Income Tax Appellate Tribunal - Bangalore
M/S Pam Builders & Developers , ... vs Department Of Income Tax on 21 August, 2013
ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore
IN THE INCOME TAX APPELLATE TRIBUNAL
Bangalore 'B ' Benches, Bangalore
Before Shri N. Barthvajasankar, Vice President and
Shri George George K. Judicial Member
ITA No.968/Bang/2011
(Assessment year: 2009-10)
Pam Builders & Developers Vs. Dy. Commissioner of
16-1-52/11 G-4 Divya Deepa Income Tax, Central Circle
Arcade, Bendoorwell, Mangalore
Kankanady,
Mangalore 575003
PAN: AAIFP 5628 H
(Appellant) (Respondent)
ITA No.1013/Bang/2011
(Assessment year: 2009-10)
Dy. Commissioner of Income Vs. Pam Builders &
Tax, Central Circle Developers 16-1-52/11 G-
Mangalore 4 Divya Deepa Arcade,
Bendoorwell, Kankanady,
Mangalore 575003
PAN: AAIFP 5628 H
(Appellant) (Respondent)
Department by: Shri Narendra Rebelly, DR
Assessee by: Shri Srinivas Kamath, CA
Date of Hearing: 21/08/2013
Date of Pronouncement: 30/08/2013
ORDER
Per George George K, J.M.
These two appeals instituted at the instances of - one by the assessee-firm and another by the Revenue - are directed against the order of the CIT (A)-VI, Bangalore, dated, 23.8.2011. The relevant assessment year is 2009-10.
Page 1 of 11ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore I. ITA No.968/B/2011 - By the assessee firm:
2. The assessee firm has raised six grounds in its grounds of Memorandum. Ground Nos.1,2 & 6 are general in nature and, therefore, they are dismissed. In ground No.5, the assessee firm had stated that the CIT (A) erred in not raising (sic) dealing with the ground on the issue of interest levied u/s 234A, 234B and 234C which was not leviable as per the decision of the jurisdictional Hon'ble High Court etc. However, during the course of hearing, the learned AR submitted that there were certain mistakes in computation of interest chargeable under the above mentioned sections. In view of the above, the assessee-firm is at liberty to move the appropriate authority under the Act with a request to rectify the computation of interest chargeable, if any. The remaining grounds [ground Nos.3 & 4] relate to a solitary issue, namely:
"that the CIT (A) erred in adopting the net profit @ 25% as against 18.3% declared by the assessee, thereby confirming an addition of Rs.32.89 lakhs as income from 'Pam Arcade' which was only on estimation as against declared income of Rs.90 lakhs"
II. ITA No.1013/B/2011 - By the Revenue:
3. Though the Revenue has, in its grounds of Memorandum, raised five grounds, the substance of its grievance is confined to a lone issue, namely:
"that the CIT (A) erred in adopting the net profit at 25% on the sale proceeds from 'Pan Arcade' as against 45.7% adopted by the AO."Page 2 of 11
ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore
4. As the issues raised by the rival parties being inter- linked and pertaining to the same assessee, for the sake of convenience, they were heard, considered together and disposed of in this consolidated order.
5. We shall now proceed to take up the assessee's appeal for adjudication as under:
I. ITA No.968/B/2011 - By the assessee firm:
5.1. Briefly stated, the facts of the issue are as under:
The assessee firm is a builder and developer. The assessee firm had constructed a commercial complex, styled 'Pam Arcade'. There was a search operation u/s 132 of the Act at the business premises of Sri Rohan Monterio, one of the partners of the assessee firm on 13.2.2009. During the course of search operation, certain incriminating documents appear to have been unearthed which included various sale deeds for the sale of shops in 'Pam Arcade' promoted by the assessee. Since the assessee had not furnished its return of income for the assessment year under dispute, a notice u/s 142(1) was issued on 12.7.2010, requiring the assessee to furnish its return of income. There was, according to the AO, no compliance to the said notice and also a subsequent letter dated 6.9.2010. When the AO had proposed, in his letter dated 14.9.2010, to conclude the assessment u/s 144 of the Act to assess its income at Rs.2.24 crores based on the seized material etc., the assessee came up with a return of income, admitting a total income of Rs.90 lakhs. Taking into account Page 3 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore the assessee's clarification furnished during the course of assessment proceedings and for the reasons recorded in his order, the AO held that the assessee had earned a total profit of Rs.2,24,66,173/- from selling of the commercial complex as against Rs.90 lakhs as admitted in its return of income. The AO concluded that the assessee had earned a total profit of Rs.2.24 crores as per the seized documents; however, accounted for only Rs.90 lakhs in its books, thereby suppressed the unaccounted amounts to the tune of Rs.1.34 crores [ Rs.2,24,66,173 - 90,00,000].
