DCIT, CENTRAL CIRCLE 1, RAJKOT, RAJKOT vs. SHRI DEEPAK MOHANLAL PURSWANI, RAJKOT

(ii) The Ld CIT(A) has erred in deleting the AO to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the on-money has been received, ignoring that the same is not in accordance with Accounting principles as per Page 2 of and 665/Rjt/2024 Deepak Mohanlal Puruswani ICDS-3 applicable to Real Estate Developers and also not appreciating that the income on account of undisclosed on-money receipt was required to be assessed in the year of receipt. (This is revenue's ground no. 2 in AY 2022-23)

4.The relevant material facts, as culled out from the material on record, are as follows. The assessee is an Individual. During the year the assessee was partner in various partnership firms and have derived remuneration income, interest income and share in profit from partnership firms. Apart from the assessee have income from business and profession and income from other sources i.e. interest income. As per the Income-tax Return for AY 2021-22 filed on 29-12-2021, the gross total income consists of Salary income of Rs. 10,30,000/- and income from other sources of Rs. 39,673/-; deduction as per chapter VIA of the Act of Rs. 2,00,000/- and set off of current year house property and business losses of Rs. 52,358/-. Thus, total income of Rs. 8,17,320/- has been offered. 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. 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. RK group is headed and managed by Shri Sarvanand Sadhuram Sonwani and his extended family. The Sonwani family is a joint unit for the purpose of business. RK Group is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences. In the RK Group the main persons/partners Page 3 of and 665/Rjt/2024 Deepak Mohanlal Puruswani were Sonwani family. Some projects of RK Group were developed with other groups also. The group was mainly involved in taking on-money/unaccounted cashon 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 file. In Miracle files mainly unaccounted transaction has been entered with some banking transaction as well. The main/key person of the group is Shri Sarvanand Sadhuram Sonwani on whose directions and guidance the business activities are carried out. Shri Girish Vanjani was maintaining the accounts of the R K Group (including paraliel unaccounted cash transactions) at the instruction of Shri SarvanandSonwani. The premise of Shri Girish Vanjani was also covered during the search action.

It is seen in most of the ledgers from the seized Miracle file that they contain some Bank transactions which are found recorded on the regular books and some Cash transactions which are normally not recorded on the regular books of the respective Group member. This manner of recording the transactions highlights a fact that one part (mostly in Bank) of every deal was being reported on the regular books and the other part (mostly in cash) of the deal was not being reported on the regular books.

Thus, some transactions from the Miracle files were accounted for whereas some were not accounted for in the regular books of the respective group member who owns the transaction. Fact 2 The data entered in the Miracle software is in coded form -

1) entries have been backdated by 10 years i.e. 01-04-2019 is entered as 01-04- 2009, and 2) the amounts have been divided by 100 i.e. Rs. 2,50,000/- is entered as 2500.00/- Fact 3 The names of the ledgers of different projects, persons have been written in coded form. It is seen that mostly the names of the projects for which any particular transaction is recorded on the seized file were mentioned with the initials.

For example-1) R K Residency is mentioned as RKR, 2) R K Prime is mentioned as RKP, 3) The City Centre is mentioned as TCC, 4) R K Supreme is mentioned as SPM etc. All the above factual aspects are discussed with example in the later part of this order.

 Unaccounted expense/investment of Rs. 6,64,92,750/- made in the purchase of land for the project as culled out from the seized Miracle data.  Unaccounted expenses of Rs. 41,52,900/- incurred for the project as culled out from the seized Miracle data.

For project 'RK Industrial Park Phase 5'  Unaccounted receipts of Rs. 2,63,04,500/- against sale of units of the project and repayments of Rs. 87,100/- on account of cancellation or excess receipts as culled out from the seized Miracle data.  Unaccounted expense/investment of Rs. 1,18,73,000/- made in the purchase of land for the project as culled out from the seized Miracle data  Unaccounted expenses of Rs. 8,46,360/- incurred for the project as culled out from the seized Miracle data.

Page 7 of 35 Issues Involved Unaccounted Receipts On Sale Of Plots At "R K Industrial Zone- 16"- 9. As discussed above, the assessee, has developed an industrial plotting project 'R K Industrial Zone-16' and the data relating to the project are maintained in miracle accounting software. The name of every project developed by the Group is in coded form in the Miracle files. The project "R K Industrial Zone-16" is mentioned / coded as "IJ16" in the Miracle file. An image of ledgers with the code name IJ16 from seized Miracle file is as under- Response of the Assessee and its acceptability or otherwise: 10. In response, on 28-12-2022, the assessee has submitted a comprehensive response to the show cause notice clarifying the issues and raising various contentions- "I have been served with the above stated notice requiring me to show-cause as to why following addition should not be made to the returned income:  Addition of Rs 6,55,17,750/- in respect of alleged investment for purchase of land for Industrial Zone-16 project.  Addition of Rs 4,28,86,000/- in respect of alleged unaccounted on-money receipt for sale of plots of RK Industrial Zone-16 project.  Addition of Rs 16,07,000/- in respect of alleged unaccounted expense for R K Industrial Zone-16 project.  Addition of Rs 4,43,75,230/- in respect of alleged investment for purchase of land for Industrial Zone-17 project.  Addition of Rs 21,730/- in respect of alleged unaccounted expense for R K Industrial Zone-17 project.  Addition of Rs 1,18,73,000/- in respect of alleged investment for purchase of land for R K Industrial Park Phase 5 project.  Addition of Rs 1,46,01,000/- in respect of alleged unaccounted on-money receipt for sale of plots of RK Industrial Park Phase 5 project.

