DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. M/S. RADIANCE REALTY DEVELOPERS INDIA LTD, CHENNAI

आदेश / O R D E R

PER BENCH: This appeal by the Revenue and the Cross objections by the assessee are against the order of the Commissioner of Income Tax (Appeals)-19, Chennai (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 30.12.2025 for Assessment Year (AY) 2023-24.

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ITA No.1300/CHNY/2026 – Revenue's appeal 4. The grounds of appeal raised by the Revenue are as under: 1. The Ld.CIT(A) erred in restricting the additions related to unaccounted cash receipts from various projects when the onus to

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prove that profit component is embedded in unaccounted sale receipts lies wholly on the assessee, and that onus has not been discharged by them either during the assessment or appellate proceedings?

On Disallowance of bogus purchases from M/s PK Vaduvammal of Rs.16,37,65,074/-:- 1. The Ld.CIT(A) erred in deleting the disallowance related to bogus purchases from M/s PK Vaduvammal when the partner of M/s PK Vaduvammal, during questioning under Section 131(1A) admitted that the invoices were bogus and confirmed that only nominal quantities of steel were supplied and further the assessee company's own employee, Shri Ananda Padmanabhan, DGM, also corroborated this in a sworn statement recorded under Section 132(4) wherein he explained that the bogus invoices were prepared to show inflated purchases, and the cash component was collected back from intermediaries?

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

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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.

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appellant to make such statement." 5. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld.CIT(Appeals) may be set aside and that of Assessing Officer may be restored.”

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assessee. Accordingly, the Ld. AR submitted that there is no infirmity in the order of the CIT(A).

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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 thatonlyforms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred to about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.” 4.13 According to the Ld. CIT DR however, the search did not reveal incurrence of any expenses qua such cash collections and therefore, he argued that the AO had rightly brought the entire on-monies to tax. On the other hand, the Ld. AR brought to our notice that, the assessee had demonstrated before the lower authorities that, they were required to incur expenses viz., (i) miscellaneous & incidental Expenses during registration process, (ii) provide additional amenities provided as per the customer’s requirements, (iii) additional expenses for furnishing the flats like Welcome kits to the customers, Apartment activities etc. & (iv) make pooja arrangements during House-warming ceremonies. The Ld. AR further contended that, had the assessee collected such huge on-monies and not incurred any expenses, then such cash collections ought to have been found in the form of some unexplained investment or asset, in the course of search. We observe that, apart from these excel notings, the Investigating Officer didn’t find any unaccounted cash or assets of such magnitude which would justify the addition of entire on-monies as income of the assessee. And as rightly pointed out by the Ld.AR that if the entire on-monies is treated as the income of the assessee, then the profits of the assessee would show unrealistic outcome. We therefore find merit in the assessee’s plea that the entire cash receipts cannot be said to constitute its income. 4.14 The Ld. CIT, DR for the Revenue further contended that, the assessee was unable to provide the exact details of cash expenses incurred out of these cash collections and therefore the benefit of same should not be given and thus the entire proceeds ought to be taxed as undisclosed income of the assessee. In this regard, we find that, on same set of facts, similar contention was raised by the Revenue before this Mumbai Tribunal in the case of M/s. Prime Developers Vs ACIT (ITA Nos.175 –

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178/Mum./2010 by order dated 22.03.2013) viz., the set-off/benefitof 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 of Ahmadabad 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. 16.6.2012). Further, Hon'ble High Court OF Madya 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 consequenti, 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 on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue's appeals are dismissed.” 4.15 It was brought to our notice that the above findings of this Tribunal have been affirmed by the Hon’ble Bombay High Court in their decision rendered in ITA No.2452 of 2013. Following the ratio decidendi, this particular argument of the Revenue is hereby rejected.

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4.16 We thus are in agreement with the Ld. CIT(A)that, in the facts and circumstance of the case, the entire value of on-monies receipts shouldn’t be taxed but only the profit element embedded therein was to be taxed in its hands. On this aspect, it is noted that in the case of ITO Vs. Anand Builders, Tribunal in similar circumstances had held that, 8% of the unaccounted on-money could be taxed in place of the entire unaccounted on-money receipts since there is always the unaccounted payments. The above decision of this Tribunal is noted to have been upheld by the Hon’ble Gujarat High Court and the SLP filed against the judgment before the Hon’bleSupreme Court was also dismissed and reported in 265 ITR 37. The relevant findings of Hon’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 not the entire receipts. Similar view is noted to have been expressed by the Hon’ble High Court of Gujarat in the case of CIT v. Abhishek Corporation (158 CTR 374). 4.18 We find that the Ld. CIT(A) had also rightly relied on the decision of the Hon'ble Kerala High Court in the case of CIT v.C. Najeeb (411 ITR 487) wherein also on similar facts and circumstances, the Hon’ble High Court had held that the profit element ought to be estimated on the unaccounted cash receipts discovered in relation to sale of flats in real estate projects. The relevant question of law raised by the Revenue as taken note is as follows: - (i) Whether the Tribunal was correct in having directed levy of income tax only on 15% of the total receipts disclosed in proceedings under Section 158BC of the Income Tax Act, 1961 [for brevity, the Act]?

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(ii) Ought not the Tribunal have found that when an undisclosed income is detected on search, then the entire income has to be treated as subject to levy of income tax? 4.19 And hisLordship Shri K. Vinod Chandran as then his Lordship was, has answered the question on behalf of DB as under: “4. On the question of assessment, we notice that on search conducted what was recovered is the undisclosed receipts, which the assessee received by way of sale consideration in various projects undertaken by the assessee. The assessee was an Architect and builder, who constructs apartment complexes and sells them to purchasers. Specific details of such sale consideration received from certain purchasers were recovered at the time of search, on which basis the assessment proceedings were carried out under Section 158BC of the Act. Admittedly these were not returned nor did it find a place in the accounts. The Assessing Officer treated the entire sale consideration received by the assessee, as revealed from the materials recovered, as the undisclosed income and levied tax on it. In first appeal, the assessment order for the block period was confirmed. 5. The assessee was before the Tribunal. The Tribunal directed that only 15% of the total sales receipts be taken for the purpose of levy of income tax. This was after looking into the statement filed by the assessee as to the net profit from the four projects, in which, there was found suppression of sale consideration. The net profit worked out to 14.47% 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

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assessee, which stood undisclosed, has to be determined for the purpose of levying income tax. The Tribunal, after looking into the net profit of the assessee in the different projects, directed 15% of the total undisclosed receipts to be taken as the undisclosed income. We are of the opinion that the said direction was perfectly in tune with the provision under Section 150BB of the Act and Section 158BH, which specifies that unless otherwise provided all the provisions of the Act, applicable to assessments under Chapter XIVB. We answer the questions of law framed in I.T.A. No. 1549 of 2009 in favour of the assessee and against the Revenue and we reject the appeal." 4.20 We further note that the coordinate Bench of this Tribunal at Mumbai in the case of ACIT v. Guruprena Enterprises (ITA Nos. 255 to 257, 544 & 545/Mum/2010 and 4836/Mum/2009) had observed as under: “Even though it is established from seized documents that assessee was receiving premium/on-money on booking of flats belonging to third parties, entire receipts of on-money/premium cannot be treated as undisclosed income of assessee; only net profit rate can be applied on unaccounted sales/receipts for making addition." 4.21 We note that the above decision has since been affirmed by the Hon’ble Bombay High Court in ITA No. 1849 of 2011. 4.22 For the reasons discussed in the foregoing and following the decisions (supra)in the given facts, we accordingly uphold theLd CIT(A)’s view that only the profit element embedded in the on-monies ought to be assessed to tax. 4.23 Now we come to the issue of estimating the profits of the assessee. The Ld. CIT(A) is noted to have estimated the profit at 20% of the on- monies, as offered by the assessee in the return(s) of income, by observing as under:- “6.5.29 Now the issue before the undersigned is to ascertain what can be the profit that is embedded in such unaccounted cash receipts that can be attributed as additional business income. The search team has not come across any evidences relating to the expenses or any unaccounted investments relating to such unaccounted cash receipts. …. 6.5.31 As brought out by the appellant, the search has not resulted in identifying any unexplained expenditure or investment. Only the unaccounted cash receipts were found. In such a scenario, the best option available before the undersigned is to

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estimate the profit 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 required and considering that no corroborative evidence has been brought forward by the Assessing Officer, an adhoc sum of Rs.4,99,00,479/- being 20% of the purported unaccounted cash receipts has already been offered by the appellant in the return of income filed u/s.148 in order to buy peace and avoid litigation. It is most humbly prayed that the adhoc sum of Rs.4,99,00,479/- being 20% of the purported unaccounted cash receipts may be accepted. However, even if it is considered that the contention of the appellant that an adhoc 20% of the purported unaccounted cash receipts is not to be accepted, it is most humbly submitted that the Assessing Officer while computing the addition has not considered the sum of Rs.4,99,00,479/- offered in the return of income but has added the full amount as per the purported excel sheet to the tune of Rs.24,95,02,394/- while computing the total income of the appellant and therefore without prejudice to the above submissions, the disallowance at the least is to be reduced by Rs.4,99,00,479/- since the same has been already offered in the return of income.” 6.5.32 On perusal of the assessment order(s) passed by the AO, it can be seen that the AO has specifically narrated about the admission of 20% upon such undisclosed cash receipts identified during the course of search. The details of the additional income and 20% of the undisclosed cash receipts are as under:

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(Amount in Rs.) Unaccounted Additional Addition made Income return Income income income as A.Y. in original Returned u/s quantified on admitted on unaccounted ROI /154* 148 of the Act account of account of EB cash receipts “EB” 2015-16 8,00,06,030/- 8,39,47,221/- 1,97,05,945/- 39,41,191/- 1,57,64,756/- 2016-17 8,41,87,390/- 8,88,69,163/- 2,34,08,884/- 46,85,773/- 1,87,27,107/- 2017-18 6,81,27,989/-* 7,41,48,530/- 3,12,40,213/- 60,20,541/- 2,52,19,672/- 2018-19 21,32,86,450/- 21,32,86,450/- 3,53,50,730/- 0 3,53,50730/- 2019-20 20,70,08,700/- 21,35,55,260/- 3,27,32,815/- 65,46,563/- 2,61,86,252/- 2020-21 12,62,67,540/- 16,16,43,500/- 10,08,52,658/- 2,01,70,532/- 8,06,82,126/- 2021-22 12,67,18,340/- 16,26,97,990/- 13,39,48,744/- 2,67,89,749/- 10,71,58,995/- 2022-23 27,80,69,230/- --- 24,95,02,394/- 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 income in the revised computation during the course of assessment proceedings before the AO.

6.5.34 Further for the AY 2022-23, the appellant has demonstrated the declaration of additional income and payment of consequent taxes, the same merits consideration. The assessee company has filed its return of income for the AY 2022-23 before the date of search and could not revise the return of income. As no other option was available to the assessee company to revise its return of income, the appellant has admitted additional income amounting Rs. 4,99,00,479/- during the course of assessment proceedings and filed revised computation, which has been brought on record by the AO in the assessment order.

6.5.35 In view of the above findings, discussions and judicial decisions, when the appellant has admitted voluntarily an

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amount of 20% of the undisclosed cash receipts as additional business income , which stands to be over and above the percentage prescribed in the presumptive sections of the Act as well as the percentage considered by various judicial forums ( 8%, 12.5%, 15% etc ) the undersigned is of the considered view that the appellant company has adequately admitted its undisclosed income arising out of the unaccounted cash receipts collected from customers of various projects carried out by the appellant for the assessment years under consideration and therefore no further addition is warranted to the facts and circumstances of the case of the appellant company. Accordingly, all the grounds raised by the appellant upon this issue for all the years under consideration are hereby treated as allowed and the AO is directed to delete the addition(s) made in the respective assessment years as under:

AY 2015-16 AY 2016-17 AY 2017-18 AY 2019-20 AY 2020-21 AY 2021-22 Rs.1,57,64,756/- Rs.1,87,27,107/- Rs.2,52,19,672/- Rs.2,61,86,252/- Rs.8,06,82,126/- Rs.10,71,58,995/-

6.5.36 For the AY 2018-19, the undersigned has observed that the appellant has not admitted additional income in the return of income filed in response to the notice u/s 148 of the Act for the AY 2018-19 due to certain technical glitches as brought out in para 6.5.33. As the appellant had no occasion to admit the additional income in the return of income filed, the appellant during the course of assessment proceedings has admitted additional 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 2022- 23 in the revised computation. Therefore, the undersigned is constrained to sustain 20% of24,95,02,394/- 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 involved in the business of real estate. In light of the foregoing, we thus agree with the Ld. CIT(A) that the assessee’s offer of 20% of the on-monies receipts in the

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return(s) of income filed u/s 148 of the Act was fair and reasonable. Hence, according to us, no further addition on the impugned issue is warranted. Overall, therefore, we uphold the above order of Ld. CIT(A). Hence, the grounds taken by both the assessee and Revenue on this issue stands dismissed.”

Findings of the Tribunal on the issue of disallowance of alleged bogus purchases: “8.4 We have heard both the parties. From the facts placed before us, it is noted that, the search team had found electronic data which contained details of the purchases made by the assessee from M/s PK Vaduvammal. When enquired in the course of search, the employee of the assessee, Shri Ananda Padmanaban is noted to have also admitted and identified the bogus purchases made from M/s PK Vaduvammal and that he didn’t retract from his statement. Thereafter, the search team made independent enquiry u/s 131 of the Act from the supplier as well, who also confirmed the statement of Shri P.C. Shyamsunder. We agree in principle with the submission of the Ld. AR that an admission/ statement alone is not sufficient to justify an addition but at the same time the onus is on the assessee to rebut the statement with corroborative evidence. On the given facts, it is noted that the assessee has only been able to furnish the relevant tax invoices, ledgers and bank statements in support of purchases. The AO, on the other hand, is noted to have shown that, the supplier had also admitted to have issued bogus invoices and that these invoices were not supported by weighment slips and transportation challans and that the seized electronic data also suggested that these purchases were suspicious. Overall, therefore, we are in agreement with the authorities below that the assessee was unable to fully discharge the genuineness of the purchases which were identified to be bogus. 8.5 The next issue for consideration is whether the entire value of payments made to the suppliers was to be disallowed or only the profit element embedded therein was to be taxed in hands of the assessee. From the material available on record, we find that it is not the case that the supplier is a bogus or shell entity. M/s PK Vaduvammal is indeed 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

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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 thereto. In this regard, we may gainfully refer to the decision of the Hon'ble Gujarat High Court in the case of CIT Vs Bholanath Polyfab (P.) Ltd. (355 ITR 290) wherein similar issue was involved. In that case also, it is noted that this Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering such a situation, this Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. On appeal by the Revenue, the Hon'ble High Court is noted to have upheld this finding of the Tribunal. 8.6 We find that the above decision was followed with approval by the Hon’ble jurisdictional Madras High Court in the case of CIT Vs SPL Infrastructure Limited (274 taxman 292). In the decided case, the assessee was engaged in the business of development of civil infrastructure. The assessee had incurred expenses by way of payments made to sub-contractors. According to the AO, the assessee was unable to discharge the identity, credibility and genuineness of the Sub-Contractors and therefore disallowed the entire expenditure. On appeal the Tribunal restricted the disallowance to 10% of the expenditure incurred towards sub-contractors. Aggrieved by the action of the Tribunal, the Revenue had inter alia raised the following questions of law before the Hon’ble jurisdictional High Court. “(i) Whether the Tribunal was correct in restricting the disallowance to 10% of expenditure of Rs. 4,41,08,210/- incurred towards sub-contractors even though the assessee had failed to prove the identity, credibility and genuineness of the Sub- Contractors? (ii) Whether the Tribunal was right in not appreciating the findings of the Assessing Officer that the contractors were non- existent, in-experienced, incompetent and bogus and the assessee had claimed the said expenditure only to reduce the income and the tax incidence on the income.” 8.7 The Hon’ble High Court noted that, since these sub-contractors were not verifiable, the possibility of inflation of expenses could not be ruled out but at the same timeagreed with the action of Ld. CIT(A) &Tribunal of not disallowing the entire expenses but restricting the same to 10%. The Hon’ble High Court observed that the disallowance of entire payments to sub-contractors would result in abnormal profitability and therefore countenanced the action of lower appellate authorities in

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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 in any perversity in the findings of the learned Commissioner of Income-tax (Appeals) as well as the learned Tribunal. 13. It is well known that where the books of accounts maintained by the contractors are not accepted by the Department, the estimation of profit made on the basis of history of Gross Profit rate and Net Profit rate of the Assessee in the previous years or comparable cases of contractors can be made. Once such profit rates are compared, the additions on account of non-confirmation or non-production of the Sub-Contractors, etc. is totally irrelevant and cannot be made. 14. In the hierarchy of the fact-finding bodies created under the Income-tax Act, obviously the findings of the Assessing Authority stand superseded for all purposes, by the findings of the higher appellate authorities. Unless glaring perversity in the findings of the appellate authorities are pointed out and established by the Revenue in the Appeals filed by them under section 260A of the Act, there is nothing for the High Court or Constitutional Courts to do in such matters. The findings of fact arrived at by the Authorities below are binding on the High Court under section 260A of the Act, unless the perversity as aforesaid is clearly visible, established and proved. 15. As aforesaid, as against the perversity in these findings, we see a better taxable income finally taxed in the hands of the assessee, albeit with the agreement to disallowance to the extent of 10% of the payments made to the Sub-Contractors, which the assessee appears to have agreed under the compulsion of circumstances to avoid litigation and to buy peace.

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and loss account. The details of parties were furnished during the assessment proceedings. The assessing officer issued notice under Section 133(6) of the Income Tax Act, 1961 (hereinafter referred to such Act, 1961) to the parties for verification of the transaction with the assessee. Assessing officer found certain mismatch in the figure of purchase disclosed by the assessee from the parties and the reply received from the parties in response to notices under Section 133(6) of the Act, 1961. It was also found that several parties had not responded to the notices under Section 133(6) of the Act, 1961. Under the circumstances, the assessing officer rejected the books of accounts and the disclosed profit and determined total income at Rs.10,14,99,264/- as against the disclosed total income of Rs.85,49,460/-. The assessing officer made addition in income of Rs.9,29,49,804/-, as under: (i) On account of inflated/bogus purchase from eight parties but notices under Section 133(6) of the Act, 1961: Rs.1,56,90,244/-. (ii) On account of not producing eight parties by the assessee during assessment proceedings under Section 133(6) of the Act, 1961: Rs.66,54,040/-. (iii)On account of no reply submitted by six parties to notices under Section 133(6) of the Act, 1961: Rs.2,16,21,174/-. (iv)On account of no reply received from eleven parties pursuant to notices under Section 133(6) of the Act, 1961: Rs.4,89,43,299/- . (iv)Penalty amount not disallowed by the assessee while 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-6/11- 12/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: ….

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could be added to income of assessee. The relevant findings which are 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) believed the assessee's theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. 7. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and in the case of CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd.) came to be approved. 8. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Pawanraj B. Bokadia (supra). 9. This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted the ratio of 30 per cent of such total sales. The Tribunal, however, scaled down to 12.5 per cent. We may

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notice that in the immediately preceding year to the assessment year under consideration the assessee had declared the gross profit at 3.56 per cent of the total turnover. If the yardstick of 30 per cent, as adopted by the Commissioner (Appeals), is accepted the gross profit rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.” 8.11 We find that the above judgment was again followed by the coordinate Bench of Hon’ble Gujarat High Court in the case of Pr.CIT Vs Sunil Mittal HUF (164 taxmann.com 709) wherein also the principle of estimation of profit element in bogus purchases was upheld, by observing as under:- “10. Considering the submissions made by learned advocate Mr.Sanghani as well as the finding of facts recorded by the 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 case of Usha Exports v. Asstt. CIT [Writ Petition No. 2506 OF 2019, dated 12-12-2019].

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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.

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CO No.35/Chny/2026: 11. The cross objections filed by the assessee are as under: “Grounds on jurisdiction 1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case to the extent prejudicial to the interests of the appellant and is opposed to the principles of equity, natural justice and fair play.

Addition on account of purported unaccounted cash collection 2. For that the Commissioner of Income Tax (Appeals) erred in upholding addition towards purported unaccounted cash collected from customers for sale of flats.

Disallowance towards alleged bogus purchases 3. For that the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of alleged bogus purchases.

Common grounds on the addition and disallowance 4. For that the Commissioner of Income Tax (Appeals) erred in sustaining the addition and disallowance merely based on sworn statements which were recorded under tremendous stress and duress without any corroborative evidence.

PRAYER

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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.”

4.9 Heard both the parties. We first take up the assessee’s plea regarding the admissibility of the electronic evidence relied upon by the AO to make the impugned additions. According to the assessee, the excel sheets found in the electronic data, the WhatsApp conversations between the employees were not admissible as it did not comply with Section 65B of the Indian Evidence Act, 1872. We find that, the lower authorities had rightly observed that, the Authorized Officer had followed the due procedures mandated in law and had also obtained the necessary certificates u/s 65B of the Act prior to the seizure of such electronic records. The AO is noted to have extracted the said certificate obtained u/s 65B of Indian Evidence Act, 1872 in the impugned order as well. Before us, the Ld. AR for the assessee was unable to controvert this certificate or point out the fallacy therein. We accordingly agree with the Ld. CIT(A) that there was no non-compliance with the provisions of Section 65B of the Indian Evidence Act, 1872 and therefore this preliminary contention of the assessee stands rejected. 4.10 The next plank of assessee’s argument was that, the contents of the seized material were not reliable and that the Managing Director had retracted his statement and therefore no addition was otherwise permissible on account of undisclosed cash receipts from sale of flats. Assailing the action of lower authorities, the Ld. AR had argued that, the statements of Smt. Karthiga & Smt. Pinky which formed the main basis of the impugned addition was not reliable. He pointed out that, Smt. Karthiga was a customer relationship staff who was only involved in day-to-day miscellaneous tasks of handling and resolving the queries of the customers raised and obtaining customer feedbacks and therefore she could have been possibly been in charge of collecting on-monies from customers and

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that the Investigating Officers had forcibly made her admit to the same. Similarly, in respect of Smt. Pinky, it was argued that, she was a junior accounts staff who was not involved in the financial matters but was only aware about the collection of regular cash from customers etc. for accounting purposes, wherein individual transactions were less than Rs. 2 lacs viz., within the permissible limits and such cash was also accounted in the books of accounts. According to him, the Investigating authorities had confused the said employee during the course of 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 had retracted from his statement after a long gap of time. Accordingly, the AO had rightly observed that, the assessee’s contention that, these statements were unreliable, was unacceptable. Moreover, before us also, the Ld. AR was unable to point out the mistaken fact admitted by the Managing Director in his statement which led to the retraction nor was the Managing Director able to disprove the facts admitted by him with relevant evidence. Hence, in our considered view, such bald retraction was rightly ignored by the lower authorities. As noted by the lower authorities, the electronic data including whatsapp conversations and excel sheets indeed related to the assessee's business activities and pertained to the actual units sold and therefore the contents thereof could not be discarded. The notings therein suggests that, it contained detailed project and unit-wise data, and the “EB” heading, in light of the statements of the employee/s, suggests the assessee collected cash payments over and above the declared sale consideration. The assessee was neither able to offer plausible explanation for these “EB” notings nor was the assessee able to demonstrate the purported extra work carried out in relation to these units. We thus countenance the following findings of the Ld. CIT(A) rejecting the assessee’s contention objecting to the reliability of these seized material and the statements given by the employees and Managing Director: -

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“6.5.16 The undersigned has carefully examined the above submission of the appellant. There is no doubt that during the course of search that incriminating material in the form of electronic devices were found and seized. The reliance of such electronic devices were upheld by the undersigned in this order. Now the issue before the undersigned is whether the AO is right in relying upon the statement recorded from the employees from whose possession incriminating evidences in the form of electronic devices containing excel sheets and the WhatsApp conversations between the employees. The AO in the assessment order has brought out and discussed the issue elaborately. As brought out by the AO, the evidences collected were not from any single employee. The search team was able to confront with various employees of the appellant company about the findings that emanated from the Laptop and the associated WhatsApp conversations by recording a statement from each of them. Finally, such statements were put forth before Shri. Varun Manian, the Managing Director of the Appellant Company. He confirmed the affirmation of his employees. On account of the above revelation of facts about the term “EB” used by the employees, the search team was able to understand the abbreviation of EB which stands for “Extra Budget” and the modus operandi in collecting the same from its customers. The evidences collected are not isolated ones. The evidences collected and statement recorded conclusively establish the fact about the collection of excess amount over and above the amount agreed in the agreements. The AO in the assessment order has made a clear finding upon each issue raised by the assessee company in relying such evidences. The undersigned is of the considered view that the AO has rightly rejected the submission of the assessee company in this regard.”

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Order pronounced on 06th day of July, 2026 at Chennai.

Sd/- Sd/- (मनु कुमार िग"र) (पदमावती यस) (Manu Kumar Giri) (Padmavathy.S) �याियक सद�य �याियक सद�य / Judicial Member लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य सद�य चे�नई/Chennai, �दनांक/Dated: 06th July, 2026. EDN, Sr. P.S आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF EJTADA Digitally signed by EJTADA DURGA NARESH DURGA Date: 2026.07.08 NARESH 12:27:16 +05'30'