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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
pleaded that the order of the Ld. AO be upheld. The Ld DR also referred to sworn statements recorded by various contractors stating that they have not performed any work but has only acted only on the directions of the Managing Partner Shri Chindrippu Murali. Countering the arguments of the Ld. DR, the Ld. AR submitted that the details of agreement with contractors with whom it was entered into and who are in receipt of the funds directly from the customers have filed their return of income by admitting the Net Profit of 8% on the agreement values. The Ld. AR therefore pleaded that since the contractors have already admitted the income while filing their return of income, again it cannot be added in the hands of the assessee.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is the case of the Ld. AO that the assessee has sold various flats from various projects at a uniform rate of Rs.
9 3,400/- per sq ft but the assessee has failed to disclose the turnover as per the agreed rates. However, the Ld. AO has erred in giving credit to the turnover already declared by the assessee while framing the assessment. The Ld. AO has relied on the documents seized vide A/HICD/GNT/03, wherein no details about the amount of receipts from the customers, either by way of cash or cheque, are available in such documents. The Ld. AO merely relied on the total value of sales against each flat as mentioned in the documents but has failed to record how the total value was received by the assessee. Further, as demonstrated by the Ld. AR the assessee has entered into two agreements viz., one is sale agreement and another one is an agreement for carrying on the additional works. The sale agreement was entered into directly with the customers by the assessee adopting the rate of Rs. 2,000/- per sq ft whereas agreement for additional works was entered into with various employees of the firm / contractors directly by the customers.
We also find that various customers have directly made the payments for the additional works done in their respective flats to the concerned contractors and subsequently the contractors have made the payments to the suppliers of the material for carrying out the additional works. From the sworn statements
10 recorded by various contractors, we find that there is no denial by the various contractors that the amounts were received by them, except for the fact that it was under the directions of the Managing Partner of the assessee-firm Mr. Chindripu Murali. The contractors / employees of the assessee-firm have also agreed that the amounts received from the customers for carrying out the additional works were directly paid to the suppliers of the material. Further, from the sworn statements we also find that the amounts for additional works were received by Cheque and various payments made to the suppliers of the material was also made through banking channels. The Ld.AO has also not brought on record any material to show that the amounts for additional works were received by the assessee. The Revenue is also not disputing the fact that the employees / contractors received the payments from the customers directly in their bank accounts. In the light of the discussions as above, we find that the Ld. AO has no material justification for adopting the uniform rate of Rs. 3,400/- per sq ft in the hands for the assessee as its turnover for the impugned assessment year. We also find from the arguments put forth by the Ld. AR as well as the material placed before us, there are two different agreements entered into by various customers ie., one for the sale of flat and another
11 agreement is for carrying out the additional works. It is also clearly demonstrated and established by the Ld. AR that the customers have directly made the payments to the contractors as
per the additional works agreement. The only contention of the Revenue is that since the additional works are carried out through the employees of the assessee, therefore the Revenue considered it as diversion of turnover of the assessee. However, we find that since the customers have directly made the payments to the contractors for the additional works carried on by them and either the receipts or payments have not been passed through the assessee’s books of account, it cannot be considered as a turnover of the assessee. Therefore, considering the above facts and circumstances of the case, in our considered view, we are inclined to delete the addition made by the Ld. CIT(A) on the differential amount of Rs. 1,400/- sold by the assessee and direct the Ld. AO to delete the addition partially sustained by the Ld. CIT(A). Accordingly, Grounds No. 3, 4 & 5 are disposed off and allowed.
Ground No.2 raised by the assessee regarding the jurisdiction of the Ld. AO is not adjudicated since the other
12 grounds raised by the assessee are adjudicated in favour of the assessee on merits.
Grounds No.1 & 6 are general in nature and need no adjudication.
In the result, appeal of the assessee (ITA No.09/Viz/2023, AY: 2017-18) is allowed.
With respect to & 11/Viz/2023 (AYs: 2018-19 & 2019-20), since the assessee has raised the identical issue in both these appeals, which is similar to that of the issue adjudicated by us while deciding the assessee’s appeal in ITA No. 9/Viz/2023 (AY: 2017-18) in the above paragraphs of this order, our decision given therein in the assessee’s appeal for the AY 2017-18 mutatis mutandis applies to these appeals also. Thus, both the assessee’s appeals in ITA Nos. 10 & 11/Viz/2023 (AYs:
2018-19 & 2019-20) are allowed.
