TaxTMI 
TaxTMI 
2026 (3) TMI 686
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.... convenience, the facts narrated in ITA No.680/RJT/2024, for assessment Year 2019-20, have been taken into consideration for deciding the above appeals en masse. 3. Although, these appeals filed by the assessee and appeals filed by the revenue, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the assessee and revenue. We find that most of the grounds raised by the assessee and revenue are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the assessee and revenue as well. With this background, we summarize and concise the grounds raised by the assessee and revenue, as follows: (i) The Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad has erred in confirming the action of the Assessing Officer in respect of the order passed u/s 147 of the IT Act whereby assessed the total income of Rs. 7,37,53,649/- as against the returned income of Rs. Nil. It is totally wrong, unwarranted, unjustified and bad in law. (This is ground No.1 in assessee's appeal in ITA No.535/RJT/2024 for A.....
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....re mainly concentrated in and around Rajkot. A total of forty-three (43) premises were covered, out of which 32 premises were covered under section 132 of the Income Tax Act 1961 and the other 11 premises were covered u/s 133A of the Income Tax Act 1961. The premises covered were a mix of residential and business premises of their related entities, their family members, key associates and employees. Gangdev group has completed several Real estate projects in Rajkot. The main person of the group is Shri Praful Gangdev who takes key decisions and is helped by several other partners. The partners vary for each project but Shri Kinjan Faldu, Shri Chandresh Panara, Shri Siddharth Gangdev are the key partners of Shri Praful Gangdev. The Gangdev group has completed projects like The Spire, The Spire-2, Trinity Towers in the city of Rajkot. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences. Details of following unaccounted transactions pertaining to project "The Spire-2" developed by the assessee -firm M/s Neelratna Enterprise LLP have been recovered from the material seized ....
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....INSTALLMENT AMOUNT SHEET" represent the on money received from the buyers in lieu of Showrooms/shops/offices of project The Spire 2. The sale considerations have been received in instalments. The screen shots of the starting rows & columns and last rows & columns of the excel sheet named Sheet1 of the excel file named THE SPIRE 2 INSTALLMENT AMOUNT found at the residential premises of Shri Praful N. Gangdev. Screen shots of starting rows & columns of the excel sheet named Sheet 1 of the excel file named THE SPIRE 2 INSTALLMENT AMOUNT, screen shots of last rows & columns of the excel sheet named Sheet1 of the excel file named THE SPIRE 2 INSTALLMENT AMOUNT and screen shots of last rows & columns of the excel sheet named Sheet1 of the excel file named THE SPIRE 2 INSTALLMENT AMOUNT are pasted in the assessment order. As per the above screen shots of excel sheet named Sheet1, it is clear that details of unit wise on money receipts for the project The Spire 2 are maintained in this excel sheet. Furthermore, some images of diaries as recovered from the digital devices of persons of Gangdev group covered in the search and seizure action also establish the absolute correctness of data in ....
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.... are found in the excel sheet named Sheet1 of excel file named THE SPIRE 2 INSTALLMENT AMOUNT at Cell number M246, N246, P246 & R246. Screen shot of the relevant portion of the excel sheet is pasted in the assessment order. Moreover, as per the snapshot of image of the office No. 1029 pasted above, document value of the office No. 1029 is mentioned as 12,70,000/-. On perusal of the details received from the sub-registrar office, it was found that the document price of this office is 12,70,000/- which is exactly same to the amount mentioned in the image of diary. Screenshot of relevant portion of agreement to sale is pasted in the assessment order. To further establish the correctness of the excel file "THE SPIRE 2 INSTALLMENT AMOUNT SHEET", snapshots of few other images extracted from the digital data of different persons of Gangdev group and Snapshots from the digital devices of Shri Praful Gangdev are pasted in the assessment order. This way, the assessing officer has identified the "on money" on other projects also. 7. Therefore, assessing officer issued a show cause notice to the assessee to explain the on money. The assessee submitted its reply before the assessing officer ....
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....ion 145(3) of the Act. Accordingly, provisions of section 145(3) are invoked by the assessing officer and the assessment of total income of the assessee was made after taking into account all relevant material gathered during the search and the assessment proceedings. There is no uniform method that can be employed to compute income when part receipts on account of sale are not included on the books. The method differs from case to case depending upon various factors i.e. type of business, modus operandi of the assessee, sufficiency of data available for estimation etc. In a case where the evidence available on record contains details of corresponding unaccounted payments which are also partly included on the books, such partly recorded payments should also be taken into consideration. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, assessing officer relied on the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC), which is reproduced below: "It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provision....
