The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the addition of on-money received by the builder on sale of flats has to be determined based on evidence found during search & seizure operations.
The bench also clarified that such addition must be made in the year in which the project has been completed as the assessee- builder is following the Project completion method.
The assessee company, a builder, was subjected to search & seizure operations upon which applications for booking of flats were found. It was revealed that the assessee sold flats in its projects at rates of upto Rs 38000/- per sq. ft. while a lesser amount had been shown in its books. The assessee later admitted receipt of on-money from customers for sale of flats. Statements of various employees of the company were taken, including those of the managing director, who admitted receipt of on-money over and above registered value of properties.
Assessee admitted that out of the additional income of Rs 38.06 crores, 18.82 crores was on-money. Based on the same, the Assessing Officer made an addition.
On appeal, the CIT(A) sustained the Assessment order.
On further appeal, the Tribunal noted that there is no dispute with regard to the fact of receipt of on-money from sale of flats.
The assessee never disputed the fact of receipt of on money; however, disputed the manner in which the undisclosed income has been quantified. Therefore, we are of the considered view that the AO was incorrect in quantifying undisclosed income by adopting average rate and then applying such rate to all flats sold in the project without any evidence found as a result of search.
On-money receipt should be worked out on the basis of evidence found as a result of search;
While allowing relief to the assessee, the bench observed that “the AO was erred in quantifying undisclosed income by taking average rate of Rs.21,400 per sq.ft. and applying such rate to 21 flats without any evidence found as a result of search. Hence, direct the AO to restrict the quantification of undisclosed income to the extent of incriminating material found as a result of search. We further direct the AO to delete addition made towards on-money received from sale of flats in the assessment year and make addition in the year in which the project has been completed, since the assessee is following project completion method for recognition of revenue.”
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