 Addition of Rs 4,14,930/- in respect of alleged unaccounted expense for R K Industrial Park Phase-5 project  Addition of Rs 2,75,00,000/- in respect of alleged investment for purchase of land situated at Jiyana.  Addition of Rs 3,57,000/- in respect of alleged investment for purchase of land situated at Kuchiyadad.

In connection with the above, I submit as under.

1. Assessment proceeding for the year under consideration was initiated by issuing notice u/s. 143(2) of the Income-tax Act, 1961 (hereinafter referred as "Act") dated 23.06.2022. Subsequently, notice u/s. 142(1) of the Act was issued on 29.07.2022 requisitioning various details and documents, in response to which, I had furnished all the required details / documents. Then after, notice u/s. 142(1) of the Act dated 22.10.2022 was issued, wherein, my explanation was sought on the issue of alleged unaccounted investment made for purchase of various land and on the alleged on- money received from sale/booking of units under the project "RK Industrial Zone-16, RK Industrial Zone 17 and R K Industrial Park Phase 5.

1. In response to the above, I had vide letter dated 10.11.2022 requested your good self to provide authenticated copies of seized documents / data as well as statements recorded from related persons so as to aporaise / understand the allegation first and to furnish reply. In response to that, following data are provided vide notice u/s. 142(1) of the Act dated 25.11.2022.

1. Extract of question no. 13 and it's reply from the statement of Shri Girish Vanjani, 1. Extract of question no. 4 & 5 and it's reply from the statement of Shri Sarvanand Sonwani; 1. Snapshots of account statement with name "Kuchiyadad 131", "IJ16 Exp","IJ 17 Exp", "Rampar 58 P/60p", "IP5 Exp", "Jiyana 253 254", "Kuchiyadad 25 NagjiNatha"," for the period 01/04/1999 to 31/03/2099 1. Extracts of loose papers 1. At the outset, I vehemently deny each and every allegation in the show-cause notice and deny carrying out any unaccounted transactions, which has been worked out on the basis of so-called account data (Miracle File) seized from the possession of Shri Girish Vanjani. Further, transactions as per the duly accounted books of account are true and correct and no unaccounted transactions have been carried out by me as such. Therefore, additions proposed in the show-cause notice are strongly objected.

1. From the copy of alleged documents/abstract from Miracle data stated to have been seized from the possession of Shri Girish Vanjani, allegation of unaccounted transactions / income has been made in the impugned show-cause notice. In this connection, it is to submit as under.

1. I have not received any unaccounted receipts against booking / sale of units in the projects "RK Industrial Zone-16" or "RK Industrial Zone-17" or "RK Industrial Park- 5". Entire sales consideration as per the registered conveyance deed has been Page 9 of 35 accounted for in the books of account in the year in which document is registered and noting more on account of sale of unit has been received.

1. Similarly, I have not made any unaccounted payment for purchase of land or incurred any unaccounted expenses for the projects. Purchase of land as per the registered conveyance deed and construction expenses incurred are duly accounted for in the regular books of account, which is correct and at par or higher compared to Fair Market Value determined by stamp valuation authority and construction cost as per books of account is in concurrence with the standard valuation norms. Therefore, any doubt in the matter of valuation can be resolved from valuation cell of the department.

1. Entries in the Miracle File stated to have been seized during the course of search at the residential premises of Shri Girish Vanjani are not correct and complete. The authenticity of such data has been doubted by Shri Girish Vanjani as well as Shri SarvanandSonvani, a founder/promoter/head of R K Group.

1. No cogent corroborative evidence are available on record which substantiate that the entries in the Miracle File are correct/complete. Further, when the creator of such records has accepted that the entries in the data are unreliable, there is no question of taking cognizance on such data in the case of third party i.e, the assessee.

1. If the department uses any material recovered or statement recorded from third party. opportunity of cross-examination to the assessee is inevitable in view of the principle of natural justice.

1. Further, the allegations levelled in the above stated notice are without there being any counter party confirmations. Since, no unaccounted transactions were ever made, in case required, I will furnish confirmations from the customers/buyers and landlord. Thus, the allegation levelled on the basis of standalone data, which has no legal sanctity, is strongly objected.

1. Considering the above, allegation of unaccounted investment and allegation of unaccounted cash receipt raised on the basis of seized data (Miracle File) recovered from the premises of Shri Girish Vanjani is strongly objected.

