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Facts
The assessee, a real estate developer, was found to have received 'on-money' (cash over and above the registered sale price) from the sale of flats and shops. The Assessing Officer (AO) estimated the on-money receipt at Rs. 3,88,09,174/- for AY 2015-16 and initiated addition. The Commissioner (Appeals) partially allowed the appeal, restricting the addition to Rs. 1,28,50,000/-.
Held
The Tribunal held that while the Assessing Officer's estimation of gross on-money receipt was debatable, the unexplained unsecured loans brought into the books of account, which were admitted to be generated from such on-money receipts, could not be ignored. The CIT(A)'s action of restricting the addition to the amount of unsecured loans was found to be correct.
Key Issues
Whether the addition on account of 'on-money' receipts should be restricted to the amount of unexplained unsecured loans brought into the books, and whether credit for previously declared income should be allowed.
Sections Cited
132, 132(4), 142(1), 143(1), 143(2)
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Income Tax Appellate Tribunal, SURAT “DB” BENCH, SURAT
Before: Dr. BRR Kumar, Hon’ble & Ms. Suchitra Kamble
आदेश/ORDER Per Suchitra Kamble, Judicial Member:
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
These three appeals are filed against the order dated 17-01-2022 passed by CIT(A)-4, Surat for assessment year 2015-16 & 2016-17.
The grounds of appeals are as under:- ITA No. 84/Srt/2022 A.Y. 2015-16 “(i) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition made of Rs. 3,88,09,174/- on account of on-money receipt to Rs. 1,28,50,000/- without considering the overall facts brought out by the AO in respect of the quantum of on money received by the assessee-firm. (ii) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition made by the AO of Rs.3,88,09,174/- on account of on-money receipts by observing that only profit element of the gross on money receipts can be considered for taxation, without considering the facts that the assessee could not produce any documentary evidences regarding expenses incurred out of the on-money received during the year under consideration. [iii] Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition to Rs,1,28,50,000/- by ignoring the fact no separate addition was made on account of unexplained cash credit considering the fact that only a part of the on money was used for bringing the unaccounted on money into the books of accounts in the form of unsecured loans. [iv] It is, therefore, prayed that the order the Ld. CIT(A)-4, Surat may be set aside and that of the AO may be restored to the above extent. [v] The assessee craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.”
ITA No. 88/Srt/2022 A.Y. 2015-16 “1 The Ld CIT(A) has erred and was not just and proper on the facts of the case and in law in confirming and restricting the embedded profit Rs.43,67,715/-equal to the amount of unsecured loan of Rs 1,28,50,000/- accepted by the assessee during the year. 2 The Ld CIT(A) has erred and was not just and proper on the facts of the case and in law in not allowing the credit of already declared Income of Rs 2,70,00,000/- in the AY 2014-15 as receipts. Income from ON-MONEY receipts. 2. PRAYER 2.1 The embedded profit may be kindly calculated independently irrespective of the unsecured loan accepted by the assessee. 2.2 The telescoping of Income AY already declared in the 2014-15 towards embedded profit may be kindly allowed. 2.3 Personal hearing may be granted.
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
2.4 Any other relief that your honours may deem fit may be granted. 3 The assessee craves leave to add, amend, modify alter or delete any of the grounds at the time of hearing. Total tax effect Rs.43,67,715/-”
ITA No. 89/Srt/2022 A.Y. 2016-17 “1 The Ld CIT(A) has erred and was not just and proper on the facts of the case and in law in confirming and restricting the embedded profit equal to the amount of unsecured loan of Rs 60,40,000/- accepted by the assessee during the year. 2 The Ld CIT(A) has erred and was not just and proper on the facts of the case and in law in not allowing the credit of already declared Income of Rs 2,70,00,000/- in the AY 2014-15 as Income from ON-MONEY receipts.
2 PRAYER 2.1 The embedded profit may be kindly calculated independently irrespective of the unsecured loan accepted by the assessee. 2.2 The telescoping of Income already declared in the AY 2014-15 towards embedded profit may be kindly allowed. 2.3 Personal hearing may be granted. 2.4 Any other relief that your honours may deem fit may be granted. 3. The assessee craves leave to add, amend, modify alter or delete any of the grounds at the time of hearing.”
