TaxTMI 
TaxTMI 
2026 (9) TMI 1524
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....22,96,92,770/-. The assessee in the said return of income has voluntarily admitted a sum of Rs. 4,07,68,905 towards profit element of the unaccounted cash receipts from sale of flats and an sum of Rs. 3,02,14,862 as additional income towards alleged bogus purchases. The A.O while completing the assessment u/s.143(3) held that 100% of the unaccounted cash receipts and alleged bogus purchases need to be added and accordingly made additions/disallowances as under - i. Unaccounted cash receipts from sale of flats Rs. 16,30,75,619/- ii. Disallowance towards alleged bogus purchases from M/s. PK Vaduvammal Rs. 16,37,65,074/- 3. The AO also made an addition u/s. 43CA to the tune of Rs. 1,25,100/-. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) deleted the additions / disallowances made by the AO. However the CIT(A) did not accept the submissions of the assessee with regard to deleting the partial additions/disallowances contended on the ground that the additions/disallowances are merely based on sworn statements and excel sheet/whatsapp chats. The grounds of the revenue and the cross objections of the assessee are against the order of CIT(A)....
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....o falsely inflate its expenses and the seized electronic evidence, including excel sheets and WhatsApp conversations, during the course of search proceedings, detailed the modus operandi where amounts were transferred through banking channels, but cash was returned by the vendor, amounting to Rs.50.52 crores across multiple financial years? On Short admission of business income arising out of sale as per sec 43CA: 1. The Ld.CIT(A) erred in deleting the impugned addition on the ground that reference to the District Valuation Officer has not been made when the assessee has not objected to the valuation ofthe stamp valuation Authority & he has not made any request to refer the matter to Valuation during the assessment proceedings? Common grounds of appeal: 1. The order of the Ld.CIT(A) is not acceptable as the decision of Hon'ble Tribunal in ITA No.2978-2984/Chny/2024 dated 02.05.2025 in the assessee's own case, based on which relief has been given in the present case, has not been accepted by Revenue and further appeal w/s 260A of the Act has been filed before the Hon'ble High Court, Madras and the same is pending adjudication. 2. ....
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....l proceedings, the Order of Ld.CIT(Appeals) may be set aside and that of Assessing Officer may be restored." 5. The Ld. Departmental Representative (DR) submitted that the CIT(A) has given relief to the assessee by placing reliance on the decision of the Coordinate Bench without considering the fact that the Department has filed further appeal against the order of the Tribunal before the Hon'ble High Court. The Ld. DR further submitted that the additions have been made by the A.O based on the material seized during the course of search and the statements recorded where the A.O has made 100% addition towards bogus purchases and cash receipts from sale of flats. The Ld. DR also submitted that each assessment year is difference and that the CIT(A) is not correct in giving relief to the assesses without examining the impugned issues on merits for the year under consideration. 6. The Ld. Authorized Representative (AR) of the assessee, on the other hand, submitted that the CIT(A) has not merely relied on the decision of the coordinate bench but has analysed the issue on merits. The ld AR drew our attention to the relevant findings of the CIT(A) where he has stated that when the....
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....dded therein and paid taxes thereon as well. The case of the Revenue however is that, the entire on-monies collected upon sale of flats ought to be brought to tax. According to us, however, it cannot be a matter of an argument in the given facts of the present case that, the amount as receipts/sales by itself would represent the income of the assessee. For this, we gainfully rely on the following findings rendered by the Hon'ble Gujarat High Court in the case of CIT Vs President Industries (258 ITR 654). "3. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a findi....
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....e this Mumbai Tribunal in the case of M/s. Prime Developers Vs ACIT (ITA Nos.175 - 178/Mum./2010 by order dated 22.03.2013) viz., the set-off/benefit of expenses against on-monies shouldn't be allowed as the assessee was unable to substantiate the incurrence of expenses with evidences. This Tribunal is noted to have rejected this plea of the Revenue and upheld the assessee's plea for estimation of profit element embedded in on-monies by observing as under: - "42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income/profit and it is basic and universal principle in any business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits, due to its very nature of unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such unaccounted evidences is impossibility. Probably, for this reason, the courts have taken conscious view that it is for the assessing authority to quantify reasonable expenditure considering the facts of the case and industry. Legally speaking, the judgments are uniform in asserting that entire sale proceeds should not be added as income. Hon'ble High court....