1. So far as various ledger statements with the name with prefixes "RJ16", "IJ17",", etc in the seized MIRACLE data containing entries related to cash and bank transactions, it is reiterated that I have not received or paid any cash as per the entries made in such data. It is also reiterated that I have not made or directed to make any such entries in MIRACLE data and therefore, it is not known who, how and for what purpose such irrelevant entries made in the software. The project of industrial plotting scheme was carried out by me in my independent capacity and sale consideration realized on sale of units as per registered conveyance deed is credited in my bank account. Therefore, Shri SarvanandSonvani or Shri Girish Vanjani has no role in the sale proceeds received by me from sale of industrial unitselbeit the projects were carried out under the guidance of Shri SarvanandSonvani who is the head of RK family. Hence, merely because of random entries in the digital data, no adverse inference can be drawn in my case in light of the undisputed fact that no such data has been recovered from my possession and no cogent corroborative evidences found in support of such data. Hon'ble ITAT in the case of Subhash Khattar vs. ACITin (which is affirmed by Hon'ble Delhi High Court in has held that- Page 10 of 35

 merely because name of the assessee is appearing in the said hard disk cannot be a basis for arriving at a definite conclusion in absence of a corroborative evidence in support that the assessee has also paid amount of Rs. 3,21,00,000 in cash.

 Huge addition of Rs. 3,21,00,000 cannot be made in a casual manner.

 In the case of CIT vs. Alpha Impact Pvt. Ltd., Hon'ble Bombay High Court has been pleased to hold that addition to assessee's income in respect of additional sales consideration received in sale of land merely on the basis of Email recovered during the course of search action at the premises of another person and there being no independent material available supporting such addition, was not justified.

1. Furthermore, it is well settled law that merely because of some entries or references or even name of the assessee found in any documents/data seized from the possession of third party, the same are not sufficient to prove that the assessee indulged in the transactions mentioned in such documents/data. Reliance is placed on the following decisions:

 Hon'ble Supreme Court in the case of CBI Vs. V.C. Shukla & Ors. (1998) 3 SCC 410

 Hon'ble Supreme Court in the case of Vinod Solanki Vs. Uol&Anr (SC-Civil Appeal No.7407 of 2008)

 Hon'ble High Court of Bombay in the case of Addl. CIT vs. Miss Lata Mangeshkar (1974) 97 ITR 696 (Bombay), wherein, it held that- entries in the day-book or the ledger would be a corroborative piece of evidence and once the direct evidence of the person who was said to have made payments in 'black' to the assessee was disbelieved no value could be attached to entries in the ledger or to the entries in the day-book even if one had been produced.

1. Reliance is placed on the decision of Hon'ble Supreme Court of India in the Writ Petition filed by Common Cause (A Registered Society) against Union of India. [(2017) 245 Taxman 214 (SC)]. The fact of the case is that the raids were conducted by the CBI and Income-tax Department at various premises of Aditya Birla group and Sahara group. During the raid, it is alleged that several incriminating documents and soft copies / e-mails were recovered, wherein, reference of payment made to some important public figures/politicians were found. The authorized officers of such companies have denied to have made any payment to the mentioned politicians and such companies have filed their application before Hon'ble Income-tax Settlement Commission ("ITSC"). Hon'ble ITSC allowed the application of Sahara as full and true and also granted immunity from penalty and prosecution. It was the case of petitioner that the order passed by the ITSC cannot be said to be in accordance with law and is self- contradictory and has been passed in haste. The petitioner also requested the Hon'ble Page 11 of 35

Supreme Court to direct investigation into the material collected in the raids of two business groups. After careful consideration of entire facts and arguments from the both the sides, Hon'ble Supreme Court had held as under. Loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court. [Para 20] There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co-relations with the random entries. In case all these are not insisted, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. [Para 21]

1. Having regards to the fact that the assessee has not received any unaccounted receipts (on-money) against sale/booking of units in the project, any action on the basis of digital data found from the domain of third party would be based on the assumption, surmises and conjectures and totally unjustified and uncalled for. In this connection reliance is placed on the following decisions:

 Hon'ble Supreme Court of India in the case of UOI vs. Playworld Electronics Pvt. Ltd. &Ors. 1990 AIR 202, wherein, it is observed that "...Even a great deal of suspicion, not possible to hold otherwise without an evidence"

 Hon'ble Supreme Court of India in the case of Raj Kumar Singh vs. State of Rajasthan in the Criminal Appeal No. 931-932 of 2009 observed. “Suspicion, however grave it may be, cannot take the place of proof, and there is a large difference between something that may be proved and 'will be proved. In a criminal trial, suspicion no matter how strong, cannot and must not be permitted to take place of proof. This is for the reason, that the mental distance between may be' and 'must be' is quite large and divides vague conjectures from sure conclusions. The large distance between may be true and must be true, must be covered by way of clear, cogent and unimpeachable evidence produced by the prosecution, before an accused is condemned as a convict, and the basic and golden rule must be applied. In such cases, while keeping in mind the distance between 'may be true and 'must be true, the court must maintain the vital distance between conjectures and sure conclusions to be arrived at, on the touchstone of dispassionate judicial scrutiny based upon a complete and comprehensive appreciation of all features of the case, as well as the quality and credibility of the evidence brought on record. The court must ensure, that miscarriage of justice is avoided and if the facts and circumstances of a case so demand, then the benefit of doubt must be given to the accused, keeping in mind that a reasonable doubt is not an imaginary, trivial or a merely probable doubt, but a fair doubt that is based upon reason and common sense"

1. Reference is also drawn to the Gujarat High Court decision in the case of DCIT vs. Prarthana Construction Pvt Limited Tax Appeal No 79 of 2000 where it has been held that the Revenue would not be justified in resting its case on the loose papers and documents found from the residence of third party even if such documents contain narration of transaction with the assessee.

