TaxTMI 
TaxTMI 
2025 (4) TMI 468
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....sessment years, the primary issues are identical except for the assessment years and quantum. Therefore, all these appeals were heard together. For the sake of convenience, we proceed to dispose of all these appeals of the Assessee and the Revenue by this consolidated order. Facts of the case: 3. The assessee is an individual and a resident of India. He is a key person in the Sankalp Group of Concerns, engaged in the hospitality and real estate sectors. The businesses managed include Restaurants under brands such as Sankalp, Sam's Pizza, and Saffron, Hotels under the names Ramada and Taj Skyline, Real estate projects in Ahmedabad. A search under Section 132 of the Act, was conducted on 30.10.2018 in the case of the Sankalp Group of Ahmedabad, covering entities related to Kailash Goenka Group and Robin Goenka Group. Incriminating materials, including handwritten diaries, loose papers, unrecorded bills, and other documents, were seized during the operation. During the course of search evidence of on-money transactions in real estate projects, unaccounted cash sales in the restaurant and hotel businesses were found which were not recorded in the books of accounts. Unexplaine....
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....t dealing with the appeal of the said A.Y. 3.3. Notices under Section 153A of the Act were issued, requiring the assessee to file returns for multiple years. Accordingly, the assessee filed returns of income, and the assessments were completed by the AO. The Summary of return filed, additions made and income assessed is given below: Sr Particulars A.Y. 2016-17 A.Y. 2017-18 A.Y. 2018-19 A.Y. 2019-20 1 Total Income as per original return of income 1,90,62,210 85,85,650 1,71,38,860 1,78,02,440 2 Date of filing Original Return of Income 30-Sep-2016 17-Oct-2017 28-Sep-2018 30-Sep-2019 3 Total Income as per return of income filed in response to notice u/s 153A 1,90,62,210 85,85,650 1,71,38,860 NA 4 Additions on account of - A - Unaccounted cash receipts in respect of internal circulation of funds 12,83,92,220 13,33,20,000 49,03,02,650 31,62,65,320 b - Personal Expenditure 1,35,03,507 75,80,255 60,61,749 30,95,708 c - Unaccounted cash expenses in respect of A-902, Silver Harmony 4,80,000 NIL 12,27,604 24,66,410 d ....
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.... receipts as income, without considering the related expenses or fund circulation. The CIT(A) deleted fund circulations within the group entities to avoid double taxation and applied a 30% profit rate on unexplained cash receipts instead of taxing the gross amount. These amounts also included unaccounted franchise fees and royalty income related to hospitality businesses which were identified as part of unaccounted receipts and taxed only the profit element embedded in these transactions along with other unaccounted receipts. • Personal Expenditure: Such transactions include Purchase of Gold, Home Renovations and other miscellaneous expenses. The CIT(A) concluded that these expenditures were funded from unaccounted income already taxed during assessments and deleted additions to avoid double taxation. 5. Aggrieved by the order of CIT(A), both assessee and revenue are in appeals with following grounds of appeal(s): I. Grounds of Appeal in IT(SS)A No.1/Ahd/2023 for AY 2016-17 (Assessee's appeal): "1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in viola....
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....payments found during the search proceedings. 4. The learned CIT(A) has erred in law and on facts of the case in confirming addition of Rs. 1,67,91,000/- by estimating profit margin at the rate of 30% of the gross receipts. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act. 7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal." III. Grounds of Appeal in IT(SS....
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....rial found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in not accepting the peak balance theory with respect to alleged unexplained receipts and payments found during the search proceedings. 4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 54,19,596/- by estimating profit margin at the rate of 30% of the gross receipts. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. The learned CIT(A) has erred in law and on facts of the case in not granting the indexation benefit up to the year of transfer of the underlying properties (Land atShilpgram and Land at Khoraj) while computing long term capital gain. 6. The learned CIT(A) has erred in law and on facts of the case in not accepting the contention of the appellant that the amount of Rs. 1,00,00,000 received from Mr. Pawan Jalan was part of internal circulation and therefore, not unexplained receipt at all. 7. Alternatively and without prejudice, such a sum of Rs. 1,00,00,000/- ought to have been treated as gross r....
