The ITO, Ward-6(3), Surat V. Shri Nareshkumar Chandmal Shah, Surat

ITA 2369/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5996 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 03-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KK SHAH
• Keywords: Income from undisclosed sources
• Section: 44AD; 69C; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A NO. 2369/AHD/2013 ( / ASSESSMENT YEAR : 2006-07) THE INCOME-TAX OFFICER WARD 6(3) ROOM NO. 616, AAYAKAR BHAVAN, MAJURA GATE, SURAT. / VS. SHRI NARESH KUMAR CHANDMAL SHAH, 2-SHRUSTI SOCIETY, SHATRI ROAD, BARDOLI, DIST. SURAT. ./ ./ PAN/GIR NO. : ACIPS 4970 M ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR.D.R. / RESPONDENT BY : SHRI K.K. SHAH, A.R. / DATE OF HEARING 26/10/2016 / DATE OF PRONOUNCEMENT 05/12/2016 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEAL), SURAT DATED 28/01/2013 FOR ASSESSMENT YEAR (AY) 2006-07 AND FOLLOWING GROUNDS HAVE BEEN TAKEN:- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS.39,24,800/- TO THE ASSESSEE OUT OF ADDITION OF RS.44,60,000 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED INCOME EARNED FROM SALE OF ROW HOUSES IN THE PROJECT OF MANAV ROW HOUSE. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING DEDUCTION IN RESPECT OF EXPENSES @ 88% OF SALE CONSIDERATION OF RS.49,19,345/-{(48,00,OOO X L00/88)- ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 2 - RS.5,35,200/-} IN CONTRAVENTION TO THE PROVISIONS OF SECTION 69C OF THE ACT. 2. THE FACTS OF THE CASE ARE - IN THE CASE OF ASSESSEE, A T.E.P. WAS RECEIVED BY THE ADIT(INV.)-III, SURAT. AFTER MAKING ENQUIRIES, A COPY OF THE REPORT WAS SENT BY THE ADIT TO THE OFFICE OF THE AO. AFTER CONSIDERING THE FINDINGS OF INVESTIGATION MADE BY THE ADIT, A SHOW CAUSE WAS ISSUED TO THE ASSESSEE AND FOLLOWING CONTENTS WERE MADE IN 'DURING THE PROCEEDINGS BEFORE THE ADIT(INV.)-III, SURAT, YOU HAVE ADMITTED THAT A PROJECT NAMELY 'MANAV ROW HOUSE' IS DEVELOPED BY YOU IN WHICH, 6 ROW HOUSES WERE SOLD AT RS.7,75,000/- TO RS.8,25,000/- DURING THE F.Y.2004-2005. HOWEVER, YOU HAVE CONTENDED DURING THE ASSESSMENT PROCEEDINGS FOR A.Y.2005-2006 THAT YOU HAVE SHOWN THE INCOME FROM SALE OF 8 PLOTS IN YOUR RETURN OF INCOME FILED FOR A.Y.2006-07 AND SUBMITTED THE COPIES OF SALE DEED OF SAID PLOTS. ON PERUSAL OF RETURN OF INCOME FILED FOR A.Y.2006-07, YOU HAVE SHOWN THE SALE OF PLOTS TOTALING TO RS.3,40,000/- ONLY AND NO INCOME FROM SALE OF ENTIRE ROW HOUSES HAS BEEN SHOWN BY YOU. YOU ARE THEREFORE, REQUESTED TO SHOW CAUSE AS TO WHY AVERAGE RATE OF EACH ROW HOUSES SHOULD NOT BE TAKEN AS RS. 8,00,000/- AND DIFFERENCE OF RS. 44,60,000/-(RS.48,00,000 - RS.3,40,000) SHOULD NOT BE TREATED AS YOUR UNDISCLOSED INCOME EARNED FROM THE SAID PROJECT FOR THE YEAR UNDER CONSIDERATION AND BE ADDED TO YOUR TOTAL INCOME, ' 2 . IN PERUSAL TO THE ABOVE NOTICE ASSESSEE/APPELLANT REPLIED THAT HE HAS SOLD 08 PLOTS OF MANAV ROW HOUSE AND EXECUTED SALE DEED FOR PLOT WITH EVERY PURCHASER. THE ASSESSEE HAS SOLD ALL THESE PLOTS IN F.Y.2005-06 I.E. A.Y.2006-07, FOR WHICH INCOME FROM THE SALE OF THESE PLOTS HAVE BEEN DULY OFFERED FOR INCOME TAX IN THE RETURN OF INCOME FILED FOR A.Y.2006-07. SUMMARY OF PLOTS SOLD IN F.Y.2005-06 I.E. A.Y.2006-07 HAS BEEN ATTACHED AND COPIES OF PROFIT & LOSS ACCOUNT SHOWING THIS INCOME AND ACKNOWLEDGMENT OF RETURN OF INCOME FILLED WERE ALREADY ATTACHED. ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 3 - 3. SO FAR OF INCOME PERTAINING TO CONSTRUCTION SUCH PLOTS ARE CONCERNED, THEY STATED THAT THEY HAVE ALREADY SHOWN THE CONSTRUCTION INCOME EARNED FROM MANAV ROW HOUSE PROJECT IN THEIR RETURN OF INCOME, AS AND WHEN IT IS RECEIVED. OUT OF TOTAL 08 PLOTS SOLD, THEY HAVE CONSTRUCTED 06 PLOTS AS PER THE CLIENTS' REQUIREMENT ON JOB WORK BASIS, WHERE MATERIALS HAVE BEEN SUPPLIED BY THE CLIENT AND THEY HAVE PROVIDED ONLY LABOUR SERVICE. 02(TWO) PLOTS OWNERS HAVE CONSTRUCTED HOUSE ON THEIR OWN. THEY HAVE OFFERED THIS JOB WORK INCOME U/S.44AD OF THE IT ACT AS AND WHEN THEY RECEIVED THE INCOME IN VARIOUS FINANCIAL YEAR AS PER THE TABLE GIVEN BELOW. IT IS EVIDENTLY FROM THE BELOW MENTIONED TABLE THAT THE CONSTRUCTION AMOUNT RECEIVED FROMTHE MANAV RAW HOUSE PROJECT HAS BEEN DULY OFFERED FOR TAX IN THE RELEVANT FINANCIAL YEAR. AN ASSESSEE HAS NOT RECEIVED THE TOTAL ALLEGED AMOUNT OF RS.48,00,000/- BUT RECEIVED RS.34,09,312/- DETAILED OF INCOME SHOWED PERTAINING TO PROJECT:- SR. NO. NATURE OF INCOME ASSESSMENT YEAR AMOUNT (RS.) 01. LAND SALE 2006-07 03,40,000 02. CONSTRUCTION INCOME 2006-07 10,00,000 03. --DO-- 2007-08 07,51,500 04. --DO-- 2008-09 13,71,812 TOTAL :- 34,09,312 ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 4 - 4. WITH REGARD TO THE STATEMENT GIVEN BEFORE ID.ADIT, ASSESSEE CLARIFIED THAT THE DETAILS AND FIGURES GIVEN AT THE TIME RECORDING STATEMENTS WERE APPROXIMATE AND NOT EXACT. AS THE ASSESSEE WAS LESS EDUCATED AND NOT HAVING PROPER ACCOUNTING KNOWLEDGE, IT WAS POSSIBLE THAT SOME VARIATIONS SEEN BETWEEN THE STATEMENT RECORDED AND ACTUAL FACTS AND DOCUMENTS PRODUCED. BUT ID.AO WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE AND MENTIONED THAT ASSESSE IS NOT A DEVELOPER OF MANAV PARK RAW HOUSE PROJECT AND ALL THE PLOTS OF THE SAID PROJECT WERE SOLD BY SOME OTHER PERSON AND ASSESSEE ACTED AS POWER OF ATTORNEY HOLDER ON BEHALF OF THE LAND OWNER AND THE DETAILS AND FIGURES GIVEN AT THE TIME OF RECORDING STATEMENT WERE APPROXIMATE AND NOT EXACT. AS THE ASSESSEE WAS LESS EDUCATED AND NOT HAVING PROPER ACCOUNTING KNOWLEDGE. BUT SAME CONTENTION WAS ALSO NOT ACCEPTABLE. AND ID.AO MADE THE FOLLOWING ADDITION:- TOTAL INCOME AS PER THE STATEMENT OF INCOME - RS. 1,92,058/- ADD: UNDISCLOSED INCOME AS DISCUSSED IN PARA NO. 6. RS. 44,60,000/- TOTAL ASSESSED INCOME - RS. 46,52,058/- ROUNDED OFF- RS. 46,52,060/- 5. AGAINST THE SAID ORDER ASSESSEE/APPELLANT PREFERRED A STATUTORY APPEAL BEFORE THE CIT(A). LD CIT(A) PARTLY ALLOWED THE APPEAL AND BY GIVEN FOLLOWING OBSERVATION THAT THIS IS