Karan Realty Pvt. Ltd, Ahmedabad V. The ITO, Ward-2(1)(2), Ahmedabad

ITA 2180/AHD/2018

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The case involves M/s Karan Realty Pvt. Ltd., which appealed against the orders of the Income Tax Officer and the Commissioner of Income Tax (Appeals) concerning the assessment for the year 2010-2011. The primary issues were the additions made to the assessee's income for undisclosed cash deposits and capital gains from the sale of property. The Tribunal found that the cash deposits were from previously withdrawn amounts and thus could not be treated as undisclosed income. However, it agreed with the AO's assessment of the income from the sale of property as business income, estimating a reasonable profit margin.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135812 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 23-08-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 24-10-2018
• Other Referred Cases: M/s Greenfield Reality Pvt Ltd in IT(SS) No. 289/Ahd/2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FORTHEASSESSEEBEFOREUSSUBMITTEDTHATHE
• Assessee Lawyers: SHRIMEHULK.PATEL

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’B’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRIT.RSENTHILKUMAR,JUDICIALMEMBER आयकरअपीलसं./ITANo.2180/AHD/2018 धििाधरणवरध / Asstt.Year:2010-2011 M/s.KaranRealtyPvt.Ltd., NiravComplex, Nr.NavrangHighSchool, Navrangpura, Ahmedabad. PAN:AAACK6178Q Vs. IncomeTaxOfficer, Ward-2(1)(2), Ahmedabad. (Applicant)(Respondent) Assesseeby:ShriMehulK.Patel,A.R Revenueby:Ms.SaumyaPandeyJain,Sr.D.R सुिवाईकीतारीख/DateofHearing:24/08/2023 घोरणाकीतारीख/DateofPronouncement:08/09/2023 आदेश/ORDER PERWASEEMAHMED,ACCOUNTANTMEMBER: ThecaptionedappealhasbeenfiledattheinstanceoftheAssesseeagainst theorderoftheLearnedCommissionerofIncometax(Appeals)-2,Ahmedabad, arisinginthematterofassessmentorderpassedunders.144r.w.s.147ofthe IncomeTaxAct,1961(here-in-afterreferredtoas"theAct")relevanttothe AssessmentYear2010-2011. ITAno.2180/AHD/2018 A.Y.2010-11 2 2.Theassesseehasraisedthefollowinggroundsofappeal: 1.ThelearnedITOaswellaslearnedCIT(A)haserredinlawandonfactswhilenotconsideringthat theappellantcompanyhasreceivednoneofthenoticesissuedbythelearnedA.O.,thesaidfacthas alsobeenmentionedbythelearnedA.O.intheassessmentorderitselfwhereinithasbeenstated thatthenoticeswerereturnedasnotknown.Accordingly,theorderpassedbythelearnedA.O.is unjustifiedandagainsttheprinciplesofnaturaljusticeandequitywhichwasnotconsideredbythe learnedCIT(A). II.ADDITIONONACCOUNTOFCASHDEPOSITINBANKACCOUNT-RS.16,19,500/-. 1.ThelearnedITOaswellaslearnedCIT(A)haserredinlawandonfactswhilenotconsideringthat thecompletebankstatementofBankofMaharashtrawasavailablewiththelearnedAO.andform thesameitcouldbeverywellverifiedthattherearealsocashwithdrawalsfromthesamebank accountandthesamearesufficienttomitigatethecashdeposited.However,eventhoughthesame detailswereavailableinrecordwiththelearnedA.O.,thelearnedA.O.overlookedthesameand rushedtomaketheaddition. 2.ThelearnedITOaswellaslearnedCIT(A)haserredinlawandonfactswhilenotconsideringthe variouscaselawssubmittedinthecourseofappellantproceedings. III.ADDITIONONACCOUNTOFCAPITALGAINS-Rs.1,63,13,039/-. 