Income Tax Act, 1961 – Sections 132(4A) and 147 – Reopening of assessment – Addition of unaccounted income – Assessee is a company mainly engaged with completion of project – Assessee filed return of income for AY 2007-08 declaring total income at nil – AO completed assessment by accepting returned income – Pursuant to search and seizure conducted on Aerens group, AO reopened case of assessee under Section 147 of the Act and made addition on account of unexplained cash receipt – CIT(A) partly allowed appeal filed by Respondent/assessee – Whether CIT(A) has erred in allowing ground of assessee regarding addition on account of cash receipt against booking of space while directing AO to tax this amount as per Percentage Completion Method of revenue recognition – HELD – Assessee has denied alleged cash receipt by it from parties mentioned in xls sheet seized during course of search – AO made impugned addition relying only on provisions of Section 132(4A) of the Act by completely overlooking fact that presumption under said section is rebuttable – Where there is denial of such presumption, onus shifts to AO to make further investigation which has not been done – No attempt has been made by AO to examine parties to establish veracity of entries made in xls sheet when their complete addresses have been mentioned therein – Record of assessee needs to be examined as to either in its case Percentage Completion Method has been applied or assessment has been made on basis of Project Completion Method – Issue restored back to file of AO to carry out necessary investigation as to receipt of alleged cash by assessee and arrive at conclusion afresh in light of material gathered – Order of CIT(A) set aside – AO is directed to make reassessment afresh keeping in view of above directions – Appeal is allowed
2022-VIL-1639-ITAT-DEL
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: ‘A’ NEW DELHI
ITA No. 6303/Del/2015
Assessment Year: 2007-08
Date of Hearing: 02.12.2022
Date of Pronouncement: 20.12.2022
DCIT, CENTRAL CIRCLE18, NEW DELHI
Vs
M/s CELEBRATION CITY PROJECTS LTD
ITA No. 6332/Del/2015
Assessment Year: 2007-08
M/s CELEBRATION CITY PROJECTS LTD
Vs
DCIT, CENTRAL CIRCLE-18, NEW DELHI
Assessee by: None
Department by: Shri Kanav Bali, Sr. DR
BENCH
SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER
MS. ASTHA CHANDRA, JUDICIAL MEMBER
ORDER
PER ASTHA CHANDRA, JM:
The appeals by the Revenue as also by the assessee arise out of the order dated 29.09.2015 of the Ld. Commissioner of Income Tax (Appeals)–27, New Delhi (“CIT(A)”) pertaining to assessment year (“AY”) 2007-08.
2. The Revenue has taken the following grounds:
“1. That the Ld. CIT(A) has erred in not confirming the cash receipt of Rs.2,23,71,700/- against booking of flats in this year of receipt and in holding that all receipts will be subject to tax when the basic parameter of percentage of completion is fulfilled.
2. That the Ld. CIT(A) has erred in ruling that Percentage Completion Method is applicable on all receipts of the assessee without appreciating the fact that PCM cannot be applicable to the undisclosed cash receipts as the same has never been brought into the books.
3. That the Ld. CIT(A) has erred in allowing the ground of the assessee regarding addition of Rs.2,23,71,700/- on account of cash receipt against booking of space while directing the AO to tax this amount as per PCM method of revenue recognition and therefore, the decision of Ld. CIT(A) is self-contradictory.
4. That the CIT(A) has erred in ignoring the fact that the cash receipts under consideration were not entered anywhere in the books of account and that these unaccounted cash receipts being in the nature of undisclosed cash receipts should be taxed in the year in which it was received.
5. That the Ld. CIT(A) has erred in ignoring the fact that the addition was made by the AO based on the undisclosed cash receipts found during the course of search where as the Ld. CIT(A) has totally ignored this fact and based her findings only on the revenue undisclosed cash receipts has no correlation whatsoever with the Percentage Completion Method.
6. That the Ld. CIT(A) has erred in ignoring the fact that one investor of the same group i.e. Soomer family, mentioned in the Excel Data Sheet, in the case of Indirapuram Habitat Centre Pvt. Ltd. based on similar xls sheet had accepted the fact that he has paid undisclosed/out of books cash of Rs.6,64,00,000/- (in A.Y. 2005-06 pertaining to A.Y. 2006-07) for booking of space in the assessee company project and also paid taxes in the year of payment, which proves the authenticity of the seized document which was ignored by the CIT(A).
7. (a) The order of the Ld. CIT(Appeals) is erroneous and not tenable in law and on facts.