5.2. Aggrieved, the assessee took up the issue, among others, before the CIT (A). After taking into consideration of the assessee's contentions as recorded in his findings, the CIT (A) has held as under:
"3.1.3............................................................... Though the AO, has quoted yet another seized material which is in page 6 wherein total profit is mentioned at Rs.2,24,66,173/- in the light of the fact that they have allocated even the sale consideration in the same ratio as that of 40%, 30% & 30% and also since this figure of profit on a total sale consideration of less than Rs.5 crores which gives an abnormal profit percentage of 45% there is case for lower estimation of profit not going by the working as given in page 6 of the assessment order. This is more so because even the total consideration is shared in the same ratio and nowhere the total working of profit with its detailed cost break-ups are available in the seized documents. Since much of the cost had been incurred by the three partners separately at the time of purchase of the land, construction of the commercial complex and the other variable and fixed expenses which has gone into Page 4 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore different years, the cost sharing is also not indicated in the seized document.
It is also not clear as to whether the basic actual cost of the land, interest liability, fixed expenses, variable expenses and other incidental expenses have been allocated in working out the above figure. Hence, it is held that a reasonable profit is to be arrived at based on the seized materials, the appellant's statements and the Department's findings. Hence, an attempt is made to work out the gross consideration based on the seized materials on the basis of the presumptions as found out about the rate at which shops in different floors are sold.
Presumption 1: Seized material recorded in page 4 & 5 showed the total consideration of Rs.29,00,000/- and Rs.24,50,000/- for Shop No.9 and Shop No.8 in ground floor measuring 540 & 493 sq. ft areas (including black and white component). Hence, the total consideration received for 1033 sq. ft (540 + 493 sft) is Rs.53,50,000/- which works out to Rs.5180/sft.Presumption 2: First floor shop Nos.101 to 105
measuring 1556 sft (not 556 sft as mentioned by AO wrongly) is sold at Rs.56,00,000/- which works out to Rs.3600/sft.Presumption 3: Second floor shop Nos. 208 & 209
measuring 1290 sft (not 290 sft as mentioned by the AO wrongly) are sold at Rs.37,41,000/- which works out to Rs.2900/sft and Shop Nos.201 to 205 measuring 1556 sft (not 556 sft as mentioned by the AO wrongly) are sold for Rs.48,25,000/- which shows sale consideration of Rs.3100/sft. The average of Rs.2900/sft and Rs.3100/sft being Rs.3000/sft could be adopted for the rest of the shops i.e., shop Nos.206 & 207.
Presumption 4: The third floor Shop Nos. 306 to 309 (four shops) measuring 2116 sft was sold for a consideration of Rs.49,19,700/- which being a Page 5 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore corporate assessee has paid only the accounted money and has paid at the rate of Rs.2325/sft. Going by the decrease in value for the upper floors where the second floor rates are lower by Rs.600/sft (i.e., Rs.3600 minus Rs.3000), the maximum rate that can be adopted for the third floor is Rs.2400/sft which is less by Rs.600/sft than the second floor. Going by the total area of 14152 sft the total sale consideration works out as under:
Floor Sft. Rate Total Gr. Floor 3136 5180 1,62,44,480 I Floor 3672 3600 1,32,19,200 II Floor* 3672 3007 1,10,41,704 III Floor** 3672 2357 86,54,100 4 Floors 14152 3474 4,91,59,484 *(201 to 205) 1556 sft 3100 48,25,000 (208 & 209) 1290 sft 2900 37,41,000 (206 & 207 826 sft 3000 24,78,000 9 shops 3672 sft 3007 1,10,44,000 **(301 to 305) 1556 sft. 2400 37,34,400 (306 to 309) 2116 sft 2325 49,19,700 9 shops 3672 sft 2357 86,54,100
In view of the same, the gross sale proceeds are arrived at Rs.4,91,59,484/- as against the appellant's working of Rs.3,44,72,244/- which cannot be accepted as correct in the absence of proper books of accounts. Hence, there is a case for rejection of the appellant's claim both with regard to income and expenditure. The appellant's offer of Rs.90 lakhs income shows a net profit of 18.3% on a turnover of Rs.4,91,59,484/-. The AO's working of Rs.2,24,66,173/- works out to adoption of net profit of 45.7% on the total turnover. The appellant's contention that the property was purchased for much higher price than what was recorded in the books also is to be taken into account though there is no proof available in the Page 6 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore seized documents regarding the exact amount of money paid for the purchase of land.
Neither of the two could be accepted as correct since in the light of acceptance of huge sum of money as unaccounted component on the sale of shops, 18.3% net profit on the total sale consideration is too low a percentage. For the same reason, adoption of net profit of 45.7% on the total sale proceeds is also too high. In view of the same, it is held that 25% of the total turnover of Rs.4,91,59,484/- could be considered to be reasonable profit and the AO is directed to adopt the profit figure of Rs.1,22,89,871/- in place of Rs.2,24,66,173/- adopted by the AO."
6. Aggrieved, the assessee has come up before us with the present appeal. During the course of hearing, the learned AR submitted that the CIT (A) erred in estimating the net profit @ 25% as against 18.3% declared by the assessee. It was, further, submitted that the assessee had already offered higher income of Rs.90 lakhs in order to buy peace with the Department and to avoid protracted litigation even though the actual income as per the sworn statement of one of the partners was Rs.15 lakhs only. In the light of the above, it was pleaded that the profit arrived at by the assessee at Rs.90 lakhs requires to be restored. To strengthen his case, the learned AR had placed reliance in the findings of the earlier Bench of this Tribunal in the case of M/s. Classic Property v. DCIT in ITA Nos.964, 965 & 974/B/2011 dated 21.12.2012.