II & 25/Viz/2023 (AYs: 2018-19 & 2019-20) (Revenue’s Cross Appeals)
Both these cross appeals are filed by the Revenue against the orders of the Ld. CIT(A)-3, Visakhapatnam in DIN & Order No.
13 ITBA/APL/S/250/2022-23/1047514389(1) for the AY: 2018-19 & ITBA/APL/S/250/2022-23/1047514632(1) for the AY: 2019-20 dated 18/11/2022 arising out of the orders passed U/s. 153A & 143(3) of the Act respectively.
Brief facts pertaining to the Revenue’s appeal for the AY 2018-19 are that the assessee is a firm deriving income from Real Estate business filed its original return of income for the AY 2018-19 on 28/10/2018 admitting a total income of Rs. 81,46,560/-. A search and seizure operation U/s. 132 of the Act was conducted on 28/03/2019 in the case of the assessee-firm at its registered premises wherein certain incriminating material was found and seized. Subsequently, the case was centralized by the order of the Ld. Principal Commissioner of Income Tax-2, Visakhapatnam vide order in F.No. Pr. CIT-2/SP/127/2019-20, dated 14/10/2019. Accordingly, notice U/s. 153A of the Act was issued on 04/01/2021 and served electronically. In response, the assessee filed return of income on 06/02/2021 admitting the same income of Rs. 81,46,560/-. Subsequently, notice U/s. 143(2) of the Act dated 13/2/2021 and notice U/s. 142(1) of the Act dated 17/3/2021 were issued and served on the assessee. In response to the notices, the assessee furnished the information as called for by the Ld. AO.
Considering and examining the information furnished by the assessee,
14 the Ld. AO found that the assessee-firm has suppressed its receipts for its various projects. The Ld. AO therefore framed the assessment by making an addition of Rs. 2,47,75,250/- to the returned income and determined the assessed income at Rs. 3,29,21,810/-. The Ld. AO while making the above addition, rejected the books of accounts of the assessee and adopted the uniform rate of Rs. 3,400/- per sq ft as sold by the assessee and proposed the net profit @ 12.5% considering the income admitted by the similar business concerns. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A).
Before the Ld. CIT(A), the assessee submitted various documents and pleaded that uniform rate of Rs. 3,400/- per sq ft cannot be adopted by the Ld. AO. After considering the submissions made by the assessee and on the basis of the various case laws relied on by the assessee, the Ld. CIT(A) concluded that the assessee has already declared an amount of Rs. 2,000/- per sq ft sold by the assessee and directed the Ld. AO to tax the balance of Rs. 1,400/- per sq ft sold by the assessee adopting the estimate rate of 8% by relying on the decision of the ITAT, Visakhapatnam Bench in the case of M/s. Yugandhar Housing Pvt. Ltd vs. ACIT, Central Circle, Viajayawada in to 88/Viz/2022, dated, 30/08/2022. Aggrieved by the order of the Ld. CIT(A), the Revenue filed the instant appeal before the Tribunal.
The Revenue has raised the following grounds for the AY:
2018-19 as follows:
“1. The order of the Ld. CIT(A) is erroneous on grounds of facts and law.
The Ld. CIT(A) erred in restricting the addition made to 8% of only the unaccounted turnover, since as regards the accounted turnover, the assessee could not produce the updated books of account and the supporting evidences like bills, vouchers and other documents in support of the entries made in the books of account. Besides, in view of the fact that the assessment completed in this case was U/s. 153A of the Act to assess the total income of the assessee, the same is statutorily not limited to only assess undisclosed income consequent to search action. Reference in this regard is made to the decision of the Hon’ble Kerala High Court in the case of E.N. Gopakumar vs. CIT (2016) 75 taxmann.com 215 (Kerala), wherein it was held that assessment proceedings generated by issuance of a notice U/s. 153A(1)(a) can be concluded against interest of the assessee including making additions even without any incriminating material being available against the assessee as a result of search U/s. 132 on the basis of which notice was issued U/s. 153A(1)(a).
3. The Ld. CIT(A) erred in holding that the AO had adopted uniform rate of Rs. 3,400/- per sft on the basis of comparative cases since, as can be seen from the assessment order, the rates adopted are done project / venture wise and are different for different projects and that too on the basis of seized material as also the statements of the persons concerned. Besides, the Ld. CIT(A)’s observation that the AO had adopted the said rate on the basis of comparative cases is misplaced since the AO’s remark was actually in respect of profit percentage adopted at 12.5% and not otherwise. Also the seized material contained details of cash receipts on sale of residential units in the venture Hasini Platinum County in addition to the payments received through 16 banks, which was not repudiated by the assessee firm.