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....n'ble Apex Court is noted to be as follows: "Dismissed the special leave petition filed by the Department against the judgment dated January 21, 2002 of the Gujarat High Court in ITA No. 52 of 2002 whereby the High Court dismissed the Department's appeal on the ground that no substantial question of law arose. The question of law raised in the appeal before the High Court was whether the Appellate Tribunal's finding while directing the Assessing Officer to tax only 8 per cent of the unaccounted on money receipt instead of fully taxing it, in the absence of any evidence of expenditure, could not be stated to be perverse." 4.17 We further find that a similar view had been taken by the Hon'ble High Court of Gujarat in the case of PCIT, Surat Vs. Anupam Organiser (2020) (9) TMI 973. In its said order the Hon'ble High Court relying on its earlier order passed in the case of DCIT vs Panna Corporation (74 DTR 89), had observed, that the Tribunal was justified in considering that the assessee ought to have spent reasonable amount for the purpose of receiving the amount of on-monies and thus, what could be brought to tax was the profit embedded in such receipts and....
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....% as per the statement of the assessee and the Tribunal directed adoption of 15% as profits and hence the undisclosed income for the purpose of levy of tax. 6. We do not see any infirmity in the said direction. We specifically notice sub-section (2) of Section 158B of the Act, which defines "undisclosed income" as including inter alia any income based on an entry in the books of accounts or other documents or transactions representing whole or part of the income, which has not been or would not have been disclosed for the purposes of this Act. The provision does not permit tax to be levied on the entire receipt of money by an assessee and also does not deem undisclosed income to be the entire undisclosed receipts, revealed on search or otherwise. 7. Here, the sale consideration, which was detected on search and seizure, was not reflected in the books of accounts nor the profit returned as income for the subject years. The sale consideration was also for the purchase of apartments in different complexes, the development of which was promoted by the respondent/assessee. In such circumstances, the income of the assessee, which stood undisclosed, has to be determined ....
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....rofit margin that can be attributed as additional business income for the respective assessment years. Naturally any estimation should have some basis. The Income Tax Act, 1961 provides certain presumptive provision(s) to tax income when books of accounts are not maintained. Some of these are envisaged in section 44AD, 44AAD of the Act wherein the income is allowed to be estimated upon percentage. The provisions of section 44AD allows to taxation @ 8% of total receipts as taxable income. Whereas in section 44AAD of the Act, tax is not a fixed rate; it is based on the presumptive income calculated at 8% or 6%, and then the individual tax rates are applied based on total receipts. Thus, the undersigned placing reliance upon the above judicial decisions of the view that only the profits embedded in such receipts should be taxed and not the entire receipts as a whole and therefore disagrees to the action of the AO in adding the entire cash receipts. During the course of appellate proceedings, the appellant has made a submission in this regard, the relevant extract of the same is reproduced here as under. "Further, without prejudice to the submissions that no addition is requir....
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.... 4,99,00,478 24,95,02,394/- 6.5.33 It is observed that for the AY 2018-19, the AO has brought on record the claim of the assessee about the admission of Rs. 70,70,146/-. In this regard the AR contended that during the course of assessment proceedings, the Computation of total income was re-worked and the additional income offered was incorporated and the consequent taxes were paid, whereas in the assessment proceedings completed the re-working of additional income admitted was not considered by the AO. Further, the AR during the course of appellate proceedings, submitted that on the basis of the survey conducted on 24.01.2019, the AO issued a notice u/s 148 of the Act on 05.04.2022 and the assessee filed the return of income in response to the notice issued u/s 148 of the Act on 04.05.2022 which is before the date of search. Consequent to the search u/s 132 of the Act on 14.02.2023, the AO issued another notice u/s 148 of the Act, however, the assessee could not file any return in response to the second notice issued u/s 148 of the Act on account of technical glitches. Therefore, the assessee admitted 20% of the EB quantified during the course of search as additional....
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....tional income in its revised computation by admitting Rs. 70,70,146/- being 20% of unaccounted cash receipts, therefore, the undersigned is constrained to sustain (20% of Rs. 3,53,50,730/- of the addition made by the AO) Rs. 70,70,146/- and the AO is directed to delete the balance amount of Rs. 2,82,80,584/- for the AY 2018-19. Similarly for the AY 2022-23, the appellant company has not admitted additional income in the return of income filed u/s 139 of the Act, however the appellant, during the course of assessment proceedings has admitted additional income of Rs. 4,99,00,478/- being 20% of the unaccounted cash receipts from various projects for the AY 202223 in the revised computation. Therefore, the undersigned is constrained to sustain 20% of 24,95,02,394/- of the addition amounting Rs. 4,99,00,478/- and the AO is directed to delete the balance amount of Rs. 19,96,01,916/- for the AY 2022-23." 4.24 The Ld. CIT, DR appearing before us was unable to controvert the above estimation exercise conducted by the Ld. CIT(A). We also note that, the Constitutional Courts in their wisdom have generally estimated profit element in the range of 8% to 12.5% on the cash receipts invol....