1. It is also submitted that the person from whose possession the impugned data has been recovered i,e., Shri Girish Vanjani and the founder/promoter of R K Group Shri SarvanandSonvani both have categorically confirmed that the data seized is not correct and complete as such no conclusion can be drawn on the basis of such data. Therefore, impugned show-cause notice contains nothing new but merely reiterating the previous allegation and hence, addition proposed in the SCN is in absence of any other cogent corroborative evidence. Hon'ble Supreme Court in the case of Shreelekha Banerjee vs. CIT (1963) 49 ITR 112 (SC) has held that: "Before the department rejects such evidence it must either show an inherent weakness in explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof......

1. In view of the above, as the deponent of statement himself is not sure about the correctness and completeness of the seized data, cognizance proposed to be taken on such disputed data in the hands of the assessee is vehemently objected. Kind attention is also invited to the provision of Section 132(4A) and Section 292C of the Act creates deeming fiction on the assessee subjected to search, wherein it may be presumed that any such document found during the search from the possession or control of person searched belongs to such person and contents of such documents are true. In the instant case, it is a fact on record that the Miracle data was found during the course of search in case of Shri Girish Vanjani and Shri SarvanandSonvani and therefore, first presumption is to made that such data / documents and transactions therein, are belonging to them and not to me. However, when I have already denied happening of any transaction on the basis of entries in impounded data, the department cannot take suo-moto action in my case without any corroborative evidence. Matching of unit number in project and bank receipts from customers cannot ipso facto confirms that other entries in such data are fully correct. It is a well settled law that presumptions regarding the correctness of paper, document, data or books of accounts cannot be raised against a third party in the absence of corroborative evidence. Reliance placed on following decisions:

 Rama Traders vs. First ITO [1998] 25 ITD 599 (Pat.) (TM), wherein, it was held that no addition could be made, on the basis of presumption raised by section 132(4A), in the hands of the assessee where in the books of another firm, certain figures were found showing the purchase made by the assessee.

 Jai Kumar Jain vs. ACIT (2007) 11 SOT (Jaipur) (URO), wherein, it was held that - Page 13 of 35

Addition in the instant case was made on the basis of the papers found from 'A' (Third Party). In search these papers were not confronted to the assessee. From the assessment order it was not borne out whether 'A'(Third Party) had stated these papers as pertaining to the assessee. No presumption could be drawn against the assessee u/s 132(4A) in respect of paper not recovered from him. No addition can be made on the basis of documents found from third party in the absence of corroborative evidence. Therefore, the Assessing Office as Asstt. Years: 2004-05, 2007-08, 2008-09 well as the commissioner of Income Tax (A) erred in making the addition on the basis of said papers in the hands of assessee. Hence, the entire addition made on the basis of papers found from 'A' (Third party) was to be deleted.

 Prarthana Construction (P) Ltd. vs. DCIT (2001) 118 Taxman 112 (Ahd.) (Mag). wherein, it was held that - loose papers and documents seized from premises of third parties and statement recorded at back of assessee without it being afforded opportunity to interrogate said documents and without bringing on record any supporting evidence, could not be made basis for adding undisclosed income in hands of assessee.

1. Without prejudice to the above and without admitting anything in any manner, on perusal of the above stated notice with earlier notices, it is seen that the proposal for addition has been made to tax alleged gross receipts of Rs. 10,39,88,400/- (out of which receipt of Rs. 5,74,58,000/- in AY 2021-22), which is totally against the settled principle of law and in violation to provisions of the Income tax Act. Hon'ble Supreme. Court of India has in plethora of cases held that gross receipt cannot be subjected to tax. Thus, the show cause notice issued is bad in law, against the settled principles and totally unjustified.

1. In the notice dated 22.10.2022 references were made about the receipt of so called on money, alleged cash payment for purchase of land, and cash expenses for construction. Thus, in the notices itself, references are made for purported credits and debits both in same set of disputed data. However, in the show cause notice, proposal for taxation is made on gross basis, which is not in accordance with law and therefore above stated notice itself is bad in law and totally unjustified. The addition is proposed without considering commercial, accounting principles and settled judicial precedent is not required to be acted upon as it is bad in law and needs to be quashed. Hon'ble Supreme Court in the case of National Co-Operative Development Corporation vs. CIT (2020) 427 ITR 288 (SC) held that 38. We may record here that income has to be determined on the principles of commercial accountancy. There is, thus, a distinction between 'real profits' ascertained on principles of commercial accountancy. In the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC) this Court has held that income tax is on the real income. In the case of a business, the profits must be arrived at on ordinary commercial principles. The scheme of the IT Act requires the determination of 'real income' on the basis of ordinary commercial principles of accountancy. To determine the 'real income', permissible expenses are required to be set off. In this behalf, we may also usefully refer to the judgment in CIT v. S.C. Kothari [1971] 82 ITR 794 (SC) where the following principle was laid down:

Page 14 of 35 "6. ... The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business..."

1. In view of the above, without even commenting on the evidentiary value of the seized data and other side on merits, it appears that the addition proposed in the impugned notice is to make high-pitched assessment, which is complete departure from the theory of real income propounded by various High Courts and Supreme Court. Hence, we vehemently object the addition proposed in the show-cause notice as the same leads to high-pitched assessment.