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....xpenses towards personal expenditure of Rs. 1,35,03,507/ -. 6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unaccounted cash expenses in respect of A- 902 Silver Harmony of Rs. 4,80,000/ -. 7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unaccounted investment in respect of Khoraj and Shilpgram of Rs. 3,38,050/ -. 8. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in calculating capital gain after providing benefit of indexation to the assessee as on the unaccounted on-money payments to the seller for acquiring the plots, Shilpgram, Jaspur 651 and Khoraj Survey 381/1 and received on-money on sale of said plots. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 10. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent." VI. Grounds of Appeal in IT(SS)A No.6/Ahd/2023 for AY 2017-18 (Revenue's appeal): "1. In the facts a....
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.... Grounds of Appeal in IT(SS)A No.7/Ahd/2023 for AY 2018-19 (Revenue's appeal): "1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 49,03,02,650/- made on account of cash receipts in respect of internal circulation of funds, holding that the said amounts has merely changed hands within the group persons and the same have already tax in the hands of respective entities, without appreciating the fact that during the course of assessment proceedings the assessee has failed furnish the cash flow statement and also several entries are not pertained to group entities, but outside parties. 2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) in deleting the addition towards unaccounted receipts of Rs. 10,76,74,115/- out of total addition of Rs. 14,27,67,410/ -. 3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash payments (expenses) u/s 69C of Rs. 14,46,47,732/- after giving set off of unaccounted income in the form cash receipts. 4. In the facts and on the circumstances of the cas....
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..... 1,84,11,000/ -. 3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash payments (expenses) u/s 69C of Rs. 1,94,62,000/- after giving set off of unaccounted income in the form cash receipts 4 In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained expenses towards internal circulation under payments (unexplained expenses) of Rs. 4,68,00,000/- after giving set off of unaccounted income in the form cash receipts. 5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained expenses towards personal expenditure of Rs. 30,95,708/- 6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 24,66,410/- on account of cash investment in A-902, Silver Harmony 7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of cash investment of Rs. 6,02,000/- in Khoraj and Shilpgram. 8. In the facts and on the circumstances of th....
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.... were part of the flat's purchase consideration and not for improvements, as claimed by the assessee. The AO emphasized that the taxability of unaccounted payments arises in the years when such receipts/payments occur, irrespective of the accounting method adopted by the assessee. The AO acknowledged that the capital gain from the sale of the flat had been offered for taxation in AY 2020-21. However, the unaccounted payments related to its purchase were treated as separate and unexplained. 10. Before the CIT(A), the assessee contended that the unaccounted receipts pertain to the transfer of capital assets and, therefore, should be taxed under the head "Capital Gains" in the year of transfer only. The assessee further claimed that the unaccounted expenses have been sourced from the same receipts and thus no separate addition under Section 69C is warranted. The CIT(A) concluded that the unaccounted cash receipts sufficiently explain the unaccounted expenses incurred by the assessee and no separate addition under Section 69C is required for unexplained expenses, as the remaining portion of receipts is deemed to cover such expenses. The CIT(A) emphasized that taxation must be li....
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....eceipts and unaccounted expenses and the payments were neither supported by any documentary evidence, nor was there any proof to demonstrate that the expenses were incurred out of unaccounted receipts. The Authorised Representative (AR), on the other hand, relied on the order of CIT(A) and stated that the CIT(A) has rightly followed the settled law that only real income can be taxed in the hands of assessee out of the given set of transactions. 12. Relating to ground No.5 of the ITA/19/ Ahd/2023, the AR contended that while the CIT(A) rightly held that only capital gains can be taxed, restricting the benefit of indexation to the year of receipt of sale proceeds is erroneous. Instead, the benefit of indexation must be granted up to the year of transfer of the asset as per section 48 of the Act. 13. Considering the rival contentions of the parties, the material on record, and the findings of the lower authorities, it is evident that the core issues revolve around the computation of taxable capital gains arising from the sale of properties, the applicability of indexation benefits under Section 48 of the Act, and the taxability of unaccounted receipts and expenses. While the CIT....
