TaxTMI 
TaxTMI 
2025 (3) TMI 1664
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.... "On the facts of the case, in law and under the circumstances the ld. CIT(A), Central erred in estimating net profit @ 26% on unaccounted business receipts as against net income @ 20% offered by the assessee." ITA No. 4485/M/2024 (A.Y. 2019-20) (Revenue Appeal) "1. Whether on the facts and in the circumstances of the case the ld. CIT (A) erred in estimating the net profit @ 26% on unaccounted business receipts of Rs. 3,79,07,014/- by giving relief to the assessee of Rs. 2,80,51,190/- without appreciating the fact that the assessee has not submitted any documentary evidence that @ 74% of the expenses were incurred for the earning of such income and ignoring the fact that the cases of Hon'ble High Courts on which reliance was placed by the ld. CIT (A) are distinguishable on facts. 2. The appellant craves to leave, to add, to amend and/or to alter any of the ground of appeal if need be." 2. Fact in brief is that return of income declaring nil income was filed on 08.08.2019. A search and seizure action u/s 132 of the Act was carried out at the group cases and at the offices of GNP Group at Nariman Point, Mumbai on 23.09.2021. During the ....
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.... of the undisclosed cash receipts as reflected at para 5.4 of the assessment order is reproduced as under: Sl. No. A.Y. Amount 1 2018-19 Rs. 1,22,97,238/- 2 2019-20 Rs. 3,79,07,014/- 3 2020-21 Rs. 50,00,000/- 4 2021-22 Rs. 8,13,09,460/- Total Rs. 13,65,13,712/- 4. However, the assessing officer observed that during the year under consideration, the assessee had only declared income of Rs. 75,81,403/- of the undisclosed receipts of Rs. 3,79,07,014/- offered for the assessment year under consideration. The assessee had claimed expenses of Rs. 3,03,25,611/- which was 80% of the unaccounted cash receipts of Rs. 3,79,07,014/-. The assessee was asked why the claim of expenses of Rs. 3,03,25,611/- should not be disallowed. The assessee made detailed submission which has been reproduced at para 5.6 of the assessment order. The assessee mainly explained that they had offered net income from construction business @ 20% after claiming estimated expenses @ 80% from the gross business receipts offered to tax u/s 132(4) of the Act in the return of income filed for the assessment year. The assessee also....
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....ccounted expenses incurred, the assessee has offered net income of Rs. 75,81,403/- @ 20% of unaccounted business receipts of Rs. 3,79,07,014/- during the course of search u/s 132(4) of the Act vide letter dt. 12.01.2022 as well as in return of income filed for the relevant assessment year. The same has been done on the basis that while estimating net income all unaccounted expenses are subsumed in net income so estimated and so no separate claim of expenditure has been made by the assessee. The assessee has provided the details of unaccounted expenditure incurred in the Paper Book filed before the AO on Page Nos. 92 to 108 of Paper Book filed in the assessment proceedings and accordingly net income is estimated. However, the AO has not considered the explanation given by the assessee and has also not given the reason that why claim of the assessee of net income offered has been rejected. It is also found that assessee has offered unaccounted business receipts as per the various seized documents found and same has been duly accepted by AO as business receipts u/s 28 who also made addition of entire gross receipts without allowing claim of the assessee of expenditure @....
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....s income. Hon'ble High Court of Ahmedabad ruled in the case of Panna Corporation that the 'assessee ought to have spent reasonable amount for the purpose of receiving such gross profit' (Para 14 of Tax Appeal No. 325 of 2000 dt.16.06.2012). Further, Hon'ble High Court of Madhya Pradesh held in the case of President Industries 258 ITR 654 that 'entire sale proceeds of the assessee should not be added in his income'. Further, from the judgment in case of Panna Corporation (Supra), it is settled proposition that there is no need for the assessee to demonstrate the genuineness of the claim of unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequential, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO's conclusions....
