By TIOL News Service
MUMBAI, JULY 30, 2018: THE ISSUE BEFORE THE BENCH IS - Whether addition of on-money received has to be determined based on evidence found during search & seizure operations. YES IS THE VERDICT.
Besides, the Tribunal also held that addition made of on-money received from sale of flats cannot be quantified by applying average rate for all flats sold in the project without there being any evidence being found during search operations.
Facts of the case
THE assessee company, engaged as a builder as well running shopping malls, filed returns for the relevant AY, declaring its income. It was subjected to search & seizure operations in such AY, upon which applications for booking of flats were found. It was revealed that the assessee sold flats in its projects at rates of upto Rs 38000/- per sq. ft. while a lesser amount had been shown in its books. The assessee later admitted receipt of on-money from customers for sale of flats. Statements of various employees of the company were taken, including those of the managing director, who admitted receipt of on-money over and above registered value of properties. Hence the assessee admitted additional income of Rs 38.06 crores for such AY, which included about Rs 18.82 crores as on-money. On assessment, the AO made addition of such amount on account of undisclosed income. On appeal, the CIT(A) considered the statements recorded during search and other evidences to conclude that the assessee accepted on-money on sale of flats. The CIT(A) also noted that the assessee's employees admitted receipt of such amount outside regular books of account & did not intend to disclose the same. The CIT(A) also held that the assessee failed to admit such income in its returns without any valid retraction. Hence the assessee's claims that income was admitted under coercion, were rejected, as was its claims that such undisclosed income was taxable in year of completing the project. Hence the present appeal.
On appeal, the Tribunal held that,
++ there is no dispute with regard to the fact of receipt of on-money from sale of flats. This fact has been admitted by the assessee including its director in the statement recorded during the course of search. This fact is also supported by incriminating material found as a result of search. During the course of search, the Department has found application form, booking form of certain flats as per which the rate charged for sales is higher than the amount recorded in the books of account. Accordingly, undisclosed income of Rs 18,82,59,020/- has been quantified from sale of 21 flats in project Runwal Elegante. The assessee has filed paper book containing copies of application for booking found during search. On perusal of documents filed by the assessee, we find that in 4 cases, the rate charged by the assessee and recorded in the books of account is much higher than or equal to the amount recorded in the incriminating material found in the form of application for booking. We further observe that the AO has arrived at average rate of Rs.21,400 per sq.ft. and then applied such rate to 21 flats and compared the rate as per books of account of the assessee recorded in ERP system to arrive at a difference of Rs.18,82,59,020. While doing so, the AO has determined average rate as per books of account by dividing total sale consideration from the saleable area of the flat to arrive at average rate per sq.ft., whereas while determining undisclosed income average rate has been arrived at on the basis of total carpet area of the flat. There is a lacunae in the quantification of undisclosed income inasmuch as that by adopting average rate of Rs.21,400 per sq.ft. and applying such rate uniformly to all flats without any evidence found as a result of search. In fact it is the case of the assessee also. The assessee never disputed the fact of receipt of on money; however, disputed the manner in which the undisclosed income has been quantified. Therefore, we are of the considered view that the AO was incorrect in quantifying undisclosed income by adopting average rate and then applying such rate to all flats sold in the project without any evidence found as a result of search. This finding of ours is supported by the decision of ITAT, Mumbai Bench "D" in assessee's group company, M/s Runwal Homes Pvt Ltd , wherein under similar set of facts, where the assessee is also a party to the search proceedings, after considering relevant materials, the co-ordinate bench held that on-money receipt should be worked out on the basis of evidence found as a result of search;
++ in this view of the matter and respectfully following co-ordinate bench decision in the case of Runwal Homes Pvt Ltd , we are of the considered view that the AO was erred in quantifying undisclosed income by taking average rate of Rs.21,400 per sq.ft. and applying such rate to 21 flats without any evidence found as a result of search. Hence, direct the AO to restrict the quantification of undisclosed income to the extent of incriminating material found as a result of search. We further direct the AO to delete addition made towards on-money received from sale of flats in the assessment year and make addition in the year in which the project has been completed, since the assessee is following project completion method for recognition of revenue. Hence, we set aside the issue for the limited purpose of quantification of undisclosed income on the basis of incriminating material found as a result of search and to make addition in the year in which project is complete.
(See 2018-TIOL-1169-ITAT-MUM)
