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Facts
A survey conducted under section 133A of the Income Tax Act at the assessee's premises revealed unaccounted cash receipts from the sale of flats, primarily as 'on-money'. The Assessing Officer (AO) initiated reassessment proceedings under section 147, and subsequent orders were passed by the National Faceless Appeal Centre (NFAC).
Held
The Tribunal held that the estimated profit on 'on-money' receipts should be taxed at 10%, considering the business nature and past trends. Furthermore, it was decided that unaccounted profit should be taxed in the year the sale deed is executed, not when the 'on-money' was received, as ICDS-III is not applicable to the assessee.
Key Issues
Validity of reassessment proceedings under section 147 and the rate at which 'on-money' receipts should be taxed; timing of taxation for unaccounted profits based on revenue recognition principles.
Sections Cited
147, 148, 143(3), 133A, 148A, 142(1), 145(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA
िनधा�रती क� ओर से/Assessee by : Shri Mehul Ranpura, Ld.AR राज�व क� ओर से/Revenue by : Shri Sanjay Punglia, Ld. CIT(DR) सुनवाई क� तारीख/Date of Hearing : 16/01/2026 घोषणा क� तारीख/Date of Pronouncement : 11/03/2026 आदेश/ORDER Per, Bench: Captioned appeals filed by the Assessee and Revenue, pertaining to Assessment Years 2017-18 to 2022-23, are directed against the orders passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. Act”) by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals), which in turn arise out of separate assessment orders passed by the Assessing Officer, u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961.
2.Since, the issues involved in all the appeals are common and identical, therefore, these appeals have been heard together and are being disposed of by this consolidated order.
3. Although, these appeals filed by the assessee and appeals filed by the revenue, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the assessee and revenue. We find that most of the grounds raised by the assessee and revenue are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the assessee and revenue as well. With this background, we summarize and concise the grounds raised by the assessee and revenue, as follows: (i) The Id. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s. 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed. (This is assessee's ground No. 2 in for AY 2018-19, This is assessee's ground No. 2 in for AY 2019-20, This is assessee's ground No. 2 in AY 2020-21) (ii) The ld. CIT(A)erred on facts as also in law in estimating profit @ 22% on so called on money receipt on sale of flats at project Dream City. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. (This is assessee's ground No. 3 in for AY 2018-19, This is assessee's ground No. 3 in for AY 2019-20) (This is also in revenue's ground no. 1 in for AY 2019-20) (iii) The Ld CIT (A) has erred in directing 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 Page 2 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. 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 for AY 2016-17)
4.The relevant material facts, as culled out from the material on record, are as follows. The assessee company is engaged in the business of development of residential projects. The Income-tax Return for the year under consideration has been filed on 27.10.2019 reporting total income of Rs. 2,79,91,980/-. On 02.04.2019, a survey u/s 133A of Income-tax Act was carried out the business premise of the assessee-company. At the premises of M/s Six Twenty Realty Pvt Ltd located at Project Dream City, B/h Aalap Green City, Raiya Raod, Rajkot authorization was served on Shri Mihir Joshi (Sales Manager) who was present at the premises at the time of survey and subsequently served upon Shri Ashutosh Ganatra who arrived at the premises. At Regd. office D-405, Imperial Heights, 150 feet Ring Road, Rajkot, Authorization was served upon Shri Ashutosh Ganatra (Authorized signatory of M/s. Six Twenty Realty Pvt. Ltd.) who was present at the premises at the time of survey. During the course of survey, certain loose papers, register, digital data in the form of whatsapp chat/email containing excel sheets in the mail of accountant were found. Back up of computers and mobiles were taken. The loose papers file, register, printout of whatsapp chat, excel sheets of email, backup/mirror image taken of computers and mobiles found were inventoried as per Annexure A dated 02.04.2019 SI. No. 1 to 7 and were impounded vide order u/s 133A(3)(ia) dated 03.04.2019. The impounded documents revealed huge quantum of unaccounted cash receipts as well as payments. In view of the above, the case of the assessee has been reopened following the provisions of section 148A of the Act. Order u/s 148A(d) of the Act has been passed on 30.03.2023 after considering the fact of the case as well as reply of the assessee submitted in response to notice u/s 148A(b) of the Act and Page 3 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. after obtaining necessary approval of the specified authority as defined u/s 151 of the Act. Notice u/s 148 of the Act along with order u/ s148A(d) of the Act was issued and served upon the assessee on 30.03.2023. In reply to the notice u/s 148, an Income-tax Return has been filed by the assessee on 01.04.2023 reporting the same income as was reported in original ITR filed u/s 139 of the Act i.e. Rs. 2,79,91,980/-. Notice under section 143(2) of the Act issued. Further, notice under section 142(1) of the Act has been issued confronting various incriminating documents impounded during the Income-tax Survey and seeking assessee's response on the same.