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....eed a steel supplier and it is also not in dispute that the said supplier had genuinely supplied steel to the assessee. Instead, it is a case that some of the invoices issued by M/s PK Vaduvammalwere not fully backed by supporting documentation and therefore have been held to bogus. It thus appears to be a case that, the assessee would have purchased these materials from the grey market and obtained the bills/invoices from this supplier. In this regard, the Ld. AR has rightly pointed out that, the quantitative details, consumption of raw materials, construction of the buildings, corresponding sales and the book results have not been rejected by the AO. It is also not the case of the Revenue that in the given facts of this case, the volume of purchases made by the assessee was excessive or that the steel shown to have consumed in the construction of real estate was unreasonably high. Rather, the AO is noted to have accepted the overall book results of the assessee. According to us therefore, it is a case where the purchases were indeed made for the business, butalbeit from different parties in grey market, and the assessee had obtained invoices from M/s PK Vaduvammal in relation the....
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....ontractors would result in abnormal profitability and therefore countenanced the action of lower appellate authorities in estimating the profit element embedded in such inflated expenses. The relevant findings taken note of by us is as follows: - "12. A bare perusal of the compared results of the Gross Profit and Net Profit by the Assessee given in para 7 of the Tribunal's order clearly shows that the said Gross Profit at the rate of 14.21% and Net Profit at the rate of 3.83% declared by the Assessee, with the addition of 10% agreed by the Assessee before the learned Commissioner of Income-tax (Appeals), resulted in a much better result of profits declared by the Assessee in the present Assessment Year viz., A.Y. 2010-11 as compared to the previous years. The Net Profit rate in the previous three years was less than 3%, whereas the Assessee himself declared the net profit at the rate of 3.83% before the aforesaid addition of 10% of Rs. 4,41,08,210/-. Therefore, the estimation of profit by the Appellate Authorities even on the premise taken by the Assessing Authority that some of the Sub-Contractors could not be produced before the Assessing Authority, does not result i....
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....ing the sense behind this and keep on filing Appeals under section 260A of the Act, as a matter of routine." 8.8 We also gainfully refer to the decision of the Hon'ble Calcutta High Court in the case of PCIT v. Sikaria Infra Projects (P.) Ltd. (165 taxmann.com 48). In the decided case, the assessee was also a contractor engaged in development of infrastructure. The AO is noted to have doubted the genuineness of purchases and held it to be bogus for being non-verifiable. The AO accordingly rejected the book results and estimated the income of the assessee at a much higher sum. On appeal, the Hon'ble High Court held that, even if the purchases were not verifiable, it was not in dispute that the assessee had indeed carried out civil construction and therefore would have made purchases otherwise. Accordingly, it held that only the profits could have been estimated by the AO which was determined at 8%. The relevant findings are as follows: - "3. Learned Counsel for the revenue/appellant submits that certain purchases disclosed by the assessee were found not variable and therefore the additions were lawfully made by the assessing officer. Therefore, there was no occasio....
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....ile computing its income Rs. 41,047/-. Total Rs. 9,29,49,804/-. 7. The CIT(A)-VI, Kolkata in appeal no. 264/CIT(A)-VI/Cir-6/1112/Kol disposed of the appeal by a detailed order dated 9.11.2012 while determining the total income at Rs. 1,79,98,687/- by appellant and net profit rate of 8% on the contract received of Rs. 22,49,83,589/-. While affirming the best judgment assessment and after detailed discussion and reference to various judgments of Hon'ble Supreme Court, different High Courts and Tribunal in paragraphs 11 to 20 of its order, concluded in paragraph 21 and 22 as under: .... 10. It has not been disputed by the assessing officer that the assessee carried civil work and in view thereof he received a certain amount as consideration. The materials in execution of contract have not been disbelieved by the assessing officer. In this regard, the CIT(A) and ITAT have also recorded findings of fact. The ITAT has also noticed net profit rate of last seven years which ranged from 0.45% to 3.84%. The ITAT has also noticed net profit rate determined in matters of others in the same line of trade, to be about 4%. The assessee himself has....