Firstly, we are taking Revenue’s appeal for assessment year 2015-16. The assessee is a partnership firm and filed its return of income on 30-09-2015 declaring income of Rs. 8,24,700/-. The assessee is engaged in the business of civil construction. The case was processed u/s. 143(1) of the Act. The case was selected for limited scrutiny through CASS which was further converted into complete scrutiny vide order dated 14-12-2017. Notice u/s. 143(2) was issued on 29-08-2016 and 142(1) along with detailed questionnaire was issued on 16-01-2017 which was duly served upon the assessee. In response to the notices u/s. 143(2) and 142(1) of the Income Tax Act, the A.R. of the assessee attended the proceedings and filed details from time to
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
time. The Assessing Officer observed that the assessee is a partnership firm in which Ketan M Patel and Mukesh J Patel are partners on 50:50 profit sharing ratio. During the course of search and survey at the residential related to Ketan M. Patel, it was found that Shri Bharati Developers has developed a project named Shree “Bharati Royal Residential Project”. This project has both residential and commercial properties. The statement of Shri Ketan Mahadevbhai Patel was recorded on 18-04-2014 at Lajpore Jail, Surat. When he was arrested along with cash of Rs. 8.1 crores on charges of attempt to bribe. In the statement dated 18-04-2014, Nitin M. Patel stated that Rs. 7.0 crores belongs to him out of the cash seized by the Gujarat Police to Rs. 8.1 crores. Further, he admitted that the cash amount of Rs. 7.0 crore seized by Gujarat Police was generated from his business concern named Shri Bharati Deveopers and Shri Maa Laxmi Developers. Subsequently, the search action u/s. 132 of the Income Tax Act was carried out at the residential premises of Shri Ketan M. Patel. During the course of search, the statement of Ketan M. Patel was again recorded on 9th Sep, 2015 wherein in response to question no. 30, the assessee again confirmed that the cash of Rs. 7.0 crore belonging to him out of 8.1 crore was out of the on money received from the sale of flats/shops developed by Shree Bharati Developers and Maa Laxmai Developers. In response to question no. 34 of his statement recorded on 10-09-2015, Shri Ketan M. Patel confirmed that generally the ratio of sale consideration as per sale deed and on money was 50:50. The statement of Mukesh J. Patel was recorded u/s. 132(4) of the Act on 09-09-2015 wherein he stated that the firm was through Bharati Developers used to make payments for the property at jantri rates which was lower than the actual sale consideration received by the firm. In the 4
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
statement recorded on oath u/s. 132(4) of the Act, Shri Mukesh J. Patel admitted that the firm has been selling its flats/shops over and above jantri rates and the difference has not been recorded with the books of the accounts of the firm. The jantri rate of flats was quoted by him at Rs. 800 to 900 per sq. fit as against sale price of Rs. 2500 to 3500 per sq. fit on super built up area. Specific question was raised on the basis of a whatsapp text message and image found during the course of search proceedings. Vide question no. 25 at page 9 of the statement recorded on oath from Mukesh J. Patel, he was requested to offer his comments on whatsapp text message in connection with the amount deposited in connection with amount of Rs. 18,54,500/- paid in cash by one Shaileshbhai for the purchase of shop nos. 5 and 6. The jantri rates of these shops come at Rs. 18,77,387/-. In this regard, the Shri Mukesh J. Patel admitted that this amount was received in cash on account of sale of shop nos. 5 and 6 at Bharati Royal Residency to him. Shri Mukesh J. Patel further admitted that this amount of Rs. 18,54,500/- was not recorded in the books of accounts of M/s. Bharati Developers. At answer no. 28 of question, the statement given, Shri Mukesh Patel admitted an amount of Rs. 7 crore as receiept on unaccounted on money by the firm this Bharati Developers. The statement of Hemant Ratilal Chauhan, supervisor at Bharati Royal Residency was also recorded during the course of survey on 09-09-2015 wherein reply to question no. 5 admitted about sale of Bharati Royal Residency by Rs. 3500 per sq. ft. as well during the earlier year it was between Rs. 2800 to Rs. 3200 on super built up area. Shri Mukesh M. Patel in his statement recorded u/s. 132(4) dated 10-09-2015 in response to question no 17 stated that the difference between the actual sale price, the jantri rate was given by the prior in cash at the time of 5
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
booking of flats whereas at the time of document payment made through cheques. The assessee in his statement dated 09-09- 2015 at premises to furnish details of shroff from whom entry are reflected in balance sheet of the firm but the same was not furnished before the Assessing Officer. From the perusal of tax report it was found that fresh loans have been availed from 23 depositors during the assessment year 2015-16 which was categorically mentioned at page 5 of the assessment order and total amount of loan/deposits taken/accepted amounted to Rs. 1,28,50,000/-. The Assessing Officer observed that that from the perusal of the return of income of these lenders/depositors it appears that they have meagre source of income. Therefore, the entire unsecured loans obtained during the year 2014-15 was doubtful and justifies the statement given buy Mukesh Patel that have used to obtain accommodation entry from shroff of the unaccounted generated from on-money received from the flat buyers. Therefore, the assessee is carrying on structural transaction wherein the unaccounted income is generated through receipts of on money and the same is therefore brought under the business through accommodation entry in form of unsecured loans from shroff located in shops. From the perusal of the flats/shops sold, it was clear that the assessee has sold total flats/shops worth 1,94,04,587/- during the financial year 2014-15. As per the admission of the partners and as per the inquiry of the assessee in their statement recorded on oath, it was proved beyond doubt that the amount of the payment, the assessee received on money of Rs. 1,94,04,587/- multiplied by 10 equal to Rs. 3,88,09,174/- from the sale of flats which were registered during the financial year 2014-15 relevant to the assessment year 2015-16. After taking into account, the assessee’s reply of show cause notice, the Assessing Officer held 6
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
that all the lenders to the assessee firm surprisingly have income close to the basic exempt income for tax. The amount of the lenders being credited with same day or day before advancing of loans shows that these persons never have sufficient balance in their accounts. All the loans are accommodation entries from the shroff as admitted by the partners of the firm, Shri Mukesh Patel. Thus, after giving detailed reasoning, the Assessing Officer made addition of Rs. 3,88,09,174/- made on receipt of on money.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee thereby restricting the addition to the extent of Rs. 1,28,50,000/-.