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....ought to tax [CIT v. Gurubachhan Singh J Juneja [2008] 171 Taxman 406 (Gujarat). Hence, in such cases, both the Supreme Court and the Jurisdictional High Court have consistently held that where evidences regarding unaccounted receipts are being assessed it is not reasonable to consider the entire unaccounted receipts for taxation. Rather, only profit element lying therein should be estimated keeping in mind the facts and surrounding circumstances of the case at hand. Therefore, respectfully following the ratio laid down by the Apex Court and the Jurisdictional High Court and in view of the facts of the case it would be fair if reasonable rate of profit is adopted to tax the unaccounted income of the assessee. 10. Estimation of rate of profit by the assessing officer The assessing officer noted that details of various projects undertaken by the searched group members and their partners have been recovered from the seized Miracle File. Some projects were in completion stage whereas some were just started. Besides, in respect of some projects comprehensive details i.e. Land purchase expense. On-money receipts have been recovered from the seized data whereas in other projects ver....
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....ibility of having incurred unaccounted expenses cannot be ruled out completely (No data is recovered during search does not necessarily mean no unaccounted expenses incurred). Further, various judgments discussed earlier also endorse the same preposition that only profit embedded in the gross unaccounted receipts should be taxed and not the entire unaccounted receipts. 11. The assessing officer also noted that it is also necessary to keep in mind violation of various other provisions of the law which are in place to discourage the practice of indulging in such unaccounted transactions. Having said that and considering the facts of the present case and binding judicial presidents as discussed earlier if all the expenses/payments are disallowed than the ratio laid down by the Hon'ble High Court regarding net taxing all the receipts would remaining papers only. Thus, with a view to strike a proper balance between the factual vis-a-vis the legal aspects it is decided to further enhance the average net profit rate to 50%. Accordingly, considering complete facts of the case under consideration it is felt reasonable to adopt a higher rate of 50% as profit earned on the gross unacco....
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....he total income of Rs. 7,37,53,649/- as against the returned income of Rs. Nil. It is totally wrong, unwarranted, unjustified and bad in law. (This is ground No.1 in assessee's appeal in ITA No.535/RJT/2024 for A.Y. 2019-20, Ground No.1 in ITA No. 536/ RJT/ 2024, for A.Y. 2020-21, Ground No.1 in ITA No. 537/ RJT/ 2024, for A.Y. 2021-22, Ground No.1 in ITA No. 538/ RJT/ 2024, for A.Y. 2022-23) (ii) Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad has erred in confirming the action of the Assessing Officer in respect of alleged ground of estimated the profit @ 16%, as the appellant is developer of commercial project and tax such income in the year in which income is recognised in books of account, it is unwarranted, unjustified and bad in law. The various Hon'ble High Courts and Hon'ble ITAT, had held that the profit should be taken at the rate of 6 to 8 percent. (This is Ground No. 2 to 4 in assessee's appeal in ITA No.535/RJT/2024 for A.Y. 2019-20, Ground No. 2 to 4 in ITA No.536/RJT/2024 for A.Y. 2020-21, Ground No. 2 to 4 in ITA No.537/RJT/2024 for A.Y. 2021-22, Ground No. 2 to 4 in ITA No.538/RJT/2024 for A.Y. 2022-23). (This....
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....f ITAT Rajkot are reproduced below: "14. In this summarised and concise ground, the plea of the assessee is that estimated profit at the rate of 16% on the so called "on money" is on higher side, considering the judgement of the jurisdictional High Court of Gujarat. However, plea of the revenue is that addition made by the assessing officer at the rate of @ 35% should be sustained. Learned Counsel for the assessee submitted that judgements of Hon`ble jurisdictional High Court of Gujarat, in respect of addition on "on-money", should be followed. The Hon`ble jurisdictional High Court of Gujarat in the following cases held that profit element embedded in the "on-money" should be added in the hands of the assessee and not the entire "on-money", and estimated addition on "on money" should be at the rate of 6% or at the rate of 8%, may be made, depending upon the facts and circumstances of the case. The relevant judgements of the Hon`ble jurisdictional High Court of Gujarat and Hob`ble ITAT Ahmedabad, are reproduced below: (i). 2020 (4) TMI 844ITAT AHMEDABAD GREENFIELD REALITY P. LTD. VERSUS ACIT, CENT. CIR. 1 (2) AHMEDABAD AND DOIT, CENT. CIR. 1 (2) AHMEDABAD, VERSUS G....