1. CBDT vide Instruction No. 225/101/1021-ITA-II dated 23.04.2022 had modified the earlier instructions in the case of high-pitched scrutiny assessment where CBDT has acknowledged the fact of such high-pitched assessment and for that purpose, constituting of local committee to deal with such assessment. Further, CBDT in its Office Memorandum No. 279/MISC/52/2014-(ITJ) dated 07.11.2014 has laid down various guidelines so as to bring non-adversarial tax regime, which contains- However, the process of scrutiny involving long and non-specific of additions made and the high-questionnaires, the nature pitched assessments without proper basis continue to attract adverse attention. Instruction No. 6/2009 entrusted a responsibility on each Range Head to ensure improvement in quality of assessments by issuing directions under section 144A of the Act. There is a need to follow the said Instruction in letter and spirit and accordingly, the Range Heads are required to ensure that frivolous additions or high-pitched assessments without proper basis are not made. The Principal Commissioners of Income-tax/ Commissioners of Income-tax are required to supervise the work of their subordinates to ensure due discharge of these functions.

1. In view of the above, addition proposed in the impugned show-cause notice is complete departure from the instructions and office memorandum issued by the apex body from time to time and hence, addition so proposed is strongly objected 1. Without admitting the allegation in the show-cause notice, but for the academic argument purpose, it is also submitted that the Income-tax Act requires determination of "Real Income" on the basis of ordinary commercial principles of accountancy. To determine the "Real Income", expenses which are wholly and exclusive incurred for the purpose of business is required to be set-off and resultant income has to be derived on mathematical as well as scientific basis. Hon'ble Supreme Court in the landmark case of CIT vs. ShoorjiVallabhdas and Co. 46 ITR 144 (SC) held that- "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account."

1. Hon'ble Supreme Court in the case of BadridasDaga v. CIT (1958) 34 ITR 10 (SC) had allowed 'loss on embezzlement', though not an expenditure, as a deduction on the principle of real income theory. This theory is propounded more particularfy when there Page 15 of 35 is no assistance in the form of law, so that tax was levied on real income and not on hypothetical income, either on the basis of the entries in the books of account or otherwise. . In view of the above, it is a trite law that the tax to be collected from the assessee should be on the "Real Income" and not on hypothetical or gross receipts, which has never been enjoyed or exploited by the assessee. Charging provision of Section 4 of the Income-tax Act, 1961 also empowers the government to collect tax on the "Income", which is subject matter of various calculations, workings and estimates. Therefore, while conducting the assessment of "income", the assessing officer cannot bypass such workings/estimates and directly tax the entire receipts. Even in the case of best judgement assessment u/s. 144 of the Act, it is settled proposition of law that the assessing officer must not act dishonestly, vindictively or capriciously because he must exercise judgment in that matter. The assessing officer must make an honest estimate of the proper figure of the assessment for which he may use may apply any lawful method applicable. Even though it may be guesswork in the matter it must be an honest guesswork. Hon'ble Supreme Court in the case of Kachwala Gems vs. CIT (2007) 288 ITR 10 (SC) has held that authorities concerned should try to make an honest and fair estimate of income even in a best judgment assessment and should not act totally arbitrarily.

1. Without prejudice to the above, on verification of the above stated data and relevant extract from the statements, it is not understood as to how the figure of alleged unaccounted receipts of Rs. 7,82,76,000/- for sale/booking of units of R K Industrial Zone 16 and alleged unaccounted receipts of Rs 2,63,04,500 for sale/booking of units of R K Industrial Park Phase5 has been derived/decoded. The given data nowhere contains the noting or reference of alleged figure of unaccounted receipts by me. Further, period of noting in the impugned seized data / documents is also not reconcilable with the period under consideration. The decoding of date and figures in the impugned data belonging to third party is not at all acceptable to me and the same cannot be made binding on me unless opportunity of cross-examination is allowed. Therefore, allegation made in the notice dated 25.11.2022 and 21.12.2022 is not backed by any documentary evidence and hence, ipso facto, it is unwarranted.

1. Further, on verification of relevant abstract from the statements of one Shri Girish Vanjani and SarvanandSonwani provided vide letter dated 25.11.2022, it is seen that averments made by the deponents in their statements are limited to their own action and transaction. Nowhere in the statement, my name or transaction carried out by me or with me has been spelled out. Further, statement of the witnesses is limited and no complete set of statement has been provided. No statement can be relied upon it cited partially without full content thereof and hence part of a statement cannot be used against me. It is also reiterated that no any cogent corroborative evidence supporting the allegation is found and therefore, in absence of any such corroborative evidence, statement recorded from third party cannot be made binding on me. Therefore, reliance placed on generic statement against me is totally unacceptable and uncalled for.

Page 16 of and 665/Rjt/2024 Deepak Mohanlal Puruswani The project of industnal plotting scheme was carried out by me in my independent capacity and sale consideration realized on sale of units as per registered conveyance deed is credited in my bank account.

