Undisclosed on-money receipts in block assessment are taxable only as profit element, not gross project receipts.

In block assessment under Chapter XIV-B, undisclosed income from on-money sales cannot be assessed as gross receipts where the material shows deductible land, construction, and related costs. A seized paper and the assessee's admission supported an inference of unrecorded cash collections across the housing project, but the record also showed payments to earlier organisers and project expenses, and did not justify treating the alleged initial investment as unexplained. The proper approach was to estimate only the profit element from the unrecorded receipts, and that profit was already lower than the amount disclosed by the assessee, so addition of the entire sum was deleted.

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Issues: Whether, in block assessment proceedings, the entire on-money receipts from sale of flats in a housing project could be assessed as undisclosed income, or only the profit element after allowing deductions for land, construction, and related costs.

Analysis: A seized paper showed receipt of on-money in respect of one flat, and the assessee's admission established that cash was being collected in addition to recorded cheque receipts. On that basis, the pattern of unrecorded cash collections was inferred for the project as a whole. However, block assessment under Chapter XIV-B authorises taxation of undisclosed income, not gross undisclosed receipts. The assessee had brought material on record to show payments to earlier organisers, land cost, and construction cost, and the record did not support addition of alleged initial investment as unexplained. The proper approach was therefore to estimate only the probable profit from the unrecorded receipts, and even that profit was less than the amount already disclosed by the assessee.

Conclusion: The addition of the entire amount of Rs. 1,47,91,840 was unsustainable and was deleted; the issue was decided in favour of the assessee.

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