V/Sm/S Arth Housing Development Pvt. Ltd v. Kotwal, Jj.date: 15[Th] April, 2019

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL(IT) NO. 166 OF 2017WITH WITH INCOME TAX APPEAL(IT) NO. 226 OF 2017WITH INCOME TAX APPEAL(IT) NO. 240 OF 2017WITH INCOME TAX APPEAL(IT) NO. 244 OF 2017WITH INCOME TAX APPEAL(IT) NO. 245 OF 2017WITH INCOME TAX APPEAL(IT) NO. 346 OF 2017 Pr. Commissioner Of Income Tax, Central – 2 ...Appellants V/SM/s Arth Housing Development Pvt. Ltd.....Respondent ….... Mr.Suresh Kumar, Advocate for Appellant.Mr.Suresh Kumar, Advocate for Appellant. Ms.Aatifa Khan i/b. Niraj Punmiya, Advocate for Respondent.Ms.Aatifa Khan i/b. Niraj Punmiya, Advocate for Respondent. CORAM : AKIL KURESHI &SARANG V. KOTWAL, JJ.DATE: 15[th] APRIL, 2019. P.C. : 1. In these Appeals following common question arises; “Whether on the facts and in the circumstances of thecase and in Law the Hon'ble ITAT was justified in holding 2 / 6 09-ITXA-166-17-&-Ors.odtthat the year of taxability of the undisclosed receipts isnot the year of receipt but as per returns filed by theassessee u/s 153A of the I T Act, 1961?” 2. The Respondent-Assessee was engaged in developmentof real estate. Assessee was subjected to search in seizure action.During search assessee admitted certain undisclosed income andalso filed the return of income pursuant to the search. In thereturns the assessee also disclosed the same amount of income,but shifted the year of earning such income as per its method ofaccounting and also claimed expenditure in relation to suchadditional receipts. The Assessing Officer and CIT (Appeals)objected to such method, upon which the issue eventuallyreached the tribunal. The tribunal in the impugned judgmentruled in favour of the assessee making following observations; “7. We have carefully considered the rival submissions. Theshort point involved before us relates to the year oftaxability of the undisclosed receipts of business foundduring the course of search. Section-4 of the Actprescribes charge of income tax on the total income of theprevious year of an assessee and section-5 of the Actshort point involved before us relates to the year oftaxability of the undisclosed receipts of business foundduring the course of search. Section-4 of the Actprescribes charge of income tax on the total income of theprevious year of an assessee and section-5 of the Act 3 / 6 09-ITXA-166-17-&-Ors.odt postulates the scope of such total income. Notably, theincome chargeable under the head 'profits and gains ofbusiness or profession' is liable to be computed inaccordance with method of accounting prescribed undersection 145 of the Act. Therefore, the income chargeableto tax for any particular assessment year under the head'profits and gains of business or profession' is computedas per the methodology of accounting prescribed insection 145 of the Act. In the present case assesseecompany is engaged in the business of development ofreal estate properties and is declaring income from suchbusiness on the basis of a particular methodology, whichhas been accepted in the course of regular assessments.The assessee company declares profit based on certainpercentage (6 or 7%) of the expenses incurred on aproject during the year plus balance profit of the projectwhich is completed during year, which is computed bymatching the sales/revenues with the costs incurred.Thus, the profit declared by the assessee under the head'profits and gains of business or profession' is acombination of a percentage of expenses incurred on theon-going projects plus the balance of the profit of projectscompleted during particular year. The methodology ofaccounting is not disputed by the Revenue. So however,the dispute relates to assessing of income in relation to such undisclosed receipts of business, which were foundin the course of search and were not declared in theregular books of account. Notably, in so far as the natureof such unrecorded receipts is concerned, there is nodispute between the assessee and the Revenue. Both sidesagree that the undisclosed receipts found during thecourse of search are a part and parcel of the business ofthe assessee of developing real estate properties. In thisfactual background, in our view, the same methodologyought to be adopted to assess income embedded in suchundisclosed receipts, as has been accepted by the Revenuein the regular assessments. No doubt, at the time ofsearch assessee offered income from such undisclosedreceipts in the respective years of receipt, which was adeparture from the regular methodology of computing,income accepted by the Revenue. Notwithstanding theaforesaid, in the returns of income filed in response tothe notices issued under section 153A of the Act for thecaptioned assessment years, the assessee-companydeclared income from such undisclosed receipts as per theregular methodology accepted by the Revenue in theregular assessments. The stand of the Assessing Officer, inour view, leads to an inherent contradiction in the finalassessment because the resultant income would be a mixof two methodologies. Firstly, the resultant income 5 / 6 09-ITXA-166-17-&-Ors.odt contains income from business computed on the basis ofregular methodology and secondly, income in relation toundisclosed receipts of the same business, which isassessed on receipt basis. To obviate such inherentcontradiction, in our view, assessee-company had rightlyasserted at the time of filing of returns of income undersection 153A of the Act that the income from undisclosedreceipts be also computed as per the regular methodologyaccepted by the Revenue in the past. Therefore, on thisaspect we uphold the plea of the assessee. ” 3. According to tribunal’s observations, thus it can beseen that the view of Assessing Officer would lead tocontradictions, since the assessee’s income would be based ontwo different methodologies. First would be income arising outof computation on the basis of regular methodology and thesecond would be in relation to the income on receipt basis. Thetribunal therefore accepted that the declaration of the assesseein the returns filed post search, to avoid such contradictions theincome had to be recognized as per the assessee’s regularmethodology. No question of law therefore arises. 6 / 6 09-ITXA-166-17-&-Ors.odt 4. We notice that in some of the Appeals, two additional questions arise which are with respect to the deletion of the protective assessment since substantive assessment wasconfirmed and the benefit of telescoping granted by the CITAppeals which was confirmed by the tribunal. Both issues arebased entirely on facts. No question of law arises. 5. In the result the Income Tax Appeals are dismissed. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)