ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE3-(2), HYDERABAD vs. TRINITY INFRAVENTURES LIMITED, NEW DELHI

The grounds raised by the assessee in ITA No.788/Hyd/2020 read as under :

On the other hand, the grounds raised by the Revenue in ITA No.763/Hyd/2020 read as under :

At the outset, there is a delay of 2 days in filing one of the appeals of the Revenue, i.e., ITA No.763/Hyd/2020, before the Tribunal. The Revenue has filed an affidavit explaining the reasons for the delay. After considering the submissions of the Revenue and hearing both the parties, we find that the delay is due to bona fide reasons and comes under ‘sufficient cause’. Accordingly, following the principles laid down by the Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji, reported in 167 ITR 471 (SC), we condone the delay of 2 days in filing the appeal of the Revenue before the Tribunal and admit the same for adjudication.

The brief facts of the case are that, the assessee company, M/s. Trinity Infraventures Limited, formerly known as M/s. Goldstone Exports Private Limited, has filed its return of income for A.Y. 2010-11 on 28.11.2011 declaring total income of Rs.3,10,23,890/-. A search and seizure operation under Section 132 of the Income-tax Act, 1961, was conducted in the case of M/s. MBS Jewellers Private Limited and its group of cases on 11.03.2010. During the course of search, certain documents were found and seized relating to M/s. Trinity Infraventures Limited, which were seized vide Annexure A/MBSPL/PJT/PO-1/04 at pages 198 to 208, and the copy of the sale deed executed by Smt. R. Annapurna and Dr. P.S. Prasad in favour of M/s. MBS Impex Private Limited, which contains details of sale of property by the assessee company. Consequent to such search, notice under Section 153C of the Act, was issued and served on the assessee, and in response, the assessee filed its return of income on 28.11.2011 declaring total income of Rs.3,10,23,890/-. The case was selected for scrutiny and during the course of assessment proceedings, by considering the voluminous data and complexity involved in the books of accounts of the assessee, a special audit under Section 142(2A) was referred to for audit of the accounts of the assessee, and M/s. Ratnam Daveji, Chartered Accountants, was nominated by the Commissioner of Income Tax, Central, Hyderabad, who later submitted the Special Audit Report. The AO, after considering the relevant submissions of the assessee and also taking note of various incriminating material found during the course of search, observed that, the affairs of the company are far from normal, lack transparency and clarity. Further, there is non-cooperation by way of delay in submission of information coupled with skeletal replies by the assessee. Therefore, the AO, after considering the relevant submissions of the assessee and also taking note of the special audit report, rejected the books of accounts of the assessee.