Rejection of books 11. After thorough examination of the response to show cause notice and dismissing various contentions raised by the assessee in its reply, it has been made clear that the seized digital data in the form of accounting entries on Miracle file is accurate, reliable and self-explanatory. Further, there is also no doubt that the accounts of the assessee where all the transactions are not reflected cannot be relied upon as they present incomplete and incorrect state of affairs of business of the assessee and requires to be disregarded invoking the provisions of section 145(3) of the Act. Accordingly, provisions of section 145(3) are invoked herewith and the assessment of total income of the assessee is being made after taking into account all relevant material gathered during the search and the assessment proceedings. As per the material gathered during the search and submissions available on records the assessee is found to have indulged in the practice of suppressing both receipts (on account of sale) and payments (on account of purchase) made for the projects undertaken / developed during the year. There is no uniform method that can be employed to compute income when part receipts on account of sale are not included on the books. The method differs from case to case depending upon various factors i.e. type of business, modus operandi of the assessee, sufficiency of data available for estimation etc. 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:

"It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts."

Where suppression of sales receipts is involved, the question is whether the entire sales or only a percentage of profit should be adopted as income. in CIT v. President Industries [2002] 124 Taxman 654 (Gujarat), the Assessing Officer had found evidence of suppression of sales. He adopted the entire receipt (sales) as income but the Hon'ble Jurisdictional High Court has held that the entire undisclosed receipts (sales) cannot constitute income. The sales only represent the price received by the seller of the units for which the seller has already incurred the cost in order to acquire or process the inventory. Therefore, it is the realization of excess consideration over the cost incurred which should be assessed as profit or income. In other words, profit component embedded in the sales could be treated as income. Recently, in the case of PCIT v. Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, the Hon'ble Guj. High Court has held that only profit element embedded in the gross on-money receipts can be taxed.For this, the Hon'ble court has derived reference from its earlier decision delivered in the case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89. Relevant part of the decision is as under - "it has been consistently held by this court and some other courts have been following the principle that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that were the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation."

Even in those cases where no details regarding unexplained payments / investments are available on records, it has been held by the Hon'ble Guj. High Court that while dealing with addition on account of unaccounted sales, in Page 18 of and 665/Rjt/2024 Deepak Mohanlal Puruswani absence of any material on record to show that there was any unexplained investment / expense made by the assessee, there could be a presumption of such expenditure. In such event also it is held that only profit on suppressed sales could be brought to tax [CIT V. Gurubachhan Singh J Juneja [2008] 171 Taxman 406 (Gujarat)]. Hence, in such cases, both the Supreme Court and the Jurisdictional High Court have consistently held that where evidences regarding unaccounted receipts are being assessed it is not reasonable to consider the entire unaccounted receipts for taxation. Rather, only profit element lying therein should be estimated keeping in mind the facts and surrounding circumstances of the case at hand. There for respectfully following the ratio laid down by the Apex Court and the Jurisdictional High Court and in view of the facts of the case it would be fair if reasonable rate of profit is adopted to tax the unaccounted income of the assessee.

Estimation of rate of profit in Industrial Projects 12. Details of 25 Industrial projects undertaken by the searched group members and their partners have been recovered from the seized Miracle File. Some projects were in completion stage whereas some were just started. Besides, in respect of some projects comprehensive details i.e. Land purchase, Project expenses, On-money receipts have been recovered from the seized data whereas in other projects very limited details i.e. only on-money receipts were recovered. Wherever, details of receipts and payments were recoverable form the seized data, it is noticed that the net surplus funds available with these projects were ranged from-237% to 51%. Reason for this vast gap between the upper and lower ends of this net surplus range was primarily attributable to the stage in which a particular project has reached since its inception. For example, if any project is just launched then its % of net surplus funds would be lower because most of the funds are spent /applied on inventory and the inflow of on-money has not started in full pace. Due to combined effect of these two aspects the availability of surplus Page 19 of and 665/Rjt/2024 Deepak Mohanlal Puruswani funds remains either on lower side or sometimes in negative state. Thus, it is understood that taking reference from the net surplus / unaccounted profits of such 'just launched projects would not give true picture of the potential profitability of such projects. In order to estimate a reasonable rate of profit, it is taken that only those projects for which maximum data is available from the seized material should be relied upon. At the same time it is also ensured that the project that almost reached its final stage (with respect to construction activity and receipt of on-money both) should only be taken as reference for adoption of an appropriate rate of profit. After considering all the above aspects, following ten projects have been identified as reference- Sr. No. Name of the Project Name of the developer/owner Net receipts of all these 10 projects have been calculated and it is seen that after considering all kind of transactions i.e. Net on-money receipts, Expenses for Page 20 of 35 running the project including the Land purchase there remained average net surplus of 21% the hands of respective developer / owner

Profit calculation for RK Industrial Park Phase 5- Page 23 of and 665/Rjt/2024 Deepak Mohanlal Puruswani As can be seen from this table, the net surplus in the hands of the assessee- is around 51% which is higher than the benchmark of 25%. Hence, it would be appropriate to adopt a higher rate of profit in view of the specific facts of this particular case. Accordingly, the net unaccounted profit for this particular project is estimated at the rate of 53%. Accordingly, the net profit embedded in unaccounted on money receipts for the FY 2020-21 (AY 2021-22) is computed hereunder: Project R K Industrial Zone 16 (Industrial Project):

Page 24 of and 665/Rjt/2024 Deepak Mohanlal Puruswani Thus, addition of Rs.1,84,52,780/- (Rs.1,07,14,250 + Rs.77,38,530) being unaccounted profit embedded in the net unaccounted receipts for the project RK Industrial Zone 16 and RK Industrial Park Phase 5 is made over and above the regular business income reported by the assessee in the Income-tax Return filed for the year under consideration invoking provisions of section 145(3) of the Act and after considering all the facts and submissions of the assessee.