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.... unaccounted receipts from the sale of properties are subjected to taxation as part of the capital gains computation, the related unaccounted expenditures stand explained and cannot be taxed separately as unexplained expenses. Accordingly, no further addition under Section 69C is warranted. This ensures that only the net real income is taxed, in line with the statutory provisions and the principles of equity and justice. 13.2. On the specific issue of indexation benefit, we agree with the assessee's contention that once the capital gains arising from the transfer of the asset are accepted, its computational mechanism, including the benefit of indexation, must also be adopted in accordance with Section 48 of the Act. Clause (iii) of the Explanation to Section 48 clearly defines "indexed cost of improvement" to include indexation up to the year in which the asset is transferred, irrespective of the timing of the receipt of sale proceeds or the incurrence of expenditure. By restricting the benefit of indexation to the year of receipt of sale proceeds, the CIT(A) failed to adhere to the statutory provisions governing the computation of long-term capital gains. Therefore, we allo....
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.... AO concluded that these cash receipts represented unaccounted and undisclosed income of the assessee, as the source of the cash remained unexplained. The AO added these receipts in income of respective assessment years as undisclosed income for the year under consideration and taxed it under Section 115BBE without allowing deductions. 15.2. The AO also observed that the seized records detailed substantial unaccounted cash payments made to various external parties. These payments were not reflected in the regular books of accounts and were claimed by the assessee to represent internal circulation of funds within the group. The AO rejected the claim of internal circulation, pointing out that the recipients of these payments were outsiders and not part of the assessee's group entities. The AO concluded that these were unexplained cash outflows and invoked Section 69C (Unexplained Expenditure), deeming the payments as the assessee's income since no satisfactory explanation was provided for their source. 15.3. The CIT(A)'s order focuses on determining the taxability of unexplained receipts and payments found in the seized material. The issue revolved around whether th....
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....xplained cash receipts 4,55,45,680 7,80,53,809 14,27,67,410 1,84,11,000 Unaccounted Unexplained cash payments 4,64,61,650 7,45,07,478 14,46,47,732 1,94,62,000 15.7. The AO noted that the transactions in the seized diaries included both cash receipts and cash payments. The unaccounted receipts pertain to various sources such as real estate sales, franchise fees, royalty, and hospitality- related income. The payments were primarily towards operational expenses, repayment of advances, and investments, but remained unrecorded in the books. The AO rejected the assessee's claim for peak credit by citing that the peak theory can be applied only if the unaccounted cash transactions form a continuous cycle of inflow and outflow. In this case, the assessee failed to establish any link between receipts and payments. The AO also concluded that the assessee did not furnish complete details, such as the source of cash received and details of counterparties. 16. The CIT(A) applied the principle of taxing only the net income from the unaccounted transactions and recognized that many receipts were offset by corresponding payments. The CIT(A) observed that the tr....
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....he DR relied heavily on the findings of the AO and argued that there was no discernible nexus between the unaccounted receipts and payments as noted in the seized diaries and documents. The DR contended that the assessee had failed to provide crucial details or confirmations from the persons whose names appeared in the diary entries, such as Mr. Jigar Mandaviya and Mr. Pawan Jalan, among others. The absence of such confirmations, according to the DR, was a significant shortfall in the assessee's case. The DR further asserted that the CIT(A) failed to address the AO's concerns regarding the absence of supporting evidence for the transactions and accepted the bifurcation of internal circulation of funds without any corroborative material. The DR pointed out that the CIT(A) relied on the "real income theory" to eliminate unaccounted receipts and payments related to internal circulation, but such reliance was misplaced as the assessee had not produced documentary evidence to establish the genuineness of the transactions. With regard to the estimation of profit at 30% of receipts, the DR argued that the assessee had not explained the entries in detail or demonstrated that the co....
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....tality, the seized materials clearly indicated that the unaccounted receipts and payments were interrelated transactions within the same business framework. The AR clarified that the CIT(A)'s findings were based solely on the seized material and existing records, without any reliance on fresh evidence or additional claims. It was submitted that the CIT(A) meticulously analyzed the seized diary entries and financial records to arrive at a just conclusion. The AR highlighted those entities within the group, such as Sujan Infrastructure Pvt. Ltd. and Sankalp Inn, had already offered the relevant unaccounted income during reassessment proceedings. Thus, taxing the same amount in the hands of the assessee individually would result in double taxation, which is impermissible under the law. In response to the DR's contention regarding the Rs. 1 crore transaction involving Mr. Pawan Jalan, the AR reiterated that the seized diary entries confirmed that Rs. 1.5 crore was handed over to Mr. Jalan earlier and Rs. 1 crore was later returned. The AR argued that this was not fresh income but merely the return of previously disbursed funds. Therefore, the AO's addition of this amount as....
