M/S. JAY KESAR BHAVANI DEVELOPERS PVT.LTD.,SURAT vs. THE ITOI,WD.1(3), SURAT

आदेश /O R D E R PER O. P. MEENA, AM: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-I, Surat(in short “the CIT (A)”) dated 01.02.2013 pertaining to Assessment Year 2009-10, which in turn has arisen from the assessment order passed under section 143 (3) dated 09.12.2011 of Income Tax Act, 1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 1(3),Surat (in short “the AO”).

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 2 of 15

income on 08.10.2009 declaring total income of Rs.8,82,070. Book

profit was shown at Rs. 25,84,547 for the purpose of section 115JB of the Act. The assessee has shown turnover of Rs.567.44 lakhs and

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 3 of 15

other income of Rs.123.49 lakhs and shown net profit at Rs.

25,54,547. The assessee has claimed deduction of Rs.30,23,019 u/s.

80IB(10) of the Act. A survey under section 133A conducted on

30.12.2009 by the DDIT(Inv.) Surat as to how business premises of the

assessee. The AO noted that the assessee has shown turnover of Rs.

6,90,92,636 and claimed expenses of Rs.6,65,08,089 and shown gross

profit at Rs.25,84 547 before tax in original return of income whereas

after survey the assessee has filed revised Profit & Loss Account

disclosing turnover at Rs.25,94,55,680 and expenditure of

Rs.25,71,84,057 showing gross profit at Rs.22,71,622. The AO noted

that the assessee has claimed additional expenditure of

Rs.4,29,02,369 to cover up additional amount of construction work of

Rs.4,29,02,369 credited in the revised Profit & Loss Account. The AO

further observed that each cash payment is shown below Rs.20,000

and vouchers are made, hence, books of accounts are not reliable

accordingly, same were rejected under section 145(3) of the Act. The

AO has observed that total receipts as per impounded Page No. 5 to

39 of annexure B-I is at Rs.10,39,86,000 whereas in the return of

income same has been shown at Rs.5,67,83,632 Hence, gross receipts

are shown less by Rs.4,72,02,368. The AO further observed that

during the course of assessment proceedings the assessee has

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 4 of 15

confessed to have received total receipts of Rs.9,98,17,066 out of

total gross receipts of Rs.10,39,86,000 and balance receipts of Rs.

41,68,934 were not received during year. The AO further observed

that the assessee has admitted additional income of Rs.5.11 crores,

in addition to regular income during survey before DDIT(Inv.) Surat

for A.Y.2010-11. The assessee company also confessed to have

received unrecorded receipts for the customers. The assessee has

already claimed the expenses to the extent of Rs. 665 crores. In view

of above discussion, the AO brought to tax, the unaccounted receipts

of Rs.4,72,02,368 and made addition to total income. 5. Being, aggrieved, the assessee filed an appeal before the Ld.

CIT (A). However, the Ld. CIT(A) observed that the assessee has

receipts at Rs.6,90,92,636 in the original return of income, which are

increased to Rs.25, 94, 55, 680, in the revised Profit & Loss Account

and balance sheet. The assessee has also increased its expenses from

Rs.6,65,08,089 to Rs. 25,71,84,057 in the revised Profit & Loss

Account. The additional expenses have been claimed on the basis of

cash vouchers which were not produce before the survey team on the

date of survey. The assessee has stated that the auditors did not

consider the same correctly in the audited accounts. For some units

sale consideration was shown as booking advance. The appellant also

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 5 of 15

stated that even the expenditure has not been correctly accounted

for by the auditors. In view of these facts, the Ld. CIT(A) observed

that the receipts and expenses have been increased several times in

comparison to those reflected in the audited books of accounts, itself

is sufficient reason for rejection of the books of accounts of the

appellant. Therefore, the rejection of books of accounts by made the

AO, was upheld. The Ld. CIT(A) further observed that as per the

impounded materials the gross receipts are shown at

Rs.10,39,86,000, while in the return of income the corresponding

receipts in respect of 38 units have been disclosed at Rs.5,67,82,632.

Therefore, the difference of Rs.4,72,02,368 has been rightly added

by the AO as unaccounted receipts. The appellant’s contention that

the AO should have allowed the deduction for unaccounted

expenditure out of unaccounted receipts and should not have added

the gross receipts was not found acceptable as the disputed

unaccounted receipts of Rs.4,72,02,368 have been worked out on the

basis of impounded materials. It is also fact that in the revised Profit

& Loss Account, the assessee has increased its expenses to Rs.25, 94,

55, 680 by adding closing stock of Rs.14, 74, 60, 675 and construction

work of Rs.4, 29, 02, 369. Further, the claim of additional expenses

are supported only by cash vouchers with cash payment less than Rs.

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 6 of 15

20,000 in each case as mentioned by the AO. These vouchers were

not found or produce before the survey team and were not given to

the auditors. The Profit & Loss Account and balance sheet, prepared

by the auditors did not include these receipts and expenditure.

