Income Tax Appellate Tribunal - Ahmedabad
Acit, Circle-6, , Surat vs Happy Home Corporation, , Surat on 1 June, 2017
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
CAMP AT SURAT
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.2720/Ahd/2014
नधा रण वष /Asstt. Year: 2011-2012
ACIT, Cir.6 Vs. Happy Home Corporation
Surat. 1st Floor, Shantiniketan
Apartment
Airport Road, Vesu, Surat
PAN : AADFH 4185 N
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Revenue by : Shri S.T.Bichari, CIT-DR
Assessee by : Shri Dennis Chokshi, AR
सन
ु वाई क तार ख/Date of Hearing : 26/04/2017
घोषणा क तार ख /Date of Pronouncement: 01/06/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against the order of the ld.CIT(A)-I, Surat dated 21.7.2014 passed for the Asstt.Year 2011-12.
2. Revenue has taken six grounds of appeal, which are not in consonance with Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief, grievance of the Revenue is that the ld.CIT(A) has erred in deleting addition of Rs.24,90,44,067/-.
ITA No.2720/Ahd/2014 23. Brief facts of the case are that the assessee is a partnership firm engaged in the business of development and building housing projects in the name and style of "Happy Home Corporation". It has filed its return of income electronically on 30.9.2011 for the Asstt.Year 2011-12 declaring total income at Rs.2,76,81,160/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued on 31.7.2012 and served upon the assessee. It is pertinent to mention that a survey under section 133A of the Act was conducted at the business premises of the assessee on 18.10.2010. During the course of survey, two papers were found from the pocket of one of the partners which were inventorised as annexure B/1 and these papers were impounded. Statement of Shri Mukesh Patel, one of the partners of the assessee-firm was recorded wherein he admitted that the assessee firm has earned unaccounted income of Rs.26.10 crores over and above its regular income. The assessee has given bifurcation of this Rs.26.05 crores in the projects.
4. On scrutiny of the accounts, it revealed to the AO that the assessee has only offered a sum of Rs.1,14,55,933/- as unaccounted income instead of Rs.26.05 crores. He observed that out of Rs.26.10 crores, declared by shri Mukesh Patel, Rs.5.00 lakhs was on account of cash discrepancies. Thus, the AO had issued a detailed show cause notice dated 25.3.2014. Copy of the show cause notice has been reproduced in the assessment order.
5. The assessee has replied show cause notice. Reply of the assessee has been reproduced by the AO in the assessment order from page nos.4 to 12. The assessee has pointed out that it has not retracted from declaration made during the course of survey. Two pages of Annexure B/1 impounded during the course of survey did not exhibit nature of the amount mentioned against each project. They only disclosed the name of the project, address of the project and ITA No.2720/Ahd/2014 3 amount against which projects. The papers do not disclose as to whether the amount mentioned has been received or receivable. Thus, entire unaccounted income is being brought to tax only on the basis of the statement of partner. The statement of the partner ought to be read as a whole. This disclosure is made in reply to question no.5 and the partner has specifically deposed that these amounts would be subject to registration of the sale deed. In other words, the income in these amounts would be recognized when the sale deed would be executed or possession will be delivered to the prospective buyers. The partner has specifically replied to this effect. The assessee has offered income of Rs.26.05 crores in different assessment years in different projects. It has paid taxes. The assessee has submitted break-up of the income in different assessment years for different projects. Somehow, the ld.AO was not satisfied with the explanation of the assessee, and therefore, rejected book results of the assessee and added differential amounts. Brief discussion made by the AO in concluding paragraphs reads as under:
"11.1. Once the seller has transferred all the significant risks and rewards of ownership to the buyer and other conditions for recognition of revenue specified in paragraphs 10 and 11 of AS 9 are satisfied, any further acts on the real estate performed by the seller are, in substance, performed on behalf of the buyer.
On perusal of the principles laid down by the Accounting Standards, the following parameters emerge relevant for ascertaining the point of revenue recognition:
(i) Transfer of significant risks and rewards of ownership, price being on e of the most significant risk factors
(ii) No significant uncertainty exists regarding the amount of the consideration expected to be derived and
(iii) It is not unreasonable to expect ultimate collection.