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.... applicable to the present case as well, is as under: - "5. We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 6. In the present case, the Commissioner of Income-tax (Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence, therefore, the Commissioner (Appeals) be....
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.... CIT(A) and the Tribunal, it appears that so far as the Question No.1 is concerned, the CIT(A) has noted the fact that the Assessing Officer while making addition of the entire purchases has accepted the sales. Therefore, the CIT(A) considering the fact that the Assessing Officer could not have disallowed the entire purchases in absence of any finding on correctness of the amount paid/payable to creditors, the possibility of purchasing the goods from grey market at lower rates and recording the same at inflated price in books of account cannot be ruled out and hence, made an addition of gross profit @ 13.05%. The CIT(A), in support of its findings, relied upon the following decisions: '(i) The CIT v. Simit P. Sheth [2013] 38 taxmann.com 385/219 Taxman 85/356 ITR 451 (Gujarat) (ii) [Bombay HC WRIT PETITION NO.2860 OF 2012/NickunjEximp Enterprises (P.) Ltd. v. Assistant Commissioner of Income-tax [2014] 48 taxmann.com 20/229 Taxman 99 (Bombay)] (iii) A decision of the Hon'ble Bombay High Court in the case of Pr. CIT v. Pinaki D. Panani [IT Appeal No. 1543 of 2017, dated 8-1-2020]. (iv) A decision of the Hon'ble Bombay High Court in the ....
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....sion of the coordinate bench in assessee's own case pertaining to the same search, we see no reason to interfere with the decision of the CIT(A) in deleting the addition made by the A.O. The grounds raised by the revenue in this regard are thus dismissed. 9. With regard to the alleged bogus purchases, the Coordinate Bench has held that where purchases are found to be non-genuine or accommodation entries, the entire purchase value cannot be brought to tax if the corresponding sales are accepted. It is held that in such cases, only the profit element embedded in the bogus purchases is liable to be assessed, as the purchases are presumed to have been made from the grey market. The Tribunal further held that the quantum of such profit has to be estimated on the facts of each case and that an estimation of the profit element on the value of the bogus purchases as carried out by the assessee constituted a fair and reasonable estimate, warranting no further addition. In this regard also in the present appeal, no new facts or evidences have been brought on record by the revenue and therefore following the ratio laid down by the Tribunal as above, we hold that there is no infirmity i....
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.... maintained as part of regular books of accounts of the respondent. 8. For that the Commissioner of Income Tax (Appeals) failed to appreciate that electronic record from computers and laptops and WhatsApp conversations do not comply with the provisions of section 65B of the Indian Evidence Act, 1872 and hence the same are not admissible as evidence in the eyes of law. PRAYER For these grounds and such other grounds that may be raised, may be altered, amended or modified, with the leave of the Hon'ble Tribunal before or during the hearing of the appeal, it is most humbly prayed that the Hon'ble Tribunal may be pleased to: a) Delete the addition made towards purported unaccounted cash collected from customers for sale of flats and / or b) Delete the disallowance towards alleged bogus purchases and / or c) Pass such other orders as the Hon'ble Tribunal may deem fit." 12. The Ld. AR fairly conceded that the grounds raised by the assessee in C.O. are held against the assessee by the Coordinate Bench in assessee's own case (supra) where it is held that: 4.9 Heard both the parties. We first take up the assessee's ....
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.... search and coerced her into admitting that the cash collections were unaccounted for. He showed us that, due to the mental stress which she faced during search, she had soon after resigned from work as well. As far as the statement of Managing Director was concerned, he showed us that, he had retracted his statement and therefore the same was no longer reliable. In so far as the contents of the excel sheet was concerned, the Ld. AR argued that these were mere estimates and that the term "EB" suggested extra budget allocated for the said flat and that there was no cash component in these loose sheets. 4.11 Having considered the aforesaid submissions put forth by the Ld. AR of the assessee, we note that, the same had been examined by AO, and he negated the said plea, by observing that, the persons whose statements were being relied upon, had deposed their answers while recording their statements u/s 132(4) of the Act with reference to seized material. Accordingly, it is not the case that their statements were bald or not backed by any material. Further, the AO has noted that, above mentioned two employees never retracted their statements and that even the Managing Director ....