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....duction of expenditure incurred therefrom must be allowed. 7.13.1 The relevant extracts of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Shri Hariram Bhambhani reported in ITA No. 313 of 2013 (Bom.) are as under: 6 On further Appeal, the Tribunal by the impugned order held that the entire sales which are unaccounted cannot be undisclosed income of the assessee, particularly as the purchase had been accounted for. It was held that only net profit which would arise on such unaccounted sales can rightly be taken as the amount which could be added to the Respondent Assessee's income for the purpose of tax. 7 The grievance of the Revenue is that Section 69C of the Act is to be invoked and entire amount of undisclosed sales has to be brought to tax. We are unable to appreciate how Section 69C of the Act which speaks of unexplained expenditure is all at relevant for this appeal. We are not concerned with any unexplained expenditure in this case. 8 In any view of the matter, the CIT (A) and Tribunal have came to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, i....
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....17 lakhs. These assets are by way of application of the unaccounted income which have been earned by the assessee from Hare Krishna Apartment project, part of which was reflected on the piece of paper found during the course of search against which the assessee himself has offered a sum of Rs. 17 lakhs as his unaccounted income. Thus, it is clear that the assets found at the time of search were the application of the unaccounted income of Rs. 17 lakhs which was offered to tax by the assessee in his return filed in response to notice under section 158BC. Thus, keeping in view the totality of the facts and circumstances of the case we are of the opinion that the Assessing Officer was not justified in making the addition of Rs. 1,47,91,840 as the concealed income of the assessee because the profit earned on the unaccounted receipts on the basis of the special provisions at 8 per cent as per section 44AD of the Act will be less than the amount of Rs. 17 lakhs disclosed by the assessee as undisclosed income in the return filed in response to notice under section 158BC. Accordingly we do not find any justification in the action of the Assessing Officer in making the a....
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....er, no separate addition of 'on money' would be necessary in regard to sale of garages which were nothing but parking spaces. 7.18 Further, the following legal precedents have held that only the profit element embedded in the "on money" / a reasonable percentage of "on money" can be taxed. ● CIT v/s Golani Brothers reported in ITXA 17, 19, 26, 27 & 42 of 2015 (Bombay High Court) ● Pranav Construction Co. v ACIT [1998] 96 TAXMAN 323 (MUM.) ● CIT v C Najeeb [2019] 104 taxmann.com 250 (Kerala) ● DCIT v Adarsh Industrial Estate Pvt Ltd [2021] 130 taxmann.com 142 (Mumbai - Trib.) ● DCIT v/s Panna Corporation reported in ITA No. 323/325 of 2000 (Gujrat High Court) 7.19 It is also noticed that, there is no dispute on the fact that the assessee has incurred expenditure outside the books of accounts. The seized papers found reveal the fact of incurring of various type of expenditure for the purpose of business in the nature of brokerage, Steel Purchase, Tiles Purchase, Contractors Payment, salary & administrative expenses. 7.20 During the assessment proceedings, the AO has not doubted ....
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....d findings. It is a well settled canon of interpretation that a document has to be read as a whole: it is not permissible to accept a part and ignore the rest of the document. 7.22 Further, presumption u/s 132(4) of the Act is that when the receipts are recorded in the search document are believed to be income, the entries of expenditure recorded therein are also to be believed without asking more evidence of such expenditure. The said view has been held by Delhi High Court in case of Indeo Airways Pvt. Ltd reported in 26 taxmann.com (Delhi). In the case of CIT vs. Indeo Airways Pvt Ltd (supra), it has been categorically held by the Hon'ble Delhi High Court that once the receipts as per the seized documents are believed, expenditure from the very same seized documents must also be believed. The relevant extracts of the said judgment are as under: 16. In P.R. Metrani v. Commissioner of Income Tax, Bangalore (2007) 1 SCC 789 the Supreme Court elaborated upon the nature of presumption under Section 132 (4A) and the scheme of the provision, in the following words: "Sub-section (4A) was inserted by Taxation Law (Amendment) Act, 1975 with effect from 1.10.1075 ....
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....ticular fact. It is of three types, (i) "may presume", (ii) "shall presume" and (iii) "conclusive proof". "May presume" leaves it to the discretion of the Court to make the presumption according to the circumstances of the case. "Shall presume" leaves no option with the Court not to make the presumption. The Court is bound to take the fact as proved until evidence is given to disprove it. In this sense such presumption is also rebuttable. "Conclusive proof" gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to combating that effect. In this sense, this is irrebuttable presumption. The words in sub-section (4) are "may be presumed". The presumption under subsection (4A) therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under subsection (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub section (5) of Section 132 and rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in Section 132 or any other provisions of the Act which cou....