1.ThelearnedITOaswellaslearnedCIT{A)haserredinlawandonfactswhilenotconsidering howthelearnedA.O.hasincreasedthefiguresofadditionforsaleofimmovablepropertyfromthe ITDdatabasedetailsforRs.1,55,79,706/-toRs.1,63,13,039/-aspertheshowcausenoticeand alsonotnotedthatthecompanyalongwithothercompanieshasacquiredaslandinequalshareand theappellantcompanyalongwithotherco-ownercompanieshaveenteredintojointdevelopment agreementforthedevelopmentofthesaidpropertyItisalsotobenotedthattheappellant companyalongwiththeotherco-ownercompanieshasappointedtheprojectconsultantDESAI BUILDERSPVTLTD.andasperthetermsoftheagreementwiththeunderstandingthattheco- ownershallexecuteandimplementtheprojectonnoprofitnolossbasisandsurplusordeficitifany oncompletionoftheschemeshallbelongstotheprojectconsultantDesaiBuildersPvt.Ltd.only. 2.Thelearned(TOaswellaslearnedCIT(A)haserredinlawandonfactswhilenotconsideringthe variouscaselawssubmittedinthecourseofappellantproceedings. Theappellant,reservesitsrighttoadd,amend,alter,substituteormodifyalloranyofthegrounds statedhereinaboveasthefactsandcircumstancesofcasemayjustify. 3.Theassesseevidelaterdated19-08-2023hasalsoraisedtheadditional groundofappealwhichisreproducedasunder: That,withoutprejudicetothemaingroundthatnoincomeistaxableinthehandsoftheappellant, withoutprejudice,itoughttohavebeenheldthatthegrossamountofsalesproceedsof Rs.1,63,13,039/-isnottaxable,butonlyareasonableamountofGrossProfitoughttotaxedas businessincomeoftheappellant. 4.Theassesseeinthefirstgroundofappealchallengedthevalidityof assessmentorderpassedundersection144r.w.s.147oftheAct. ITAno.2180/AHD/2018 A.Y.2010-11 3 5.Attheoutset,thelearnedARfortheassesseebeforeussubmittedthathe wasdirectedbytheassesseenottopresstheissueraisedintheimpugnedground ofappealchallengingthevalidityoftheassessment.Hence,thegroundraisedby theassesseeisherebydismissedasnotpressed. 6.ThenextissueraisedbytheassesseeingroundNo.2isthatthelearned CIT(A)erredinconfirmingtheorderoftheAObysustainingtheadditionof₹ 16,19,500/-representingthecashdepositinthebankaccountasundisclosed income. 7.TheAOduringtheassessmentproceedingsfoundthattheassesseehas depositedcashinitsbankaccountamountingto₹16.19lakhs,thesourceofwhich wasnotexplained.Therefore,theAOtreatedthesameasundisclosedincomeand addedtothetotalincomeoftheassessee. 8.AggrievedassesseepreferredanappealtothelearnedCIT(A). 9.TheassesseebeforethelearnedCIT(A)submittedthattherewascash withdrawalfromthebankwhichhasbeenutilizedforthepurposeofthedeposits inthebank.Assuch,therewassufficientcashbalanceavailableinthehandsof theassesseewhichwaswithdrawnfromthebankbeforedepositingthesamein thebankaccount.Therefore,itwascontendedbytheassesseethatthesame cannotbetreatedasundisclosed/unexplainedincomeoftheassessee. 10.However,thelearnedCIT(A)disagreedwiththecontentionoftheassessee onthereasoningthattherewasnodocumentaryevidenceproducedbythe assesseesuggestingthatthecashdepositedinthebankaccountwasthesame whichwaswithdrawnfromthebankontheearlieroccasion.ThelearnedCIT(A) alsoobservedthattheassesseehasalsonotfiledthecashbookinsupportofhis contention.Thus,thelearnedCIT(A)confirmedtheorderoftheAO. ITAno.2180/AHD/2018 A.Y.2010-11 4 11.BeingaggrievedbytheorderofthelearnedCIT(A),theassesseeisin appealbeforeus. 12.ThelearnedARbeforeusfiledapaperbookrunningfrompages1to271 andrepeatedthecontentionsasmadebeforethelearnedCIT(A).ThelearnedAR hasalsofiledachartdemonstratingthecashwithdrawalfromthebankjustifying thecashdepositedinthebankaccountoftheassessee. 13.OnthecontrarythelearnedDRvehementlysupportedtheorderofthe authoritiesbelow. 14.