on the ground that the said expenses were claimed by the appellant against the Income from House Property, without considering the facts and circumstances of the case .

The facts are that the assessee company is engaged in the business of building, developing of properties, running and managing mall, more particularly, R-Mall at Mulund Mumbai. During the year under consideration, the assessee had was leased out the immovable properties and earned leave and licence fees of Rs.5,30,46,965/- The assessee has credited the same to its business and profit and loss account. While

Before CIT(A), the appellant submitted that in the A.Y. 2010-11 & 2011-12 this issue was examined by the AO and made disallowance to the extent of 30% of income from the house property. However, the matter travelled upto the level of ITAT and the issue is restored to the AO to examine and quantify the actual expenditure incurred. However, the CIT(A) dismissed the appeal of the assessee by observing and holding as under:-

We have head both the sides and perused the materials on records more particularly the decision of the coordinate bench in assessee’s own case in A Y 2010-11 & 2011-12, We note that the issue before the coordinate bench was the method and manner of disallowance of expenses to the extent these were claimed as deduction u/s 24 of the Act. The coordinate bench has held that notional claim u/s 24 of the Act can not be basis for disallowance by the AO while assessing the income from bsuiness. In this case it has been decided that the AO has to arrive at actual figure of expenses incurred to earn rental income which are debited to the profit and loss account in order to make disallowance. Therefore, following the decision of coordinating bench, we are setting aside the issue for limited purpose to work out actual expenses debited to profit & Loss account relating to the rental income and restrict the disallowance to the same only. Accordingly, this ground of appeal is allowed for statistical purpose.

In the result the appeal of the assessee is partly allowed for statistical purpose.