The ld. D.R. submitted that the CIT(A) erred in restricting addition made of Rs. 3,88,09,174/- on account of on money receipt to Rs. 1,28,50,000/- without considering the overall facts brought out by the Assessing Officer in respect of the quantum of on money received by the assessee firm. The ld. D.R further submitted that the CIT(A) has not considered the fact that the assessee could not produce any documentary evidences regarding the expenses incurred out of the on money received during the year under consideration. There was no separate addition made on account of unexplained cash credit considering the fact that only the part of the on money was received for bringing the unaccounted on money into the books of accounts in the firm of unsecured loans. The ld. D.R. relied upon the assessment order and further submitted that the Assessing Officer has categorically given the linkage of on money receipt from the sale of flats/shops by the assessee firm as well as the 7
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
statement wherein the said cash generated was used to be given to local shop and get cheque in the name of the firm as mentioned in para 8 of the assessment order. Thus, the entire unsecured loans obtained during the year 2014-15 were computed by the Assessing Officer after taking into account the statement of Shri Mukesh J. Patel as well as the details of lenders who received the cash prior to lending the said amount to the assessee firm.
The ld. A.R. submitted that the CIT(A) has not accepted the fact that the assessee has already declared income of Rs. 2,70,00,000/- for the assessment year 2014-15 as income on money receipt. Thus, the ld. A.R. submitted that in respect of restricting the mode of profit to the amount of unsecured loan of Rs. 1,28,50,000/- was also not justified and in fact entire addition should have been deleted.
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the ld. A.R. submitted that the assessee has already declared income of Rs. 2,70,00,000/- in the assessment year 2014-15 as income from on money receipts and the credit of the same was not given by the CIT(A) in the assessment year 2015-16. But the facts that remains in the present assessment year, the Assessing Officer has made the addition on account of receipt of on money which was again channelized as unsecured loan from the shroff. The CIT(A) in para 8.5 has categorically mentions the scenario two aspects related to the amount of receipts on money made by the Assessing Officer and the statement of Shri Ketan Patel wherein it was accepted that the net profit out of on money is in the range of Rs. 250 to 350 per sq. ft during the year under 8
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
consideration. In para 8 of CIT(A), the CIT(A) has categorically mentioned that the assessee failed to produce necessary documents to prove the genuineness of unsecured loans and also the creditworthiness of the lenders. The Assessing Officer though discussed the issue of unsecured loans but did not make a separate addition as taxed gross estimated on money receipts which was higher than the amount of unsecured loans. Thus, the question of taxing the profit embedded in on money receipt, the unsecured loans brought into books needs to be taxed and the explanation given by the CIT(A) appears to be correct since in the present assessment year, the Assessing Officer has tried to co-relate but has ignored the fact that the unsecured loans should have been separately taken into account and separate additions have been made. The findings of the CIT(A) at para 8.7 categorically mentions that gross money as estimated by the Assessing Officer cannot be taxed but at the same time the unexplained unsecured loan brought into the books of the assessee with the modus operandi stated by the partner himself cannot be ignored. Thus, the CIT(A) has rightly restricted the addition of Rs. 1,28,50,000/- which comes to 33.11% of the estimated gross on money receipt. Thus, the appeal of the Revenue and the assessee both are dismissed for assessment year 2015-16.
Now, coming to the assessment year 2016-17, the CIT(A) has categorically mentioned that the gross money as estimated by the Assessing Officer again taxed but at the same time, the unexplained unsecured loan brought into the book of the assessee with the modus operandi started by the partner himself cannot be ignored in this assessment order as well. The details of fresh loans filed during the year more specifically mentioned 9
I.T.A Nos.84, 88 & 89/Srt/2022 Shree Bharti Developers, A.Y.2015-16 & 2016-17
in para 11 categorically taken into account by the Assessing Officer and the CIT(A) has categorically given the finding that since Ketan Patel had admitted the amount which comes to Rs. 13,83,900/- (12.09%) of the estimated gross on money receipt), the unsecured loans brought into books amounting to Rs. 60,40,000/- which comes to 52.80% of the estimated gross on money receipt. Thus, the CIT(A) in assessment year 2016-17 has categorically given the detailed finding and there is no need to interfere with the same. Therefore, the appeal filed by the assessee in assessment year 2016-17 is dismissed.
In the result, ITA No. 84/Srt/2022 for assessment year 2015-16 filed by the Revenue is dismissed. ITA Nos. 88 and 89/Srt/2022 for assessment year 2015-16 and 2016-17 filed by the assessee are dismissed.
Order pronounced in the open court on 08-04-2026
Sd/- Sd/- (Dr. BRR Kumar) (Suchitra Kamble) Vice President Judicial Member Ahmedabad : Dated 08/04/2026 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Surat 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Surat