11.2 Here, it appears necessary to understand the specific trade practice prevalent in the real estate world of Surat City. What actually happens it that the seller and the buyer enter into a written agreement called Satakhat, mentioning the details of the property, rate of transaction and schedule of payment etc. duly singed by the parties i to transaction. And then, a diary is ITA No.2720/Ahd/2014 4 maintained to keep the record of installments as and when paid by the customers. It may be noted that one of such diaries was also found during the course of Survey proceedings in case of the assessee company. It is |an open secret that, since these documents are the evidences of actual rate of transaction including the unaccounted portion, the assesses maintain them secretly at some less known secret premises. Thus, on every installment received from the customer, the said diary gets updated. The unaccounted portion is much higher than the accounted portion therefore, paid up much before the accounted portion of consideration and hence significant risks and rewards get transferred to the buyer much earlier than what is apparently is shown on date of actual transfer. Taking the date of sale deed would, therefore, frustrate the logic embedded in the Accounting Standards. In the instant case, a material evidence was also found which proves that the substance of the transaction warrants that revenue be recognized in the year of Survey as well. The assessee has placed reliance on various case laws. However the facts and circumstances of these case laws are distinguishable from the fact circumstances of the instant case.
12. In light of the discussion made above, it is very much clear that the disclosure of Rs.26.05 crores as unaccounted income over and above the regular income is the unaccounted income in the nature of on money pertaining to the current year only i.e. F.Y. 2010-11 relevant year 2011-12.
13. The assessee has also placed reliance on photographs of the project as! on 31/3/2011 alleged to have been taken by an independent authority. However, this argument does not carry too much weight as booking of a particular project takes place on its launch itself. It is by virtue of this that the assessee has been in a position; to quantify the amount of "on money"
received from each project enumerated above offer undisclosed income to the tune of Rs.26.05 crores for FY 2010-11 relevant to 2011-12.
14. The assessee has also made a contention that no capital was created and there was no income application in the current year in excess of income disclosed | of Rs.1,14,55,933/- pertaining to the current year. It is well-settled that income attracts tax as soon as it accrues. The application or destination of the income has nothing to (do with its accrual or taxability. In other words, income-tax is attracted when the income; is earned. Taxability of income is not dependent upon its destination or the manner of its utilization. It has to be seen whether at the point of accrual, the amount is of revenue nature. If so, the amount will have to be taxed- Tuticorin Alkali Chemicals & Fertilizers Ltd. V. CIT(1997) 227ITR 172, 186, 182 (SC).
15. Rejection of books of account u/s.145(3):
In light of the above discussion, having established that the unaccounted income which nature of on money amounting to Rs.26.05 crores is the unaccounted income over and above the regular income of the assessee for the F.Y. 2010-11 relevant to A.Y. -12, it is clear that the books of account of the assessee do not present the correct and complete picture of ITA No.2720/Ahd/2014 5 the state of business of the assessee and therefore ought to be rejected u/s. 145(3) of the Income Tax Act.
15.1 The guiding principles regarding maintenance of proper and acceptable books of accounts are envisaged by section 145 of the Income Tax Act, 1961. Section 145 of the Income Tax Act, 1961 casts triple onus on the assessee to maintain books of account in such manner as to meet the following the three criteria.
(1) Satisfaction about the correctness of the accounts (2) Satisfaction about the completeness of the accounts (3) Regularity in following the method of accounting provided in sub-section (1) of section 145 or accounting standards as notified under sub-section (2) of section 145.
15.2 Thus Section 145 of the IT. Act puts the triple onus on the assessee to provide for an maintain the correctness, completeness and regularity of the method of accounting strictly to the satisfaction of the Assessing Officer. The failure to meet one of the requirements of section 145 of the Income Tax Act, 1961 renders the books maintained by the assessee liable to rejection on account of incorrectness or incompleteness or irregularity.