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....ing to 4,72,02,368. Therefore, only estimated net profit is required to be taxed. We find that the assessee has shown net profit at 4.55.% for the assessment year under consideration and 4.59% for A.Y. 2010-11. Further, the Hon'ble High Court in the case of CIT V. Abhishek Corporation [1998 (8) TIMI 110 ITAT AHMEDABAD-C) has upheld the net profit at 1.31% as declared by the assessee in that case. The net profit rate disclosed at 4,55% during the assessment year under consideration by the assessee in books of accounts and considering the facts that the project undertaken by the assessee comes under deduction of section 80IB(10) hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking into account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on-money. (iii) The Commissioner of Income Tax vs. Shri Hariram Bhambhani INCOME TAX APPEAL NO.313 OF 2013 (BOM)(HC): "In any view of the matter, the CIT(A) and Tribunal have come to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both th....
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....s of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land. Therefore, the Ld.CIT(A) has rightly observed that the gross on- money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money. Therefore, after going through the well-reasoned order of the Ld.CIT(A), IT(SS)A No.289 Ahd/2018 (7 Others) Greenfield Reality P. Ld. Vs. DCIT and in the light of judgment of Hon'ble jurisdictional High Court in the case of Panna Corporation (supra) as well as Koshor Mohanlal Telwala (supra), we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years. 17. Next question arose, what is the element of income involved in this on-money. On one hand, the assessee is showing income at 8%, on the other hand, the ld. CIT(A) is estimating i....
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....rofit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as comparable cases. Without this the estimation so made cannot be said to be valid estimation. The jurisdictional Hon'ble High Court of Gujarat, in case of estimation of profit element on, "on-money" has taken the view that estimation of profit in these type of cases of "on- money" had been held between range of 6% to 8%. 16. We note that the average profit of the assessee as per audited books of accounts is 7%, therefore, profit estimation done by the learned CIT(A) at the rate of 16% on the "on-money" is higher side. Considering the nature of business and voluminous 'on- money' and taking into account, the fact that there is expenditure made by the assessee to develop the project out of the "on-money", therefore, profit margin in this type of business normally is 10% on "on-money". We proceed to work out the estimation of profit keeping in mind the following facts: (i) The estimate is not opened up to be framed in an arbitrary....
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....RJT/ 2024, for A.Y. 2019-20, (ii) Ground No.1 in ITA 681/ RJT/ 2024, for A.Y. 2020-21, (iii) Ground No.1 in ITA 682/ RJT/ 2024, for A.Y. 2021-22. 17. Summarized and concise ground No.(iii) is reproduced below for ready reference: (iii) The Ld.CIT(A) has erred in directing the A.O. to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the on-money has been received, ignoring that the same is not in accordance with Accounting principles as per ICDS-3 applicable to Real Estate Developers and also not appreciating that the income on account of undisclosed on-money receipt was required to be assessed in the year of receipt. (This is Revenue's ground No.2 in ITA 680/ RJT/ 2024, for A.Y. 2019-20, Ground No.2 in ITA 681/ RJT/ 2024, for A.Y. 2020-21, Ground No.2 in ITA 682/ RJT/ 2024, for A.Y. 2021-22) 18. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We have heard learned DR for the revenue in detail and learned Counsel for the assessee also. In our considered view, it was wholly erroneous on the....
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....from contractor and assessee pays the amount to the contractors for services rendered by them to it (assessee), therefore, ICDS-III is not applicable to the assessee under consideration. Hence, we are of the view that ICDS-III applies to Contractors (not contractees). Fundamental Accounting Principle, as per ICDS-III is the Percentage of Completion Method (POCM). The Percentage of Completion Method is mandatory method under ICDS-III. Under ICDS-III the Revenue from variations, claims and incentives shall be recognised only when there is reasonable certainty of its ultimate collection. 24. We note that even if the addition on account of estimated profit on alleged "on- money" cash receipts is made, the same should be made in the year of actual sale when the conveyance deed is executed in the favour of buyer when the significant risk and rewards are transferred. It is observed that the assessee has consistently followed revenue recognition method whereby sale is offered to tax when registered sale deed of particular unit is executed, that is, date on which significant risk and reward has been transferred to buyer. This method of accounting has been followed consistently by a....
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....Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Happy Home Corporation [2018] 94 taxmann.com 292 wherein it was held as under: "Section 145 of the Income-tax Act, 1961 Method of accounting (Project completion method) - Assessee was engaged in construction business - It was subjected to a survey action which was conducted on business. premises - During course of survey, statement of one partner of firm was recorded in which, he admitted of firm having received a sum of Rs. 26.05 crores not disclosed in books of account-While doing so, he further stated that same would be subject to registration of sale deeds When assessment was undertaken, assessee contended that firm was following project completion method of accounting and income would be offered to tax as and when final sale deeds were registered Assessee firm thus offered only a sum of Rs. 1 crore during year under consideration Assessing Officer rejected assessee's stand and added entire amount of Rs. 26.05 crores as income of assessee during current year Tribunal accepted assessee's contention that since firm was following project completion method for offering income to tax, same would....