OM ICON,SURAT vs. DCIT, CIRCLE 2(1)(1), SURAT

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ITA 621/SRT/2025Status: DisposedITAT Rajkot13 October 2026AY 2018-1918 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer (AO) was not justified in rejecting the books of account under Section 145(3) of the Act. The Tribunal reasoned that a fall in the net profit rate, especially when there was a substantial increase in turnover, is not by itself a defect in the books of account, and the AO had not pointed out any false, unvouched, incomplete, or incorrect entries. Regarding the variation in rates, the Tribunal noted that the assessee had provided explanations and details of earlier bookings, and the AO's observations about small advance payments or uncharged interest did not establish receipt of consideration outside the books. The Tribunal also found that the registration date of the agreement was not a reliable indicator of the price fixing date, and the AO lacked evidence of cash receipts. Furthermore, the Tribunal found the quantification of the addition unsustainable, as the AO applied a uniform highest rate without material to support it, and the CIT(A)'s reduction was also arbitrary. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition.

What were the facts?

The assessee, Om Icon, a firm engaged in developing and selling residential flats, filed its return for AY 2018-19 declaring a total income of Rs. 93,60,190/-. The Assessing Officer (AO) noted a net profit of 5.65% on gross receipts of Rs. 16,53,95,000/-, which was lower than the preceding two years. The AO also observed variations in the per square feet sale price of flats, ranging from Rs. 2,204/- to Rs. 3,045/-. The AO rejected the assessee's explanation regarding price variations and cash receipts, rejected the books of account under Section 145(3), and estimated the total sale consideration by applying the highest rate of Rs. 3,045/- per square feet to all 24 flats sold, resulting in an addition of Rs. 1,50,18,580/-. The CIT(A) sustained the addition but reduced it to Rs. 1,23,52,370/- by reducing the rate to Rs. 3,000/- per square feet. The assessee appealed to the ITAT.

What were the issues?

1. Whether the Assessing Officer erred in rejecting the books of accounts under Section 145(3) of the Income Tax Act, 1961, on the grounds of a fall in net profit rate and variation in sale rates per square feet. 2. Whether the Commissioner of Income-Tax (Appeals) erred in partly confirming the addition of Rs. 1,23,52,370/- on account of alleged additional net profit. Assessee's Contentions: - The rejection of books of accounts under Section 145(3) and the subsequent addition are baseless, based on suspicion, surmises, and conjectures, with no factual basis. - The variation in rates was explained by factors like market conditions, negotiation, and the date of booking, with details of earlier bookings provided. - The AO did not point out any specific defect in the books or material to show receipt of cash consideration. - The CIT(A)'s reduction of the rate was arbitrary and without basis. Revenue's Contentions: - The AO provided specific instances of huge variations in rates for flats in the same project. - The assessee's explanation regarding booking dates and advance payments was not satisfactory. - The AO's action was a "best judgment" assessment.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 144,Section 143(3),Section 142(1),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI

For Appellant: Shri Rasesh Shah, CA
For Respondent: Shri Om Prakash Jha, Sr. DR
Hearing: 21.07.2026Pronounced: 13.10.2026

आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by the order of first appeal dated 31.03.2025 passed by learned Commissioner of Income-Tax (Appeals)-National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”], which in turn arises out of the assessment-order dated 04.06.2021 passed by learned National Faceless Assessment Centre of Income-tax Department [“Ld. AO”] u/s 143(3) r.w.s. 144B of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal.

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The background facts leading to present appeal are as under: 2.

(i) The assessee-firm is engaged in the business of developing and selling residential flats. During the year under consideration, it had one ongoing project, “Om Icon”, at Surat.

(ii) For AY 2018-19, the assessee filed its return of income declaring total income of Rs. 93,60,190/-. The case was selected for scrutiny assessment and the Ld. AO issued notices u/s 143(2)/142(1) from time to time, which were responded to by the assessee.

(iii) During proceedings, the Ld. AO noted that the assessee had shown gross receipts of Rs. 16,53,95,000/- from the project and Net Profit of 5.65%, as against 8.00% in immediately preceding two years on turnover of Rs. 10.53 crore and Rs. 4.38 crore respectively.

(iv) From the details furnished by the assessee, the Ld. AO further noticed that the assessee sold flats at different rates, ranging from Rs. 2,204/- to Rs. 3,045/- per square feet. The AO sought explanation from assessee. In response, the assessee filed a reply (which shall be re- produced in a later para of this order). The Ld. AO, however, rejected assessee’s submission and concluded that the variation in prices indicated the receipt of consideration in cash by assessee which was not recorded in books of account.

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(v) Accordingly, the Ld. AO rejected the books of account u/s 145(3) and proceeded to estimate income u/s 144. Applying the highest rate of Rs. 3,045/- per square feet to all 24 flats sold during the year, the Ld. AO worked out total sale consideration at Rs. 18,04,13,580/- as against Rs. 16,53,95,000/- shown by assessee and made an addition of Rs. 1,50,18,580/- to the total income of assessee.

(vi) Aggrieved, the assessee carried matter in first-appeal. The Ld. CIT(A) sustained the action of the Ld. AO but granted a minor relief by reducing the rate from Rs. 3,045/- to Rs. 3,000/- per square feet. Accordingly, the Ld. CIT(A) restricted/reduced the addition to Rs. 1,23,52,370/-.

Still dis-satisfied, the assessee has come in present appeal before us. (vii)

The assessee has raised following effective grounds: 3.

“1. On the facts and circumstances of the case as well as law on the subject, the Ld. assessing officer has erred in rejecting books of accounts u/s. 145(3) of the Income Tax Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in partly confirming the action of the assessing officer by sustaining addition of Rs.1,23,52,370/- out of total addition of Rs. 1,50,18,580/- on account of alleged additional net profit of the assessee. 3. It is prayed that the addition made by the assessing officer and confirmed by the Ld. CIT(A) may please be deleted.” 4. All grounds raised by assessee relate to one single issue, namely, rejection of books of account u/s 145(3) of the Act and the resultant

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addition of Rs. 1,23,52,370/- sustained by Ld. CIT(A) on account of alleged additional net profit. Hence, we adjudicate all the grounds together.

5.

We have heard the learned Representatives of both sides and carefully considered their submissions; the papers filed by them and the orders passed by lower authorities.

6.

At first, we would like to re-produce the relevant portion of assessment-order in which the Ld. AO has made the impugned addition:

7. Now, we would like to reproduce the adjudication made by Ld. CIT(A) granting part-relief to assessee:

“CONCLUSION - during appeal proceedings also there is nothing new that is brought out which contradicts this finding. A minor relief for sake of rendering justice is given by reducing the per sq ft cost at Rs 3000. Total cost of flats sold - Rs 177747369 Less: Sale consideration shown by assessee - Rs 165395000 Difference - Rs 12352369 rounded off to Rs 12352370. The addition is restricted to Rs 12352370. Based on facts and circumstances of the case the addition to the extent of Rs 12352370 is upheld. In the result the appeal is partly allowed.” 8. During hearing, Ld. AR for assessee drew us to the orders of lower authorities and the documents filed in Paper-Book and submitted as under:

(i) That, during the year, the assessee sold 24 flats to different customers for an aggregate consideration of Rs. 16,53,95,000/-. Complete details of all 24 transactions are noted by Ld. AO in assessment-order (re- produced in earlier para). Out of 24 transactions, 15 transactions were done by assessee @ Rs. 2,842 / 2,204 / 2,816 / 2,225 / 3,017 per square feet and 9 transactions were done @ Rs. 3,045 per square feet. However, the Ld. AO has estimated aggregate sale consideration at Rs. 18,04,13,580/- by applying a uniform estimated rate of Rs. 3,045/- per square feet to all 24 transactions. The AO’s action is based on mere suspicion, surmises and conjectures, there is no factual basis.

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(ii) That, during assessment proceeding when the Ld. AO sought explanation from assessee regarding variation in rates, the assessee instantly filed following reply dated 26.04.2021 to Ld. AO; the reply- letter is available at Pages 86-87 of Paper-Book:

(iii) That, in Para 2 of above reply, the assessee explained that the reason for difference in selling price could be on account of many factors, viz. market condition, fair market value, competition, negotiation with the customer, commitment at the time of booking and the date of booking. Further, in Para 3 of reply, the assessee also furnished the factual details of certain flats booked with the names of parties, date of first receipt of advance and advance amount received, in order to satisfy the Ld. AO that the bookings were made much earlier and from time- to-time.

(iv) That, the Ld. AO has noted that the agreements done later with different buyers, were at lower prices in many cases. This supports, and does not contradict, the explanation that the price of a flat was fixed at the time of booking and the agreement was registered subsequently.

(v) That, the Ld. AO has not pointed out any specific defect in the books of account nor brought any material to show receipt of consideration in cash. The rejection of books u/s 145(3) of the Act rests only on fall in Net Profit and variation in rates and the addition has been made on presumption basis. The Ld. CIT(A) has given part-relief, by reducing the rate from Rs. 3,045/- to Rs. 3,000/- per sq. ft., without any basis and only to demonstrate that justice has been done.

(vi) Reliance is placed on certain judicial decisions filed in Paper-Book.

9.

With above submissions, Ld. AR contended that the action of Ld. AO in rejecting books of assessee u/s 145(3) as well as making the impugned addition, is baseless and purely on suspicion, surmises and conjectures. Ld. AR submitted that such action must be held as unsustainable and the addition made by Ld. AO must be deleted in toto.

Per contra, Ld. DR for revenue made following submissions: 10.

(i) That, the Ld. AO has given specific instances of huge variation in the rates charged from different customers for flats in the same project.

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(ii) That, at S.No. 31, 32 and 33 in the Table extracted by Ld. AO, the flats of two different rates of Rs. 2,816/- and 2,225/- per square feet have been registered on the same date of 28.06.2017.

(iii) That, the booking by payment of a small amount is not sufficient to prove that the cash component was not received. Further, the AO has noted that the assessee has not charged any interest on delayed payment.

(iv) That, the Ld. CIT(A) has already granted part-relief to assessee.

11.

In rejoinder, Ld. AR again emphasized that the date of registration of agreement is not relevant as the price of a flat is fixed on the date of booking, which is different from the date of registration. He submitted that even if the agreements of two buyers are registered on same day, their bookings were made on different dates or there could be other factors, like price negotiations, etc. due to which there would be difference in rates.

12.

We have considered rival submissions of both sides and perused the orders of lower authorities as well as the material on record. The short issue for our consideration is whether, on the facts and circumstances of present case, the rejection of books of account u/s 145(3) of the Act and the consequent addition of Rs. 1,23,52,370/- sustained by Ld. CIT(A) is justified?

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13. Section 145(3) of the Act empowers the Ld. AO to reject the books of account and make assessment u/s 144 of the Act where the Ld. AO is not satisfied about correctness or completeness of the accounts, or where the method of accounting has not been regularly followed. Such dissatisfaction has to be founded on relevant material demonstrating that the accounts are not correct or complete and cannot be based merely on suspicion, surmises or conjectures. In present case, the Ld. AO has relied upon two circumstances, namely, (i) fall in Net Profit rate and (ii) variation in rate per square feet. We examine them in turn.

14.

As regards Net Profit, the assessee showed 5.65% net profit in current year as against 8.00% in the two preceding years. The assessment-order clearly records that the turnover in current year was Rs. 16.54 crore whereas the turnover in preceding two years was Rs. 10.53 crore and Rs. 4.38 crore only. The Ld. AO has not pointed out even a single instance of any receipt or expenditure appearing in the books which is false, unvouched, incomplete or incorrect. In our considered view, a difference in profit rate between years, when there was a substantial increase in turnover of business in current year from earlier years, is not by itself a defect in books of account. This circumstance, therefore, does not support rejection of books.

15.

Coming to the variation in rates, the assessee explained to Ld. AO that the rate depended upon various factors including the date of booking. The

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assessee has also given details of certain transactions where bookings were made much earlier and registration of agreements have been made subsequently after lapse of time. The Ld. AO rejected this explanation by observing that the booking by payment of a small amount is not sufficient and that the interest on delayed payment was not charged from customers. These observations, by themselves, do not establish that any part of the sale consideration was received outside the books of account.

16.

In so far as the contention of Ld. DR that the flats registered on the same date, 28.06.2017, were sold at different rates is concerned, the Ld. AO and Ld. DR have proceeded on the date of registration of agreement. However, as submitted by Ld. AR in rejoinder, the price depends on the date of booking and not on the date of registration of agreement. The table itself shows that the flats of the lowest slab of Rs. 2,204/- per square feet have been registered on 28.06.2017, 09.10.2017, 20.11.2017 (S.No. 30, 40, 41). Similarly, the flats of slab of Rs. 2,842/- per square feet have been registered on 05.05.2017, 12.05.2017, 21.06.2017, 12.07.2017, 14.07.2017, 23.08.2017 (S.No. 26, 27, 28, 29, 35, 36). Thus, the flats of same rates have been registered on different dates. Conversely, the flats of two different slab rates of Rs. 2,816/- and 2,225/- per square feet have been registered on the same date of 28.06.2017. Thus, the registration date of agreement is not an indicator of the date on which the price was fixed. There is no evidence with the Ld. AO to show that the assessee received any money from the buyer over and above the consideration mentioned in registered agreement. The

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assertion that the variation in price is not possible unless cash is accepted, is a general remark and cannot take the place of evidence against assessee. Thus, mere variation in the rates does not justify rejection of books u/s 145(3) of the Act.

17.

Even assuming, for the sake of argument, that the books could be rejected, the quantification of the resultant addition is also not sustainable. The Ld. AO has treated the highest rate of Rs. 3,045/- per sq. ft. as the rate of every flat, irrespective of the date of booking and agreement value actually executed, and thereby converted 15 flats sold in the lower slabs into the highest slab. An estimate to the best of judgment u/s 144 of the Act must have a rational nexus with the material on record; a notional uniform rate without any material to show that any flat of corresponding booking date was sold at that rate, is not such an estimate. The reduction by Ld. CIT(A) to Rs. 3,000/- “for sake of rendering justice” is equally without any basis, as no material has been identified for that rate. It only retains the same infirmity, as made by Ld. AO, but at a lower figure.

18.

In view of above discussion, we hold that the Ld. AO was not justified in rejecting the books of account u/s 145(3) of the Act, and that the addition made by adopting a notional rate as restricted by Ld. CIT(A) to Rs. 1,23,52,370/-, is not sustainable. We, therefore, set aside the impugned order of Ld. CIT(A) on this issue and direct the Ld. AO to delete the addition of Rs. 1,23,52,370/- and to re-compute total income accordingly.

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19. Resultantly, this appeal of assessee is allowed.

Order pronounced by putting up on notice board as per Proviso to Rule 34(4) of ITAT Rules, 1963 on 13/10/2026

Sd/- Sd/- (PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat दिन ांक /Dated : 13/10/2026 Neelesh/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order

UE COPYAssistant Registrar/Sr. PS Income Tax Appellate Tribunal Surat Bench, Surat

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