15.3 From the perusal of Profit & Loss Account of the assessee, it is seen that it has offered Rs. 1,14,55,933/- as income disclosed during survey for the F.Y. 2010-11 as against the disclosure of unaccounted income of Rs.26.05 crores over and above the regular income for F.Y. 2010-11 as discussed above. Further, the assessee has also failed to provide the list of customers to whom the income disclosed during the course of survey proceedings is relatable. Thus, there is the understatement of unaccounted income disclosed during the survey proceedings in the P&L account to the extent of Rs.24,90,44,067/-. Further, no separate entry was passed for the cash discrepancy of Rs.478036/- which was found during the survey and which was made part of the disclosure, Hence, the books of account of the assessee are incorrect.
15.4 The provisions of section 145(3) of the Income Tax Act are clearly applicable in case of the assessee as the assessee has failed to satisfactorily explain and establish the correctness of the accounts.
15.5 In light of the above, the books of accounts maintained by the assessee are being treated to be unreliable and incorrect. The provisions of section 145(3) are applied to the present case.
15.6 Hence, the income of Rs. 24,90,44,067/- has escaped assessment during the year under consideration.
15.7 Thus, from the above discussion, it is evident that the assessee has furnished in accurate particulars by suppressing and under reporting the ITA No.2720/Ahd/2014 6 income. The ensuing income has been under reported by this furnishing of inaccurate particulars and enhance there has been result in concealment of income, therefore, satisfied on account of these reasons as above, penalty proceedings u/s.271(1)(c) are being initiated for furnishing in accurate particular income and thereby leading to concealment of income.
In Nutshell:
• Survey was conducted on the business premises of the assessee. ! • Impounded documents show unaccounted income ('on money') admitted in the statement recorded on oath. ;
• Admitted unaccounted income in statement on oath. However, same is not reflected in the Books of Account of the assessee. j • Significantly, surrender of income is neither retracted nor withdrawn. • Unaccounted income pertains to "current year" i.e. F.Y. 2010-11 which fact is evident from the date on the impounded material. • The assessee admits the impounded papers to be true and correct reflecting its unaccounted income. Either the content is totally true or is entirely false. Therefore there can be no cherry picking. (Addition on account of income disclosed during survey-Rs. 24,90,44,067/-)
16. During the course of survey proceeding, excess cash of Rs.478036/- was also found. In reply of question No. 10 of the statement recorded during the survey, an amount of Rs.5,00,000/- was voluntary offered over and above the uncounted income Against the said discrepancy of Rs.4,78,036/-. In response to specific query regarding the treatment of Rs.5,00,000/-, the assessee stated that separate entry for the said difference in the amount of cash was not passed and that Rs.5,00,000/- is voluntarily offered as additional income of the current year in order to peace of mind and avoid protracted litigation. In this regard it is submitted that it is only after this discrepancy was brought to light before the assessee, that he offered the cash difference of Rs.5,00,000/- as income. Accordingly Rs.5,00,000/- is hereby added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the IT. Act are initiated for furnishing inaccurate particulars of income and thereby leading to concealment of income.
(Addition on account cash discrepancy during survey-Rs. 5,00,000/-)
17. With the above discussion of the facts and after carefully scrutinizing the details filed, the total income as returned by the assessee is accepted and thereupon, computed as under:
In Rs.
Total income as per return of income 2,76,81,160/-
Add: Income disclosed during survey 24,9Q,44,067/-
: Cash discrepancy 5,00,000/- ITA No.2720/Ahd/2014 7 Assessed Income 27,72,25,227/-
Assessed under section 144 r.w.s.143(3) of the Income Tax Act, 1961. Charge interest u/s. 234A, 234B, 234C & 234D if applicable. Give credit for prepaid taxes, if any, after due verification. Issue demand notice and challan / RO accordingly. Issue show cause notice u/s. 274 r.w.s. 271(1) (c) of the I.T.Act. ITNS 150 enclosed."
6. Dissatisfied with this addition, the assessee carried the matter in appeal before the ld.CIT(A). The assessee has raised multiple fold of contentions, which have been analytically examined by the ld.CIT(A).
