DCIT, CENTRAL CIRCLE 1, RAJKOT, RAJKOT vs. R K DREAMLAND, RAJKOT

ITA 564/RJT/2024Status: DisposedITAT Rajkot11 March 2026AY 2017-1826 pages
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What did the Tribunal hold?

The Tribunal held 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 the revenue recognition method on the execution of the sale deed. Relying on the judgments of the Hon'ble Supreme Court in CIT vs. Happy Home Corporation, the Hon'ble jurisdictional High Court of Gujarat in Shivalik Buildwell Pvt Ltd., and the decision of the Ahmedabad Tribunal in M/s D R. Construction, the Tribunal found that only the 'on-money' receipt, as computed, would be taxable in the year of sale deed execution, not when the 'on-money' was received. The Tribunal also found that ICDS-III is not applicable to the assessee. Consequently, the ground raised by the Revenue was dismissed. The Tribunal also dismissed the grounds raised by the Revenue regarding the direction to tax unaccounted profit in the year of sale deed execution, following its own previous decision in the assessee's own case. The appeals filed by the assessee were partly allowed, and all appeals filed by the Revenue were dismissed.

What were the facts?

The assessee, M/s R K Dreamland, is a firm engaged in building construction. The Revenue is the DCIT, CC-1. The assessment years involved are 2016-17 to 2021-22. The appeals arise from assessment orders passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, by the Assessing Officer, and subsequent orders passed under section 250 by the National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals). A search and survey action on 24.08.2021 uncovered systematic maintenance of unaccounted cash transactions ('on-money') in 'Miracle' files, particularly concerning the sale of units and purchase of land by the RK Group, headed by Shri Sarvanand Sadhuram Sonwani. Pen drives and hard discs recovered from the group's accountant, Shri Girish Vanjani, contained these accounting files.

What were the issues?

1. Whether the proceedings initiated under section 147 of the Income Tax Act, 1961, are invalid, and consequently, the assessment finalized thereon deserves to be quashed (Assessee's contention). The Assessee argues that the CIT(A) erred in law and on facts by dismissing the ground related to the validity of the notice issued under section 148, making the section 147 proceedings and the subsequent assessment invalid. 2. Whether the addition of Rs.83,02,640/- by estimating profit at 16% of 'on-money' receipt is bad in law and on facts, and should be deleted or reduced (Assessee's contention). The Assessee contends that the addition made by estimating the profit rate is excessive and should be deleted or reduced. 3. Whether the unaccounted profit should be taxed in the year of sale deed execution or in the year of 'on-money' receipt (Revenue's contention). The Revenue argues that the CIT(A) erred in directing the AO to tax unaccounted profit in the year of sale deed execution, ignoring that it is not in accordance with accounting principles for real estate developers (ICDS-3) and that income from undisclosed 'on-money' receipt should be assessed in the year of receipt.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 250,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 file

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