HIRAL SANJAYBHAI KOTAK,RAJKOT vs. INCOME TAX OFFICER, WARD-2(2)(1), RAJKOT

First, I shall take assessee’s appeal in ITA No.93/Rjt/2026 wherein the grounds of appeal raised by the assessee are as follows: “1. The Ld. CIT(A) erred on facts as also in law in the dismissing of ground of appeal relating to initiation of action u/s 148 of the Act. 2. The Ld. CIT(A) erred on facts as also in law in confirming the addition of Rs.2,40,000/- made by alleging that assessee had paid on money through cash of Rs.2,40,000/- for purchase of property in the project R K Dreamland 2. The addition u/s 69 of the Act may kindly be deleted.”

Brief facts qua the issue are that return of income for the year under consideration, that is, assessment year (A.Y.) 2019-20 was e-filed by the assessee, on 17/08/2019, declaring therein total taxable income of Rs.2,78,990/-. The return of income so filed subsequently processed u/s 143(1) of the Act, by CPC without making any adjustment to the taxable income of the assessee. Thereafter, assessing officer noticed that as per information flagged in Insight Portal under category "High Risk CRU/VRU Information that a search and seizure operation carried on 24/08/2021 in various concerns of R. K. Group. During the search operation, it was unearthed that on money in cash was received by the developers/builders of various concerns of R K Group. In search operation from impounded incriminating digital data, documents, books of accounts, loose paper etc, was found and noticed that during the previous year relevant to assessment year under consideration, the assessee gave on-money of Rs.2,40,000/- in cash towards purchase of unit(s) in project "RK Dreamland-2". Since the materials so disseminated pertained to or related to the assessee, a satisfaction was drawn as per the Explanation 2 to section 148 of the Income-tax Act, 1961 with the approval of specified authority, that is, Pr.CIT-1, Rajkot. This assessee’s case was then reopened u/s 147 of the Income-tax Act, 1961 and a notice u/s 148 of the Income-tax Act, 1961 was issued on 31/03/2023 which was delivered through email. In response to this notice, the assessee filed return of income for the assessment year under consideration on 30/04/2023, declaring total income of Rs.2,78,990/-. Thereafter, a notice u/s 143(2) of the Income-tax Act, 1961 was issued and delivered through email on 21/12/2023. The facts of the case are that a Search, Seizure and Survey action was carried out by the office of DDIT (Inv.), Unit-1, Rajkot in the case of leading real estate builders of Rajkot and their key associates on 24/08/2021. Four different groups were covered in the operation including the R K Group of Rajkot. All the four groups are in the business of real estate and are mainly concentrated in and around Rajkot. A total of forty-three (43) premises were covered, out of which 32 premises were covered under section 132 of the Income Tax Act 1961 and the other 11 premises were covered u/s 133A of the Income Tax Act 1961. The premises covered were a mix of residential and business premises of their related entities, their family members, key associates and employees. The RK Group has developed/is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. The Group is headed by Shri Sarvanand Sadhuram Sonwani and he is supported by his family members in the management of the business. The Important family members, offices, key associates, accountant and employees were also covered in the search and survey operation to get hold of important incriminating evidence.

The assessing officer noticed that in the RK Group the main persons/partners were Sonwani family. Some projects of RK Group were developed with other groups also. The group was mainly involved in taking on-money/unaccounted cash on selling of units in its projects and giving on- money on purchasing of the land. The data of on money/unaccounted cash was being maintained in a very systematic manner in Miracle software. The Miracle software was used mainly to record on money/unaccounted cash transaction. However, banking transactions were also recorded as well. During the search action, the premise of Shri Girish Vanjani was also covered. Shri Girish Vanjani was a key employee and accountant of The Group. Shri GrishVanjani was maintaining the accounts of the R K Group including parallel unaccounted cash transactions). During the search & seizure action, certain incriminating document in the form of digital data/loose papers were found & seized from the residential premise of Shri Girish Vanjani as in the search operation, the premise of Girish Vanjani was also covered. These incriminating documents pertain to the information contained therein, relates to the assessee. The digital data that has been imaged and seized from the residential premise of the accountant Shri Girish Vanjani (Premise A-7) have been inventoried as Annexure A-16. From the digital data, multiple miracle files have been found. The from the plethora of Miracle files that have been found during the post search analysis, we have isolated three Miracle files which when studied together cover the business-related data of the group from the period 01.08.2009 to 13th August 2021. The Data of on-money receipts & payments in various projects of RK group. On perusal of miracle files, it is found that actual data of receipt of on money related to project "R K Dreamland- 2 is maintained in Miracle software in Miracle file 1, 2 and 3. The RK Dreamland-2, is a Residential project developed by M/s R K Residency. This project contains 2 & 3 BHK flats. The firm has the following partners: Sr. No. Share Name Stake 1 BRIJLAL SADHURAM SON WANI 50% 2 KAMAL SADHURAM SONWANI 50%

Now coming to the nature and extent of incriminating documents in connection with R. K. Dreamland -2, the key highlights of the evidence found are as under: 1. Huge cash receipt (hereinafter called as "On Money") against the sale of units. 2. Unaccounted Investments/expenditure made in cash for acquisition of land. 3. Unaccounted cash expenses incurred for development of residential complex. 6. Further as discussed above, the accountant of the assessee Shri Girish Vanjani was also covered during the search action. Shri Girish Vanjani was maintaining the accounts of the RK Group (including parallel unaccounted cash transactions). Shri Girish Vanjani in his statement recorded on oath during search action has stated that he is the accountant of group and has been associated for last 25 years. He further explained that accounting of financial transactions of RK Group has been maintained in two accounting software i.e. tally and Miracle Software. The transactions that are reported on regular books of account of group have been maintained in Tally software whereas miracle software contain both type of transactions, that is, bank transactions (that are reported in regular books) and cash transactions (unaccounted transaction not to be reported in regular books). Further, the figures of the regular account transactions in both the accounts are matching exactly. Thus, this gives further credence to the fact that on money had exchanged hands in purchase of the property. Therefore, it is clearly established that the assessee has made payment of on money to purchase the immovable property of Rs.2,40,000/-, in cash which has escaped assessment due to failure on the assessee's part to offer them for taxation. The justification of escapement of income has been made based on the credible material available on record available with this office which was disseminated pursuant to the search and seizure operation and post search enquiries.

The assessing officer has also considered reply of the assessee but not found as satisfactory explanation. As stated above, there was Miracle ledger which clearly shows the assessee made cash payment of Rs.2,40,000/-during the previous year relevant to assessment year under consideration towards purchase of unit in above referred project. As per the purchase deed submitted by the assessee, it is clearly seen that the assessee purchased unit no. A-301 in the above referred project. Further, the assessee simply denied the on-money payment of Rs.2,40,000/-and did not submitted/uploaded sufficient documentary evidence to substantiate the same. Therefore, the explanation of the assessee is not found satisfactory. In view of the above, it is crystal clear that the assessee has booked shop office No. A-301 in the project "R K Dreamland-2" and paid on-money of Rs.2,40,000/-in cash during the previous year relevant to assessment year under consideration. Therefore, unaccounted on-money payment of Rs.2,40,000/- was treated as income in the hands of the assessee as unexplained money within meaning of section 69 r.w.s. 115BBE of the Act and was added to the total income of the assessee.

Aggrieved by the order of assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the assessing officer. The Ld. CIT(A) noticed that it is evidently clear from the assessment order that the assessing officer has duly established the live link and direct connection of the transaction in question relating to payment of on- money in cash amounting to Rs.2,40,000/- with the material on record available in the shape of documentary evidences impounded during the course of search action of R.K. Group and the relevant entries of transactions pertaining to the property in question as mentioned/found in various documents match exactly with each other and this evidence was further corroborated and strengthened by the Revenue Authorities by way of providing details relating to the said property from their records. Therefore, Ld. CIT(A), noted that in the absence of satisfactory explanation on the part of the assessee, despite having sufficient opportunities during the course of assessment proceedings, the assessing officer had rightly made the addition of Rs.2,40,000/- within the meaning of Section 69 read with Section 115BBE of the Income Tax Act 1961.

Aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before this Tribunal.

Learned Counsel for the assessee submitted that addition made by assessing officer and sustained by Ld. CIT(A) is only Rs.2,40,000/-, and the assessee submitted all the possible evidences to prove his claim. However, if there is any infirmity in the documents submitted by the assessee, then in that circumstances, the Bench may make an ad hoc addition @ 30% in the hands of the assessee, considering the smallness of the amount.

On the other hand, Ld. Sr. DR for the revenue submitted that addition made by the assessing officer should be sustained.

I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the Page 7 of 10 case laws relied upon and perused the facts of the case including the findings of the Ld. CIT(A) and other materials brought on record. I note that by way of alternative argument, Ld. Counsel for the assessee has submitted that suitable estimated addition, considering the “on money” of Rs.2,40,000/-, may be made in the hands of the assessee. However, Ld. Sr. DR for the revenue, submitted that hundred percent addition made by the assessing officer should be sustained on the “on money”.In a case where the evidence available on record contains details of corresponding unaccounted payments which are also partly included on the books, such partly recorded payments should also be taken into consideration. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below:

Therefore, I note that Hon’ble jurisdictional High Court of Gujarat in the case of President Industries (supra) held that it would be sufficient to make addition in the hands of the assessee, of profit element, on account of “on money” payment. Therefore, respectfully following the bindings judgment of Hon’ble jurisdictional High Court of Gujarat in case of President Industries (supra), and to protect the interest of revenue, addition at the rate of 30% on Rs.2,40,000/- should be made, which comes to Rs.72,000/- (i.e., 30% of Rs.2,40,000/-). Therefore, I direct the assessing officer to make an addition in the hands of the assessee of Rs.72,000/-, by following the normal rate of income tax.

In the result, the appeal in ITA No.93/Rjt/2026 is partly allowed.

Coming to assessee’s appeal in ITA No.94/Rjt/2026 for AY 2020-21, wherein the assessee has raised the following grounds of appeal: “1. The Ld. CIT(A) erred on facts as also in law in the dismissing of ground of appeal relating to initiation of action u/s 148 of the Act. 2. The Ld. CIT(A) erred on facts as also in law in confirming the addition of Rs.4,75,000/- made by alleging that assessee had paid “on money” through cash of Rs.4,75,000/- for purchase of property in the project R K Dreamland- 2. The addition u/s 69 of the Act may kindly be deleted.” 16. Since the issue involved in this appeal is identical and similar, as stated in ITA No.93/Rjt/2026 for AY 2019-20. In the AY 2020-21, the assessing officer made the addition at Rs.4,75,000/- in the hands of the assessee on account of “on money”. As I have already adjudicated the issue of “on money” by making the addition @ 30% of “on money” by following the binding precedent of Hon’ble jurisdictional High Court of Gujarat in the case of President Industries (supra) at the rate of 30%, therefore, I direct the assessing officer to make the addition to the tune of Rs.1,42,000/- (i.e., 30% of Rs.4,75,000/-) in the hands of the assessee in assessee’s appeal in ITA No.94/RJT/2026. Therefore, I direct the assessing officer to make an addition in the hands of the assessee to the tune of Rs.1,42,000/-, (in assessee’s appeal in ITA No.94/RJT/2026), by following normal rate of income tax.

In the result, the appeal of the assessee in ITA No.94/Rjt/2026, is partly allowed in the above terms.

In the combined result, both appeals of the assessee are partly allowed.