The AO further noted that, during the course of search in MBS group of cases, the incriminating material found shows that there was a land deal between M/s. Goldstone Exports Limited, M/s. Goldstone Group, represented by Sri. Dr. P.S. Prasad, and M/s. MBS Jewellers Private Limited and M/s. MBS Impex Private Limited, etc., represented by Sri. Sukesh Gupta, relating to sale of land at Sy. No. 172, Hydernagar village, Kukatpally Mandal, Ranga Reddy district, and Sy. No. 78, Hafeezpet, Serilingampally Mandal, Ranga Reddy district. The AO further noted that, as per the GPA issued by M/s. Cyrus Investment Limited, 98.10 acres of land in Sy. No. 172 of Hydernagar village and 107.33 acres in Sy. No. 78 of Hafeezpet was assigned to the assessee company. The basic issue which was unearthed during the course of search was the huge on-money paid by Sri. Sukesh Gupta group through his company to the assessee company for transfer of land in Sy. No. 172 and 78. The AO further observed that, as per the information found during the course of search, the assessee company transferred 98.10 acres of land at Sy. No. 172, for which Dr. P.S. Prasad confirmed receipt of Rs. 230 crores as on 14.11.2009. Though this document is unsigned, the same gets credence from the other documents found during the course of search, including the confirmation from Dr. P.S. Prasad and therefore, the AO, by taking note of relevant details and also other incriminating material found during the course of search, observed that, the assessee company has received total consideration of Rs. 230.27 crores for sale of land, however, has not disclosed the total receipts in the books of accounts. Therefore, the difference amount of Rs. 176.11 crores has been treated as on-money received for sale of land and since the total land is assigned to various parties the land extent held by the assessee company, which was 5.04 acres, made addition of Rs. 9,14,15,873/- on substantive basis towards on-money receipts on sale of land in the hands of the assessee. The AO further noted that, the remaining extent of land was assigned to different companies of assessee group and since there is no clarity as to who is the real owner of land, the balance amount of on-money of Rs. 166,96,84,127/- has been added in the hands of the assessee on protective basis. The A.O. had also rejected books of accounts and estimated 16% profit on gross receipts and assessed income from business and profession at Rs.8,81,60,000/-. Thus, the AO has completed the assessment under Section 143(3) r.w.s. 153C of the Act, on 17.08.2012 and determined the total income at Rs. 187,08,35,773/-.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee had filed detailed written submissions on the issue of estimation of 16% profit on gross receipts, which has been reproduced at para 6.1 on pages 11 to 15 of the Ld. CIT(A)'s order. The assessee had also challenged the addition made by the AO towards alleged on- money receipt for sale of land to the extent of 5.04 acres on substantive basis for Rs.9,14,15,873/- and the balance amount on protective basis for Rs.166,96,84,127/-, and argued that the material relied upon by the AO were unsigned documents, without any reference as to the amount received by the assessee, and therefore, the additions made by the AO cannot be upheld. The assessee had also challenged the assessment order in light of non- issuance of statutory notice under Section 143(2) and argued that in the absence of issuance of notice under Section 143(2), the assessment order passed by the AO is invalid and liable to be quashed.

The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of various reasons given by the AO to estimate 16% profit on gross receipts, rejected the ground taken by the assessee and upheld the profit estimated by the AO by holding that the assessee has not produced any evidence with regard to the expenses claimed in the books of accounts and in the absence of relevant details, the AO had no option but to estimate the income of the assessee on business receipts by considering the nature of business and the book results declared by the assessee for earlier assessment years. Therefore, by taking note of the rate of profit adopted by the AO, which was also adopted by the AO for the earlier assessment year, i.e., A.Y. 2009- 10, and accepted by the assessee without filing any appeal, the Ld. CIT(A) upheld 16% profit estimated by the AO on gross receipts.

Insofar as the additions made by the AO towards alleged on- money receipts for sale of property, the Ld. CIT(A), after considering relevant submissions of the assessee and also reasons given by the AO to make additions, deleted the additions made by the AO by holding that the evidence considered by the AO for making addition towards alleged on-money on substantive basis for Rs.9,14,15,873/- does not show any details of on-money received by the assessee. The Ld. CIT(A) has discussed the relevant incriminating material found and seized during the course of search and relied upon by the AO for the purpose of assessment of unaccounted money. The document relied upon by the A.O. in Annexure A/PCG/RES/01, which is an unsigned draft agreement, cannot be a great evidentiary value to fasten tax liability on alleged on-money. The next document relied upon by which is only signed by Dr. P.S. Prasad, but going by the above document, it shows that the transfer of land to the extent of only 28 acres has been executed and further promised to transfer 48 acres of land. It also talks about obtaining NOC from Sri Vaddepalli Narsing Rao. However, there is no evidence of receipt of consideration of Rs. 230 crores as alleged by the AO. The image copies of seized hard disks, A/MBS/05 & 06, containing the details of payment for transfer of shares, however, do not show any details of alleged on-money. Therefore, from the above, it is very clear that, although the AO alleged that the assessee has received on-money of Rs.176,11,00,000/- for transfer of 98.10 acres of land, but fact remains that the assessee sold the land to the extent of 34.61 acres in Sy. No. 172 to MBS Group. Further, the balance extent of 63.49 acres is still in the name of assessee group companies, for which an agreement for sale of land to the extent of 48 acres was entered into and the same has been cancelled. Further, the documents found during the course of search on 29.11.2017 also show that the AO has assessed the capital gain on the above transactions in A.Y. 2013-14. Therefore, it is observed that, there is no clear evidence of receipt of on- by the AO towards alleged on-money receipts of Rs.9,14,15,873/- on substantive basis. The Ld. CIT(A) further noted that, in respect of balance on-money of Rs.166,96,84,127/-, the AO made addition on protective basis, however, there is no substantive addition in any of the group companies and from the above, it is very clear that, there is no clarity as to the taxation of receipts, whether in the hands of the assessee or any other group companies. Thus, the Ld. CIT(A) rejected the reasons given by the AO and deleted the addition made by the AO towards alleged on- money of Rs.166,96,84,127/-.