The ld.First Appellate Authority has ultimately arrived at a conclusion that this amount of Rs.26.05 crores which was admitted by the partner received as on-money cannot be taxed in the Asstt.Year 2011-12 alone. The detailed discussion made by the ld.CIT(A) is worth to note. It reads as under:
"4.1 Now the question arises that in which year the disclosure of income amounting to Rs. 26.05 crore, which has been termed by AO as 'on money', should be taxed. Whether it should be taxed in A.Y. 2011-12 alone on the basis of statements of the partner, Shri Mukesh Patel or in different years considering the relevant facts and circumstances of the case. In my opinion, the statement of AO that 'on money' is income, is a generic form of same receipt to treat it as income, not in the sense of true interpretation of the term 'income'-as per IT Act. 'On money' as such cannot be taxed alone unless it is proved that all the related expenditure of the relevant projects against which disclosure has been made has actually incurred and recorded in the books of account. To the contrary, it is undisputed position that undisclosed income against the projects has been disclosed but the projects are still to be completed or various investment/expenditure are to be incurred. Thus, both the components i.e. receipts and expenditure should exist to treat any amount as income. Therefore, in the case of appellant, only the receipt part i.e. disclosure of Rs. 26.05 crores, cannot be treated as income in isolation unless the expenditure/investment part also correspondingly exists. The method of accounting disclosed by appellant also supports this principle. It is undisputedly following the AS- 9, wherein income is recognized at the time of transfer of ownership of immovable property by executing registered sale deed and handing over of possession to its customers. In the light of these facts, it has to ITA No.2720/Ahd/2014 8 be decided that when the income out of such receipts would accrue to the appellant. In my opinion, on money (undisclosed income) is part and parcel of money received on sale of flats. The amounts received by cheque/cash prior to actual transfer of flats to the purchasers would be in the nature of advance and cannot be said to have accrued to the appellant. Appellant has incurred expenditure/investment in different projects in different years but income to it would accrue only when the flats are sold to the buyers. Any advance money received by appellant can never be its income. It would only be a liability shown in the balance sheet as advances from the customers and would be adjusted against the sale proceeds of the flats when flats are transferred to the purchasers. Therefore, accrual of income to the assessee will not arise on the date when it receives cheque or cash against sale on flats but will arise when flats are transferred to the buyers. Till then, it will only be an advance. It can be seen that the appellant has booked the flats in various projects and received advances by way of cheque. Similarly, it has also received advance in cash which is now declared and termed by AO as 'on money' in the statements given by the partner of the firm. To substantiate this fact, appellant has furnished the details of projects as well as the basis on which cash advances have been received by it from its customers. In this way, revenue can be recognized in the case of appellant only when flats are sold and, thus, both cheque portion/cash portion being the 'on money' would accrue as income only in the year of sale of flats. Therefore, in any way, disclosure of Rs. 26.05 crore cannot be taxed solely in the year under consideration.
4.2 The claim of appellant that income in its case gets accrued/arisen only when the sale deeds in different projects are executed, also gets support from various judgments of different courts. Hon'bie Supreme Court, defining the accrual of income, in the case of CIT Vs. M/s. Excel Industries Ltd. (2013) 86 CCH 086 ISCC has opined as under:-
"In our opinion, more importantly, income accrues when there arises a corresponding liability of the other party from whom the income becomes due to pay that amount.