4. The Ld. CIT(A) erred in overlooking the fact that, the assessee firm had entered into two agreements with the customers for sale of each flat, one for sale of basic structure and other for additional works. The additional works agreements were normally in the names of workers or employees of the assessee firm, who are receiving payments from customers and transferring the money to parties to whom the payments were due from the firm as per the directions of the Managing Partner of the firm. Sworn Statements were recorded from the employees of the assessee firm and all of them had denied to have undertaken such works or even did not have idea of any such agreements. Thus, it was obvious that the receipts from additional works were effectively used by the firm only, but that the same were not disclosed in the returns.
The Ld. CIT (A) erred in not appreciating the AO’s action of rejection of the books of account on valid grounds.
6. The Ld. CIT(A) erred in holding that only the net profit on unaccounted turnover can be brought to tax since, as regards the unaccounted turnover, the relatable expenditure would have already found its way into the regular books of account and it is only the suppressed receipts sans and expenditure that need to be taxed. Given such a situation, the question of estimation against unaccounted turnover will not arise.
7. Any other ground urged at the time of hearing.
The Revenue has raised the following grounds for the AY:
2019-20 as follows:
“1. The order of the Ld. CIT(A) is erroneous on grounds of facts and law. 2. The Ld. CIT(A) erred in restricting the addition made to 8% of only the unaccounted turnover as this case
17 was taken up for complete scrutiny being the assessment year relevant to the year of search U/s. 132 and the books of account were rejected as the assessee could not produce the updated books of account and the supporting evidences like bills, vouchers and other documents in support of the entries made in the books of account.
The Ld. CIT(A) erred in holding that the AO had adopted uniform rate of Rs. 3,400/- per sft on the basis of comparative cases since, as can be seen from the assessment order, the rates adopted are done project / venture wise and are different for different projects and that too on the basis of seized material as also the statements of the persons concerned. Besides, the Ld. CIT(A)’s observation that the AO had adopted the said rate on the basis of comparative cases is misplaced since the AO’s remark was actually in respect of profit percentage adopted at 12.5% and not otherwise. Also the seized material contained details of cash receipts on sale of residential units in the venture Hasini Platinum County in addition to the payments received through banks, which was not repudiated by the assessee firm.
The Ld. CIT(A) erred in overlooking the fact that, the assessee firm had entered into two agreements with the customers for sale of each flat, one for sale of basic structure and other for additional works. The additional works agreements were normally in the names of workers or employees of the assessee firm, who are receiving payments from customers and transferring the money to parties to whom the payments were due from the firm as per the directions of the Managing Partner of the firm. Sworn Statements were recorded from the employees of the assessee firm and all of them had denied to have undertaken such works or even did not have idea of any such agreements. Thus, it was obvious that the receipts from additional works were effectively used by the firm only, but that the same were not disclosed in the returns.
18 5. The Ld. CIT (A) erred in not appreciating the AO’s action of rejection of the books of account on valid grounds.
The Ld. CIT(A) erred in holding that only the net profit on unaccounted turnover can be brought to tax since, as regards the unaccounted turnover, the relatable expenditure would have already found its way into the regular books of account and it is only the suppressed receipts sans and expenditure that need to be taxed. Given such a situation, the question of estimation against unaccounted turnover will not arise.
7. Any other ground urged at the time of hearing.
From the above, the only issue raised by the Revenue in both the appeals is with respect to estimation of profit @ 8% by the Ld. CIT(A) as against the estimation of profit made by the Ld. AO @ 12.5% .
The assessee contested the additions made by the Ld. AO and sustained by the Ld. CIT(A) in its appeals for the AYs 2017- 18, 2018-19 & 2019-20 (I.T.A. Nos.9, 10 & 11/Viz/2023), which are adjudicated by us in favour of the assessee as discussed in the above paragraphs.
Now, with respect to the cross appeals of the Revenue for the AYs 2018-19 & 2019-20, contesting the estimation of net profit by the Ld. CIT(A), we hold that since the quantum sustained by the Ld. CIT(A) for the AYs 2018-19 & 2019-20 itself is deleted while adjudicating the 19 assessee’s appeals for the AYs 2018-19 & 2019-20 (supra), we are of the view that the grounds raised by the Revenue have no legs to stand. Accordingly, the grounds raised by the Revenue are dismissed.