ESTABLISHED BY THE FACT THAT CONSTRUCTED RAW HOUSES WERE SOLD BUT DOCUMENTS HAD BEEN EXECUTED FOR LAND PORTION ALONE AND NO ENTRY WOULD THEREFORE BE FOUND IN THE BANK ACCOUNT. THE CONCLUSION OF THE AO THAT THE PROJECT WAS DEVELOPED BY THE ASSESSEE AND ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 5 - INCOME ACCRUES TO HIM IS REQUIRED TO BE UPHELD AND HE FURTHER OBSERVED THE AO HAS ACCEPTED THE SALE AMOUNT OF RS.20,00,000/-. THIS INCLUDES THE LAND AS WELL AS CONSTRUCTION PRICE. IF THE INCOME OF RS.20,00,000/- IS ACCEPTED, IT WOULD AMOUNT TO 71.5% OF TURNOVER WHICH IN MY OPINION IS IMPOSSIBLE TO ACHIEVE. THE APPELLANT HAS ASKED FOR THE DETERMINATION OF INCOME AS PER SECTION 44AD AND HAS ALSO RELIED ON DECISIONS WHERE INCOME FROM DEVELOPMENT HAS BEEN CONSIDERED AT 8% TO 10%. THE INCOME OF THE APPELLANT CANNOT BE DETERMINED, OWNER OF THE PROJECT AND NOT JUST EXECUTING CIVIL CONTRACTS. IN HIS OPINION IT WAS REASONABLE TO ADOPT A PROFIT RATE OF 12% ON SALE PRICE. THE INCOME OF THE APPELLANT FROM RAW HOUSE PROJECT IS THEREFORE DETERMINED AT RS.3,36,000/- AND THE A.O. WAS DIRECTED TO CONSIDER THIS IN THE COMPUTATION OF INCOME. 6. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER AND ASSESSEE FILED A JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE MATTER OF COMMISSIONER OF INCOME TAX VS. ABHISHEK CORPORATION. IN THIS CASE HON'BLE HIGH COURT HAS HELD THAT IN THE CASE ASSESSEE WAS CHARGING 'ON MONEY' IN RESPECT OF BOOKING OF FLATS IN HARE KRISHNA APARTMENT AS IT IS APPARENT FROM THE SEIZED PAPER IN WHICH FLAT NO.301 HAVING TOTAL AREA OF 1,020 SQ.FT. WAS CLAIMED TO BE SOLD TO ONE SHRI SUNIL KUMAR M. KAPADIA WHEREIN THE TOTAL SALE CONSIDERATION WAS SHOWN AT RS.4,04,161/- OUT OF WHICH RS. 1,48,544/- WAS COLLECTED IN CHEQUE AND THE BALANCE OF RS.2,30,616/- COLLECTED IN CASH AND THE TRANSACTION WAS NOT DENIED BY THE ASSESSEE. ACCORDINGLY WE ARE OF THE OPINION THAT THE ASSESSEE IN FACT DID CHARGE 'ON MONEY' IN RELATION TO BOOKING/SALE OF FLATS. HOWEVER, THE ENTIRE RECEIPTS ON ACCOUNT OF ON MONEY' CHARGED BY THE ASSESSEE ON ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 6 - SALE/BOOKING OF FLATS CANNOT BE THE UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD BECAUSE WHAT CAN BE TAXED UNDER CHAPTER XIV-B IS UNDISCLOSED INCOME AND NOT THE UNDISCLOSED RECEIPTS, DURING THE COURSE OF HEARING BEFORE THE REVENUE AUTHORITY. ASSESSEE HAS BROUGHT EVIDENCE ON RECORD TO SUPPORT THAT HE HAD TO PAY A SUM OF RS.38 LAKHS TO THE ERSTWHILE ORGANIZER OF NTC AND FURTHER A AMOUNT OF RS.21.91 LAKHS FOR THE LAND TO VARIOUS PERSONS AND IT HAD ALSO TO SPEND A SUM OF RS.158 LAKHS ON THE COST OF CONSTRUCTION FOR WHICH NECESSARY DEDUCTION HAS TO BE ALLOWED. IN ANY CASE WHAT CAN BE TAXED IS THE PROFIT WHICH COULD HAVE BEEN EARNED BY THE ASSESSEE ON THE ALLEGED UNACCOUNTED RECEIPTS AMOUNTING TO RS. 1,32,91,840/- AND NOT THE ENTIRE AMOUNT. FURTHER, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT THE ASSESSEE IN FACT HAD MADE ANY INITIAL INVESTMENT OF RS.15 LAKHS AS ALLEGED. IN ANY CASE EVEN IF IT IS ASSUMED THAT THE ASSESSEE DID MAKE AN INITIAL INVESTMENT OF RS.15 LAKHS WHICH IS TO BE TAXED UNDER SECTION 69C THE CORRESPONDING DEDUCTION WILL HAVE TO BE ALLOWED U/S 37 OF THE ACT AS THE INVESTMENT WAS MADE IN ACQUISITION OF BUSINESS ASSETS AND AS SUCH THE AMOUNT SPENT, WAS FOR THE BUSINESS OF THE ASSESSEE. 