SHRI JAYANATILAL DALSUKHBHAI PANCHAL,VADODARA vs. THE DY.CIT.,CENT.CIRCLE-1,, VADODARA

आदेश/O R D E R

PER MAKARAND V. MAHADEOKAR, AM:

These appeals are filed by the assessee against the common order passed by the Commissioner of Income Tax (Appeals) – 12, Ahmedabad (hereinafter referred to as “CIT(A)”) dated 14-03-2019 u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) relating to assessment orders passed by the Assessing Officer (hereinafter referred to as “AO”) for A.Y. 2011-12 and A.Y. 2014-15

IT(SS)A Nos.267 & 270 /Ahd/2019 Jyantilal Dalsukhbhai Panchal vs. DCIT Asst. Years 2011-12 & 2014-15 respectively

2 u/s 153A r.w.s. 143(3) of the Act. Since the facts are same and relating to a search action, these are considered and decided together.

Facts of the case: 2. The assessee filed his returns of income as detailed in the table below. The return was processed u/s 143(1) of the Act. Subsequently a search action u/s 132 of the Act was carried out in case of Narayan Reality Group including in the case of the assessee on 13-11-2014 and various incriminating documents, in the form of digital evidence, were found and seized. During the post-search analysis of such seized pen-drive, a MS-Excel Sheet was found titled “ALL_MIS_NHL_NO_NW-pjp1 dated 03/05/2011” which was containing sale price of unit, amount received by cheque and cash from the customer and other details relating to the project Narayan Orion. Details of the excel sheet, as summarised by AO, are given below: Sr Flat Name of Date of A.Y. Alleged Share of No. Owner Booking on-money the in Rs. assessee in Rs. 1 201 Anju 20-09- 2011- 22,00,000 11,00,000 Chaturvedi 2010 12 2 101 Divyangi 31-12- 2013- 44,00,000 22,00,000 Desai 2012 14 3 Pent Pranav 31-03- House Panchal 2013 4 302 Raj C. Patel 15-05- 2014- 22,00,000 11,00,000 2013 15 Total 44,00,000

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3 2.1 Further, the statement of the assessee, was recorded who stated that “…In the entire excel file, column cash means cash received by the company which is not recorded in the books of account of the company i.e. “on-money”. The tax on the said receipt will be paid while filing the returns of income.” During the post search analysis, an email was recovered which contained the details of the price of units in the scheme Narayan Orion. The email was sent by the marketing executive of the company to the potential customers in response to sale enquiries. From this mail the AO corroborated the prices in the excel sheet as accepted by the assessee.

2.2 The assessee was issued a notice u/s 153A of the Act and assessee filed return in response to the said notices as detailed below and the assessments were competed by AO by passing order u/s 143(3) r.w.s. 153A of the Act. Details of return filed and assessment: Particulars A.Y. 2011-12 A.Y. 2014-15 Date of filing return 29-09-2011 31-03-2015 of income Returned Income Rs. 1,23,93,380/- Rs.6,71,25,250/- Date of filing return 11-05-2016 11-05-2016 of income in response to notice u/s 153A Income as per return Rs.1,23,93,380/- Rs. 6,82,00,750/- filed in response to notice u/s 153A Addition made on Rs. 11,00,000/- Rs. 11,00,000/- account On- Money Received

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4 2.3 During the course of assessment proceedings, the AO observed that the assessee has not disclosed any additional income relating to information found at the time of search. The AO noted that the excel sheet seized during the search indicated a cash receipt of Rs. 22,00,000 for Unit No. 203. However, the assessee explained that this was due to an alignment error in the sheet. The cash receipt actually pertained to Unit No. 301, for which a booking had been made by Shri Ankur Chaturvedi. The assessee argued that no booking had been made for Unit No. 203, and therefore, no cash could have been received for it. This explanation was accepted by the AO, who did not make any addition for on-money in respect of Unit No. 301, acknowledging that the booking had been cancelled and no cash was received.

3.1 The AO proceeded to make additions for alleged on-money received for Units 101, 302, and the Penthouse, despite the fact that the seized excel sheet did not mention any cash receipts for these flats. The AO relied on the statement of the assessee recorded under oath, which described the column titled “cash” as referring to on-

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5 money received. The assessee pointed out that the “cash” column for Units 101, 302, and the Penthouse was blank, which indicated that no on-money had been received. The AO, however, assumed that on- money must have been received, based on the general nature of the statement, rather than any specific evidence. The assessee argued that this assumption was without basis and contradicted by the absence of any mention of cash receipts in the relevant documents.

3.2 The AO relied on the assessee's statement made under oath, which explained that the “cash” column in the excel sheet represented unrecorded cash transactions. The AO interpreted this to mean that on-money was received for all the flats in the project. The assessee contended that while the statement clarified the meaning of the “cash” column, it did not indicate that on-money was received for every flat. The assessee emphasized that the column for Units 101, 302, and the Penthouse was blank, proving that no such receipts had occurred for these flats. The AO had disregarded this critical detail, leading to the erroneous additions.

3.3 The AO also relied on an email found during the search, which mentioned a price range of Rs. 49-55 lakhs for certain flats. The AO presumed that the difference between the actual sale price and the price mentioned in the email represented on-money received by the assessee. The assessee argued that the email did not specify that any on-money was received, nor did it mention any particular flat numbers. The assessee explained that the email was merely a general marketing communication sent before the actual bookings were made. Furthermore, the market conditions had changed by the

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6 time the bookings were finalized, leading to lower sale prices. The AO did not provide any evidence to contradict this explanation, relying instead on conjecture.

3.4 The AO made the additions under Section 153A, presuming that the cash receipts constituted undisclosed income.

3.5 For the assessment years 2011-12, 2013-14, and 2014-15, the AO added the on-money receipts of Rs.11,00,000, Rs. 22,00,000, and Rs.11,00,000, respectively, to the assessee's total income as undisclosed income and initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act.

3.6 The assessee preferred an appeal before CIT(A) against the order of AO. During the proceedings before CIT(A), the assessee argued that since the assessments for the relevant years had been deemed completed under Section 143(1), any additions under Section 153A had to be based on incriminating material found during the search. The assessee cited legal precedents, such as the case of Smt. Yamini Agrawal vs. DCIT, reported in [2017] 83 taxmann.com 209(ITAT Kolkata) to argue that no addition could be made unless it was supported by incriminating material found during the search. Since no such material existed for Units 101, 302, and the Penthouse, the additions made by the AO were without legal merit. The assessee also submitted that no incriminating material was found during the search and therefore the AO has made additions on the basis of assumptions. The assessee reiterated all the facts argued before the AO. The CIT(A) reaffirmed a key legal

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7 principle established by various courts, including the jurisdictional Gujarat High Court in the case of Pr.CIT Vs. Saumya Construction Pvt. Ltd. [2016] 387 ITR 529, that in the case of search assessments under Sections 153A/153C of the Act, for the elapsed years (i.e., years where assessments have been completed or the time limit for issuing notice under Section 143(2) has lapsed), any addition to the total income must be based on incriminating materials found during the search. The CIT(A) found that the Assessing Officer (AO) did indeed rely on incriminating material—specifically, a pen drive containing details of receipt of on-money on the booking of flats— which was seized during the search. Therefore, the AO's actions were in line with legal precedents, and the assessee's contention that the AO acted on mere assumptions was dismissed.

4.1 The CIT(A) upheld the AO’s decision to extrapolate the findings from specific units (201 and 203) to other units in the project, asserting that it is reasonable to assume that the same modus operandi would have been applied across the project. This approach was backed by judicial precedents which allow for extrapolation in

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8 cases involving incriminating materials. The CIT(A) rejected the assessee's argument that on-money was not received for other units and that the AO’s additions were unwarranted. The extrapolation of on-money to other units was deemed logical and consistent with the findings from the incriminating materials.