The income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee."ITA No.2720/Ahd/2014 9
In the line of aforesaid view taken by Hon'ble Supreme Court, the jurisdictional High Court has already decided the issue on similar facts in the case of CIT vs. Ashaland Corporation (1982) 133 ITR
55. In this case, Hon'ble Gujarat High Court has held that income accrues on sale of land and arises in the year in which the title in the property is transferred and not in the year in which assessee received part of consideration and earnest money. The transaction of sale of immovable property becomes complete only on possession of title which takes place only when registered deed is executed. Some receipt of earnest money and advance receipt of money towards transaction would not by itself partake the character of taxable income as the registered sale deed was executed only in the subsequent year, In this regard, head notes from the judgment are referred as under:-
"The land purchased by the assessee which forms part of its stock- in-trade, would continue to be so, until and unless it sells it. The business deal in respect of the land would be complete only when the assessee executed a sale deed. Since it was only on completion of the sale transaction that the assessee could be said to have earned profit or suffered loss, the earnest money and part payment of price would not constitute trading receipts for the assessment year in which they were received Unless the title of the assessee is extinguished, the title to the purchaser cannot arise. Both _ cannot be the exclusive owners of the same property at the same time. It was axiomatic that an agreement to sell does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating in the extinguishment of the title of the vendor and simultaneous creation of the title in the vendee that the assessee earns profit or suffers loss. A transaction which may or may not ultimately result in a completed sale by executing a registered conveyance is no transaction at all for the purpose of working out profit. Receipt of sum amount would assume the character of income or profit only when the sale transaction is completed in accordance with law. The land does not cease to be the stock-in-trade of the assessee unless and until the sale is completed. Therefore, the amount received by the assessee by way of earnest money and parry-payment of the purchase price cannot be treated as its trading receipt -- Kunjantal & Sons. In re (1941*) 9 ITR 358 (All), Chidambarain Chettiar vs. CIT (1936) 4 ITR 309 (Mad); TC39R, 210 and CIT Vs. Shah Doshi & Co. (1981) 23 CTR (Guj) 307: (1982) 133 ITR 23 (Guj): TC 39R, 936 followed.
Amount received by way of earnest money and advance amount towards transaction of sale of land would not by itself partake the character of taxable income."
ITA No.2720/Ahd/2014 10The ratio given by Hon'ble High Court gets support from various decisions of other High Courts also. On the issue that whether the sale of immovable property to purchaser would be complete on actual conveyance of the title or otherwise, it has been held by Hon'ble Calcutta High Court in the case K. C. Pal Chaudhary Vs. CIT 46 ITR 01 that capital gain would accrue on payment of full consideration and handing over of the possession. In Meccane Industries Ltd. Vs. CIT 254 ITR 175, Hon'ble Madras High Court has held that capital gain would accrue in the year in which sale deed was executed. Similarly, Hon'ble Andhra Pradesh High Court in CIT Vs. Nawab Mehmood Jung Bahadur 172 ITR 592 has held that capital gain would arise on transfer of asset liable to be taxed for the year in which transfer took place. Hon'ble Gujarat High Court also has held in the case of CIT Vs. Mormasji Mancharji Vaid 250 ITR 542 that the transfer of immovable property is effected on the date of execution of transfer deed and registration of transfer deed is effected from the date of execution. From these authorities, it follows that there should be immovable property in existence and transfer deed is executed which is later registered. Thus, capital gain would accrue or arise only when transfer deed is executed. The appellant also is dealing in several immovable properties and the capital assets, in the form of flats, which are stock in trade for it, but, the basic principle of accrual of income will remain the same i.e. profit on sale of flat will accrue to it when flat is in existence and the same is transferred to the purchaser through the transfer deed. Point of taxability in the context of transfer of an immovable property would be the moment when transfer deed is executed and at that moment profit to the appellant would accrue and a right of the appellant to receive consideration for such transfer would arise. Prior to this, whatever the appellant has received from the prospective buyer would only be a liability and the liability as such cannot be treated as income. As mentioned by appellant also in its submissions, merely receiving a sum for future purchase of an immovable property cannot be a sale consideration as property being not in existence. The possession thereof cannot be given to the prospective buyers, therefore, the sum received for being adjusted against sale consideration will continue to carry the character of advance only and a liability in the books of the assessee. Merely because such receipt is not declared or recorded in the books of account will not change the character which has to be decided in the light of purpose for which it is given. Further, such receipt (on money in the present case) cannot be dissected from other part of receipt through cheques as both are integral part of sale consideration. If the amount given by cheque carries the character as an advance against sale consideration then 'on money' in cash will also carry the same character. Both types of ITA No.2720/Ahd/2014 11 receipts i.e. receipt through cheqeus and receipt through cash as 'on money' will arise as income to the appellant as soon as transfer of immovable property is executed and not before, or possession thereof is handed over and for this it is necessary that such immovable property should be in existence. Therefore, in the case of appellant, 'on money' received by it do not have the character of income but only an advance like one received through cheque. Both will become part of the sale consideration to the appellant simultaneously on either handing over the possession of the flats or on execution of transfer deeds whichever happens earlier. In view of this discussion, it is held that the disclosure amount of Rs. 24,90,44,067/- crores as xon money' will partake the character of taxable income when registered sale deeds of the flats are executed in subsequent years, not in the year under consideration. 4.3 The other issues raised by appellant in its submissions also support its claim that the entire disclosed income of Rs. 26.05 crore is not taxable solely in the year under consideration. The appellant has not retracted the statements making disclosure and accepted it in toto. It has paid taxes also on the income disclosed in relevant years subsequent to current year as an when sale deeds of flats have been executed. Thus, the appellant has admitted to have earned the undisclosed income and accordingly paid taxes. The only dispute remains is the year of taxability only which is entirely academic in the eyes of Hon'ble Supreme Court as held in the case CIT Vs. M/s. Excel Industries Ltd. (supra) as under:-
"The real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance license and the duty entitlement pass book and paid tax thereon.
Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merit) but also that it may not have added anything i much to the public coffers.
Further, the appellant has disclosed income offered during survey in the subsequent years and paid taxes thereon, therefore, taxing the whole amount of Rs. 26.05 crores in the current year would amount to double taxation which is not permitted as per settled position of law (ITO Vs. Bhavesh Bharatbhai Mehta (2013) (37 CCH 285 Ahd. Trib.). This fact was brought to the notice of AO ITA No.2720/Ahd/2014 12 during the assessment proceedings by the appellant but no comments have been given by her in this regard. Thus, in the case of appellant, same amount of disclosure cannot be taxed twice. ;
4.4 In the light of aforesaid discussion, the conclusion drawn by AO for rejecting the books of account of appellant and making addition of Rs. 24,90,44,067/- in the year under consideration is not sustainable. The AO has rejected the method of accounting consistently followed by appellant without pointing out any defect in the same or in the books or without observing that from the method adopted by appellant, true income cannot be deduced. She has failed to observe that for one disclosed income, there cannot be two separate methods of accounting. She has also failed to comment upon the issue of reduction of income in subsequent years in case whole of the amount disclosed to be assessed in one year i.e. the year under consideration. The provisions of section 292C of the Act and principle of preponderance of probability discussed by AO have no relevance as the appellant has not retracted from the statements and admitted to disclose the income and paid taxes as per statements given by him. In view of this, AO has failed to substantiate the addition made by her in the year under consideration.
4.5 In view of above discussion, it is held that the addition of Rs. 24,90,44,067/- made by AO is not justified as this amount is not taxable solely in the year under consideration, rather, in the relevant subsequent years as an when the registered sale deeds of flats are executed in various projects as per the chart. Therefore, the addition of Rs. 24,90,44,067/-made by AO is deleted and grounds taken by appellant are allowed."
7. While impugning the order of the ld.CIT(A), the ld.DR contended that partner of the assessee, Shri Mukesh Patel had voluntarily admitted that amount of Rs.26.05 crores is an unaccounted income for the current year i.e. F.Y.2010-11 relevant to this assessment year. This income was not recorded in the regular books of accounts. This amount had already been received at the time of booking even without registering a single registration. These amounts would not be adjusted against any future expenditure. It was an out-of-book profit. Therefore, it should have been offered in this assessment year only. He further contended that the ld.CIT(A) has recorded a finding that "on-
ITA No.2720/Ahd/2014 13money" cannot be taxed alone unless it is proved that all the relevant expenditure of the relevant projects against which disclosure has been made has actually been incurred and recorded in the books of accounts, is without any sound reasoning because accepting of on-money entails money received outside the books of accounts for which no corresponding expenditure would have to be incurred. The corresponding expenditure would be recorded in the books against the declared profit. Thus, the ld.DR contended that the action at the end of the CIT(A) is not justifiable.
8. As far as reference to Accounting Standard AS-9 made by the assessee is concerned, that is related to things duly accounted in the books. It is something over and above those items.
