Builder's unaccounted cash receipts confirmed as taxable income but profit estimation reduced from 50% to 45%

The ITAT Surat upheld additions for unaccounted income based on cash receipts noted in seized documents, rejecting the assessee's claim that cash was returned to original buyers without evidence. However, the Tribunal modified the profit estimation from 50% to 45% of gross cash receipts, considering the assessee's declared profit rate. The HC dismissed challenges to reassessment notice validity under section 148A, ruling that search cases are exempt from these provisions. The ITAT confirmed deletion of additions where the same amount would be taxed in different assessment years, preventing double taxation.

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ISSUES:

1. Whether the entire cash receipt of on-money/unaccounted income can be added as income or only the profit element thereof is taxable.
2. Whether the addition made by the Assessing Officer (AO) on account of unaccounted income should be restricted to a reasonable percentage of the gross cash receipts considering the existence of unaccounted expenses.
3. Whether the Assessing Officer erred in not allowing set-off of unaccounted cash expenses evidenced from seized documents against the on-money receipts.
4. Whether the Assessing Officer and Commissioner of Income-tax (Appeals) [CIT(A)] correctly rejected the assessee's claim to exclude certain cash receipts based on subsequent sale of plots to third parties without confirmation from original payers.
5. Whether the delay in filing the appeal beyond the prescribed period should be condoned for sufficient cause.
6. Whether the initiation of reassessment proceedings and issuance of notice under section 148 of the Income-tax Act, 1961 (the Act) was valid, specifically regarding compliance with the procedural requirements under sections 148 and 148A, including the requirement of providing minimum seven days' time to respond to show cause notice under section 148A(b).
7. Whether the CIT(A) erred in holding that provisions of section 148A of the Act do not apply in search and seizure cases initiated under section 132 of the Act post 01.04.2021.
8. Whether the additions made on account of unaccounted income in various assessment years are justified and to what extent they should be sustained or reduced.

RULINGS / HOLDINGS:

1. The Tribunal held that only the profit element of the on-money/unaccounted cash receipts is taxable and not the entire gross receipt, affirming the principle that "only the profit element of the receipt can be taxed and not the gross receipt."
2. The Tribunal found that the Assessing Officer erred in disallowing any expenses against the on-money receipts, as details of unaccounted cash expenses totaling over ? 28 crores were available in the seized documents, and therefore, the addition should be restricted to a reasonable estimate of net profit rather than the entire cash receipt.
3. The Tribunal confirmed the CIT(A)'s approach to estimate net profit at 50% of gross cash receipts but modified it to 45% as "just and reasonable" in the facts of the case, directing the AO to restrict the addition accordingly.
4. The Tribunal rejected the assessee's claim to exclude certain cash receipts based on subsequent sale of plots to third parties, holding that in absence of any supporting evidence or confirmation from original payers, and given that the cash transactions were recorded in seized papers signed by partners, such receipts must be included in income.
5. The Tribunal condoned the delay of 63 days in filing the appeal, holding that the reasons submitted constituted "sufficient cause" and the delay was neither intentional nor deliberate.
6. The Tribunal upheld the validity of reassessment proceedings and notice under section 148, holding that in search cases initiated post 01.04.2021, the AO is deemed to have information suggesting escaped income and that the proviso to section 148A excludes the applicability of the procedural requirements of section 148A, including the minimum seven days' time to reply to show cause notice under section 148A(b).
7. The Tribunal affirmed the CIT(A)'s finding that there is "no requirement to conduct enquiry and provide opportunity u/s 148A of the Act before issue of notice u/s 148 in cases covered u/s 132 of the Act" post 01.04.2021, as per the proviso to section 148A.
8. The Tribunal partly allowed the appeals of the assessee by directing the AO to restrict additions on account of on-money receipts to 45% of the gross cash receipt in the relevant assessment years and dismissed the revenue's appeals challenging the restriction.

RATIONALE:

1. The Tribunal applied the statutory framework of sections 147, 148, and 148A of the Income-tax Act, 1961, as amended w.e.f. 01.04.2021, which introduced procedural safeguards and specified conditions for reopening assessments, especially in search and seizure cases.
2. The Tribunal relied on the proviso to section 148A which excludes the applicability of the inquiry and opportunity provisions of section 148A in cases where search under section 132 has been initiated post 01.04.2021, thereby validating the issuance of notice under section 148 without prior enquiry or minimum seven days' notice to respond to show cause notice under section 148A(b).
3. The Tribunal followed judicial precedents establishing that in cases of unaccounted/on-money receipts in real estate development, only the profit element is taxable, recognizing that developers incur various unaccounted expenses for land procurement, approvals, and civil works, which must be allowed against gross unaccounted receipts.
4. The Tribunal emphasized that the estimation of net profit from on-money receipts is a factual determination and may vary case to case, and found that the assessee's own declared profit percentage and incriminating seized documents evidencing expenses justify restricting addition to 45% of gross cash receipts.
5. The Tribunal distinguished the present case from precedents cited by the assessee concerning procedural lapses in non-search reassessment proceedings, holding that those are not applicable where the proviso to section 148A applies.
6. The Tribunal noted the absence of any evidence or confirmation from original payers to substantiate the assessee's claim to exclude certain cash receipts, and that the seized documents signed by partners corroborate the inclusion of such receipts in income.
7. The Tribunal recognized the principle against double addition and accordingly allowed deletion of additions where the same receipts were added in other assessment years.

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