Therefore, the appellant’s claim was not found maintainable. In view

of these facts, the addition made by the AO at Rs.4, 72, 02,368 being

entire unrecorded receipts was confirmed. 6. Being, aggrieved the assessee filed this appeal before the

Tribunal. The learned Counsel submitted that the AO has made the

addition of entire on money receipts, without allowing expense which

were duly supported by the vouchers which were reflected in the

impounded material. It is fact that the assessee has incurred

expenditure corresponding to the gross receipts. The corresponding

expenditure in cash is the requirement of construction business. The

assessee has accordingly made a claim of expenditure by way of filing

revised Profit & Loss Account by which the expenditure was increased

and also the gross receipts were increased. However, the AO based

on impounded material computed gross receipts at Rs.10 29 crores as

against the receipts shown in the books of accounts at Rs.5.67 crores,

which was filed before survey under section 133A carried out.

However, the AO has failed to considered expenditure so incurred

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 7 of 15

and claimed by way of filing vouchers of the same. The AO has made

addition of the difference between gross receipts and receipts in

books of accounts of Rs.4.72 crores but did not allow credit of

expenses incurred. Learned Counsel contended that the entire on

money receipts cannot be considered as net income of the assessee

as the assessee has incurred corresponding expenditure to earn such

on-money receipts. Therefore, only profit embedded therein in the

line of business which has been disclosed by the assessee should be

considered for arriving at true and net income. The learned counsel

for the assessee placing reliance on the decisions of Hon’ble Gujarat

High Court in the case of CIT v. President Industries [2002] 258 ITR

654 (Gujarat) /124 Taxman 654 (Gujarat) submitted that entire sales

could not be added as income of the assessee, but addition could be

made only to the extent of estimated profits embedded in sales for

which net profit disclosed in the books of accounts was to be

adopted. It was further submitted that even otherwise also, the

entire on money cannot be taxed in the year of receipt as the same

is required to be tax in the year in which actual sales takes place.

The learned counsel for the assessee also placed reliance in the case

of Jay Builders v. ACIT, 33 taxmann.com 62 and also decision of

Hon’ble ITAT, Ahmedabad in the case of Kishor Telwala [199] 64 TTJ

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 8 of 15

of those units where evidences relating to receipt of on-money has

been found and not in respect of other units where there are no such

evidences. The learned counsel for the assessee further relied on the

judgement in the case of the Hon’ble Gujarat High Court in the case

of CIT V. Ashland Corporation 133 ITR 55 and in CIT v. Motilal C Patel

& Company 173 ITR 666 wherein it laid down that it is settled law

that no addition can be made purely based on statement recorded

during survey. The learned counsel for the assessee further relied on

the judgement of Hon’ble Gujarat High Court in the case of DCIT V.

Panna Corporation [Tax Appeal No. 323 and 325 of 200 dated

16.06.2012] 74 DTR 89, wherein it was held that it has been

consistently held by this court and some other courts have been

following the principle that even upon detection of on-money receipt

or unaccounted cash receipt, what can be brought to tax is the profit

embedded in such receipts and not the entire receipts themselves. If

that were, the legal position, what should be estimated as a

reasonable profit out of such receipts, must bear an element of

estimation. Further in the case of Abhishek Corporation v. Dy. CIT

[1999] 63 TTJ (Ahd.) 651 it was held that “Where it was found that

assessee had been charging ‘on money’/premium in respect of

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 9 of 15

booking of flats, the entire receipts on account of ‘on

money’/premium charged by the assessee on booking of flats would

not be the undisclosed income of the assessee for the block period,

but only net profit rate could be applied on unaccounted

sales/receipts for the purpose of making the addition. 7. In view of above stated judicial pronouncements, it was

contended that only element of profit is to be considered. It was

submitted that the net profit disclosed before tax by the assessee for

the assessment year under consideration was @4.55% in assessment

year 2009-10 and was @ 4.59% in assessment year 2010-11. Therefore,

the only net profit should be adopted, and the entire on-money

receipts of Rs. 4.72 crores. The learned counsel for the assessee

further placed reliance on the decision of ITAT Surat bench in the

case of ACIT V. M/s. Mansi Reality Pvt. Ltd. [I.T.A.No. 540/AHD/2016

A.Y. 11-12 dated 13.12.2019, wherein net profit of on-money receipts

was adopted by the ld.CIT (A) was upheld by the tribunal by holding

that in the case of on-money receipts, only profit embedded therein

is to be taxed and not the entire on-money receipts. 8. Per contra, learned CIT(D.R.) relied on the order of CIT (A) and

submitted that the expenditure claimed by way of cash vouchers

were not produced during survey, hence, same is not found

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 10 of 15

acceptable by the AO lower authorities. The expenditure incurred by

the assessee has been already accounted for in audited books of

accounts hence, the CIT (A) was justified in confirming addition of

entire on-money receipts. 9. We have heard the rival submissions and perused the relevant