9. On the other hand, the ld.counsel for the assessee has filed written submissions running into 21 pages. In his first fold of contentions, he submitted that the issue in dispute is covered in favour of the assessee by various decisions. He pointed out that basically taxability of the amounts is not in dispute. As far as rate of tax is concerned, the assessee is being taxed at the same rate in different assessment years. An amount of Rs.26.05 cores has been offered for taxation and taxes have also been paid. Only dispute is year of taxability. According to the AO, this amount of Rs.26.05 cores should be taxed in the Asstt.year 2011-12 i.e. year in which disclosure was made by the assessee, whereas on the other hand, the stand of the assessee is that it is in the business of development of housing project. It will recognize the revenue on transfer of flats to the prospective buyers. In this year, it has offered income to the extent of sales have been materialized. He took us through the statement of Shri Mukesh Patel recorded during the course of survey and apprised us about the status of the projects against which income is being assessed at the end of the AO in this assessment year. He made reference to the question ITA No.2720/Ahd/2014 14 and reply no.5 as well as 8. Statement of Shri Mukesh was recorded in Gujarati, but a translated copy has been placed on paper book at page no.73. English translation of the relevant question/reply reads as under:
"Q.5 Please tell us the stage of construction work completed of above mentioned projects carried on by M/s. Happy Home Corporation and also furnish complete detail of booking status in all projects.
A.5 The detail of computation of construction and booing position of above mentioned projects of M/s. Happy Home Corporation is as under.
Project Name Construction State % of Booking
1 Nandini II Outer Plaster & flooring 46%
2 Nandini III Plinth Work 47%
3 Nandanvan II Second Slab 34%
4 Nandanvan III First Slab 27%
5 Vastu Luxuria First Slab 25%
6 Luxaria Business Hub Ground Level 4%
7 Nakshatra Heights Ninth Slab 68%
8 Nakshatra Platinum Compound Wall 9%
9 Nakshatra View Ground Level just started
10 Nest View Compound Wall 4%
11 Capital Greens Compound Wall just started
12 Sweet Home Completed 32%
13 Sweet House Completed 38%
14 Happy Residency Masonary, Plasture & 59%
Flooring
The complete detail of financial transaction of the booking of all the above projects are recorded in our regular books of accounts and the back-up of computer has been taken by your goodself during the course of survey proceedings as on today. .....
Q.8 Today as on day of survey, we have found 2 papers from pocket of your shirt and which has been inventorised as page 1 & 2 of Annexure BI. On these papers, certain amount has been mentioned against names of different projects. The total of page 1 amounts to Rs. 10,55,00,000/- and page 2 amounts to Rs. 15,50,00,000/-. Thus, the aggregate total of both pages amounts to Rs. 26,05,00,000/-. Kindly explain both the papers.
A.8 The aforesaid amount of Rs. 26,05,00,000/- is unaccounted income of M/s. Happy Home Corporation from its all projects, which I declare voluntarily and which is not recorded in the regular books of accounts. On this amount of Rs. 26,05,00,000/-, we will pay the due income tax in time. This unaccounted income of Rs. 26,05,00,000/- (only rupees twenty-six crores and five lacs) is our income for the current year but which is dependent upon the registration of the sale deed. The aforesaid unaccounted income is over and above the regular income reflected in the regular books and income tax returns."ITA No.2720/Ahd/2014 15
10. On the strength of the above, he pointed out that certain projects were just started. In other words, leveling of ground was done. At certain projects, construction was made on plinth level only. In such situation, how it can be stated that whole receipts should be recognized as Revenue. This on-money part-takes character of advances. If the assessee has not constructed flats, then it has to return the on-money also. Thus, on-money is depended upon completion of projects. The assessee has been recognizing its revenue on project completion basis. He further drew our attention towards photos which were filed before the AO in order to demonstrate actual state of affairs at a particular project. He put reliance upon the following decisions and filed copies of them:
i) Cit Vs. Ashaland Corporation, 133 ITR 0055
ii) CIT Vs. Motilal C. Patel & Co., 173 ITR 0666;
iii) Alapati Venkataramiah Vs.CIT, 57 ITR 0185;
iv) ITO Vs. Siddharth S. Patel, ITA No.1852 and
1853/Ahd/2003, dated 23/4/2010
v) DR Construction Vs. ITO (Ahd Trib.), ITA No.2735/Ahd/2010
vi) CIT Vs. Shivalik Buildwell P.Ltd. 40 taxmannc.om 219 (Guj)
