The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs. Rs. 5,98,24,000/- ruling that the Assessing Officer erred by assuming 8% of unsecured loans from non-members as net profit. The tribunal found the addition of 8% of the advance for taxation unjustified.
The assessee filed the income tax return on March 21, 2020, declaring a total income of Rs. Nil. The return was processed under Section 143(1)(a) of the Income Tax Act, 1961, by the Central Processing Centre (CPC) on July 13, 2020, which accepted the returned income.
A notice under Section 143(2) of the Income Tax Act, dated October 28, 2020, was issued. Additionally, notices under Section 142(1) of the Act were issued on February 19, 2021; March 1, 2021; August 19, 2021; August 26, 2021; and August 31, 2021. The assessee submitted the required explanations, which were verified by the Assessing Officer.
Get a Copy of Handbook To Income Tax Rules, Click here
The assessee, a Co-operative Housing Society registered under the Registration Act, did not report any income from activities for the year. However, the Assessing Officer observed certain plot development activities and requested details. The Assessing Officer noted that the assessee received an advance of Rs. 5, 98,24,000/- during the year from Khyati Finance, Khyati Realities Limited, and Nipur Ratanlal Shah. Assuming an 8% net profit margin, the Assessing Officer added Rs. 47,85,920/- to the income.
Mr. Tushar Hemani representing the assessee argued that the amount of Rs. 5, 98,24,000/- represented unsecured loans from non-members, used for immediate financial requirements, with no obligation to sell or allot plots. He contended that the Assessing Officer’s assumption of an 8% net profit from unsecured loans was incorrect. The assessee, not being engaged in real estate business, argued that the guidelines for real estate transactions were inapplicable. It was also noted that the unsecured loans were repaid in the immediate subsequent assessment year.
Get a Copy of Handbook To Income Tax Rules, Click here
Mr. Ramesh Kumar representing the revenue argued that the advance received was for plot development, and thus the Assessing Officer’s 8% net profit estimation was appropriate. He supported this with references to the Assessment Order and the CIT(A) order.
The bench, consisting of Suchithra Kamble, reviewed the case and noted that the assessee, a Co-operative Housing Society, had received advances from non-members. This fact was not disputed by the Revenue. The Society was not in the business of plot development, and the valid details provided by the assessee were disregarded by both the Assessing Officer and the CIT (A). The tribunal found the addition of 8% of the advance for taxation unjustified. Furthermore, the repayment of these loans in the subsequent year was reflected in the records. Consequently, the tribunal concluded that the additions made by the Assessing Officer and the CIT (A) were not justified and allowed the assessee’s appeal.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
