TaxTMI 
TaxTMI 
2026 (3) TMI 684
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..... 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 ld. Commissioner of Income-tax (Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings- initiated u/s 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed. (This is assessee's ground No. 2 in ITA No. 632/RJT/2024 for AY 2018-19, Ground No.2 in ITA No. 633/RJT/2024 for AY 2019-20 and Ground No.2 in ITA No. 634/RJT/2024 for AY 2020-21) (ii)The ld. CIT(A) erred on facts as also in law in retaining addition of Rs. 48,51,280/- by estimating profit at the 16% of so called on money receipt. The addition made and retained is bad in law as also on facts therefore....
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....ajkot and their key associates on 24.08.2021. Four different groups were covered in the operation including the R. K. Group members. All the four groups are in the business of real estate and are 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. The R.K. Group is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. The Group is headed by Shri Sarvanand Sadhuram Sonwani and he is supported by his family members, for the management of the business. The Sonwani family is a joint unit for the purpose of business. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences. In the R.K. Group the main persons/partners were Sonwani family. Some projects of R.K. Group were developed with othe....
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....iles have been isolated which when studied together cover the financial transactions of the group. The details of the three Miracle files are as under : Sr. No. Name of the file 1 DIVYARAJ & CO. (01 08 2009 to 30 06 2016) 2 Divyaraj& Co (01 07 2006 to 31 03 2009) 3 R K World (01 04 2009 to ... ) 5. Apart from the above, various documents in the form of loose-papers excel sheets etc., have also been recovered and seized during the search operation from the premises of the group members highlighting various kind of financial transactions accounted as well as unaccounted. All the data collected and seized during the search and survey operation has been perused and co-related with the actual transactions made and purchase of various kinds of properties as seized in the form of Digital data and in the form of Hard Data were also compared and corroborated with the documentary evidences and responses received from the Sub-registrar office and with the data available in public domains on various government portals like (1) anyror.gujarat.gov.in (2) garvi.gujarat.gov.in and (3) gujrera.gujarat.gov.in. Comparison of the financial transactions entered in the Miracle....
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..... Details of following unaccounted transactions pertaining to the project have been recovered from the material seized during the search operation: (i) Unaccounted receipts of Rs. 72,31,16,300/- against sale of units of the project and repayments of Rs. 12,06,06,146/-, on account of cancellation or excess receipts as culled out from the seized Miracle data. (ii) Unaccounted expense/investment of Rs. 24,88,50,000/- made in the purchase of land for the project as culled out from the seized Miracle data. (iii)Unaccounted expenses of Rs. 9,46,22,113/- incurred for the project as culled out from the seized Miracle data. (iv) Unaccounted payments of Rs. 3,20,00,000/- made to the contractor as per one excel sheet named "Rameshbhai - TCC" seized from the office premise of the RK Group. 7. As details regarding unaccounted part of the aforementioned transactions pertaining to the assessee have been gathered from the seized material during the search operation, a notice under section 148 of the Act has been issued on 23-03-2022 to the assessee after following due procedure as per the Act and with prior approval of the specified authority as per section 1....
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.... The allegation leveled on the assessee has no legal sanctity. In case, confirmation from the customers / buyers required. The same can be furnished. (viii)The data in Miracle is not complete and correct. (ix) Addition, if any, should be made in the hands of Shri Sarvanand Sonwani (Point no. 10 of the response). The unaccounted profit pertain to Shri Sarvanand Sonvani only is not admissible as the corroborative bank transactions appearing from the seized Miracle Ledgers with code name 'TCC' does not appear on the bank book of Shri Sarvanand Sonvani. Rather, they exactly match with the transactions recorded on the books of the assessee-firm. (x) The income of the real estate builder is taxable at the time of transfer of title & possession of property in favour of customer and not at the time of booking of unit by customer. 9. After considering all the objections of the assessee in its reply to the show cause notice and taking into consideration the facts and material available on records following conclusion has been drawn, by the assessing officer: 10. Rejection of books, by assessing officer After thorough examination of the response to ....
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....f profit should be adopted as income. In CIT v. President Industries [2002] 124 Taxman 654 (Gujarat), the Assessing Officer had found evidence of suppression of sales. He adopted the entire receipt (sales) as income but the Hon'ble Jurisdictional High Court has held that the entire undisclosed receipts (sales) cannot constitute income. The sales only represent the price received by the seller of the units for which the seller has already incurred the cost in order to acquire or process the inventory. Therefore, it is the realization of excess consideration over the cost incurred which should be assessed as profit or income. In other words, profit component embedded in the sales could be treated as income. Recently, in the case of PCIT v. Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, the Hon'ble Guj. High Court has held that only profit element embedded in the gross on-money receipts can be taxed. For this, the Hon'ble court has derived reference from its earlier decision delivered in the case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89. Relevant part of the decision is as under: "it has been consistently held by this c....
