R K DREAMLAND,RAJKOT vs. ACIT, CC-1, RAJKOT, RAJOKT

ITA 555/RJT/2024Status: DisposedITAT Rajkot11 March 2026AY 2016-1726 pages
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What did the Tribunal hold?

The Tribunal held that the proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid, and the assessment finalized thereon was not invalid. Regarding the addition of Rs. 83,02,640/- by estimating profit at 16% of 'on-money' receipts, the Tribunal found that the unaccounted profit estimated on 'on-money' receipt is required to be taxed in the year in which the sale deed is executed or significant risk and rewards are transferred to the buyer. The Tribunal noted that the assessee consistently followed a revenue recognition method based on the execution of sale deeds. Therefore, only the 'on-money' receipt computed in the present case would be taxable in the year of sale deed execution, not when the 'on-money' was received. The Tribunal also found that ICDS-III was not applicable to the assessee. Consequently, the ground raised by the Revenue concerning the timing of taxation was dismissed. The Tribunal relied on the judgments of the Hon'ble Supreme Court in CIT vs. Happy Home Corporation and the Hon'ble Gujarat High Court in Shivalik Buildwell Pvt Ltd, as well as the decision of ITAT Ahmedabad in M/s D R. Construction. The appeals filed by the assessee were partly allowed, and the appeals filed by the Revenue were dismissed.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, heard appeals filed by both the assessee, M/s R K Dreamland, and the Revenue, concerning Assessment Years 2016-17 to 2021-22. These appeals arose from orders passed by the National Faceless Appeal Centre (NFAC), Delhi, which upheld assessment orders passed by the Assessing Officer under Section 143(3) read with Section 147 of the Income Tax Act, 1961. The core of the dispute involved the validity of reassessment proceedings initiated under Section 147 and the taxation of 'on-money' receipts in the real estate sector. A search and survey action on 24.08.2021 uncovered systematic maintenance of unaccounted cash transactions in 'Miracle' files, managed by an accountant at the direction of the group's head. Digital data recovered from pen drives and hard discs contained these accounting files.

What were the issues?

The Tribunal was called upon to decide the following issues: 1. Whether the proceedings initiated under Section 147 of the Income Tax Act, 1961, and the subsequent assessment finalized thereon, are invalid, as argued by the assessee. The assessee contended that the notice issued under Section 148 was invalid, rendering the entire reassessment proceedings void. 2. Whether the addition of Rs. 83,02,640/- by estimating profit at 16% of 'on-money' receipts is bad in law and fact, and should be deleted or reduced, as argued by the assessee. The assessee argued that the addition was excessive and based on an incorrect estimation of profit. 3. Whether the direction by the CIT(A) to tax unaccounted profit in the year of sale deed execution, instead of the year of 'on-money' receipt, is in accordance with accounting principles and the Act, as argued by the Revenue. The Revenue contended that the income should be assessed in the year of receipt, citing ICDS-III and accounting principles, and that the CIT(A)'s direction was erroneous. The Revenue did not record any specific arguments for the first issue, other than implicitly supporting the validity of the proceedings by challenging the CIT(A)'s decision on other grounds. For the second issue, the Revenue argued that the addition made by estimating profit was justified. For the third issue, the Revenue argued that the income should be taxed in the year of receipt.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 250,Section 131,Section 132,Section 133A,Section 5,Section 145

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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT

Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA

Hearing: 16/01/2026Pronounced: 11/03/2026

Per, Bench: Captioned appeals fil

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