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....used his suspicion was the seemingly high level of expenditure. On this aspect, however, the CIT (A) held that the margin of profit, a little over 17% compared favourably with the general trend in the business. In view of these facts, the ITAT, in the opinion of this court, did not commit any error of law in holding that such expenses were deductible under the main part of Section 37 (1) of the Act. 7.23 Further, apart from the above cases related to "on money" earned by builders, there are general legal precedents which have held that if any undisclosed sales are found during the search, only the profit element can be taxed: CIT vs. Shri Hariram Bhambhani reported in I.T.A. No. 313 of 2013 (Bombay) CIT v. President Industries [2002] 258 ITR 654 (Gujarat) 7.24 The common thread of the above judicial precedents shows that if the "on money" receipts are unearthed during a search action, it is but obvious that the entire undisclosed receipts cannot be taxed but only the profit element can be taxed. 7.25 After considering the decision of various Hon'ble High Courts and ITAT as mentioned above it is clear that it has consistently held th....
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.... 3,79,07,014 3,79,07,014 75,81,403 75,81,403 2020-21 50,00,000 50,00,000 1,31,95,081 10,00,000 1,41,95,081 2021-22 23,67,06,040 8,13,09,460 31,80,15,500 6,81,97,793 1,62,61,892 8,44,59,685 2022-23 9,30,53,313 9,30,53,313 1,19,96,715 1,19,96,715 Total 32,97,59,353 13,65,13,712 46,62,73,065 9,33,89,589 2,73,02,742 12,06,92,331 26% 7.29 In my view, after considering the seized documents containing the details of expenditure found, submission made by the assessee, net income offered in the regular books of accounts and legal position as cited above, I estimate the net profit @ 26% on unaccounted business receipts of Rs. 3,79,07,014/- instead of 20% offered by assessee for the relevant year which is considered to be reasonable. Therefore, I direct the AO to restrict the addition to Rs. 22,74,421/- in the above AY 2019- 20. Accordingly, assessee would get the relief of Rs. 2,80,51,190/-. Accordingly, this ground of appeal is partly allowed." 6. During the course of appellate p....
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....cheque amounting to Rs. 13,55,45,462/- and in column "N" amount receivable in cash (On-Money) amounted to Rs. 13,65,13,712/-. As per the document, the total on-money receivable was estimated at Rs. 13,65,13,712/-. The assessee has offered the total on-money receipt of Rs. 13,65,13,712/- in 4 years as already referred in this order. During the year under consideration, the assessee has offered onmoney to the amount of Rs. 3,79,07,014/-. However, during the course of search, the assessee has offered the gross "On Money" as discussed above and net income in respect of the said "On Money" receipts has been offered @ 20% of such unaccounted gross business in the return of income after reducing the estimated unaccounted expenses. The assessee has also placed in the paper book at pages 92 to 108 the evidences in respect of unaccounted expenditure found as part of the seized material during the course of search action. The assessing officer has disallowed the claim of unaccounted expenses claimed out of the on-money on the ground that assessee has not provided name of the payees, address, PAN etc. It is undisputed fact that during the course of search action statem....
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....s per books of accounts On Money receipts offered by assessee Total turnover Net profit offered as per books of accounts Net income offered u/s 132(4) Total income offered by assessee u/s 132(4)/139(1) Avg. profit 2018-19 - 1,22,97,238 1,22,97,238 - 24,59,448 24,59,448 2019-20 - 3,79,07,014 3,79,07,014 - 75,81,403 75,81,403 2020-21 - 50,00,000 50,00,000 1,31,95,081 10,00,000 1,41,95,081 2021-22 23,67,06,040 8,13,09,460 31,80,15,500 6,81,97,793 1,62,61,892 8,44,59,685 2022-23 9,30,53,313 - 9,30,53,313 1,19,96,715 - 1,19,96,715 Total 32,97,59,36 3 13,65,13,712 46,62,73,065 9,33,89,589 2,73,02,742 12,06,92,331 26% The ld. CIT (A) could not substantiate the basis of estimating the total turnover and net profit for the A.Y. 2018-19 and 2019-20 when the assessee has followed the percentage completion method of recognizing the revenue in the books of account. Neither the AO nor the CIT (A) has carried out any exercise to determine the net profit and total turnover on the basis of material on ....