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....arily attributable to the stage in which a particular project has reached since its inception. For example, if any project is just launched then its % of net surplus funds would be lower because most of the funds are spent / applied on inventory and the inflow of on-money has not started in full pace. Due to combined effect of these two aspects the availability of surplus funds remains either on lower side or sometimes in negative state. Thus, it is understood that taking reference from the net surplus / unaccounted profits of such just launched projects would not give true picture of the potential profitability of such projects. In order to estimate a reasonable rate of profit, it is taken that only those projects for which maximum data is available from the seized material should be relied upon. At the same time, it is also ensured that the project that almost reached its final stage (with respect to construction activity and receipt of on-money both should only be taken as reference for adoption of an appropriate rate of profit. 13. After considering all the above aspects, following five projects have been identified as reference, by the assessing officer: Sr. No. Name ....
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....shok Kobia 2,38,80,800 Refund of on-money receipts on cancellation of booking (-)12,06,06,146 Net On-money receipts 60,25,10,154 Unaccounted payment for purchase of land (-)24,88,50,000 Unaccounted expenses (-) 9,64,16,713 Unaccounted construction expenses as per excel sheet Rameshbhai - TCC (-) 3,20,00,000 Total 60,25,10,154 Net Surplus 22,52,43,441 Net Surplus (%) 37% As can be seen from this table, the net surplus in the hands of the assessee- firm is around 37% which is higher than the benchmark of 35%. Hence, it would be appropriate to adopt a higher rate of profit in view of the specific facts of this particular case. Accordingly, the net unaccounted profit for this particular project was estimated at the rate of 39%. As far as the profit for the year under consideration i.e. FY 2017-18 is concerned, the same was computed by the assessing officer, as under: Sr. No Particulars Amount A On-money receipts net of repayments (3,06,29,500 - 3,09,000) 3,03,20,500 B Unaccounted profit estimated (39% of 3,03,20,500) 1,18,24,995 Thus,....
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.... the transactions have been flowing from the same seized Miracle files, the sources are traceable and are being taxed in the assessments of their respective projects running simultaneously from where the funds are flowing in. Further, since the assessment of Shri Harish Lakhani is also being pursued simultaneously his explanation regarding sources of the short funds of his share @ 15% Rs. 2,77,49,906/- has also been sought in his personal assessment proceedings where he could explain the sources to the extent of unaccounted receipts from project "The Imperia" where also he held share at the rate 125% and the details of the unaccounted receipts of that project were also recovered from the same set of the seized material during the same search operation. As per the seized data, unaccounted receipts (net of repayments) from the project "The Imperia" during FY 2017-18 is Rs. 11,30,99,000/- as against this there were project related unaccounted payments were Rs. 1,39,91,365/- leaving unaccounted surplus of Rs. 9,91,07,635/- out of which the unaccounted surplus in the hands of Shri Harish Lakhani, as per his share of 25% in the Imperia project, comes to Rs. 2,47,76,909/-. Thus, the short....
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....bad, (cited by assessee in legal compilation) held that the addition on "on money" at the rate of 8% is sufficient to plug the leakage of the revenue. Therefore, the solitary grievance of the assessee in assessee's appeals are that reasonable estimation may be made in the hands of the assessee. The findings of the learned CIT(A) would be discussed while adjudicating the relevant issue involved in concise and summarised grounds noted above. 17. Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows: 18. Summarized and concise ground No.(i), is reproduced below for ready reference: (i) The ld. Commissioner of Income-tax (Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings- initiated u/s 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed. (This is assessee's ground No. 2 in ITA No. 632/RJT/2024 for AY 2018-19, Ground No.2 in ITA No. 633/RJT/2024 for AY 2019-20 and Ground No.2 in ITA No. 634/RJT....
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....632/RJT/2024 for AY 2018-19, (ii)Ground No.2 in ITA No. 633/RJT/2024 for AY 2019-20 and (iii)Ground No.2 in ITA No. 634/RJT/2024 for AY 2020-21 22. Summarized and concise ground No.(ii), is reproduced below for ready reference: (ii) The ld. CIT(A) erred on facts as also in law in retaining addition of Rs. 48,51,280/- by estimating profit at the 16% of so called on money receipt. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. Alternatively, the addition made by estimating rate of profit is very much on higher side and therefore the same may kindly be directed to be reduced and oblige (This is assessee's ground No. 3 & 4 in ITA No. 632/RJT/2024 for AY 2018-19, Ground No. 3 & 4 in ITA No. 633/RJT/2024 for AY 2019-20, Ground No.3 &4 in ITA No. 634/RJT/2024 for AY 2020-21, Ground No.2 & 3 in ITA No. 635/RJT/2024 for AY 2021-22 and Ground No.2 & 3 in ITA No. 636/RJT/2024 for AY 2022-23) (The same ground is raised by the revenue in ground No.1 in ITA No. 657/RJT/2024 for AY 2018- 19, Ground No.1 in ITA No.658/RJT/2024 for AY 2019-20, Ground No.1 in ITA No.659/RJT/2024 for AY 2020-2....
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.... books were also found. This included cash payment for purchase of land.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. After going through the well-reasoned order of the Id.CIT(A), and in the light of judgment of Hon'ble jurisdictiona' High Court in the case of Panna Corporation [2014 (11) TMI 797 GUJARAT HIGH COURTI as well as Koshor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-AI 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. Element of income involved in this on-money assessee is showing income at 8%, AND CIT(A) is estimating it at 20% HELD THAT :- CIT(A) has also not mentioned any attending circumstances for harbouring a belief that 20% could have been earned from this activity. Thus after taking guidance from the judgment of Kishor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-Al we deem it proper that th....
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....om the illegal business but also the unaccounted transaction of purchase and sale only profit/ income on sales could be assessed as undisclosed income and could be subjected to tax. Case laws to the point are as under: 1. Dr. T.A. Quereshi (157 taxmann.com 514) (Supreme Court) 2. Piara Singh (124 ITR 40) (Supreme Court) 3. S.C. Kothari (82 ITR 794 (Supreme Court) 23.5 The assessee admitted such profit at Rs. 45,00,000/- and disclosed that on said transactions income in PMGKY, 2016 and paid due tax thereon. The copy of certificate issued by PCIT is placed on record. Thus when that transactions are of unrecorded purchase and sale of gold, which Ld. assessing officer also admits in assessment order, then simply that name & address of purchasers are not provided the entire amount of sale cannot in law be treated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax more so when the assessee has disclosed in PMGKY the said undisclosed income of Rs. 45,00,000/- and paid tax in accordance with scheme and received certificate there for from Pr. Commissioner of I....
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.... the course of search certain material/loose papers were found exhibiting the fact that the assessee has received cash, over and above, the amounts stated in the booking register. This cash was not accounted for in the books. It has been treated as on-money for sale of flats/shops. Simultaneously certain loose papers were found disclosing the fact that the expenditure were incurred in cash and accounted in the books. The Ld.CIT(A) made an analysis of this, and then held that the moment assessee's income is being assessed at 8% of the gross on-money, then the remaining amount 92% could take care of unexplained expenditure. It can be explained by a simple, viz. an assessee has received Rs. 100/- in cash for sale of flat. Out of that, element of income embedded in this Rs. 100/- has been determined by us at Rs. 8/-. Remaining Rs. 92/- must have been incurred by the assessee for developing that flat. Thus, in other words, the expenditure whose details were found being incurred in cash could be construed as coming out of these Rs. 92/-. Thus, there cannot be any separate addition of unexplained expenditure. The Ld.CIT(A) has rightly deleted the addition." 15. We note that t....
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....961. Accordingly, we note that estimation the profit element on 'on-money' at the rate of 10%, should be fair, keeping in mind the principle laid down by Hon'ble Supreme Court in the case of H. M. Esufali Abdulali that the method to be adopted must be which is approximately nearer to the truth. 17. Considering the facts and circumstances, narrated above, we find that the estimation done by the assessing officer, and re-estimated addition, sustained by the Ld. CIT(A) @ 16% is very higher side. Therefore, we are of the view that the estimated addition on "on-money" should be @ 10%, which will take care of inconsistency in the undisclosed income of the assessee. Therefore, the assessing officer, is directed to make the addition in the hands of assessee, at the rate of 10%, on "on-money". Hence, we allow above appeals of these assessee partly and dismiss all the appeals of the revenue." 24. Therefore, respectfully following the binding judgement of the Co- ordinate Bench of ITAT Rajkot in assessee's own case (Supra) we partly allow the following appeals of the assessee: (i) Ground No. 3 & 4 in ITA No. 632/RJT/2024 for AY 2018-19, (ii) Grou....