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Undeniably,thelearnedCIT(A)inhisorderhas admittedthattherewasacashwithdrawalfromthebankbeforedepositingthe sameinthebankaccountoftheassessee.Noneoftheauthoritiesbelowhas pointedoutthatthecashwithdrawnfromthebankhasbeenutilizedbythe assesseeforanyotherpurpose.Intheabsenceofsuchfinding,aninferencecan bedrawnthatthecashwithdrawnfromthebankwasavailablewiththeassessee forthedepositinthebankaccount.Accordingly,weareoftheviewthatthecash depositedbytheassesseeinthebankaccountcannotbetreatedasunexplained /undisclosedincomeoftheassessee.Thus,wesetasidethefindingoflearned CIT(A)anddirecttheAOtodeletetheadditionmadebyhim.Hence,theground ofappealoftheassesseeisherebyallowed. 15.Thenextinterconnectedissueraisedbytheassesseeingroundnumber3 andadditionalgroundofappealisthatthelearnedCIT(A)erredinconfirmingthe additionmadebytheAOfor₹1,63,13,039/-asincomeundertheheadcapitalgain. ITAno.2180/AHD/2018 A.Y.2010-11 5 16.TheAOduringtheassessmentproceedingsfoundthattheassesseehas soldanimmovablepropertyforanamountof₹1,63,13,039/-only.However,the assesseeduringtheassessmentproceedingshasnotfiledanypieceofevidence aboutthesaleoftheproperty.Accordingly,theAOtreatedtheentireamountof ₹1,63,13,039/-asincomeundertheheadcapitalgainandaddedtothetotal incomeoftheassessee. 17.AggrievedassesseepreferredanappealtothelearnedCIT(A) 18.TheassesseebeforethelearnedCIT(A)submittedthatithaspurchasedthe propertyalongwith2otherco-ownersintheearlieryears.Theassesseealong withtheco-owners,byenteringajointdevelopmentagreementwith2otherco- owners,agreedtodevelopthepropertyunderthename“GalleriaTulip”.Itwas alsoagreedamongallthepartiesthatassesseeshallbesolelyresponsibletocarry outthedevelopmentactivityanditwillalsorecordallthecosttobeincurredfor suchdevelopmentoftheproject,oncetheprojectwillbedevelopedthenthe samewillbeallocatedamongallthepartiesinequalproportion.Likewise,the assesseeuntilthecompletionoftheprojectwillclassifydevelopmentcostas capitalworkinprogress. 19.Subsequently,theassesseealongwithco-ownersenteredintoan agreementwithaprojectconsultantnamelyDesaiBuildersPvtLtdvidedated07 th June1995whowasresponsibleforcollectingthebookingamountfromthe customers.Aftercollectingthebookingamountfromthecustomer,theconsultant wastoreimbursetheactualcosttoalltheco-owners.Accordingly,itwas submittedbytheassesseethatalltheco-ownerswereworkingonnoprofitand nolossbasis.Accordingly,itwassubmittedbytheassesseethatthequestionof havinganyprofitoutofsuchdevelopmentoftheprojectdoesnotarise. ITAno.2180/AHD/2018 A.Y.2010-11 6 20.Theassesseefurthersubmittedthatintheeventofanyprofitisattributed totheassesseethenthegrossamountcannotbemadesubjecttotheadditionin thehandsoftheassessee.Assuchitistheonlyelementofprofitembeddedin suchprojectcanonlybebroughttotax. 21.However,thelearnedCIT(A)observedthataspertheinformationavailable onrecord,theassesseeistheactualselleroftheimmovableproperty.Likewise, noprudentbusinessmanwilldeveloptheprojectonnoprofitandnolossbasis. ThelearnedCIT(A)furtherobservedthatitwastheonusupontheassesseeto furnishthecostofthepropertyalongwiththedevelopmentcost,buttheassessee failedtofurnishthesamewiththesupportingdocuments.Therefore,thelearned CIT(A)confirmedtheorderoftheAO. 22.BeingaggrievedbytheorderofthelearnedCIT(A),theassesseeisin appealbybeforeus. 23.ThelearnedARbeforeussubmittedthattheentireamountofsale considerationcannotbeaddedtothetotalincomeoftheassessee.Asperthe learnedAR,theamountreceivedbytheassesseefor₹1,63,13,039/-represents thebusinessreceipts.Therefore,atthemostonlytheprofitembeddedinsuch businessreceiptscanonlybeaddedtothetotalincomeoftheassessee. 24.Ontheotherhand,thelearnedDRvehementlysupportedtheorderofthe authoritiesbelow. 25.