7. IN RESPECT OF FLATS AND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MRS. MEHROO IV. IRANI IN ITA NO.LL40/BOM/89 HAS TAKEN THE VIEW THAT WHEN A PERSON IS FOUND TO HAVE BEEN ENGAGED IN BUILDING CONSTRUCTION ACTIVITY AND HAS RECEIVED UNACCOUNTED MONEY, WHAT IS REQUIRED TO BE TAXED IS NOT THE RECEIPT BUT ONLY 5 PER CENT OF THE RECEIPT WHICH IS TO BE TAKEN AS A NET PROFIT. AS AGAINST THE ABOVE DECISION THE ASSESSEE HAS HIMSELF OFFERED 8 ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 7 - PER CENT PROFIT ON THE TOTAL RECEIPTS WHICH SHOULD BE CONSIDERED FAIR AND REASONABLE. IN ANY CASE IT IS TO BE SEEN THAT AFTER THE EXHAUSTIVE SEARCH AND OBTAINING THE DISCLOSER OF RS.17 LAKHS THE SEARCH PARTY HAS BEEN ABLE TO FIND ANY UNACCOUNTED ASSETS EXCEPT THOSE WHICH HAVE BEEN REFERRED TO IN THE STATEMENT OF THE ASSESSEE AND A BROAD BREAKUP OF WHICH WAS GIVEN BY THE ASSESSEE IN HIS STATEMENT AGGREGATING TO RS.17 LAKHS. THESE ASSETS ARE BY WAY OF APPLICATION OF THE UNACCOUNTED INCOME WHICH HAVE BEEN EARNED BY THE ASSESSEE FROM HARE KRISHNA APARTMENT PROJECT, PART OF WHICH WAS REFLECTED ON THE PIECE OF PAPER FOUND DURING THE COURSE OF SEARCH AGAINST WHICH THE ASSESSEE HIMSELF HAS OFFERED A SUM OF RS.17 LAKHS AS HIS UNACCOUNTED INCOME. THUS, IT IS CLEAR THAT-THE ASSETS FOUND AT THE TIME OF SEARCH WERE THE APPLICATION OF THE UNACCOUNTED INCOME OF RS.17 LAKHS WHICH WAS OFFERED TO TAX BY THE ASSESSEE IN HIS RETURN FILED IN RESPONSE TO NOTICE UNDER SECTION 158BC. THUS, KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 1,47,91,840/- AS THE CONCEALED INCOME OF THE ASSESSEE BECAUSE THE PROFIT EARNED ON THE UNACCOUNTED RECEIPTS ON THE BASIS OF THE SPECIAL PROVISIONS AT 8 PER CENT AS PER SECTION 44AD OF THE ACT WILL BE LESS THAN THE AMOUNT OF RS.17 LAKHS DISCLOSED BY THE ASSESSEE AS UNDISCLOSED INCOME IN THE RETURN FILED IN RESPONSE TO NOTICE UNDER SECTION 158BC. ACCORDINGLY WE DO NOT FIND ANY JUSTIFICATION IN THE ACTION OF THE AO IN MAKING THE ADDITION OF RS. 1,47,91,840/- WHICH IS DIRECTED TO BE DELETED. ITA NO.2369AHD/2013 ITO VS. SHRI NARESH KUMAR CHANDMAL SHAH ASST.YEAR 2006-07 - 8 - 8. FOLLOWING THE ABOVE OBSERVATION OF THE HONBLE HIGH COURT AS WELL AS ITAT (MUMBAI) ORDER, WE DISMISS THE APPEAL OF THE DEPARTMENT. T HIS ORDER PRONOUNCED IN OPEN COURT ON 05 /12/2016 SD/- SD/- ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 05 /12/2016 PRITI YADAV / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONERNED CIT 4. ( ) / THE CIT(A)-I, SURAT 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDE / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY