On-money in real-estate sales is taxed only as profit element, with timing linked to recognised sale and accounting method.

On-money in real-estate transactions is treated as assessable only to the extent of the profit element embedded in the receipts, not as the entire gross amount. Where the assessee follows a bona fide and consistent project completion method, that income is taxed in the year the corresponding sale is recognised, rather than automatically in the year of search or receipt. Loose sheets and mobile-phone data, by themselves, do not satisfy the requirement of books of account for section 68, and section 115BBE's loss set-off restriction was stated to be inapplicable to the relevant years. Penalty under section 271D was said to fail without proof of actual cash receipt.

---

---

Issues: (i) Whether on-money received in real-estate transactions is taxable as the entire receipt or only as the profit element embedded therein; (ii) Whether such income is taxable in the year of receipt or in the year in which the corresponding sale is recognized under the assessee's method of accounting; (iii) Whether entries in loose sheets and data retrieved from mobile phones can be assessed under section 68; (iv) Whether the bar on set-off of losses under section 115BBE applies to the relevant assessment years; (v) Whether penalty under section 271D could be sustained in the absence of proof of actual cash receipt.

Issue (i): Whether on-money received in real-estate transactions is taxable as the entire receipt or only as the profit element embedded therein.

Analysis: The receipt of on-money in the course of construction and sale of flats or shops was treated as inseparable from the business of the assessee. The seized material and surrounding circumstances showed that unaccounted cash collections were accompanied by unaccounted cash expenses, indicating that the gross receipt itself was not income in full. The Court applied the settled principle that what can be brought to tax is the income component embedded in such receipts, and not the whole amount collected as on-money.

Conclusion: Only the profit element embedded in the on-money receipts is taxable, not the entire gross receipt.

Issue (ii): Whether such income is taxable in the year of receipt or in the year in which the corresponding sale is recognized under the assessee's method of accounting.

Analysis: The Court held that on-money receipts are inextricably linked with the underlying sale transaction and cannot be divorced from the assessee's regular method of accounting. Where the assessee follows a bona fide project completion method and that method is consistently employed and accepted, the income element embedded in the on-money has to be taxed in the year in which the corresponding sale is recorded or recognized, not mechanically in the year of search or receipt.

Conclusion: Taxability follows the corresponding year of accounting and recognition of the sale, subject to the assessee's regular method of accounting.

Issue (iii): Whether entries in loose sheets and data retrieved from mobile phones can be assessed under section 68.

Analysis: The Court held that loose sheets and mobile-phone data are not "books" maintained by the assessee for the purpose of section 68. Since the alleged on-money was found in documents and electronic data outside the regular books of account, the statutory precondition for invoking section 68 was absent. The receipts were, in substance, business receipts and not unexplained cash credits in the books.

Conclusion: Section 68 could not be invoked on the basis of loose sheets or mobile-phone data alone.

Issue (iv): Whether the bar on set-off of losses under section 115BBE applies to the relevant assessment years.

Analysis: The Court noted that the restriction on set-off of losses against income covered by section 68 and connected provisions was inserted prospectively with effect from 1 April 2017. For the assessment years in question, the amendment was not applicable. Independently, once the receipts were characterized as business receipts and not income under section 68, section 115BBE did not apply on that basis either.

Conclusion: The bar on set-off under section 115BBE did not apply to the relevant years.

Issue (v): Whether penalty under section 271D could be sustained in the absence of proof of actual cash receipt.

Analysis: The Court found that the alleged cash transaction was not proved by evidence, and the inference drawn merely from whatsapp messages and presumptions was insufficient. In the absence of corroborative material establishing actual receipt of cash, penalty for violation of section 269SS could not stand.

Conclusion: The penalty under section 271D was not sustainable.

Final Conclusion: The consolidated result favoured the assessees on the core questions of characterization and timing of on-money receipts, while the Revenue's appeals were largely rejected and a limited matter was restored for fresh verification in one set of facts.

Ratio Decidendi: In builder/developer cases, on-money linked to property sales is assessable only as the profit element embedded therein and in the year in which the corresponding sale is recognized under the assessee's bona fide and consistently followed method of accounting; loose sheets or mobile-phone notings by themselves do not attract section 68.

---