In so far as the legal ground taken by the assessee challenging the validity of assessment order passed by the AO in the absence of statutory notice under Section 143(2) of the Act, the Ld. CIT(A) observed that, the assessee has filed return of income on 28.11.2011 and the AO has issued notice under Section 143(2) on 16.05.2012, which is well within the statutory time and therefore, the grounds taken by the assessee are devoid of merit and rejected.

Aggrieved by the order of the Ld. CIT(A), the assessee as well as Revenue are now in appeal before the Tribunal.

The first issue that came up for our consideration from the grounds of appeal of the assessee as well as the grounds of appeal of the Revenue is with respect to the deletion of addition of Rs.176,11,00,000/- towards alleged on-money received for sale of land.

The Ld. CIT-DR, Shri Waseem UR Rehman, submitted that the Ld. CIT(A) erred in deleting the entire addition of Rs.176,11,00,000/-, representing on-money received on transfer of land, comprising Rs.9,14,15,873/- added on substantive basis and Rs.166,96,84,127/- added on protective basis, even though the AO has made additions on the basis of incriminating material found during the course of search, which clearly shows the alleged land transaction between the assessee company and the MBS Group represented by Sri. Sukesh Gupta, where the assessee has transferred land in Sy. Nos. 172 and 78. The Ld. CIT-DR further submitted that, the Department had found an unsigned agreement which was seized during the course of search, which clearly shows the sale of 98.10 acres of land in Sy. No. 172, Hydernagar, and Dr. P.S. Prasad confirmed the receipt of Rs.230 crores as on 14.11.2009. Further, the document clearly shows that the rate per acre was fixed at Rs.3.50 crores. The other document relied upon by the AO, that is, the Memorandum of Settlement dated 25.01.2010, signed by Dr. P.S. Prasad, confirms the transfer of 28 acres of land to the M/s. MBS Group and further promises to transfer another 48 acres of land and 57 lakh shares of M/s.Goldstone Technologies Limited. The handwritten manuscript agreement, written in the handwriting of Dr. P.S. Prasad, dated 19.02.2010, signed by both the parties, confirms that all 98.10 acres in Sy. No. 172 would be transferred to Sri. Sukesh Gupta, in lieu of which Sri. Sukesh Gupta would give a further amount of Rs.50 crores to Dr. P.S. Prasad. There is evidence that some amount of money was paid, which was also considered by the AO while discussing the issue of on-money. The image copies of the seized documents clearly disclose that the total liability towards shares was Rs.200.11 crores, out of which amounts were settled to the tune of Rs.176.11 crores. The AO considered all these evidences and made an addition towards alleged on-money on substantive basis of Rs.9,14,15,873/-, by considering the share of the assessee in the total extent of land sold by the assessee company. In respect of the remaining extent of land, since other group entities were having assignment rights in the land and the assessee had declared the sale consideration in its hands, the AO made a protective addition of Rs.166,96,84,127/-. The Ld. CIT(A), without considering the evidences, simply deleted the additions made by the AO on the ground that there was no evidence in respect of on-money and that the documents considered by the AO consisted only of an unsigned agreement coupled with other documents, which did not show any receipt of on-money.

The Ld. CIT-DR, further referring to the order of the Ld. CIT(A), submitted that, there are apparent contradictions in the findings of the Ld. CIT(A). Going by the order, the Ld. CIT(A) has stated that there is evidence to the effect that the sale of property involved total consideration in cash, but went on to delete the addition towards on-money by holding that there is no evidence. Once the existence of evidence is established and once the existence of income is established, the quantum cannot be nil. However, the Ld. CIT(A), even without considering the relevant evidences, simply deleted the additions made by the AO. The Ld. CIT-DR further proceedings of the assessee. As per Section 132(4A) and Section 292C, the presumption is on the assessee to explain the contents of the documents. The statements of third parties also corroborate the seized documents, wherein they have confirmed the receipt of on-money towards the losses incurred on transfer of shares of Goldstone Technologies Limited. All these evidences clearly show the land transaction between the assessee company and the MBS Group and the receipt of on-money. The Ld. CIT(A), without appreciating the relevant facts, simply deleted the additions made by the AO. Therefore, he submitted that, the order of the Ld. CIT(A) should be set aside and the additions made by the AO should be upheld.

The Ld. counsel for the assessee, Shri P. Murali Mohan Rao, C.A. supporting the order of the Ld. CIT(A), submitted that, the land in question belongs to M/s. Cyrus Investments Limited, which was, in turn, assigned to various group companies of Dr. P.S. Prasad, and the assignment was approved by the Hon’ble High Court of Andhra Pradesh. The assessee company has offered and treated the income from land transactions as its business income and also paid taxes. The assessee company has offered more than Rs.155 crores of income from the sale transactions. The AO made an addition towards on-money on the basis of documents seized during the course of search and alleged that the assessee company had received total consideration of Rs.230 crores. After considering the income declared by the assessee in the books of accounts, the AO made an addition of Rs.176,11,00,000/- towards on-money, out of which Rs.9,14,15,873/- was added on substantive basis towards on-money received for 5.04 acres of land assigned in favour of the assessee company. In respect of the remaining extent of land, the AO assumed that, the consideration was received by the other group companies and, therefore, made an addition of Rs.166,96,84,127/- on protective basis. However, the fact remains that, as per the seized document, the assessee company has sold land to the extent of 34.61 acres in Sy. No. 172, and the balance land to the extent of 63.49 acres is still in the name of the assessee group companies. The Ld. CIT(A), after considering the relevant facts, has rightly held that, there is no clear evidence of receipt of on-money as alleged by the AO.

The Ld. counsel for the assessee, further referring to the order of the Hon’ble High Court of Telangana in various I.A.s in O.S.A. Nos. 54 to 59 of 2004 by order dated 20.12.2019, submitted that, the impugned land to the extent of 98.10 acres in Sy. No. 172 was finally declared to belong to the State of Telangana. Further, the Hon’ble Supreme Court, in various Civil Appeal Nos. arising out of SLP(C) Nos. 2373 to 2377 of 2020, by order dated 15.06.2023, has finally decided the issue and held that the land in question belongs to the Government of Telangana. From the above, it is very clear that, the alleged land transactions considered by the AO for the purpose of making addition towards alleged on-money do not belong to the assessee company and, therefore, the allegation of the AO that the assessee has received total consideration of Rs.230 crores and that the balance amount of Rs.176.11 crores represents on-money is totally incorrect. The Ld. CIT(A), after considering the relevant facts, has rightly deleted the addition made by the AO. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the Ld. CIT(A) to delete the addition made towards alleged on- money of Rs.176,11,00,000/- and the relevant findings of the Ld. CIT(A) recorded in para 7.2 of his order, as reproduced as under :

From the findings recorded by the Ld. CIT(A), it is very clear that, the AO made addition towards alleged on-money of Rs.176,11,00,000/-, comprising Rs.9,14,15,873/- on substantive basis and Rs.166,96,84,127/- on protective basis, on the basis of incriminating material found during the course of search in the case of M/s.MBS Group, which includes an unsigned draft agreement and Memorandum of Settlement dated 25.01.2010. The AO alleged that Dr. P.S. Prasad had confirmed receipt of Rs.230 crores as on 14.11.2009 towards the sale of Ac. 98.10 Gts. of land at Sy. No. 172, Hydernagar. Accordingly, the AO, relying on the other evidence found during the course of search, including image copies of hard disks, observed that, the documents clearly showed the settlement of dues relating to the shares of M/s. Goldstone Technologies Ltd. The total liability towards shares was shown at Rs.200.11 crores, out of which an amount of Rs.176.11 crores was shown as settled. Therefore, the AO observed that, the assessee difference amount of Rs.176.11 crores as on-money. Since the assessee had assignment rights over 5.04 acres of land, the AO made a substantive addition towards alleged on-money of Rs.9,14,15,873/-. In respect of the balance on-money of Rs.166,96,84,127/-, the AO made an addition on protective basis.

The Ld. CIT(A) further noted that, the next document relied upon by the AO, i.e., the Memorandum of Settlement dated 25.01.2010, is signed only by Dr. P.S. Prasad and that the above document does not show any details of the alleged receipt of Rs.230 crores as considered by the AO. Further, the document clearly shows the transfer of land to the extent of 28 acres and further promise to transfer 48 acres of land. It also talks about obtaining NOC from Sri Vaddepalli Narsing Rao, Sri Vamsi Mohan and Sri Raghu, and the transfer of 57 lakh shares of M/s. Goldstone Technologies Limited. Clause 16 of the above Memorandum of Settlement contains a stipulation that the above document has to be executed within 14 days from 25.01.2010, failing which it shall cease to operate. Since the document is signed only by one party and the agreement was not acted upon assessee had received on-money of Rs.230 crores and that the same was confirmed by Dr. P.S. Prasad was totally incorrect.

The Ld. CIT(A) further noted that, the alleged document relied upon by the AO, i.e., the manuscript dated 19.02.2010, clearly shows that the transaction was yet to be completed, and both the signatories had promised to complete the transaction. Further, the image copies of the seized hard disks, particularly page No. 15 of Annexure A/PCG/RES/01, contain details of payments in respect of shares. However, the fact remains that the above transactions or payments were made by Sri. Sukesh Gupta of MBS Group and had nothing to do with the assessee company. Therefore, the Ld. CIT(A) observed that,, from the documents considered by the AO for the purpose of making an addition towards alleged on-money of Rs.176,11,00,000/-, it is very clear that, the assessee company had transferred 34.61 acres of land in Sy. No. 172 and the entire consideration had been accounted for in the books of accounts as business receipts, whereas the remaining extent of 63.49 acres of land was still in the name of the assessee group companies and was yet to be transferred. Therefore, taking into account the the A.Ys. 2009-10 and 2010-11 for Rs. 155,00,00,000/-, the Ld. CIT(A) deleted the addition made by the AO towards alleged on- money of Rs.176,11,00,000/-.

The Ld. CIT(A) further noted that, the alleged document relied upon by the AO, i.e., the manuscript dated 19.02.2010, was duly signed by Dr. P.S. Prasad and Sri. Sukesh Gupta. However, the contents show that the transaction was yet to be completed, and both the signatories had promised to complete the transaction. Further, the image copies of the seized hard disks, particularly A/MBS/05 & 06, read with page No. 15 of Annexure A/PCG/RES/01, contain details of payments in respect of shares. The payments or allocation of shares were made by the concerns of Sri. Sukesh Gupta of MBS Jewellers Group. Therefore, the Ld. CIT(A) observed that, from the documents considered by the AO for making an addition towards alleged on-money of Rs.176,11,00,000/-, it is very clear that, the assessee company had sold land to the extent of 34.61 acres in Sy. No. 172, against which consideration of Rs.43,20,00,000/- had been received and included in the turnover of the assessee company for A.Y. 2009-

The balance extent of 63.49 acres of land was still standing in the name of the assessee group companies. Further, the assessee had offered total sales of more than Rs.155,00,00,000/- for A.Ys. 2009-10 and 2010-11, out of which approximately Rs.46,00,00,000/- related to other properties. Accordingly, the Ld. CIT(A), after considering the relevant facts and evidence, deleted the addition made by the AO towards alleged on-money of Rs.176,11,00,000/-.

Although, the Revenue has challenged the findings of the Ld. CIT(A) and raised various grounds, but going by the grounds of appeal of the Revenue and the corresponding evidence considered by the AO for the purpose of assessment of alleged on-money, in our considered view, the Revenue has failed to bring on record any credible evidence which shows the alleged on-money transactions between the assessee company and MBS Group for transfer of 98.10 acres of land as considered by the AO. On the other hand, the very same document considered by the AO clearly shows that the transfer of land to the extent of 34.61 acres has taken place so far and the balance 63.49 acres is still in the name of the assessee company, for which an agreement of sale was entered into and later cancelled by the parties. From the above, it is very clear that, the AO has made addition towards alleged on-money received towards sale of land without there being any credible evidence, which is evident from the relevant evidences considered by the AO. Further, the Ld. counsel for the assessee had also brought in other evidence in the form of the order passed by the Hon’ble High Court of Telangana in various I.A.s in O.S.A. Nos. 54 to 59 of 2004, by order dated 20.12.2019, wherein the impugned land to the extent of 98.10 acres in Sy. No. 172 was finally declared to belong to the State of Telangana. Further, the order of the Hon’ble High Court of Telangana was upheld by the Hon’ble Supreme Court in various Civil Appeals arising out of SLP(C) Nos. 2373 to 2377 of 2020, by order dated 15.06.2023. From the above, it is very clear that, the impugned land transactions considered by the AO for the purpose of assessment of on-money were not in the name of the assessee company and, in fact, the land belongs to the State of Telangana. Therefore, on this count also, the addition made by the AO towards alleged on-money cannot be upheld.

In this view of the matter, and considering the facts and circumstances of the case and also the subsequent development in the case in light of the order of the Hon’ble High Court of Telangana and the order of the Hon’ble Supreme Court, in our considered view, the Ld. CIT(A) has rightly deleted the additions made by the AO towards alleged on money of Rs.176,11,00,000/-, out of which substantive addition of Rs.9,14,15,873/- and protective addition of Rs.166,96,84,127/- were made. Further, in respect of the protective addition of Rs.166,96,84,127/-, the AO made the addition in the hands of the assessee without making any substantive addition in other cases or in the case of the assessee for other assessment years. Further, it is a well-established principle of law that, protective addition can be made only in a case where there is a dispute regarding the ownership of any money or asset by two parties, or where there is a dispute about the assessment of any income in any particular assessment year. Only in such cases, the AO, to protect the interest of the Revenue, can make substantive addition in one case or for one assessment year and protective addition in other cases or for some other assessment years. In the present case, the AO made protective addition of Rs.166,96,84,127/- without making assessee company for other assessment years. Therefore, in our considered view, the additions made by the AO towards alleged on- money on substantive basis as well as on protective basis cannot be upheld. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the grounds taken by the Revenue.

The next issue that came up for our consideration from Ground Nos. 1 to 8 of the assessee’s appeal is estimation of profit at 16% on gross receipts.

The Ld. counsel for the assessee submitted that, the assessee has treated sale transactions from land transfer as business income and maintained regular books of accounts. The AO rejected the books of accounts under Section 145(3) of the Act, and estimated 16% profit on gross receipts without making any observation with regard to the incorrectness of the books of accounts maintained by the assessee or the supporting bills and vouchers in respect of various expenditure debited to the profit and loss account. Further, the assessee has declared profit of Rs.3 crore and odd, which is almost 6% of the gross receipts, whereas the AO had arbitrarily adopted 16% profit and claimed that the assessee has declared 16% profit for the assessment year 2018- 19, but fact remains that the assessment order passed by the AO for A.Y. 2019-20 was finally quashed by the Tribunal. Therefore, the profit estimated by the AO @ 16% on gross receipts without any basis, and thus the addition made by the AO should be deleted, or in the alternative, a reasonable profit may be estimated by taking into account the nature of the business of the assessee, comparable cases of similar nature and the profit declared by the assessee for the earlier assessment years.

The Ld. CIT-DR, on the other hand, supporting the order of the Ld. CIT(A), submitted that the assessee has not maintained proper books of accounts and has also not justified various expenditure debited to the profit and loss account, which is evident from the reasons given by the AO in the assessment order, wherein the AO has referred the case of the assessee for Special Audit under Section 142(2A) of the Act, after noticing the voluminous data and the complexity involved in the accounts. Further, the Special Auditor has also not given any specific finding with regard to the books of accounts of the assessee. Since the assessee has failed to justify the book results with supporting rejected the books of accounts of the assessee and estimated 16% profit, which is fair and reasonable in this line of business. The Ld. CIT(A), after considering the relevant facts of the case, has sustained the addition made by the AO. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the AO to reject the books of accounts under Section 145(3) and estimate 16% profit on gross receipts. The AO has not pointed out any discrepancy in the gross receipts reported by the assessee and, further, has not pointed out any incorrectness in the books of accounts maintained by the assessee or the expenditure debited to the profit and loss account against the gross receipts. The AO rejected the books of accounts only on the basis of the reference for special audit under Section 142(2A) and the special audit report submitted by the auditor, and observed that, there is no transparency and clarity in the affairs of the company and that the details during the course of assessment proceedings. From the findings recorded by the AO for rejection of the books of accounts, in our considered view, they do not satisfy the mandate of Section 145(3) of the Act, for rejection of the books of accounts because, as per Section 145(3), books of accounts can be rejected only in a case where the assessee is not able to justify the book results with supporting evidence or has not filed relevant details as and when the AO called for them in support of the books of accounts filed by the assessee. In the present case, going by the reasons given by the AO to reject the books of accounts, the AO has rejected the books of accounts without assigning any reason, and therefore, in our considered view, the reasons given by the AO to reject the books of accounts cannot be accepted.

Having said so, let us consider whether the assessee is able to justify the book results by filing the relevant details. Admittedly, during the course of search, various incriminating material was found, which suggests that the books of accounts maintained by the assessee are not true and correct. Further, the assessee has also not justified the book results declared for the year under the observation of the AO during the assessment proceedings. 678, 682, 683 & 702/Hyd/2010, has estimated 8% profit on main contract receipts and 5% on subcontract receipts. The Ahmedabad Bench of the ITAT, in the case of Arihant Builders, Developers and Investors Ltd. Vs. ACIT reported in 291 ITR 41 (Special Bench) estimated 8% profit on main contract receipts and 5% on subcontract receipts. Although the case laws referred to by the assessee are not directly relatable to the nature of the business of the assessee, but in our considered view, the business carried out by the assessee is also similar to civil construction and real estate development. Therefore, by taking a clue from the above decisions of the ITAT, in our considered view, 16% profit estimated by the AO and sustained by the Ld. CIT(A) appears to be on the higher side and unreasonable. Further, although the AO referred to the assessee's own book results for A.Y. 2009-10, but fact remains that the assessment order passed by the AO for A.Y. 2009-10 has been finally quashed by the Tribunal. Therefore, the basis adopted by the AO on the basis of the net profit declared by the assessee for A.Y. 2009-10 cannot be accepted. Therefore, considering the nature of business of the assessee and other judicial precedents, in our considered view, a reasonable profit should be estimated to resolve the dispute between the assessee and the AO. Further, going by the nature of the business of the assessee, in our considered view, 10% profit is reasonable, and therefore, we direct the AO to estimate 10% profit on gross receipts.

In the result, the appeal of Revenue in ITA No.763/Hyd/2020 is dismissed and assessee’s appeal in ITA no.788/Hyd/2020 is partly allowed.

The grounds raised by the Revenue read as under :