Page 25 of and 665/Rjt/2024 Deepak Mohanlal Puruswani 16. Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows:

17. Summarized and Concise ground No.(i) is reproduced below for ready reference: (i) The Id. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in retaining addition of Rs 51,42,840/- by estimating profit at the 12% of so called on money receipt in respect of project "RK Industrial Zone-16 The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. Alternatively, the addition made by estimating rate of profit is very much on higher side and therefore the same may kindly be directed to be reduced and oblige. (This is assessee's ground No. 2,3 & 4 in for AY 2021-22 and This is assessee's ground no 2,3,4 & 5 in for AY 2022-23) & (This is also in revenue's ground no. 1 in AY 2022-23) 18. We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record. We note that assessing officer did not reach on right conclusion, based on seized material and the profit estimation sustained by the learned CIT(A), on “on money”, is on very higher side, and we note that both the lower authorities, did not follow the mandatory judgement of Hon’ble Jurisdictional High Court of Gujarat (Supra) wherein, 6% addition was made on the “on-money”. In all the projects of M/s R.K. Group, on the “on-money” different estimation of profit element have been made by ld CIT(A), which are, at the rate of 8%, 12%, 12.5%, 16% and 20% etc. After all, it is “on money”, therefore, a uniform profit estimation on account of profit element on “on money” should be made.

Learned Counsel for the assessee submitted that judgements of Hon`ble jurisdictional High Court of Gujarat, in respect of addition on “on-money”, should be followed. The Hon`ble jurisdictional High Court of Gujarat in the following cases held that profit element embedded in the “on-money” should be added in the hands of the assessee and not the entire “on-money”, and estimated addition on “on money” should be at the rate of 6% or at the rate of 8%, may be made, depending upon the facts and circumstances of the case. The relevant judgements of the Hon`ble jurisdictional High Court of Gujarat and Hob`ble ITAT Ahmedabad, are reproduced below: (i). 2020 (4) TMI 844ITAT AHMEDABAD GREENFIELD REALITY P. LTD. VERSUS ACIT, CENT. CIR. 1 (2) AHMEDABAD AND DOIT, CENT. CIR. 1 (2) AHMEDABAD, VERSUS GREENFIELD REALITY P. LTD. “Estimation of Income on-money received by the assessee on booking of flats and shops in "VesuProject"Income offered by the assessee at 8% of the alleged gross receipts source of payment of cash for purchase of the land-HELD THAT:- On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money.After going through the well-reasoned order of the Id.CIT(A), and in the light of judgment of Hon'ble jurisdictiona' High Court in the case of Panna Corporation [2014 (11) TMI 797 GUJARAT HIGH COURTI as well as Koshor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-AI we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.Element of income involved in this on-money assessee is showing income at 8%, AND CIT(A) is estimating it at 20% HELD THAT:- CIT(A) has also not mentioned any attending circumstances for harbouring a belief that 20% could have been earned from this activity. Thus after taking guidance from the judgment of Kishor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-Al we deem it proper that the assessee has rightly disclosed the profit element embedded in the gross profit at 8%. Accordingly, we allow the ground of appeal raised by the assessee, and hold that profit which has been directed to be adopted by the Ld.CIT(A) at 20% of the alleged turnover should be taken at 8%. (ii)Tax appeal No.267 of 2022 dated 07.07.2022 M/S. JAY KESAR BHAVANI DEVELOPERS PVT. LTD.( Guj-HC) “Rejection of books of accounts u/s 145(3) On money receipt estimation of income addition on account of entire construction receipts as alleged unrecorded receipts - HELD THAT: CIT (A) was not justified in confirming the addition of entire on- money receipts amounting to 4,72,02,368. Therefore, only estimated net profit is required to be taxed. We find that the assessee has shown net profit at 4.55.% for the assessment year under consideration and 4.59% for A.Y. 2010-11.

Further, the Hon'ble High Court in the case of CIT V. Abhishek Corporation [1998 (8) TIMI 110 ITAT AHMEDABAD-C) has upheld the net profit at 1.31% as declared by the assessee in that case. The net profit rate disclosed at 4,55% during the assessment year under consideration by the assessee in books of accounts and considering the facts that the project undertaken by the assessee comes under deduction of section 801B(10) hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking into account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on-money. (iii)The Commissioner of Income Tax vs. Shri Hariram Bhambhani INCOME TAX APPEAL NO.313 OF 2013 (BOM)(HC): "In any view of the matter, the CIT(A) and Tribunal have come to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and a possible view. Thus, no substantial question of law arises for our consideration.” (iv) The ACIT Central Circle - 3, Jaipur Vs Shri Nawal Kishore Soni :