4.2 The assessee argued that the additions should be restricted to 15% of the alleged on-money, treating it as net profit, and taxed as capital gains rather than business income. The CIT(A) dismissed this contention, holding that the on-money received constituted unaccounted income, fully taxable as business income. The CIT(A) pointed out that the entire on-money received was unaccounted income pocketed by the partners, and without any claim or proof of unaccounted expenses, the entire amount should be taxed as business income. Additionally, the CIT(A) noted that the assessee failed to provide any evidence of unaccounted expenses related to the project.

4.3 The CIT(A) briefly touched upon the issue of the appropriate year for taxing on-money receipts. The assessee claimed that the on- money received was offered to tax in the return for A.Y. 2014-15. However, upon examination of the relevant documents, the CIT(A) found that the claimed inclusion of on-money in the income was not substantiated. The AO was directed to verify the computation of income for A.Y. 2014-15 and appropriately treat the accounted and unaccounted sale consideration.

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9 4.4 The CIT(A) ultimately dismissed the grounds raised by the assessee for A.Y. 2011-12 and A.Y. 2014-15, affirming the AO’s findings and treatment of on-money as business income. The CIT(A) also rejected the assessee's contention that the proceeds from the sale of units in the Narayan Orion project should be taxed as capital gains, reiterating that the activity of construction and sale of flats constituted a business, not an investment, thereby justifying the taxation as business income.

Grounds for A.Y. 2011-12 in IT(SS)A No.267/Ahd/2019 1. The learned Commissioner of Income Tax (Appeals) -12, Ahmedabad ["CIT(A)"] erred in fact and in law in confirming the action of the Id. Deputy Commissioner of Income Tax, Central Circle-1, Vadodara ["the AO"] in making the additions to the returned income in assessment u/s. 153A of the Income Tax Act, 1961 ("the Act") despite the fact that no incriminating material was found during the course of search. 2. The learned CIT(A) erred in fact and in law in confirming the action of the Id. AO in making an addition of Rs. 11,00,000/- as on-money to the income of the Appellant. 3. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in making an addition of Rs. 11,00,000/- on estimated basis despite the fact that no incriminating material was found during the course of search evidencing the receipt of alleged on-money in the case of the Appellant. 4. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in charging tax @ 30% instead of 20% as applicable in case of capital gains. 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234B of the Act. 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(1)(c) of the Act. 7. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.

IT(SS)A Nos.267 & 270 /Ahd/2019 Jyantilal Dalsukhbhai Panchal vs. DCIT Asst. Years 2011-12 & 2014-15 respectively

10 Grounds for A.Y. 2014-15 in IT(SS)A No.270/Ahd/2019 1. The learned Commissioner of Income Tax (Appeals) -12, Ahmedabad ["CIT(A)"] erred in fact and in law in confirming the action of the learned Deputy Commissioner of Income Tax, Central Circle-1, Vadodara ["the AO"] in making the additions to the returned income in assessment u/s. 153A of the Income Tax Act, 1961 ("the Act") despite the fact that no incriminating material was found during the course of search. 2. The learned CIT(A) erred in fact and in law in confirming the action of the ld. AO in making an addition of Rs. 11,00,000/- as on-money to the income of the Appellant. 3. The learned CIT(A) erred in fact and law in confirming the action of the ld. AO in making an addition of Rs. 11,00,000/- despite the fact that an amount of Rs. 10,75,500/- was already offered by the Appellant in the return of income. 4. Without prejudice to the above, the learned CIT(A) erred in fact and law in confirming the action of the Id. AO in making an addition of gross amount of Rs. 11,00,000/- without setting off the amount of Rs. 10,75,000/- offered in the return of income. 5. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in charging tax @ 30% instead of 20% as applicable in case of capital gains. 6. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234B of the Act. 7. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(1)(c) of the Act. 8. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal. 6. Before us, the Authorised Representative (AR) of the assessee contended that no incriminating material is found and hence, A.Y. 2011-112 being unabated year, no addition can be made in the same year. The AR also explained that in the excel sheet, it is shown that the cash of Rs.22,00,000/- is received in respect of Unit No. 201 and 203 but there was an alignment error in the sheet and the cash shown against the Unit No. 203 actually pertains to Unit No.301which can be cross verified from the date of booking column in the same sheet where only two flats were shown as booked on 07- 09-2010. The AR further stated that the booking of Unit No. 301 (in

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11 the name of Anju Chaturvedi) was later cancelled and only one Unit No. 201 was retained. The AR argued that the AO has accepted the cancellation of booking in case of Unit No. 301 and has not added any on-money on account of this cancelled unit. The AR further stated that the on-money relating to Unit No.201 (Booked by Ankur Chaturvedi on 07-09-2010), to the extent of assessee’s share has been disclosed in the subsequent A.Y. 2014-15 as the sale deed was registered in the said year. The AR further contended that the AO, on the basis of assumption, has added on-money received in respect of other Units including Unit No. 201 which is not supported by any evidence. The AR argued that the AO’s action of adding on-money on the basis of date of booking is not correct and it should be added in the year when accounted income relating to such on-money is disclosed. The AR placed reliance on some judicial pronouncements where it was held that on-money receipts should be taxed in the year in which accounted receipts are taxed and no extrapolation of receipts are allowed based on seized documents in absence of any cogent evidence. The AR also stated that the assessee in A.Y. 2014- 15 has disclosed the income relating to unit in Narayan Orien as short-term capital gains by showing increased sale consideration of Rs. 10,75,500/- (Rs. 47,28,30/- Sale Consideration as per computation of income Less(-) Rs.36,52,530/- as Sale consideration in statement of ST capital gains)

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12 8. We have heard the rival contentions and perused the material on the records. We note that the basis of addition by AO is the MS- Excel sheet. As per the same the total amount of Cash Column is Rs.44,00,000 relating to Unit No. 201 & 301 and the booking of Unit No.301 is admittedly cancelled leaving the disputed amount to Rs.22,00,000/-

8.1 We note the judicial precedents of the Tribunal in case of DCIT Vs. Ohm Developers (ITA No.314/Ahd/2002 dated 08-05-2015) and D.R. Construction Vs. ITO (ITA No.2735/Ahd/2010 dated 08-04- 2011) where it was held that the "on-money" should be taxed in the year the sale is completed, aligning with when the legal ownership transfers to the buyer, rather than in the year the money is received. We also note the decision of Tribunal in case of DCIT Vs. Pushkar Infrastructure (IT(SS)A No.367/Ahd/2019 dated 11-08-2023) and decision of Hon’ble Gujarat High Court in case of CIT Vs. Jayaben Ratilal Sorathia [(2013) 40 taxmann.com 436]. The Tribunal held that the AO's extrapolation of on-money receipts to the entire sales was not justified, as it was based on assumption and lacked supporting evidence. The tribunal restricted the addition to the specific units mentioned in the seized documents, dismissing the broader extrapolation made by the AO. The Hon’ble High Court held that extrapolation from subsequent years cannot be a valid basis for additions without direct or corroborating evidence for the year under consideration. In the present case, the AO has made additions to income based on extrapolation from the impugned Ms-Excel sheet without direct and incriminating evidence. Therefore, principles from the Jayaben Ratilal Sorathia and Pushkar Infrastructure (supra)

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13 cases provide strong grounds for arguing that such extrapolations are not legally sustainable. The focus should be on ensuring that any income addition is based on concrete, year-specific evidence rather than assumptions or extrapolations from unrelated periods. Considering the facts and judicial precedents discussed above we now deal with the grounds of appeal.

IT(SS)A No.267/Ahd/2019 relating to A.Y. 2011-12

Ground 1: Addition under Section 153A Based on Incriminating Material 9. The AR argued that no incriminating material was found during the search, and since AY 2011-12 is an unabated year, no addition could be made. The AR explained that the excel sheet relied upon by the AO showed an alignment error, where the cash of Rs. 22,00,000/- shown against Unit No. 203 actually pertained to Unit No. 301, which was later canceled. The AR also emphasized that the AO accepted the cancellation of Unit No. 301 and did not add any on-money for this unit. The CIT(A) dismissed the assessee's argument, holding that the excel sheet and the assessee’s admission constituted incriminating material, justifying the addition under Section 153A.

9.1 Upon careful consideration of the AR's contentions, the CIT(A)'s decision, and the evidence on record, we acknowledge that the excel sheet was indeed incriminating material. However, the AR’s explanation of the alignment error, which was accepted by the AO regarding the cancellation of Unit No. 301, indicates that the

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14 addition for Unit No. 301 was not warranted. We further note the judicial precedents, such as DCIT vs. Ohm Developers and D.R. Construction vs. ITO (supra), which emphasize that on-money should be taxed in the year when the sale is completed, aligning with the year of transfer of legal ownership. Since the on-money related to Unit No. 201 was disclosed in AY 2014-15, when the sale deed was registered, the addition for AY 2011-12 is not justified. Therefore, the addition made by the AO and confirmed by the CIT(A) is hereby deleted and this ground no.1 is allowed in favour of the assessee.

Ground 2: Addition of Rs. 11,00,000/- as On-money 10. The AR argued that the on-money related to Unit No. 201, booked by Ankur Chaturvedi on 07-09-2010, was disclosed in AY 2014-15 when the sale deed was executed. The AO’s addition of Rs. 11,00,000/- in AY 2011-12 was based on assumptions and should be corrected. The CIT(A) upheld the addition, stating that the presence of incriminating material justified the addition in AY 2011- 12. We find that while the AO’s addition of Rs. 11,00,000/- was supported by the excel sheet, the principle established in DCIT vs. Ohm Developers and D.R. Construction vs. ITO requires that on- money be taxed in the year when the corresponding accounted income is recognised. As the on-money for Unit No. 201 was disclosed in AY 2014-15, the addition for AY 2011-12 is not appropriate. The CIT(A)’s decision to uphold the addition is, therefore, incorrect and this ground no.2 is allowed.

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Ground 3: Estimation of On-Money 11. The AR contended that the AO’s addition based on the date of booking is unsupported by evidence and that any on-money should be taxed in the year when the accounted income is disclosed. The CIT(A) supported the AO’s approach, stating that the on-money was rightly added in AY 2011-12 based on the excel sheet. We, while respecting the CIT(A)’s decision, note that the principle established by the Gujarat High Court in CIT vs. Jayaben Ratilal Sorathia(supra) prohibits the extrapolation of income across different years without specific evidence. The AO’s estimation of on-money in AY 2011-12 lacks the direct evidence required for such an addition and should have been aligned with AY 2014-15 when the sale was completed and disclosed. Consequently, the CIT(A)’s decision to uphold the AO’s estimation is not legally sustainable and ground no.3 is allowed.

Ground 4: Charging Tax at 30% Instead of 20% (Capital Gains) 12. The AR argued that the on-money related to Unit No. 201 was disclosed as part of the sale consideration in AY 2014-15 and should be taxed as short-term capital gains at 20%, rather than as business income at 30%. The CIT(A) upheld the AO’s classification of the income as business income, which warranted a 30% tax rate. We concur with the CIT(A) that the income from the project constitutes business income, given the nature of the transactions. However, since the income related to Unit No. 201 was disclosed in AY 2014- 15, the AO is directed to verify whether the correct tax treatment

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16 was applied in that year. This ground no.4 is dismissed, subject to the AO's verification.

Ground 5: Charging of Interest under Section 234B 13. We find that while the interest under Section 234B is correctly charged as a consequence of additions, any adjustments to the year of taxation of the on-money receipts necessitate a recalculation of interest. Since the additions for AY 2011-12 are being deleted and shifted to AY 2014-15, the interest liability should be reassessed accordingly. The CIT(A)’s decision is modified to this extent, and this ground no.5 is partly allowed.

Ground 6: Initiation of Penalty Proceedings under Section 271(1)(c)

IT(SS)A No.270/Ahd/2019 relating to A.Y. 2014-15

Ground 1: Addition in assessment u/s 153A Based on Incriminating Material

IT(SS)A Nos.267 & 270 /Ahd/2019 Jyantilal Dalsukhbhai Panchal vs. DCIT Asst. Years 2011-12 & 2014-15 respectively

17 the addition should reflect this timing. The CIT(A) confirmed the addition in assessment under Section 153A, stating that the incriminating material justified the AO’s actions. We find that the addition under Section 153A is justified based on the incriminating material. However, since the on-money was disclosed in AY 2014-15, the addition is appropriate for this year. The CIT(A)’s decision is upheld, and this ground no.1 is dismissed.

Ground 2: Addition of Rs. 11,00,000/- as On-money

Ground Nos.3 and 4: Non-Consideration of Rs.10,75,500/- Offered in Return

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18 already offered by the assessee. The addition should be adjusted accordingly, and the assessment should align with the correct year of taxation. The CIT(A)’s omission in this regard is noted, and these ground nos.3 & 4 are allowed.

Ground 5: Charging Tax at 30% Instead of 20% (Capital Gains) 18. The AR argued that the on-money should be treated as short- term capital gains taxed at 20% rather than business income taxed at 30%. The CIT(A) upheld the AO’s classification of the income as business income, applying a 30% tax rate. We concur with the CIT(A) that the income from the project should be treated as business income. The tax rate of 30% is correctly applied, given the nature of the transactions. This ground no.5 is dismissed.

Ground 6: Charging of Interest under Section 234B 18. The AR disputed the interest charged under Section 234B, arguing that it was based on incorrect assumptions about the year of taxation. The CIT(A) upheld the charging of interest under Section 234B as a consequence of the additions made. We find that the interest under Section 234B is correctly charged, but the final interest calculation must reflect any adjustments made based on the correct year of taxation of the on-money. The AO is directed to reassess the interest liability in light of these findings. This ground no.6 is dismissed, subject to necessary recalculations.

Ground 7: Initiation of Penalty Proceedings under Section 271(1)(c) 19. The AR argued that penalty proceedings were unwarranted given the legitimate dispute over the timing of on-money taxation.

IT(SS)A Nos.267 & 270 /Ahd/2019 Jyantilal Dalsukhbhai Panchal vs. DCIT Asst. Years 2011-12 & 2014-15 respectively

The CIT(A) upheld the initiation of penalty proceedings under Section 271(1)(c), given the confirmation of the additions. With the primary additions confirmed, the initiation of penalty proceedings is upheld. However, the final determination of penalties should consider any adjustments to the year of taxation for the on-money receipts. This ground no.7 is dismissed, with a direction to consider the final assessment outcome in the penalty proceedings.

Sd/- Sd/- (T.R. SENTHIL KUMAR) (MAKARAND V. MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

अहमदाबाद/Ahmedabad, �दनांक/Dated 04/09/2024 Manish, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त ( अपील ) / The CIT(A)-12, Ahmedabad 5. �वभागीय ��त�न�ध , आयकर अपील�य अ�धकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड� फाईल /Guard file.

आदेशानुसार/ BY ORDER, //True Copy// स�या�पत ��त //True Copy//सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, ITAT, Ahmedabad