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

ITA 787/RJT/2024Status: DisposedITAT Rajkot11 March 2026AY 2020-2128 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 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 whereby sale is offered to tax when the registered sale deed is executed, which is when significant risk and rewards are transferred. This method was accepted by the Hon'ble Gujarat High Court in CIT vs. Shivalik Buildwell Pvt Ltd. and the Hon'ble Supreme Court in CIT vs. Happy Home Corporation. The Tribunal relied on these judgments and a decision of the ITAT Ahmedabad in M/s D R. Construction to hold that 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. Therefore, the 'on-money' receipt would be taxable in the year of sale deed execution and not when it was received. The Tribunal also noted that ICDS-III is not applicable to the assessee. Consequently, the ground raised by the revenue regarding the year of taxation was 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. These impounded documents indicated significant unaccounted cash receipts and payments, primarily from 'on-money' receipts on the sale of flats in the 'Dream City' project. Consequently, the assessee's case was reopened under Section 148A of the Act. The Assessing Officer passed an order under Section 148A(d) on March 30, 2023, and issued a notice under Section 148. The assessee filed a revised return on April 1, 2023, reporting the same income as originally filed. The Assessing Officer issued notices under Sections 143(2) and 142(1) of the Act.

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 on such invalid initiation deserves to be quashed? (Assessee's contention: Yes, the proceedings are invalid and the assessment should be quashed. Revenue's contention: Not recorded). 2. Whether the Commissioner of Income-tax (Appeals) erred in estimating profit at 22% on 'on-money' receipts from the sale of flats, and whether such addition should be deleted? (Assessee's contention: Yes, the addition is bad in law and fact and should be deleted. Revenue's contention: Not recorded). 3. Whether the Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to tax unaccounted profit in the year of sale deed execution instead of the year of 'on-money' receipt, considering accounting principles and ICDS-3? (Revenue's contention: The income should be assessed in the year of receipt, not sale deed execution, as per accounting principles and ICDS-3. Assessee's contention: Not recorded).

Which sections of the Income-tax Act were involved?

Section 133A,Section 143(3),Section 147,Section 148,Section 148A,Section 142(1),Section 145,Section 5

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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 Ass

The order continues below.

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