Issue Involved: 5. The brief facts of the case are that a survey u/s 133A of the Act at the premises of the assessee M/s Six Twenty Realty Pvt Ltd located at Project Dream City, B/h Aalap Green City, Raiya Road, Rajkot & Registered Office at D-405, Imperial Heights, 150 feet Ring Road, Rajkot was carried out on 02.04.2019. During the course of survey, certain loose papers, register, digital data in the form of whatsapp chat/email containing excel sheets in the mail of accountant were found. Back up of computers and mobiles were taken. The loose papers file, register, printout of whatsapp chat, excel sheets of email, backup/mirror image taken of computers and mobiles found were inventoried as per Annexure A dated 02.04.2019 Sl. No. 1 to 7 and were impounded vide order u/s 133A(3)(ia) dated 03.04.2019. The copy of impounded documents had already been provided to the assessee during post survey inquiry by the Investigation wing. From the impounded documents/ data, various set of excel sheet were found from which generation of unaccounted cash is noticed primarily from receipt of on-money on sale of flats in the project 'Dream City' developed by the assessee-company. Similarly documents evidencing unaccounted cash expenses have also been noted from the impounded documents. During the course of survey at the office premise of the assessee, data from computer where Shri Yagnesh D Jogi sit (who looks Page 4 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. after the accounting work of the assessee company) print out of a zip file "Yagnesh.Zip" has been taken from his mail and the same has been inventoried as Annexure-A4. There are some excel sheets which contain therein details such as Flat No., Booking details (booking date and name of the booking persons), Flat Price and payment received against the sale/booking of flats of Dream City in cash and cheque and payment due cash or Cheque. Two set of these sheets are Impounded and inventoried at page no. 20 to 39 of Annexure-A4 and Page no 40 to 53 of Annexure A4. On comparison, it has been noticed that detail / transactions recorded on these sheets are more or less same, however, the transactions recorded on page 20 to 39 are more updated and contain details of cash on-money receipts of Rs. 18,45,07,562/- that has been received from different buyers against sale/ booking of respective flat. While explaining the nature of the transactions recorded on these sheet Shri Yagnesh Jogi, in reply to question no. 8 of his statement recorded u/s 131(1A) of the Act has explained lucidly that these sheet contain detail such as flat no, name of the buyers/ booking persons and details of cash / cheque received and to be received against sale /booking of respective unit. He further explained that sheets inventoried as page 20-39 are more updated and having more amount. Beside the above, during the survey proceedings various loose papers were found and inventoried in Annexure-A5. Page no. 43 to 55 of this annexure is also contains detail of amount cash and cheque amount received from purchasers for respective unit of project Dream City. The quantum of on- money as per this excel sheet is comes at Rs. 18,63,65,880/-. Further various other excel sheets containing details like flat number, purchaser name, sale price, amount received in cash, amount received through cheque and amount to be received through cheque /cash etc were found from computers, email of the employees of working in office of the assessee company. These excel sheets have been prepared on different dates. Fitures noted in various other excel sheet has been compared with the above excel sheet impounded as page 43 to 55. Meaning thereby this excel sheet (43 to 55) is taken as base for working of on-money Page 5 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. received. Person-wise, flat wise comparison has been made and it is found that on-money of Rs.2,19,17,174/- has been received in addition to that received as per the above excel sheet. Hence, the figure of on-money receipts as per excel sheet comes at Rs.20,82,82,983/- (Rs. 18,63,65,880/- + Rs.2, 19,17,174/-). Here it is pertinent to mention that the above excel sheet contains the details of amount that has been received up to 31.12.2018. However, from the impounded documents/ digital data, it has been noticed that the company has also received pending amount of cash on-money against the sale of flats during January 2019 to March 2019. While analyzing the whatsapp chat between Shri Paresh Gor and Ashutosh Ganatara, Chirag Lakhani & Atul Ganatara (printout of the same impounded as Annexure A/1), it is seen that cash amount of Rs. 12,68,000/- has been received from purchaser during this period (Jan to March 19). The detail of the same is as under;
6. Thus cash on-money receipts as per impounded documents and that has been received up to date of survey is comes at Rs. 20,95,50,983/-(20,82,82,983/- + Rs. 12,68,000/-). It is to mentioned that this figure not include the amount that has not been received till the date of survey. however, would be received on later date but before the execution of respective conveyance deed. The above impounded Page 6 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. documents was shown to Shri Ashutosh Ganatara. From his statement recorded, it can be seen that Shri Ashutosh Ganatara (the nephew of one of the director Shri Atul Ganatara and also authorized signatory of assessee company), while explaining the above pages has not only confirmed that amount mentioned in column "Received cash" in the above excel sheet is the cash on-money received on sale of respective flat but also confirmed that this cash on-money amount received for the project Dream City has not been recorded in regular books of accounts of the developer assessee company. Explanation for pages Annexure- A4 He it is noteworthy to mention that Shri Ashutosh Gantara who is the nephew of one of the director Shri Atul Ganatara, is one of the authorized signatory for the company. A resolution has been passed by the company in this regard and authorized Shri Ashutosh Ganatara to sign on behalf of the company on all the documents, papers, affidavit, declaration, undertaking relating to purchase / sale of land / building etc. constructed at "Dream City" and also authorized him to Page 7 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. submit any documents with Government authorities/semi Government Authorities. Considering all the above facts, a notice u/s 142(1) of the Act was issued and explanation/clarification has been sought from the assessee. In response, vide letter dated: 05.02.2024, the assessee has taken various contentions. The contentions raised by the assessee have been perused carefully and it is seen that these are similar to those has been raised during assessment proceedings for AY 2018-19 & AY 2020-21. These contentions were duly disposed off and detailed discussion have been made in respective assessment order and as such the contentions/ objections raised against proposed addition have been found not acceptable hence, disbelieved. In view of the above discussion, vide notice dated: 20.03.2024 the assessee has been requested to show cause as to why should addition of Rs. 5,25,97,941/- (being unaccounted profit for unit/flat sold during the year) not be made to its taxable income. The assessee submitted following reply to the aforementioned show cause notice in its response dated 26.03.2024 :- "In connection with the above, we submit as under: 1. At the outset, we vehemently object the workgn of unaccounted profit calculated at Rs.4514/- per Square Meter. We deny the allegation made in the regarding alleged generation of unaccounted receipts, application of such alleged unaccounted receipts into alleged unaccounted expenses and purchase of land and alleged movement of unaccounted cash. Therefore, additions proposed in the show-cause notice is strongly objected.
The alleged on-money receipts was worked out by taking the basis of certain excel sheets stated to have been recovered from the personal e-mail inbox of an employee Mr. Yagnesh Jogi, we reiterate that the company has not received any on-money from customers, but as stated earlier from time and again the impugned excel sheet/record/maintained by Mr. Ashutosh Ganatra and his subordinate staff. Further, it was given to understand that Mr. Ashutosh Ganatra was used to collect additional funds from customer / investor / broker for various purpose such as reimbursement of additional cost incurred in flat, purchase of stamp paper for registration, payment of legal fees and registration fees to advocate etc. Therefore, noting in the Excel Sheets recovered is not attributable to any unaccounted receipts (on-money) received by the assessee company against booking/ sale of flat and hence, addition proposed on this count is strongly objected.
So far as reliance placed on the statements recorded from Mr. Ashutosh Ganatra and his subordinate staff, it is reiterated that such statements were recorded behind the back Page 8 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. of promoters / directors of the company and hence, the averments made in such statement is not binding to the assessee company. Not only that, both the promoters / directors of the assessee company had in their duly sworn and notarized affidavit denied the averments in the statement recorded from Mr. Ashutosh Ganatra and also denied the acceptance of alleged unaccounted receipts (on-money). Therefore, assessment proposed to be finalized by taking the statement of third party and brushing aside the affidavits of promoters/directors is totally unjustified.
On the other side, allegation of application of unaccounted receipts is also on the basis of so-called data stated to have been recovered from the e-mail / WhatsApp conversations of employees and loose papers recovered from the premises of third party, which is strongly objected. As regard the allegation of unaccounted payment for purchase of land, it is reiterated that such allegation is made on the basis of certain loose papers recovered from the premises of third party, i.e., M/s. Bhanu RMC which is neither a seller/broker of such land nor a party to transaction and also, such loose paper did not contain any reference to person, date, signature etc. Further, unaccounted payment for land estimated on the basis of certain working in excel sheet recovered from the email inbox of Mr. Yagnesh Jogi is also arbitrary since such working does not reflect the on-money payment made to sellers of land.
In view of the above and in view of our detailed submission, we strongly object the proposal to make addition of alleged unaccounted income on estimated basis.
It is submitted that there are various discrepancies in interpretation of content of impounded documents and arithmetical accuracy in impounded documents. However, none of such discrepancy / issue raised by the assessee has satisfactory been addressed in the show-cause notice and on the contrary, it is alleged that the correctness and completeness of the books of account of assessee is doubtful. This allegation is totally unjustified where each and every receipts / payment evidenced from the land purchase deed, registered sale deed of flats, legal contract with the contractor etc. is accounted for in the audited books of account and such accounts is adopted by the promoters in their Annual General Meeting.
7. The assessee company would like to submit that its books of account are audited under the Companies Act, 2013 and u/s. 44AB of the Income-tax Act, 1961 and the auditor has not pointed out any material defects or discrepancies in the book results. Further, allegation put forth in the show-cause notice is only on the basis of conjectures & surmises, which cannot be basis for rejection of book results, which has already been accepted by Shareholders in the Annual General Meeting. Therefore, proposal to reject book results is strongly objected.
It is also submitted that the assessee in its books of account has declared the average GP of 20.21%, which is much above the acceptable range and already accepted by revenue in other similar cases. This is because of the fact the registry value in respect of sale of flats to customers is made at much higher value than the prescribed valuation (Fair Market Value) adopted by State Government for levy of stamp duty. Therefore, books of account of the assessee company shows correct and complete result and as such, proposal to reject such book results on the basis of certain documents / data stated to have been recovered from the personal gadgets & domain of third party/employees is strongly objected.
Without prejudice to the above and without admitting anything, it is also submitted that the action of estimating unaccounted receipts on the basis statement recorded from Page 9 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. Mr. Mihir Joshi is totally unjustified in as much as that sales rate of flat stated in his statement is unreal and incorrect. It is also submitted that Mr. Mihir Joshi was no authority to decide sales rate for the assessee company and hence, his statement should not be considered as conclusive.
It is also seen that Mr. Mihir Joshi in his statement submitted that he is looking after the sales department and once customer is convinced then he refers such customer to Mr. Ashutosh Ganatra and Mr. Ashutosh Ganatra explains the customer regarding final price, GST, document price etc. Therefore, it is clear that Mr. Mihir Joshi had only acted as a conduit between the prospected customer and Mr. Ashutosh Ganatra, whereas, final negotiation with customer took place with Mr. Ashutosh Ganatra only.
Further, as submitted above and in earlier replies, it is given to understand that Mr. Ashutosh Ganatra was used to quote the price of flat to customer inclusive of stamp duty, registration fees, legal expense and other cost towards additional civil & interior work required by any customer. Therefore, sales rate mentioned in any of the impounded excel sheet / loose paper includes the actual consideration received / receivable by assessee company as per registered sale deed as well as amount received / receivable by Mr. Ashutosh Ganatra for the reasons mentioned as above.
12. In view of the above, estimated sales rate mentioned by Mr. Mihir Joshi in his statement cannot be treated as actual sales of the assessee company and hence, estimation of on-money on this ground is strongly objected.
Furthermore, it is also observed that alleged sales price of flat taken from the statement recorded of Mr. Mihir Joshi is in contradiction with the sales price reflected in the impounded documents / data itself. For instance, your good self has relied on the excel sheets impounded at page nos. 43 to 55 of Annexure A-5 for allegation of on- money receipt, but alleged sales price of flat mentioned in such impounded documents does not match with the alleged sales price as per statement of Mr. Mihri Joshi. Following are some of the instances/samples of such deviation:
Page 10 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd.
14. In view of the above inconsistencies (sample basis) between noting / entries made by or through Mr. Ashutosh Ganatra (who was responsible for negotiating price with customer inclusive of all other add-on services provided by him) in various impounded documents/data as well as averments made by sales employee in his statement, estimation of unaccounted receipts at Rs. 30.22 crores as well as total receipts at Rs. 118.31 crores from entire project, i.e., 509 flats is strongly objected.
