SIX TWENTY REALTY PVT. LTD.,RAJKOT vs. DCIT, CC-1, RAJKOT, RAJKOT

ITA 786/RJT/2024Status: DisposedITAT Rajkot11 March 2026AY 2019-2028 pages
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What did the Tribunal hold?

The Tribunal held that the proceedings initiated under Section 147 of the Act were not invalid, and therefore, the assessment finalized on such initiation was not liable to be quashed. Regarding the estimation of profit on 'on-money' receipts, the Tribunal found that the assessee consistently followed the revenue recognition method, offering sales to tax upon the execution of registered sale deeds, which is when significant risks and rewards are transferred. This methodology was accepted by the Gujarat High Court in the case of Shivalik Buildwell Pvt Ltd. The Tribunal also referred to the Supreme Court's decision in CIT vs. Happy Home Corporation, which upheld the project completion method of accounting. Consequently, the Tribunal ruled that unaccounted profit estimated on 'on-money' receipts is taxable in the year of execution of the sale deed or transfer of significant risks and rewards, not in the year of receipt of 'on-money'. The Tribunal also noted that ICDS-III was not applicable to the assessee. Therefore, the ground raised by the revenue regarding the timing of taxation was dismissed. The assessee's appeals were partly allowed, and the Revenue's appeals were dismissed.

What were the facts?

The assessee, Six Twenty Realty Pvt. Ltd., is engaged in the business of developing residential projects. During a survey under Section 133A of the Income Tax Act, 1961, conducted on April 2, 2019, at the assessee's premises, various documents including loose papers, registers, and digital data (WhatsApp chats, emails, Excel sheets) were found and impounded. These documents indicated significant unaccounted cash receipts and payments, primarily from 'on-money' received on the sale of flats in the 'Dream City' project. The Assessing Officer (AO) reopened the assessment under Section 147 read with Section 143(3) of the Act. The National Faceless Appeal Centre (NFAC)/Commissioner of Income-tax (Appeals) passed orders under Section 250 of the Act, which are now under challenge before the Tribunal.

What were the issues?

The Tribunal had to decide three core issues: 1. Whether the proceedings initiated under Section 147 of the Income Tax Act, 1961, are invalid, and consequently, the assessment finalized based on such initiation deserves to be quashed. The assessee argued that the proceedings were invalid and the assessment should be quashed. 2. Whether the estimation of profit at 22% on 'on-money' receipts from the sale of flats in the 'Dream City' project is legally and factually bad, and thus, the addition made and retained should be deleted. The assessee contended that the addition should be deleted. 3. Whether the Commissioner of Income-tax (Appeals) erred in directing the AO to tax unaccounted profit in the year of execution of the sale deed instead of the year of receipt of 'on-money', considering accounting principles and ICDS-3 applicable to Real Estate Developers. The revenue argued that the income should be assessed in the year of receipt of 'on-money', not the year of sale deed execution, citing ICDS-3 and accounting principles.

Which sections of the Income-tax Act were involved?

Section 133A,Section 143(3),Section 147,Section 148,Section 148A,Section 151,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

Per, Bench:

Captioned appeals filed by the A

The order continues below.

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