(b) The appellant craves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
3. The assessee’s grounds of appeal are as under:-
“1. That the said case in law and in the facts, on both, the learned CIT(A) has grossly erred in rejecting Grounds of the appellant’s appeal before him challenging the validity of the assessment order passed u/s. 147/143(3) of the Income-tax Act, 1961.
2. That the said case in law and in the facts, on both, the learned CIT(A) has grossly erred in rejecting Grounds of the appellant’s appeal before him and strategically confirmed the assessee has received Rs.2,23,71,700/- unaccounted money against Nehru Vikas Minar Project’. However as allowed to assessee for these receipt on percentage Competition method/Project Competition method, as per accounting standard-9 in the year when the assessee will be fulfilled the basic parameter of revenue recognition. Whereas, on which basis of details/documents addition had been made by Assessing officer, it was in itself a dump xls sheet.”
4. Briefly stated the facts of the case are that the assessee is a company mainly engaged with the completion of project, namely, Nehru Vikas Minar Projects. For AY 2007-08, the assessee filed original return of income on 31.10.2007 declaring total income at nil. Search under section 132 of the Income Tax Act, 1961 (the “Act”) was conducted on Aerens group on 17.08.2011. Further on 10.02.2012 search/survey was carried on certain investors who had invested in the projects of AEZ group which is part of Aerens group. During search at the corporate office at Bakshi House, Nehru Place, New Delhi, hard-disk was seized marked as Annexure A-27 containing Down Payment Booking xls details made by Asha Rani Lakhotia w/o R.N. Lakhotia; Sushila Lakhotia w/o Subhash Lakhotia, both residents of S228 GK-II, New Delhi and Mrs. Kamal Kapoor w/o Subhash Kapoor R/o A-47, Vishal Garden, New Delhi showing payment on 26.08.2006 through cheque aggregating Rs.1,95,00,000 and cash totaling to Rs. 2,23,71,700, in all Rs.4,18,71,700. The Ld. Assessing Officer (“AO”) obtained approval of the CIT- Central Circle II, New Delhi on 24.03.2014 under section 151 of the Act to reopen the case. Accordingly, notice under section 148 of the Act was issued on 24.03.2014 which according to Ld. AO was duly served. In response thereto, the assessee filed nil return. Notice under section 142(1) along with questionnaire was issued on 20.10.2014 which too was served.
5. During the assessment proceedings written and oral submissions were made. The Ld. AO confronted the assessee and vide show-cause-notice dated 30.01.2015 required the assessee to explain as to why cash receipt of Rs.2,23,71,000 be not treated as unaccounted income of the assessee and added back to its income.
6. In response thereto, the assessee submitted that xls sheet is not corroborative evidence in which amount mentioned is a hypothetical figure; it is undated and unsigned details. It is not taken to relevancy. xls sheet is just a dump document. The assessee company has no knowledge of such document.
7. The Ld. AO rejected the above contention of the assessee in view of the provisions of sub-section (4A) of section 132 of the Act and held that cash receipt of Rs.2,23,71,000 is nothing but unaccounted income of the company for its Nehru Vikas Minar Project and added the same to the income of the assessee in his order dated 18.03.2018 under section 143(3) read with section 147 of the Act.
8. Before the Ld. CIT(A), the assessee challenged the validity of notice under section 148 to reopen the assessment which, in para 4.2 of the appellate order the Ld. CIT(A) rejected by holding that the notice was issued under the law and act and no question arises on validity of notice. The assessee also questioned the validity of notice under section 148 on the ground that objection raised by the assessee had not been dealt with. This ground was also rejected by the Ld. CIT(A) observing in para 6 of the appellate order that the Ld. AO has disposed off assessee’s objections by a speaking order. Regarding cash receipt of Rs.2,23,71,700 against booking of spaces at Nehru Vikas Minar Projects not reflected in books of account and treating it as unaccounted income of the assessee, the Ld. CIT(A) in para 8 of the appellate order held as under:-
“8. I have considered the appellant’s contention, carefully gone through the order of the ACIT, Central Circle-18 and deliberated on the case laws referred by the AR of the appellant during the course of hearing before me. From the record we find that the said case the appellant is engaged in real estate business, in a real estate business for revenue recognition a guidance note has been issued by “The Institute of Chartered Accountants of the India” Where it is stated that:- The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate’s transferred to a degree usually associated with ownership.
I. At the time of transfer of all significant risks and rewards of ownership it is not unreasonable to expect ultimate collective and.
