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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM
The captioned appeal filed by the Assessee, pertaining to the assessment year 2006-2007, is directed against the order passed by the ld. Commissioner of Income Tax (Appeals)-XII, Kolkata, in Appeal No.269/XII/12(2)/08-09, dated 06.12.2012, which in turn arises out of an order passed by the AO u/s.143 (3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 15.12.2008.
Brief facts of the case qua the assessee are that the assessee is a builder and during the previous year corresponding to the assessment year 2006-07, shown its income to have derived from sale of flats. The assessee had claimed liabilities of Rs.2,86,82,805/- as on 31.03.2006 on account of Advance from Customer. During the assessment proceedings, assessee filed a list of twenty parties to whom the assessee company had Dum Dum Construction (P) Ltd. shown total liability of Rs.19,32,000/- as on 31.03.2006. The AO issued requisition letters u/s 133(6) of the Act to cross verify the assessee’s contention in this regard. The AO received the reply from parties which revealed different facts. These parties were requested to submit their deed of conveyance along with possession letter or electricity bills or telephone bills. The AO obtained the details from some parties and found that the assessee company had received money from those parties, in preceding previous years, that is, in the assessment years 2000-01, 2001- 02, 2002-03, 2003-04 & 2005-06. The assessee company did not have any liability on 31.03.2006. Therefore, the AO observed that once full sale consideration is received from a purchaser in an instant financial year, it should be reflected as sale during that relevant assessment year in past.
Registration is the responsibility of the buyer. If a buyer does not get his/her property registered, seller has got nothing to do. The registration charge is born by the purchaser and not by the seller. In the instant case the assessee has sold out those properties, received entire sale consideration and given possessions of those flats much before the relevant year ending on 31.03.2006. Therefore, the assessee failed to prove its liability of Rs.19,32,000/- and, therefore, the AO added back Rs.19,32,000/- to the total income of the assessee.
Not being satisfied with the order passed by the AO, the assessee filed an appeal before the CIT(A), who has confirmed the addition made by the AO observing the followings :-
“4. I have considered the finding of the A O. in his order dt. 15-12- 2008 and written submission filed by the A.R. during the appellate proceeding. The assessee has filed a revised grounds of appeal on three grounds. Appeal on revised grounds no. 1 and 2 are against the addition of Rs. 1932000/- by disallowing the advances. The fact of the case is that the assessee had shown Rs. 1932000/- as advance from customers as on 31-03-2006. The assessee claimed that these advances were received from various parties against flats as the assessee is a builder and its main work is to constract flats and sale them. During the assessment proceeding in order to verify the claim of the assessee, the AO issued letters u/s. 133(6) of the I.T.Act, 1961 to all the eleven parties. All the eleven parties replied to the A.O. and they submitted their telephone bills, electricity bills possession slip that proved beyond doubt that the asses company did not have any liability to above parties as on 31- 03-2006 as all the parties had already taken possession of the flat for which they had given advance to the assessee. The AO. contended that as the assessee had already received the full sale consideration from different parties and had given flats to them there was no question of outstanding liability in the form of advances from such parties. During the appellate proceeding the AR. submitted a written submission and various details regarding different parties. In order to verify them, the matter was referred to A.O. for remand report. The A.O. has submitted his remand report dt. 25-06-2012 vide letter no. ITO Wd-12(2)/Kol/Remand Report/2012-13/135 dt. 25-06-2012. The A.R. was given a copy of the same and the A.R. has filed a rejoinder dt. 03-08-2012. Assessment order and remand report of the AO. and written submission as well as reply to remand report filed by the AR have been considered during the appellate proceeding. In the remand report the A.O. has categorically stated that in respect of the assessee's submission it can be stated that, during the course of assessment it was found by the A.O., liability to the tune of Rs.79,32,000/- claimed by the assessee as "Advance from Customers' did not exist on 31.03 2006. On enquiry the A.O. found that all the parties against whom the assessee had shown the liability of Rs. 19,32,000/- had already got possession of the property and 'sale Deed' was registered before 31-03-2006, on payment of entire sale consideration by those parties to the assessee. The addition made by the A.O. is on the basis of his finding of non existence of liability which has no relevance with the amount of sale of flat during the year as well as work-in-progress shown by the assessee."
In his reply to the remand report the A.R. has filed his submission in three paragraphs. In Para-1, the A.R. has not refuted / contradicted the fact found by the A.O. that the liability of advance of Rs. 1932000/- did not exist as on 31-03-2006 claimed by the assessee in details filed before the A.O. during the assessment proceeding. In Para-2 and 3 of his reply to the remand the A.R. has tried to make a point that as the assessee is a builder at most its income should be enhanced / (accepted at 8%. Here that the issue involved in this case is not the income shown by the assessee or an income estimated by the AO. Here the issue as the rejection/disallowances of wrongly claimed liability of advances to the tune of Rs. 1932000/- by the assessee as on 31-03-2006. I have considered the entire facts and I find that the finding of the A.O. of non-existence of liability of Rs. 1932000/- as on 31-03-2006 has been proved beyond doubt. Therefore, assessee's appeal on revised grounds of revised appeal no. 1 and 2 are dismissed.
Not being satisfied with the order of ld. CIT(A), the assessee is in further appeal before us and has taken the following grounds of appeal :-
1. That on the facts and circumstances of the case and in law the Appeal Order, passed by the Ld. CIT(A), upholding the addition and therefore dismissing the appeal, is liable to be cancelled, reversed and rendered unsustainable, considering the service of the impugned Appellate Order after an unreasonable period of more than one year following its purported date of 6th December, 2012, evidencing gross anomaly as to the date of order itself.
2. Without prejudice to the Ground No.1, on the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in upholding the Addition of Rs. 1932000/-, on account of 'Advance for Flat Booking', merely on the basis of Remand Report submitted by the Ld. Respondent, after not appreciating its character as Advance cum liability only, pending the completion of the corresponding construction of Flats as well as grant of possession in future.
3. Without prejudice to the Ground No. 1, on the facts and circumstances of the case and in law the Ld. CIT(A) has grossly erred, while upholding the Addition of Rs.1932000/-, on account of 'Advance for Flat Booking', in arriving at the conclusion of existence of no liability on account of aforesaid Advance, solely on an arbitrary, cursory and superficial assertion of the Ld. Respondent and some subjective view, ignoring its duly evidenced and explained character as liability only, pending event of sale.
4. Without prejudice to the Ground No. 1, on the facts and circumstances of the case and in law the Ld. CIT(A) has grossly erred, while upholding the Addition of Rs. 1932000/-, on account of 'Advance for Flat Booking', without ever appreciating the due adherence to the consistent practice of recognizing Sale of Flats on the grant of possession, by way of appropriation from Advance Account as accompanied by the reciprocal adjustment from Work In Progress Account, to arrive at Gross Profit, accepted in prior Assessments.
5. Without prejudice to the Ground No. I, on the facts and circumstances of the case and in law the Ld. CIT(A) has grossly erred, while upholding the Addition of Rs.1932000/-, on account of 'Advance for Flat Booking', after omitting to appreciate its due inclusion as Sale pertaining to subsequent years, on eventual handing over of possession.
6. Even otherwise, without prejudice to Ground No. I and 2 to 5, the Ld. CIT ( A) instead of upholding the disallowance of Rs.1932000/-, representing the Advance accepted during the year, as income from concluded sale, ought to have determined the only the Profit element comprised therein, by allowing the setting off therefrom the appropriate and corresponding part of reciprocal amount of WIP. 7. Without prejudice to the aforesaid grounds, on a fair and reasonable perusal of evidence, the Ld. CIT(A) ought to have directed the adoption of usual and reasonable net profit, prescribed U/s 44AD or attainable under comparable cases , in relation to the above advance amount pertaining to construction/development of property activities. 8. The Appellant craves leave to supplement, go for additional grounds, modify or withdraw anyone or more of the foregoing grounds either before or during the Appeal Hearing.
Although in this appeal, the assessee has raised a multiple grounds of appeal, but at the time of hearing the solitary grievance of the assessee has been confined to the issue of addition of Rs.19,32,000/- on account of advance for flat booking. Ground No.2 is not pressed by the assessee.
5.1 Ld. AR for the assessee has submitted before us and admitted that Rs.19,32,000/- is an undisclosed income shown in the liability side of the balance sheet of the assessee as payable to the outsiders. In fact, the amount of Rs.1932000/- is not payable to anybody. Therefore, ld. AR for the assessee has submitted on behalf of the assessee that the assessee
Dum Dum Construction (P) Ltd. is ready of offer this income @8.3%, being the net profit earned by the assessee during the year. The net profit ratio of the assessee, (as per AR), under consideration during the year comes @8.3% and the assessee is ready to offer the income @8.3% on the impugned addition of Rs.1932000/-. The Ld. AR for the assessee further argued that Rs.1932000/- relates to assessee’s business and its liability is not payable, therefore, the assessee is ready to offer this liability as an income @8.3%. In addition to this, ld. AR for the assessee also submitted that assessee is a small trader and falls in the scheme of Section 44AD where the assessee can offer 8% of his gross receipts for taxation purpose. The assessee`s turnover as on 31.03.2006 is at Rs. 31,68,000/- which is below tax audit limit U/s 44AB of the Act, therefore the assessee is a small businessman and may fall under section 44AD.
5.2. Ld. DR for the Revenue has also primarily relied on the findings of the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity.
5.3. Having heard the rival submissions, perused the material available on records, we are of the view that the amount of Rs.1932000/- shown by the assessee as a bogus liability should be treated as receipts of the assessee. Since the assessee is a small trader and falls in the scheme of Section 44AD of the Income Tax Act where the assessee may offer 8% of his gross receipts for taxation purposes. In the case under consideration the net profit ratio of the assessee is 8.3%, therefore, it is appropriate to estimate the income @8.3% of Rs.19,32,000/-. Therefore, we direct the Dum Dum Construction (P) Ltd. AO to tax the bogus liability of Rs. 19,32,000/- at the rate of 8.3%. That is the AO should estimate the income @ 8.3% on Rs. 19,32,000/-.
5.4. In the result, the appeal filed by the assessee, is allowed for statistical purposes.
Order pronounced in the open court on this 12/04/2017.