1257, & 1258/JP/2019 [ITAT] [Jaipur]: "23.4 It is settled law that not only from the illegal business but also the unaccounted transaction of purchase and sale only profit/ income on sales could be assessed as undisclosed income and could be subjected to tax. Case laws to the point are as under: 1. Dr. T.A. Quereshi (157 taxmann.com 514) (Supreme Court) 2. Piara Singh (124 ITR 40) (Supreme Court) 3. S.C. Kothari (82 ITR 794 (Supreme Court) 23.5 The assessee admitted such profit at Rs. 45,00,000/- and disclosed that on said transactions income in PMGKY, 2016 and paid due tax thereon. The copy of certificate issued by PCIT is placed on record. Thus when that transactions are of unrecorded purchase and sale of gold, which Ld. assessing officer also admits in assessment order, then simply that name & address of purchasers are not provided the entire amount of sale cannot in law be treated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax more so when the assessee has disclosed in PMGKY the said undisclosed income of Rs.45,00,000/- and paid tax in accordance with scheme and received certificate there for from Pr. Commissioner of Income Tax, hence the same disclosed income cannot be included as income is assessment as per Section 199-l of PMKGY. However Ld. A.O. has allowed credit of amount of disclosed income in PMKGY from total income as so the addition on this account is restricted to Rs.45,00,000/- and balance is deleted. The assessee thus gets relief of Rs.3,02,00,000-45,00,000 = Rs. 2,57,00,000/-." (v) Greenfield Reality P. Ltd IT(SS) A No. 320,321 and 322/Ahd/2018 & 329/Ahd/2018: "16. We have duly considered rival submissions and gone through the record carefully. On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which Page 29 of 35 are not recorded in the books were also found. This included cash payment for purchase of land. Therefore, the Ld.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money. Therefore, after going through the well-reasoned order of the Ld.CIT(A), IT(SS)A No.289 Ahd/2018 (7 Others) Greenfield Reality P. Ld. Vs. DCIT and in the light of judgment of Hon'ble jurisdictional High Court in the case of Panna Corporation (supra) as well as Koshor Mohanlal Telwala (supra), we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.

15. We note that the assessee is in appeal before us and praying the Bench that estimated addition is very higher side and it should be reduced, at a reasonable level. However, learned DR for the revenue submitted that addition made by the assessing officer may be confirmed. We note that the estimation of income is based on facts and will vary from business to business and year to year, depending on the business conditions. We note that ld.CIT(A) has estimated the profit on the “on-money” at the rate of 16% but the ld.CIT(A) has failed to bring on record any comparable case in support of his estimation that too @ 16% and in some cases 8% and 12% etc. No doubt estimate of the profit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as Page 30 of 35 comparable cases. Without this the estimation so made cannot be said to be valid estimation. The jurisdictional Hon’ble High Court of Gujarat, in case of estimation of profit element on, “on-money” has taken the view that estimation of profit in these type of cases of “on-money” had been held between range of 6% to 8%.

17. Considering the facts and circumstances, narrated above, we find that the estimation done by the assessing officer, and re-estimated addition, sustained by the Ld. CIT(A) @ 16% is very higher side. Therefore, we are of the view that the estimated addition on “on-money” should be @ 10%, which will take care of inconsistency in the undisclosed income of the assessee. Therefore, the assessing officer, is directed to make the addition in the hands of assessee, at the rate of 10%, on “on-money”. Hence, we allow above appeals of these assessee partly and dismiss all the appeals of the revenue.”

(i) Ground No. 2,3 & 4 in for AY 2021-22 (ii) Ground No. 2,3,4 & 5 in for AY 2022-23 Page 31 of 35 Whereas following appeals of the revenue, are dismissed:

22. Summarized and Concise ground No.(ii) is reproduced below for ready reference: (ii) The Ld CIT(A) has erred in deleting the AO to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the on-money has been received, ignoring that the same is not in accordance with Accounting principles as per ICDS-3 applicable to Real Estate Developers and also not appreciating that the income on account of undisclosed on-money receipt was required to be assessed in the year of receipt. (This is revenue's ground no. 2 in AY 2022-23)

23. We have considered the submissions of both the parties, and we note that ICDS- 3 refers to Income Computation and Disclosure Standard–III, issued by the Central Board of Direct Taxes under section 145(2) of the Income-tax Act, 1961. It deals with computation of income from construction contracts for tax purposes. It is largely based on the earlier Accounting Standard AS-7 but contains important differences relevant for income tax computation. We note that ICDS–III applies to construction contracts of contractors, however, assessee under consideration is not a contractor, but he is a contractee. A person who undertakes contract to do a job/work for others, is contractor. However, assessee under consideration is not a contractor but a contractee, who gets the work done from contractor and assessee pays the amount to the contractors for services rendered by them to it ( assessee), therefore, ICDS-III is not applicable to the assessee under consideration. Hence, we are of the view that ICDS- III applies to Contractors (not contractees). Fundamental Accounting Principle, as per ICDS-III is the Percentage of Completion Method (POCM). The Percentage of Completion Method is mandatory method under ICDS-III. Under ICDS-III the Revenue from variations, claims and incentives shall be recognised only when there is reasonable certainty of its ultimate collection.

Page 34 of and 665/Rjt/2024 Deepak Mohanlal Puruswani 24. Respectfully following the binding judgement of the ITAT Rajkot in the assessee’s, own case (Supra), we dismiss the following grounds raised by the revenue. (i) Ground no. 2 in AY 2022-23

25. In the combined result, appeals filed by the assessee, are partly allowed to the extent indicated above (appeal-wise), whereas all appeals filed by the Revenue, are dismissed.

Order pronounced in the open court on 13-03-2026.