The Tax Publishers2020 TaxPub(DT) 1075 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 145(3)

After rejecting books of account entire on-money on sale of flats could not be treated as undisclosed income but estimated profit element embedded in said receipt would be added as such, as assessee declared net profit of 4.55% during the relevant year, net profit rate of 6% would, therefore, be justified to be estimated in assessee's case.

Accounting method - Rejection - Application of estimated net profit rate on on-money receipt in construction and development business -

Assessee was engaged in the business of construction of residential units. AO further observed that each cash payment was shown below Rs. 20,000 and vouchers were made, hence, books of account were not reliable, accordingly, same were rejected under section 145(3). Assessee-company also confessed to have received unrecorded receipts from the customers. The assessee had already claimed the expenses to the extent of Rs. 665 crores. In view of above discussion, the AO brought to tax, the unaccounted receipts of Rs. 4,72,02,368 and made addition to total income. CIT(A) observed that the receipts and expenses have been increased several times in comparison to those reflected in the audited books of account itself was sufficient reason for rejection of the books of account of the assessee. Therefore, the rejection of books of account by the AO, was upheld. CIT(A) further, held that the difference of Rs. 4,72,02,368 had been therefore, rightly added by the AO as unaccounted receipts. Held: Only profit element embedded in on-money receipts was required to be taxed and not the entire on-money receipts. CIT(A) was, therefore, not justified in cofirming the addition of entire on-money receipts amounting to Rs. 4,72,02,368. Therefore, only estimated net profit was required to be taxed. The assessee had shown net profit at 4.55%. Further, the High Court in the case of CIT v. Abhishek Corporation had upheld the net profit at 1.31% as declared by the assessee in that case. The net profit rate disclosed at 4.55% during the assessment year under consideration by the assessee in books of account and considering the facts that the project undertaken by the assessee comes under deduction of section 80-IB(10) hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking into account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on-money receipts of Rs. 4,72,02,368. Accordingly, the AO was directed to tax net profit @ 6% on total on-money receipts of Rs. 4,72,02, 368.

Followed:Dy. CIT v. Panna Corporation [Tax appeal No. 323 and 325 of 200, dated 16-6-2012 : (2012) 74 DTR 89 (guj) : 2012 TaxPub(DT) 3269 (guj-HC), Abhishek Corporation v. Dy. CIT (1999) 63 TTJ 651 (Ahd-Trib.) : 1999 TaxPub(DT) 751 (Ahd-Trib), Asstt. CIT v. Mansi Reality Pvt. Ltd. [ITA. No. 540/AHD/2016 Assessment Year 11-12 dated 13-12-2019, CIT v Abhishek Corporation [2000] 158 CTR 374 (Guj) : 2000 TaxPub(DT) 967 (Guj-HC), Asstt. CIT v. Mansi Reality Pvt. Ltd. [ITA. No. 540/AHD/2016 Assessment Year 11-12 dated 13-12-2019 and Abhishek Corporation v. Dy. CIT [1999] 63 TTJ 651 (Ahd-Trib) : 1999 TaxPub(DT) 751 (Ahd-Trib).

REFERRED : CIT v. President Industries (2002) 258 ITR 654 (Guj) : (2002) 124 Taxman 654 (Guj) : 2002 TaxPub(DT) 56 (Guj-HC), Jay Builders v. ACIT, (2014) 33 Taxmann.com 62 (Guj) : 2014 TaxPub(DT) 397 (Guj-HC), Kishor Telwala [1999] 64 TTJ 543 (Ahd-Trib) : 1999 TaxPub(DT) 831 (Ahd-Trib), CIT v. Ashland Corporation (1982) 133 ITR 55 (Guj) : 1982 TaxPub(DT) 625 (Guj-HC) and CIT v. Motilal C Patel & Company (1988) 173 ITR 666 (Guj) : 1988 TaxPub(DT) 1127 (Guj-HC) and Asstt. CIT v. Mansi Reality Pvt. Ltd. [ITA. No. 540/AHD/2016 assessment year 11-12 dated 13-12-2019.

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