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Itisthesettledpositionoflawthatthegross amountdoesnotrepresenttheincomeoftheassessee.Inthepresentcase,there isasaleoftheimmovablepropertyfor₹1,63,13,039/-croresasevidentfromthe orderoftheauthoritiesbelow.Itisimpliedthattheassesseebeforesellingsuch propertymusthaveincurredthecostontheacquisitionofsuchproperty.Eventhe ITAno.2180/AHD/2018 A.Y.2010-11 7 assesseedoesn’tfurnishthedetailsofthepurchases,thatdoesnotmeanthatthe revenuegottheauthoritytomaketheadditionsofthegrossamountrepresenting thesaleconsideration.Theincometaxauthoritiesareempoweredundersection 131(1)/133(6)oftheActtocarryoutnecessaryenquiries.Inotherwords,the revenuecouldhaveeasilyobtainedtheinformationfromthepropertyofficeabout thecostincurredbytheassessee.Buttherevenuehasnotdoneso. 25.1Inadditiontotheabove,wealsonotethattheassesseehasdevelopedthe projectontheimpugnedlandwhichhasalsonotbeendisputedbytherevenue authorities.Thus,itcanbeinferredthattheassesseetodevelopsuchproject musthaveincurredthecost,withoutwhichitwasnotpossibletodevelopthe property.Theassesseehasalsoshowncapitalworkinprogressinitsbalance sheetconsistentlywhichalsoprovesthecontentionoftheassessee.Insuchfacts andcircumstances,weareoftheviewthatthegrossamountasobservedbythe authoritiesbelowcannotbemadesubjectmatterofadditioninthehandsofthe assessee. 26.Thenextcontroversyariseswhethertheincomeonthesaleofproperty shouldbemadesubjecttotheadditionundertheheadbusinessandprofessionor capitalgain.Fromtheconductoftheassessee,itisnoticedthattheassesseewas intheprocessofdevelopingtheprojectwhichispossibletocarryoutina systematicmanner.Thus,itisnotacasethattheassesseepurchasedthe propertyasaninvestmentwhichwassoldinthesubsequentyear.Assuchthe propertywassoldbytheassesseeaftercarryingoutthedevelopmentactivityon suchproject.Forthepurposeofbookingoftheunitsofthedevelopmentprojects, theassesseehasalsoappointedaconsultantnamelyDesaiBuildersPvtLtd.vide agreementdated7 th June1995.Thus,ifalltheseactivitiesareseencumulatively, itemergesthattheassesseewascarryingoutthebusinessactivities.Thus,the incomeinthegivencasehastobecalculatedundertheheadbusinessand profession. ITAno.2180/AHD/2018 A.Y.2010-11 8 26.1Thenextcontroversyariseshowtoestimatetheprofitonthesaleofthe projectdevelopedbytheassessee.Thereisnostandardformulatoestimatethe profitinthegivencaseandcircumstances.However,someelementofguesswork isrequiredtoestimatethereasonableprofitoftheassessee.Wehavealsoseen thefinancialstatementsoftheassesseewherehehasshowncapitalworkin progressyearafteryearstartingfromthefinancialyear2001-02to2008-09and capitalworkinprogressinthebalancesheetendingasin31 st March2009shown atRs.2,82,49,407/-only.However,inthegivencase,thesalepriceislessthan thecapitalworkingprogress. 26.2Bethatasitmaybe,wefindthatinvariousjudicialpronouncements involvingsimilarfactsandcircumstances,theprofithasbeenestimatedaround 10%onsuchissues.Inthisregard,wefindsupportandguidancefromtheorder thisTribunalincaseofM/sGreenfieldRealityPvtLtdinIT(SS)No.289/Ahd/2018 whereintheprofitwasestimatedtothetuneof8%ofgrossreceipt.Thus,weare oftheviewthatanestimationof10%of₹1,63,13,039/-wouldrenderjusticeto theassesseeandtherevenue.Accordingly,wesetasidethefindingofthelearned CIT-AanddirecttheAOtomaketheadditiontotheincomeoftheassesseefor ₹16,31,300/-undertheheadbusinessandprofession.Hence,thegroundof appealfiledbytheassesseeisherebypartlyallowed. 27.Intheresult,theappealfiledbytheassesseeispartlyallowed. OrderpronouncedintheCourton08/09/2023atAhmedabad. Sd/-Sd/- (T.RSENTHILKUMAR)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated08/09/2023 Manish