II. No significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate’s sales.
If, the assessee has adopted percentage competition method ‘PCM’ for recognizing revenue, it parameters of revenue recognition are as follows.
|
Work Completed Up to 25% Above 25% |
% of Profit Taken Nil as percentage completion |
Accounting Standard AS-9 (Guidance note on real estate developers) – The Guidance note lays dawn certain parameters that have to meet before the percentage completion method ‘PCM’ can be applied. These parameters are as follows.
i. Expenditure incurred on construction and development cost should be 25% or more of the ‘construction and development cost’ as defined and explained. Such costs basically mean direct costs and certain allocable indirect cost excluding the cost of land and borrowing costs.
ii. All critical approvals necessary for the commencement of the project has been obtained.
iii. At least 25% of the estimated project revenue should have been secured by contractors
iv. At least 10% of the total contracted revenue as per the agreement for sale or any other legally enforceable documents should have been raised.
The said case after the considering the fact prima facie it is clear that whatsoever amount has been received by the appellant against the projects. It will be income of the assessee when the risk and reward has been delivered to the buyer’s whereas the said case projects has been completed below than parameters of the “PCM”. Hence, the said case whatsoever amount has been received by the appellant doesn’t show the nature of income, it is mainly nature of advances and will be taxable when the basic parameter of PCM will be fulfilled. The AO is directed that revenue of the assessee will be recognized as method adopted by the assessee for revenue recognition. In the result the ground of the appeal is allowed.”
9. The Revenue as also the assessee are aggrieved. Both have come up in appeal before the Tribunal.
10. The hearing was last fixed for 25.08.2022 but none attended for the assessee. The Ld. Sr. DR was present. He was heard. The hearing was again fixed for 02.12.2022, but the assessee remained unrepresented. We, therefore, proceeded to decide the appeals, after hearing the Learned DR.
11. The Ld. DR submitted that the Percentage Completion Method (PCM) has wrongly been upheld by the Ld. CIT(A) in respect of undisclosed cash receipt which has never been brought into the books. He further submitted that the Ld. CIT(A) has completely ignored that in similar set of facts on the basis of identical seized documents from the same premises, Shri I.E. Soomar paid taxes on cash invested amounting to Rs. 6.64 crores.
12. We have given our careful consideration to the submission of the Ld. DR and perused the material on the records. It is observed that the company has denied the alleged cash receipt by it from the parties mentioned in xls sheet. The Ld. AO made the impugned addition relying only on the provisions of sub-section (4A) of section 132 of the Act completely overlooking the fact that the presumption under section 132(4A) of the Act is rebuttable and where there is denial of such presumption, onus shifts to the Ld. AO to make further investigation which has not been done. No attempt has been made by the Ld. AO to examine the said parties to establish the veracity of the entries made in the xls sheet when their complete addresses have been mentioned therein. Further, the records do not reveal that during re-assessment proceedings the assessee was confronted with the case of Shri I.E. Soomar in which on similar set of facts and circumstances, taxes have been paid on such cash investments. Record of the assessee needs to be examined as to whether in its case Percentage Completion Method (PCM) has been applied or assessment has been made on the basis of Project Completion Method. We are, therefore, of the view that it would be appropriate if the issue of the impugned addition is restored back to the file of the Ld. AO to carry out necessary investigation as to the receipt of the alleged cash by the assessee and arrive at the conclusion afresh in the light of the material gathered. Accordingly, we set aside the order of the Ld.CIT(A) on this issue and direct the Ld. AO to make reassessment afresh keeping in view the above directions
13. In the result, the appeal of the Revenue is treated as allowed for statistical purposes.
14. As regards, the appeal of the assessee, its ground no.1 relates to the validity of the reassessment. It is observed that the Ld. CIT(A) has held that the reopening of the assessment is valid in the eyes of law for the reasons recorded in this behalf. We agree and reject this ground.
15. Ground no. 2 relates to addition on account of alleged cash receipt against booking of spaces at Nehru Place Minar Projects of the assessee. In Revenue’s appeal, we have set aside the issue for fresh consideration and decision. Hence, this ground does not survive.
16. In the result, the appeal of the assessee is dismissed.
17. In the net result, appeal bearing ITA No. 6303/Del/2015 of the Revenue is allowed for statistical purposes and the appeal bearing ITA No.6332/Del/2015 of the assessee is dismissed.
Order pronounced in the open court on 20th December, 2022.
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