Unrecorded on-money receipts are taxed only to the extent of profit element, not the full gross amount.

In a block assessment involving alleged on-money received on flat bookings, the ITAT Ahmedabad held that the existence of unrecorded premium receipts justified rejection of the books for the block period, but not taxation of the entire gross receipts as undisclosed income. As no material showed that the full amount represented matching investment or expenditure in the assessee's hands, only the profit element embedded in the unrecorded receipts could be brought to tax. The Tribunal also noted that the assessee's disclosed net profit rate already covered the addition offered in the block return, so no further addition on account of on-money was sustainable and the extra addition was deleted.

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Issues: Whether the entire alleged on-money/premium received on booking of flats in the project could be assessed as undisclosed income for the block period, or only the net profit element thereon was taxable.

Analysis: The assessment was based on a seized paper indicating a higher booking rate than that recorded in the sale documents, along with search material and surrounding circumstances. The Tribunal accepted that the assessee had charged on-money/premium, and upheld rejection of the books for the block period. However, it held that the Department had not established that the entire alleged unaccounted receipts represented income in the hands of the assessee, since no material showed matching investment or expenditure of the full amount. On this footing, only the profit element embedded in the unrecorded receipts could be brought to tax, and the assessee's disclosed net profit rate was sufficient to cover the addition already offered in the block return.

Conclusion: The further addition of the alleged on-money as undisclosed income was not sustainable and was deleted.

Final Conclusion: The assessee succeeded because the Tribunal confined taxation to the profit element in the unrecorded receipts and held that no further block assessment addition was warranted.

Ratio Decidendi: In the absence of evidence that the entire unaccounted receipts constituted income, only the profit element embedded in such receipts can be assessed as undisclosed income.

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