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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-32, Mumbai and arises out of the order u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the Revenue read as under:-
1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in considering the undisclosed cash receipts of Rs.2,07,75,000/- should be assessed in AY 2014-2015 instead of 2011-12 in spite of the fact that sale agreements were registered in FY 2010-12.
2. On the facts and in the circumstances of the case, Ld. CIT(A) failed to appreciate that assessee is following accrual based accounting and it should have accounted the undisclosed cash receipt in its books of accounts for FY 2010-11.
3. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.
3. Briefly stated, the facts of the case are that the assessee M/s ISA Enterprises (ISAE) filed its return of income for the AY 2011-12 on 30.09.2011 declaring total income of Rs. Nil. The nature of business of ISAE is that of a builder and property developer. On the basis of information the Revenue conducted a survey on 26.11.2013 in the business premises of ISAE. The ITO-15(1)(4) recorded a statement u/s 131 of Mr. Irfanuddin Qureshi, partner of ISAE on 26.11.2013 during the course of survey proceedings u/s 133A. We find that answer to question no. 21 sums up the result of the above survey and the same is extracted below: “Q.21. Do you have anything else to say? Ans: During the course of survey at this premise certain papers were found and which have been impounded as per Annexure A-1. The contents of the impounded material have been explained by me. I confirm that the cash receipts amounting to Rs.8,11,02,500/- is unrecorded in the books of account and the same is offered to tax for current financial year corresponding to AY 2014-15. I also offer the difference in stamp duty valuation and agreement value in respect of flat no. 504 amounting to Rs.34,07,888/- under income from “Other Sources” for AY 2014-15. As explained earlier we have not offered any income to tax in respect of this project even though the project is almost complete. In view of this I have estimated net profit in respect of the 28 flats sold till date at 10% of total cheque received of Rs.16,17,10,000/- i.e. Rs.1,61,71,000/- (rupees one crore sixty-one lakh seventy-one thousand only). In all, I am declaring the following income in addition to my regular income amounting to Rs.10,06,81,388/- (Rupees ten crores six lakhs eighty-one thousand three hundred and eighty-eight only) to tax for AY 2014-15 Sl Description Amount No.
1. Cash received on sale of flat as Rs.8,11,02,500 explained in answer to 4 2. Difference in market value and Rs.34,07,888 agreement value in respect of flat 504 3. Estimated profit in respect of project Rs.1,61,71,000 Royal Palace on 28 flats sold till dated Total Rs.10,06,81,388 The taxes on the above income will be paid by me as per the following schedule and I am submitting post dated cheques as part of my commitment to pay the taxes on the above income. The tax effect on the income declared comes to around Rs.3.40 crores and I will be paying the same as follows: Sl. No. By date Amount Cheque No. 1 15.12.2013 Rs.50,00,000 000067 2. 30.12.2013 Rs.35,00,000 000068 3. 30.01.2014 Rs.85,00,000 000069 4. 30.02.2014 Rs.85,00,000 000070 5. 15.03.2014 Rs.85,00,000 000071 Total Rs.3,40,00,000 3.1 However, the Assessing Officer (AO) noted that ISAE had sold flats at and around the market value i.e. Rs.8,44,46,750/- but recorded in the books of accounts at agreement value of Rs.5,84,30,000/- only. Thus the balance amount of Rs.2,50,65,000/- was received in cash outside the books of accounts. The assessee submitted before the AO that there was some mistake in calculating the cash receipts in respect of ten flats registered during FY 2010-11. The AO took into account the above aspect and made an addition of Rs.2,07,75,000/- on account of cash receipts outside the books of accounts.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that (i) the unaccounted cash was received by the assessee on account of sale of flats in the project, (ii) once the receipt of unaccounted cash has been linked to a particular project, such cash cannot be assessed to tax in isolation of other project receipts and expenses, (iii) the impugned project was not completed in the FY 2010-11, (iv) as the unaccounted cash receipts formed part of sale consideration of flats in the project, the same can be assessed only on the basis of method of accounting regularly followed by the assessee i.e. the project completion method, (v) the assessee claims to have offered the said income to tax in AY 2014-15 following the project completion method. In view of the aforesaid reasons, the Ld. CIT(A) deleted the addition of Rs.2,07,75,000/-. However, the Ld. CIT(A) has directed the AO to ensure that the unaccounted cash of Rs.2,07,75,000/- forms part of the assessed income of AY 2014-15. Thus the appeal of the assessee for the impugned assessment year was allowed by the Ld. CIT(A).
Before us, the Ld. DR submits that the AO has rightly assessed the undisclosed cash receipts of Rs.2,07,75,000/- in AY 2011-12 since the agreements pertaining to those receipts were registered in FY 2010-11. He made reference to para 4 of the assessment order dated 26.03.2014 passed by the AO. Thus the Ld. DR supports the order passed by the AO.
Per contra the Ld. counsel of the assessee submits that the said amount was assessable in the AY 2014-15 when the project was completed and the entire amount of receipts was offered to tax. It is stated by him that in the profit and loss account (page 110 of Paper Book) the unaccounted cash has been stated under the head ‘sales accounts’ and the total of the same is Rs.8,11,02,500/- i.e. Rs.52,96,000/- plus Rs.7,51,76,500/-. The net profit has been shown at Rs.4,45,00,708/- (page 111 of the Paper Book). The said income has been accepted by the department under scrutiny assessment for the AY 2014-15. Therefore, the Ld. counsel submits that the order passed by the Ld. CIT(A) be upheld. The Ld. counsel relies on the order of the Hon’ble Bombay High Court in the case of CIT vs. M/s Jalaram Jagruti Development Pvt. Ltd. (ITA No. 1537 of 2010) and CIT vs. M/s Guruprerana Enterprises (ITA No. 1849 of 2011). 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 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.”
We have mentioned earlier that the return of income for A.Y. 2014- 15 filed by the assessee declaring total income of Rs.4,45,00,710/- has been accepted by the ACIT-20(1), Mumbai u/s 143(3) of the Act. Therefore, we follow the decisions of the Hon’ble Bombay High Court mentioned at para 7 here-in-above and uphold the order of the Ld. CIT(A).