6.1. On the other hand, the learned D R supported the action of the authorities below on the issue. It was, further, submitted that the issue has since been deliberated upon by Page 7 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore the first appellate authority elaborately and arrived at a just reasonable and balanced conclusion; the same deserves to be sustained.
7. We have carefully considered the rival submissions, perused the relevant materials on record and also the documentary evidences produced by the learned AR in the shape of a paper book. Admittedly, there was an action u/s 132 of the Act in the business premises of one partners of the assessee wherein an incriminating document pertaining to the sale of commercial complex 'Pam Arcade' promoted by the assessee was unearthed. During the course of proceedings before the AO, admittedly, the assessee had neither filed P & L account nor the balance sheet. No books of account were produced for the AO's verification. The assessee had, however, admitted the income at Rs.90 lakhs as per the declaration made u/s 132(4) of the Act. As rightly pointed out by the AO, the assessee had not spelt out the basis of arriving at the income at Rs.90 lakhs which goes without saying that the assessee had presumably arrived at that figure only on estimation. More so, the assessee had admitted before the first appellate authority that there was change of hands of black money also in the sale proceeds of the said commercial complex. To put the record straight, we extract the assessee's submission before the CIT (A) as under:
"3.1.2...............................It is argued that as per page 4 and 5, it could be seen that the gross consideration received is shared between the partners Mr. Ameen, Mr. Pinto and Mr.Montero in the ratio of 40%, 30% & 30% and the same is done in respect of consideration received in black also...."Page 8 of 11
ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore 7.1 As rightly pointed out by the CIT (A), it could not be ascertained the actual cost of the land, interest liability, fixed expenses, other incidental expenses have been allocated in working out the figures arrived at by the assessee as well as the AO. Considering the factual issue involved in the case, the CIT (A), had arrived at the gross sale proceeds at Rs.4,91,59,484/- as against the assessee's working of Rs.3.44 crores which was not supported by proper books of accounts. Taking into account the assessee's offer of net profit at Rs.90 lakhs which works out to 18.3% on a turnover of Rs.4.91 crores considered to be too low and that of the AO's working of Rs.2,24,66,173/- which comes to a net profit at 45.7% appeared to be on the higher side, the CIT (A) took a plausible view of 25% of the total turnover of Rs.4.91 crores. The CIT (A) has worked out the net profits on the basis of seized materials in course of search as it evident from the presumption drawn at pages 8 and 9 of the impugned order of the CIT (A). This working of the CIT (A) has not been contradicted by the learned AR with any documentary evidence.
7.2. We have also perused the findings of the earlier Bench of this Tribunal in the case of M/s. Classic Property v. DCIT (supra) as canvassed by the learned AR in the assessee's favour. Briefly, in that assessee's case, there was a search operation and during the course of proceedings u/s 132(4) of the Act, in spite of incurring a loss of Rs.13.47 lakhs on the 'on going' project, to buy peace with the Department, the assessee volunteered to offer an additional income at 4% on Page 9 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore the turnover spread over proportionately in the AYs 2007-08 & 2008-09. The AO had, however, estimated the income of the assessee at 8% which has, however, been slashed to 6% by the CIT (A). On further appeal, the earlier Bench had restored the income of the assessee to 4% on the premise that neither the AO found any error in the assessee's declaration u/s 132(4) of the Act nor the CIT (A) brought any evidence on record to justify his estimation at 6%. However, in the present case, the assessee had admitted the receipt of consideration outside the books of account in the transaction [courtesy: CIT's order - Para 3.1.2]. Moreover, the assessee had volunteered to admit that it had not maintained the books properly. In the given circumstances, the CIT (A) had exceptionally examined the various aspects and finally found out a via media in arriving at a just conclusion. We are, therefore, of the view that the finding of the earlier Bench on which the assessee placed reliance is not applicable to the issue under consideration.
7.3 Taking all the facts and circumstances of the issue into consideration, we are of the considered view that the CIT (A) was justified in his stand which requires no interference of this Bench. It is ordered accordingly.
II. ITA No.1013/B/2011 - By the Revenue:
8. At the out-set, we would like to reiterate that the issue raised by the Revenue has already been dealt with in the assessee's appeal (supra) and the findings recorded therein are Page 10 of 11 ITA Nos.968 and 1013 of 2011 Pam Builders & Developers Mangalore hold good hereto. In substance, the Revenue's appeal is dismissed.
9. In the result: (i) the assessee's appeal is dismissed and (ii) the Revenue's appeal is dismissed.
Order pronounced in the Open Court on 30th August, 2013.
Sd/- Sd/-
(N. Barthvajasankar) (George George K)
Vice President Judicial Member
Bangalore, dated 30th August, 2013.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, ITAT, Bangalore
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Bangalore Benches, Bangalore
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