material on record. We find that the impounded material revealed

that the assessee has earned gross receipts amounting

Rs.10,39,86,000 whereas in the return of income, the same were

shown at Rs.5,67, 83, 632. Hence, the AO made addition of difference

in gross found and shown by the assessee at Rs.4,72,02,368 received

by the assessee on account on-money on sale of flats during the year

under consideration. We find that the assessee had claimed the

expenditure by way of filing cash vouchers during the course of

assessment proceedings, however, the AO has disbelieved the same

without giving cogent reason and investigation and verification. The

learned counsel for the assessee contended that considering the fact

that the entire money receipts cannot be taxed in entirety and only

the profit embedded therein in such receipts is to be considered for

arriving at correct, true and real income for taxation. The learned

counsel for the assessee supported his views by placing reliance on

the judgement of the Hon’ble Gujarat High Court in the case of DCIT

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 11 of 15

V. Panna Corporation [Tax Appeal No. 323 and 325 of 2000 dated

16.06.2012] [2012] 74 DTR 89 (Gujarat) where it was held that “it

has been consistently held by this court and some other courts

have been following the principle that even upon detection of on-

money receipt or unaccounted cash receipt, what can be brought

to tax is the profit embedded in such receipts and not the entire

receipts themselves. If that were the legal position, what should

be estimated as a reasonable profit out of such receipts, must

bear an element of estimation.” Therefore, respectfully following

the ratio of judgement of Hon`ble jurisdictional High Court, we are

of the considered opinion that only profit elements embedded in on-

money receipts is required to be taxed and not the entire on-money

receipts. 10. The learned Counsel has further placed reliance on the decision

of Honourable judicial High Court in the case of CIT v. President

Industries [2002] 258 ITR 654 (Gujarat)head note reads “Section 69B,

read with section 256, of the Income-tax Act, 1961 - Undisclosed

investments - Assessment year 1994-95 - Whether amount of sales

by itself cannot represent the income of the assessee who has not

disclosed the sales - Held, yes - During survey it was found that

assessee had not disclosed certain sales in books of account -

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 12 of 15

Whether Tribunal was justified in holding that unless there was a

finding that investment by way of incurring cost in acquiring goods

which had been sold, had been made by assessee and that had also

not been disclosed, only net profits embedded in sales, and not

wholesale proceeds itself, would be treated as undisclosed income

of assessee - Held, yes”. 11. In the case of CIT v Abhishek Corporation [2000] 158 CTR 374

(Gujarat) the Hon’ble Gujarat High Court of which catch note reads

as under: addition on account of unaccounted receipts- Assessee-

firm under took supervision of construction work and booking of

flats on behalf of two co-operative societies – Inference was drawn

from a paper seized from one M that flats were sold at premium –

In response to a notice declared undisclosed income of Rs. 30

lakhs – Considering the fact that assessee was entitled supervision

charges only and taking into consideration depreciation , salary ,

etc. . Tribunal determined the profit rate 1.31 percent – same was

not disputed by Revenue – Tribunal found that undisclosed income

of Rs. 30 lakhs declared by the assessee was not less than net

profit calculated at 1.31 percent – investment in land and in

construction was not shown to have been made by the assessee –

Thus, , Tribunal rendered its decision on appreciation of material

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 13 of 15

placed on record – No referable question of law arises. The learned

counsel for the assessee submitted that the decision of Hon’ble

Gujarat High Court 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

was no occasion to suppress the profit rate as disclosed by the

assessee. 12. The Ahmedabad tribunal in above case in the of DCIT v.

Abhishek Corporation v. DCIT [1999] 63 TTJ(Ahd0 651 (Ahmedabad-

Trib)held that “Where it was found that assessee had been charging

‘on money’/premium in respect of booking of flats, the entire

receipts on account of ‘on money’/premium charged by the assessee

on booking of flats would not be the undisclosed income of the

assessee for the block period, but only net profit rate could be

applied on unaccounted sales/receipts for the purpose of making the

addition. Similarly the ITAT Surat bench in the case of ACIT V. M/s.

Mansi Reality Pvt. Ltd. [I.T.A.No. 540/AHD/2016 A.Y. 11-12 dated

13.12.2019, wherein net profit of on-money receipts was adopted by

the ld.CIT (A) was upheld by the tribunal by holding that in the case

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 14 of 15

of on-money receipts, only profit embedded therein is to be taxed

and not the entire on-money receipts. 13. In the light of above discussion, and respectfully following the

judgements of Hon`ble Jurisdictional High Court as discussed above

and also of Tribunal, we of the considered opinion that Ld. CIT (A)

was not justified in confirming the addition of entire on-money

receipts amounting to Rs.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 (supra) 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) of the Act, hence, there may not be any intention to disclose

the lower rate of profit. Considering these facts, and taking in to

account net profit in construction business, it would be reasonable to

estimate 6% of net profit on total on-money receipts of Rs.

4,72,02,368. Accordingly, the AO is directed to tax net profit @6% on

Jay Kesar Bhavani Developers Pvt. Ltd. v. ITO-WD-1(3) Surat/I.T.A.No. 1196/Ahd/2013/A.Y. 09-10 Page 15 of 15

total on-money receipts of Rs.4,72,,02,368. In view of these facts and

circumstances, the Ground No. 4 to 6 of appeal are partly allowed. 14. In the result, the appeal of the assessee is partly allowed. 15. The order pronounced in the open Court on 13.02.2020

Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 13th February, 2020/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order // TRUE COPY // Assistant Registrar, Surat