Circumstantial evidence can establish unaccounted sale receipts and permit cost-plus valuation with a reasonable profit rate for taxation.

Circumstantial and seized documents showing disparities between recorded sale deed values, project cost estimates and higher quoted rates can, on the preponderance of probabilities, establish receipt of unaccounted 'on money' for property sales. Where on money is established, only the profit element embedded in such unaccounted receipts is taxable; a cost plus approach may be used to estimate fair market value and the taxable profit percentage should be fixed reasonably from case facts. The article illustrates adoption of a cost plus fair value and a reduced profit rate to recompute taxable income on on money.

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Issues: (i) Whether the seized documents and other material establish that unaccounted receipts (on-money) were received in respect of sales in project Seventy; (ii) If on-money is held to have been received, what fair market value/sale rate and profit percentage should be applied for estimating taxable income.

Issue (i): Whether the seized documents and related material justify a finding of receipt of on-money in the sale transactions.

Analysis: The Tribunal examined seven seized items (loose papers, WhatsApp chats and excel sheets) and compared documented sale deed values with rates appearing in seized material and project cost sheets. The material showed substantial variation in basic rates across similar units, instances where documented sale values were below estimated cost of construction, excel sheets and chats indicating higher quoted rates, and entries showing lower documented values for stamp duty-together constituting corroborative and circumstantial evidence. The Assessing Officer's higher average rate based strictly on seized rates was found excessive because those rates were subject to negotiation; however, the aggregate of seized material could not be treated as inert or "dumb" and supported inference of on-money by application of probabilities and surrounding circumstances.

Conclusion: The Court upheld the finding that on-money was received for sales in project Seventy and rejected the assessee's contention that seized material were entirely dumb documents; finding on-money established on preponderance of probabilities.

Issue (ii): Determination of appropriate sale rate/fair market value and the percentage of profit to be applied to on-money for computing taxable income.

Analysis: The Assessing Officer computed average sale rate at Rs.10,574 per sq. ft. from seized items; the CIT(A) reduced this to a flat Rs.7,000 per sq. ft. by applying a cost-plus approach (cost ~ Rs.6,000 psf plus margin). Tribunal found the AO's average based on non-final quoted rates excessive but accepted the CIT(A)'s cost-plus approach as a reasonable refinement to balance revenue and assessee positions. As to profit on the on-money, authorities establish that only the profit embedded in unaccounted receipts is taxable; the CIT(A) had applied 17% but the Tribunal, considering the ultra-luxury nature of the project and precedents, adjusted the profit rate to 15% to be applied on the on-money as recomputed by applying Rs.7,000 psf.

Conclusion: The Tribunal directed recomputation of on-money by comparing the estimated fair market value at Rs.7,000 per sq. ft. with registered sale deed values and directed that profit on the recomputed on-money be taken at 15%; the assessee's appeals were partly allowed on quantum and the Revenue's appeals were dismissed.

Final Conclusion: The Tribunal affirmed that circumstantial and seized materials can support a finding of on-money where documentation and cost comparisons indicate undervaluation; it refined the quantification by adopting a cost-plus based fair market value (Rs.7,000 psf) and fixed a 15% profit rate to compute taxable profit embedded in on-money, thus striking a judicial balance between revenue protection and reasonable estimation methods.

Ratio Decidendi: Where direct evidence of unaccounted receipts is absent, cumulative circumstantial and seized material may, on the preponderance of probabilities, establish receipt of on-money; only the profit element embedded in such unaccounted receipts is taxable and may be estimated reasonably by applying a cost-plus valuation and an appropriate profit percentage determined from the facts of the case.

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