Profit element in undisclosed on money: reduced estimate applied; taxable on sale deed execution; telescoping offset allowed.

Validity of reassessment under section 147/notice under section 148 was upheld on the basis of seized material, digital data, third party statements and authorised approval, so reopening stands. Where undisclosed 'on money' is proved, only the profit element is taxable and must be estimated on factual comparables; Tribunal fixed the estimate at 10% and directed recomputation. ICDS III was held inapplicable to the contractee and unaccounted profit is taxable in the year of sale deed execution. Telescoping was allowed by setting off confirmed unaccounted profit against alleged cash loans, and revenue appeals were dismissed accordingly.

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Issues: (i) Whether reassessment proceedings initiated under section 147/notice issued under section 148 of the Income-tax Act, 1961 were valid; (ii) Whether the element of profit in undisclosed 'on-money' receipts should be estimated at 16% (as held by CIT(A)) or at a different rate; (iii) Whether ICDS-III applies and whether the unaccounted profit must be taxed in the year of receipt of on-money or in the year of execution of sale deed; (iv) Whether the assessee is entitled to telescoping benefit against additions for alleged unaccounted cash loans (addition under section 69A read with section 115BBE).

Issue (i): Validity of reassessment initiated under section 147 by issuing notice under section 148.

Analysis: The assessing officer reopened assessments after search operations and relied on incriminating seized material, seized digital data and third party statements; approval under section 151 was obtained; amendments to section 148 providing deemed satisfaction for three years prior to search (post 01.04.2021) were applicable; the reassessment covered both searched party and third parties under the new scheme of search assessments.

Conclusion: The reassessment proceedings and notice under section 148 are valid and the ground challenging the reopening is dismissed.

Issue (ii): Appropriate rate for estimating profit element embedded in 'on-money' receipts.

Analysis: Authorities and precedents were examined including jurisdictional High Court and Tribunal decisions holding that only the profit element, not entire on money, is taxable; assessing officer had estimated 35%, CIT(A) reduced to 16% without adducing comparable basis; assessee's audited average profit was 7%; the Tribunal reasoned estimation must be based on facts, past results and comparable cases and adopted a rate nearer to truth taking into account expenditure funded from on money and business nature.

Conclusion: The Tribunal reduces the estimated profit on on money to 10% and directs the assessing officer to compute additions accordingly; appeals of the assessee are partly allowed on this issue and revenue appeals in respect of sustaining higher estimates are dismissed.

Issue (iii): Applicability of ICDS-III and year of taxation for unaccounted profit on on money (year of receipt vs year of execution of sale deed).

Analysis: ICDS-III (Income Computation and Disclosure Standard III) applies to contractors using percentage of completion method; the assessee is a contractee (developer employing contractors) and has consistently followed project completion / percentage of completion recognition, and judicial precedents including Supreme Court and jurisdictional High Court support recognition of income on execution/registration of sale deed when risk and rewards transfer; hence ICDS-III not applicable to contractee and unaccounted profit should be taxed in year of sale deed execution.

Conclusion: ICDS-III does not apply to the assessee; unaccounted profit on on money is taxable in the year of execution/registration of sale deed; revenue grounds seeking taxation in year of receipt are dismissed.

Issue (iv): Entitlement to telescoping benefit against addition of Rs. 97,30,000 made for alleged cash loans (section 69A r.w.s.115BBE).

Analysis: The assessing officer made addition for alleged cash loans based on seized loose papers; CIT(A) found confirmed unaccounted profit (even after re estimation) exceeded the alleged cash advances and applied telescoping principle by setting off estimated confirmed unaccounted profit against the alleged loans; relevant precedent supports telescoping where additions relate to same source and confirmed/unaccounted profit covers the impugned advances.

Conclusion: The Tribunal upholds deletion by CIT(A) and dismisses the revenue's ground; telescoping benefit is allowed in favour of the assessee on the facts.

Final Conclusion: The Tribunal upholds the validity of reopening under section 147/148, allows the assessee's appeals partly by directing estimation of profit on on money at 10% and holding that unaccounted profit is taxable on execution of sale deeds, allows telescoping against alleged cash loans, and dismisses all cross appeals by the revenue; overall the decision is partly in favour of the assessee.

Ratio Decidendi: Where undisclosed 'on money' receipts are established from seized material, only the profit element (not entire receipts) may be estimated for taxation; such estimation must be factually grounded and approximately nearer to truth, and where a taxpayer is a contractee (not a contractor) ICDS III does not apply and unaccounted profit is taxable in the year of execution/registration of sale deed when significant risks and rewards transfer.

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