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....t the receipt was not a fresh inflow of income but merely a return of funds previously advanced. The AR further argued that the CIT(A) failed to provide any cogent evidence to challenge the genuineness of these transactions or to prove that the receipt represented new unaccounted income. Instead, the addition was made based on mere conjecture without considering the entries in the seized diaries in their entirety. In the alternative, the AR submitted that if the addition is to be sustained, it should be restricted to the "profit element" embedded within the receipt by applying the same 25% rate of profit offered by the assessee, consistent with the principle of taxing real income. 20. The grounds under consideration involve the issue of unexplained receipts and payments and are broadly categorized under two components - (1) internal circulation of funds, and (2) unaccounted business receipts and payments involving outsiders. The grounds cover different assessment years (AYs), each with specific grounds raised by both the Revenue and the assessee. 21. The assessee sought the application of peak credit to compute the net unaccounted cash transactions, asserting that frequent in....
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....e claimed that the payments were business-related expenses, such as operational costs and repayments of advances, and must be set off against the receipts to compute net taxable income. We note that the unaccounted receipts pertained to business activities, such as real estate sales, franchise fees, royalty income, and hospitality-related services. The payments, though unaccounted for in the books, were related to operational expenses and loan repayments. We agree with the CIT(A) that the principle of taxing "real income" necessitates taxing only the net surplus from unaccounted transactions. We reject the Revenue's approach of taxing gross receipts and held that a set-off of payments against receipts is justified to avoid over-taxation. 25.1. The assessee contested the 30% profit rate adopted by the CIT(A) for unaccounted receipts, arguing that the rate was excessive and lacked factual justification. The assessee proposed a 25% profit rate as reasonable, stating that it was consistent with the group's business nature and historical profit margins. The unaccounted receipts included franchise fees, royalties, real estate advances, and hospitality income. The Revenue suppo....
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....018 during the same financial year. The AO treated the receipt of Rs. 1 crore as unexplained income, citing a lack of direct evidence linking it to the earlier advance due to the time gap. The CIT(A) partially accepted the assessee's submission but ultimately confirmed the addition, dividing the amount across different assessment years. 28. The assessee submitted that Rs. 1 crore received from Mr. Jalan was a return of previously advanced funds, not fresh income and seized diary entries clearly recorded both the advance and return of funds. The Revenue contended that the return of Rs. 1 crore could not be conclusively linked to the earlier advance and in the absence of supporting confirmations from Mr. Jalan, the receipt was rightly treated as unexplained income. We note that the seized materials included specific diary entries recording both the advance of Rs. 1.5 crore and the subsequent return of Rs. 1 crore. There was no indication of any fresh undisclosed source. The AO did not bring any independent evidence to contradict the assessee's claim or to establish that the Rs. 1 crore was a fresh inflow of income. The addition was primarily based on assumptions and a mech....
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....d no nexus was established between the cash outflows and revenue generation. The AO highlighted that payments exceeding Rs. 10,000/- (Rs. 20,000/- before the relevant amendments) were made in cash, violating Section 40A(3). Since these payments were not made through account-payee cheques or demand drafts, they were disallowed. Citing Sections 101-104 and 106 of the Indian Evidence Act, the AO placed the burden of proof on the assessee. Despite being given opportunities, the assessee failed to produce corroborative evidence, such as PANs and addresses of recipients, or documentation demonstrating the business necessity of the expenditure. 31. Before CIT(A), the assessee contended that the personal expenditures were funded from unaccounted receipts already taxed in the hands of the group entities. The assessee argued against double taxation, emphasizing that the same source of funds had already been brought to tax in assessments of entities like Sujan Infrastructure Pvt. Ltd. (SIPL) and Sankalp Inn. The CIT(A) noted that substantial additions on account of unaccounted receipts had already been confirmed in the assessments of group entities, including Rs. 41.05 crores for Kailash G....