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....evelopers. The learned DR, therefore, stated that the income on account of undisclosed "on-money" receipt was required to be assessed in the year of receipt. 22. On the other hand, learned Counsel for the assessee submitted that assessee has been following the accrual basis of accounting and percentage of completion method. Therefore, revenue should be recognised in the year in which the transaction got materialised, that is, in assessee's case, when the document is registered and executed, then only the revenue is recognised, with certainty. Hence, learned CIT(A) has rightly directed the assessing officer to recognise the revenue in the year in which the transaction/sale of flat is registered. 23. We have considered the submissions of both the parties, and we note that ICDS- 3 refers to Income Computation and Disclosure Standard-III, issued by the Central Board of Direct Taxes under section 145(2) of the Income-tax Act, 1961. It deals with computation of income from construction contracts for tax purposes. It is largely based on the earlier Accounting Standard AS-7 but contains important differences relevant for income tax computation. We note that ICDS-III a....
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....r passed by Tribunal deleting addition was to be upheld - Held, yes [Para 4] [In favour of assessee]" 25. On identical facts, it is relevant to refer to the Decision of Hon'ble ITAT Ahmedabad in the case of M/s D R. Construction Vs. Income Tax Officer in ITA no. 2735/Ahd/2010, wherein Hon'ble ITAT has held as under: - "Unaccounted expenditure-receipt of 'on money' in the present case assessee is dealing in several immovable property ie, flats and shops which he has constructed. A single flat is a capital asset for the purchaser but for the assessee all the flats together constitute stock-in-trade. HELD THAT :- it is undisputed position that out of this on money assessee has incurred various expenditure/investment. Therefore, 'on money' as such and as a whole cannot be taxed over and above the income accruing on the basis of entries recorded in the books of account on the basis of decision held in E.D, Sassoon & Co. Ltd. & Ors. vs. CIT (1954 (5) TMI 2 SUPREME COURT we hold that advance money received either by way of cheque or by way of cash will partake the character of taxable income when registered sale deed of the flats is executed in su....
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....Construction, we find that unaccounted profit estimated on 'on-money' receipt is required to be taxed in the year in which sale deed is executed by assessee or significant risk and rewards is transferred to buyer. As in case in hand, the assessee has been following revenue recognition method on execution of sale deed, only on-money receipt as computed in present case would be taxable in the year in which sale deed is executed and not when 'on-money' was received. Besides, we find that ICDS-III is not applicable to the assessee under consideration, therefore, we dismiss the ground raised by the revenue." 27. Respectfully following the binding judgement of the ITAT Rajkot in the assessee's, own case (Supra), we dismiss the following grounds raised by the revenue. (i) Ground no. 2 in ITA No. 657/RJT/2024 for AY 2018-19, (ii) Ground No.2 in ITA No. 658/RJT/2024 for AY 2019-20, (iii) Ground No.2 in ITA No.659/RJT/2024 for AY 2020-21, (iv) Ground No.2 in ITA No.661/RJT/2024 for AY 2021-22 and (v) Ground No.2 in ITA No. 662/RJT/2024 for AY 2022-23 28. Summarized and concise ground No.(iv), is reproduced below for ready....
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....ed the addition made by the assessing officer by giving telescoping benefit to the assessee. Dissatisfied with the order of the learned CIT (A), the revenue is in appeal before us. 32. Learned DR for the revenue argued that Ld.CIT(A) ought not to have deleted the addition which pertains to loan given by the assessee to others, as the assessee is not entitled for telescoping benefit. On the other hand, learned Counsel for the assessee, defended the order passed by the learned CIT (A). 33. We have considered submissions of both the parties. We note that this ground is against the action of the ld.CIT(A), in deleting the addition of Rs. 97,30,000/-, by providing telescoping benefit. This addition was made by the assessing officer on account of alleged cash loans/advances on the basis of loose papers seized from the premises of Shri Deepak Purswani at page no. 1 & 2 of Annexure A-4. The assessee, during the appellate proceedings, has relied on the decision of the Hon'ble High Court of Bombay in the case of Commissioner Of Income-Tax, Poona vs Jawanmal Gemaji Gandhi [1983] 15 Taxman 487(Bom), which is on similar and identical facts. The ld.CIT(A) noted tha....