11. We have duly considered rival contentions and gone through the record carefully. There is no dispute with regard to the fact that an amount disclosed at Rs.26.05 cores by the assessee has been offered for taxation in different assessment years, as and when project was complete and sales have been materialized. It has also not been disputed that Revenue is not taxing the assessee on receipt of booking amount i.e. the amount which has already been recorded in the books. A simple example can be taken from the reply to question no.5 given by the assessee's partner at the time of survey. For example, in the project Nandini-II, 46% booking was there. The assessee must have received substantial amount, but this 46% has not been taxed on receipt basis. The AO did not dispute with regard to the stand of the ITA No.2720/Ahd/2014 16 assessee that amounts which have been accounted in the regular books of accounts would be taxed when sale deed would be executed or possession will be delivered to the prospective buyers. A different yardstick has been adopted for the on-money received by the assessee over and above amounts stated in the regular books of accounts. Analysis of the AO was that against this amount, the assessee would not be required to incur expenditure. It is a net realization which has only a profit component. The assessee is not disputing this fact, but it was of the view that right to retain this amount would accrue to it when sale deed would be executed or possession of the flats would be given to the prospective buyers on completion of the project. For example, if on account of any reason project could not be completed, then the assessee would be required to refund the money, and in that situation, on-money would also be refunded. Thus, the right to receive or retain this component was subject to the execution of the sale deed or handing over of the possession. This aspect has been clarified by the partners even while admitting the income. The ld.AO has been unnecessarily ignoring that part of the statement. It is also pertinent to observe that the title in the property would be transferred not in the year in which the assessee received part consideration as earnest money, but it is to be construed in the year, when the sales was registered or possession was handed over to the prospective buyers. On completion of this transaction then only right to receive would crystalise. Though, the ld.counsel for the assessee has made reference to large number of decisions, but most of them are related to those assessees who are trading in the land and Hon'ble Courts have observed that transaction would be construed as complete when sale deed was registered. But there is one decision of Hon'ble Gujarat High Court wherein the assessee was a developer and income has been recognized when possession was delivered or sale deed was executed. We would like to refer to the decision of the Hon'ble Gujarat High Court ITA No.2720/Ahd/2014 17 in the case of CIT Vs. Shivalik Buildwell. The assessee was a developer of real estate. It had received booking amount of Rs.27.85 lakhs. The AO made addition of this amount. On appeal, the ld.CIT(A) has deleted it. The Tribunal concurred with the ld.CIT(A) but for different reasons. The Revenue went in appeal before the Hon'ble High Court and the Hon'ble Court has upheld the deletion by observing as under:
"2. Insofar as the question "A" is concerned, we notice that the Assessing Officer had made addition of Rs. 27.85 lakh (rounded off). The assessee carried the issue in appeal. The CIT (Appeals) deleted such additions on the ground that the Assessing Officer did not even issue a notice to the assessee before making such substantial additions and further that the assessee could not be stated to have earned income on booking amount collected as the assessee is an organizer and developer and is entitled to receive only supervision fees from the society for which it undertakes such development work.
3. On the revenue's appeal, the Tribunal confirmed the view of CIT (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration. The Tribunal further noted that such method of accounting followed by the assessee had been accepted by the revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer's decision to reject the book results during the year under consideration was not justified.
4. We are of the opinion that the Tribunal committed no error, if as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different stand and that too, without hearing the assessee."
12. Apart from the above, the ld.CIT(A) has deleted the addition on the ground that same amount cannot be taxed twice because this very amount has been offered for taxation in different years and the same rate of tax is applicable upon the assessee. Thus, taking into consideration well reasoned finding of the ld.CIT(A) extracted (supra), ITA No.2720/Ahd/2014 18 we do not see any reasons to interfere in it. Appeal of the Revenue is devoid of any merit, hence dismissed.
13. In the result, the appeal of the Revenue is dismissed. Order pronounced in the Court on 1st June, 2017.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER