ASHJIT REALTIES PRIVATE LIMTIED,MUMBAI vs. DCIT, CENTRAL CIRCLE 2(3), MUMBAI

In the lead appeal, the assessee is a partnership firm engaged in the business of real-estate development and construction. For Assessment Year 2024-25, it filed its return of income declaring total income of Rs.18,64,540/-. The assessee was developing the residential project known as ‘Ajmera Serene’ at Mumbai. A search and seizure action under section 132 of the Act was conducted on 19.01.2024 at the premises of the Ajmera Group, including the assessee. During the search, various physical and digital materials were found and seized. In the course of the assessment proceedings, the Assessing Officer issued a show-cause notice proposing an addition of Rs.1.95 crore on account of alleged on-money receipts from sale of flats in the project. After considering the assessee’s response and making further enquiries in respect of certain purchasers, the Assessing Officer ultimately confined the addition to Rs.93,00,000/- in respect of five flats, namely Flat Nos. 102, 201, 1301, 2102 and 2002.

The basis adopted by the Assessing Officer was the material found during the search, consisting principally of loose papers, digital material

The assessee challenged the addition before the learned CIT(A), contending, inter alia, that there was no admission by the assessee of receipt of on-money; that the word ‘amenity’ was a term used in the construction industry and could not by itself be treated as a code for cash; that no excess cash balance or unaccounted asset was found during the search; that reliance had been placed upon loose papers and digital material without proper corroboration; that statements of third parties were relied upon without granting an opportunity of cross-examination; and that the material in Annexure-10 contained factual and arithmetical

The learned CIT(A), however, did not accept the assessee’s challenge to the existence of on-money receipts. He recorded that the Assessing Officer had not relied upon a single isolated piece of evidence but upon what he considered to be a chain of corroborative material, including statements of key persons, the modus operandi stated by sales personnel, digital material and, in particular, statements of two flat purchasers. He therefore upheld the finding that on-money of Rs.93,00,000/- had been received. At the same time, the learned CIT(A) accepted the assessee’s alternative contention that the entire receipt could not be assessed as unexplained money under section 69A. According to him, the Assessing Officer himself had identified the nature and source of the receipt as being connected with sale of flats in the assessee’s regular business activity and, therefore, the receipt represented suppressed business turnover. He accordingly held that only the profit element embedded in the alleged on-money could be brought to tax as business income.

For determining the profit element, the learned CIT(A) noticed that the assessee had disclosed a gross-profit ratio of 16.59% for the year under consideration. Taking the view that the transaction involved suppression detected during a search, he considered it reasonable to add a further margin of 2% and estimated the profit at 18.60% of the alleged on-money receipts. He accordingly directed the Assessing Officer to delete the addition of Rs.93,00,000/- under section 69A and, in its place, make an addition of Rs.17,29,800/- as business income taxable at normal rates. Thus, the learned CIT(A) gave substantial relief on the quantum as well as on the applicable head of income and rate of tax.

The learned Authorised Representative (ld.AR) appearing for the assessee, while reiterating the grounds raised before us, submitted that the impugned addition was not sustainable on merits as well as on account of the procedural infirmities in the assessment proceedings. It was submitted that the Assessing Officer had relied upon loose papers and what were described as “dumb documents”, without establishing their authorship, contents or nexus with the assessee. It was further submitted that the Assessing Officer had relied upon entries in the Notes application and WhatsApp/electronic material found in third-party mobile phones, without satisfying the requirements relating to authentication of such electronic evidence. The ld.AR also submitted that an opportunity of cross- examination of the persons whose statements were relied upon was not granted to the assessee. It was contended that statements recorded during the search proceedings had been tampered with and that the assessee had specifically pointed out several factual errors, gaps and deficiencies in Annexure-10. According to him, the Assessing Officer himself, after issuing summons to certain flat purchasers and making enquiries, had dropped the proposed additions in respect of 16 out of 27 flats. It was submitted that this conduct of the Assessing Officer itself demonstrated that the material contained in Annexure-10 could not be treated as a wholly reliable basis for making additions in the remaining cases. The ld.AR further submitted that although summons had been issued to some flat purchasers, the Assessing Officer did not examine the other purchasers to ascertain whether any on-money had actually been paid in those cases. It was, therefore, submitted that the addition of Rs.93,00,000/- was liable to be deleted on merits.

Without prejudice to the aforesaid submissions, the ld.AR advanced an alternative contention that, if the alleged receipts were to be treated as part of the assessee’s business turnover and the profit element embedded therein alone was to be brought to tax, the rate adopted by the learned CIT(A) at 18.60% was wholly excessive. He submitted that the learned

The learned Departmental Representative (ld.DR), on the other hand, relied upon the order of the learned Commissioner (Appeals) and submitted that the findings recorded therein were based upon the material found during the course of search and the enquiries conducted by the Assessing Officer. It was submitted that the Assessing Officer had rightly treated the amounts representing unaccounted receipts as unexplained income in the hands of the respective assessees and that the subsequent treatment of such receipts as suppressed business turnover by the learned Commissioner (Appeals) was not justified. The ld.DR reiterated that the additions made by the Assessing Officer ought to be restored and brought to tax under the deeming provisions of section 69A of the Act, read with the applicable provisions of section 115BBE, since the amounts were neither recorded in the regular books of account nor satisfactorily explained by the assessees. It was further submitted that the fact that the alleged receipts arose in the course of the real-estate business would not, by itself, convert unexplained cash receipts into ordinary business income, particularly when the assessees had failed to account for the same in their books. Accordingly, it was submitted that the relief granted by the learned Commissioner (Appeals) by restricting the additions to an estimated profit element was not warranted and that the additions made by the Assessing Officer deserved to be restored.

We have considered the rival submissions and perused the material available on record. The assessee has raised several grounds challenging the very existence of the alleged on-money receipts, the evidentiary value of the seized loose papers and electronic material, the absence of cross- examination, the alleged defects in the statements and the discrepancies pointed out in Annexure-10. These contentions have been duly considered. The learned CIT(A), after examining the material available on record, recorded a finding that the Assessing Officer had relied upon a chain of material and upheld the existence of on-money receipts of Rs.93,00,000/- in respect of the five flats. At the same time, the learned CIT(A) held that the receipts arose from the assessee’s regular business activity and, therefore, that the entire receipts could not be assessed as unexplained money under section 69A. We find that the principal issue requiring determination before us, having regard to the alternative contention advanced by the ld.AR, is the appropriate quantum of income embedded in the alleged on-money receipts.

Once the alleged receipts are treated as part of the assessee’s real- estate business, the gross amount of the receipts cannot, merely because it was not recorded in the books, be equated with taxable income. The relevant question is the profit element embedded in such suppressed business receipts. The learned CIT(A) adopted the gross-profit ratio of 16.59% disclosed by the assessee for the relevant year and, by adding 2%, estimated the profit at 18.60%. The ld.AR has, however, submitted that the appropriate measure should be the net-profit element and has placed before us the net-profit ratios disclosed by the assessee and the other concerns forming part of the same group. We find substance in the submission that, once the issue is approached from the standpoint of the income actually embedded in the alleged additional business receipts, the net-profit position of the concerns is a relevant factual consideration.

In this context, the comparative financial results of the four concerns for the relevant assessment years, as placed before us, are also

We accordingly direct that the additions in the respective assessee appeals be restricted to 4.5% of the amounts of alleged on-money receipts. We clarify that the rate so adopted is not being applied as a gross-profit rate; it represents the reasonable estimate of the profit element embedded in the alleged suppressed business receipts, having regard to the comparative net-profit results and the peculiar facts and circumstances of the cases.

In the lead appeal, ITA No.7762/Mum/2025 for Assessment Year 2024-25 in the case of Om Shanti House, the alleged on-money receipts are Rs.93,00,000/-. Applying the rate of 4.5%, the income element works out to Rs.4,18,500/-. The addition of Rs.17,29,800/- sustained by the learned CIT(A) is accordingly restricted to Rs.4,18,500/-. The balance addition sustained by the learned CIT(A) stands deleted. The assessee’s appeal is thus partly allowed on this issue.

As regards the Revenue’s appeal in ITA No.8143/Mum/2025 for Assessment Year 2024-25, the Revenue has challenged the admission and allowance of the additional ground, the finding that the receipts do not fall within section 69A, and the direction to assess the profit element as business income at normal rates. In view of our finding that the alleged receipts arise from the assessee’s business activity and that only the profit element embedded therein is liable to be brought to tax, and that such profit element is reasonably estimated at 4.5%, the Revenue’s challenge

The remaining six assessee appeals concern the same issue arising from the same search action and the respective orders of the learned CIT(A), with the additions and percentages set out in the table above. Applying the same reasoning, the additions in those appeals are also restricted to 4.5% of the respective amounts of alleged on-money receipts. Thus, in ITA No.7759/Mum/2025 for Assessment Year 2021-22 in the case of Vaishnav Developers, the addition is restricted to Rs.1,35,000/-; in ITA No.7758/Mum/2025 for Assessment Year 2022-23 in the case of Vaishnav Developers, to Rs.37,800/-; in ITA No.7760/Mum/2025 for Assessment Year 2022-23 in the case of Om Shanti House, to Rs.3,00,375/-; in ITA No.7761/Mum/2025 for Assessment Year 2023-24 in the case of Om Shanti House, to Rs.3,24,000/-; in ITA No. 7762/Mum/2025 for Assessment Year 2024-25 in the case of Om Shanti House., to Rs. 4,18,500/-, in ITA No.7763/Mum/2025 for Assessment Year 2024-25 in the case of Ajmera Manor Pvt. Ltd., to Rs.3,15,000/-; and in ITA No.7757/Mum/2025 for Assessment Year 2024-25 in the case of Ashjit Realties Pvt. Ltd., to Rs.3,37,500/-. The balance of the additions sustained by the learned CIT(A) in these appeals is directed to be deleted.

Before parting with the matter, we clarify that the present appeals have been adjudicated only to the extent of the issue dealt with herein. All other grounds raised by the respective assessee’s, including the grounds relating to the validity, admissibility, evidentiary value and appreciation of the material relied upon in support of the alleged on-money receipts, as well as the other legal and factual contentions raised before us, are left open and are not being adjudicated upon. The same shall not be construed as having been either accepted or rejected by us.

In view of the above, the appeals filed by the assessee’s are partly allowed and the appeal filed by the Revenue is dismissed. The Assessing Officer shall give effect to this order accordingly.