15. It is also submitted that as on the date of survey, the assessee company had booked around 390 units, out of which, sales /registry was made for 308 units. Therefore, there is no any evidence found in respect of units which were even not booked at the time of survey and hence, estimation of alleged on-money in respect of such units is totally unjustified. It is well settled law that extrapolation of unaccounted receipts is not permissible in absence of any other corroborative evidences. Reliance placed on following decisions: Hon'ble High Court of Gujarat in the case of CIT vs. Jayaben Ratilal Sorathia held that Addition made by Assessing Officer in year under consideration on basis of disclosure regarding on-money receipt pertaining to land selling transactions in subsequent years could not be sustained in absence of any other incriminating material.
Hon'ble High Court of Gujarat in the case of N.R. Paper & Board Ltd. v. Dy. CIT [1998] 234 ITR 733 had held that the evidence found and the material available should be the basis for computing the undisclosed income. It was observed by the Page 11 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. Bench that to hold that even without any evidence or material the Assessing Officer would be empowered to estimate the income was fraught with dangerous consequences. The Assessing Officer cannot presume that there must be some other material or evidence which has not been found during the search and the assessee must have derived the undisclosed income therefrom. In the case of Dolphin Builders Pvt. Ltd 356 ITR 420, Hon'ble High Court of Madhya Pradesh held that making addition merely on the basis of seized documents without cogent evidence that excess amount mentioned in seized document was actually passed on to the assessee was not sustainable where books of account of assessee were duly audited. Hon'ble ITAT, Pune Bench in the case of Raviraj Kothai vs. DCIT in held that - 14. In the facts and circumstances of the case and documents on record we hold that the addition in respect of on-money received in respect of Shop No. 129 i.e., the shop in respect of which the document was seize during survey is upheld. Whereas, in the absence of any material to show that on-money was received in respect of other shops sold or booked during the financial year 2006-07, the addition on account of on-money is not sustainable. The principle of extrapolation of 'on-money' on the other shops sold/booked during the period relevant to assessment year under appeal is rejected in the absence of any material on record.
In the case of D. N. Kamani HUF (70 ITD 77) Hon'ble ITAT Patna Bench held that documents regarding receipt of on-money by assesses having been found in respect of sale of flats to one party, addition could not be made in respect of all the parties to whom assessee sold flats merely on the basis of presumption. In the case of Fort Projects Pvt. Ltd (63 DTR 145) Hon'ble ITAT Kolkata Bench held that AO was not justified in extrapolating few notings in a seized diary to balance flats in three projects given that no incriminating evidence pertaining thereto was found in the course of search. Hon'ble ITAT Jaipur Bench in case of ACIT V. M.M. Sales Agencies (2006) 153 Taxman 13held that the income cannot be estimated for the period for which no information is available on the basis of the seized record.
Hon'ble High Court of Delhi in case of CIT v. H.C. Chandna (P.) Ltd. [2007] 163 Taxman 654 (Delhi) upheld the finding of the tribunal that no income can be estimated on the basis of the evidences found for a particular period. Hon'ble ITAT Ahmedabad in case of Savaliya Developers Pvt. Ltd V. DCIT in & 3188/Ahd/2015 vide order 30.06.2019held as under in context to extrapolation: "Besides, estimated cash receipts on-money of sale of all flats merely on the basis of statement of two purchasers without any tangible corroboration clearly falls in the realm of conjunctures and surmises. It is obvious that driven Page 12 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. by misplaced suspicion, the AO has presumed the presence of on-money in respect of each of the residential flat sold. The action of the AO is a mere ipse dixit which is not objectively justifiable by some inculpatory evidence. It is only elementary to say that estimation of unaccounted money cannot be made only on the basis of contemplation. The order of the AO in making additions of Rs.3.28 Crores is thus clearly arbitrary and unsustainable in law. It is well settled that the Revenue authorities cannot base its findings on suspicions, conjunctures or surmises nor should it act on no evidence at all or on vague considerations partly on evidence and partly on suspicion, conjunctures or surmises. The Revenue could not demonstrate any material except unsupported statements of two persons. Such unverified statements without an y proof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interfere with the order of the CIT(A) in so far as appeal of the Revenue is concerned.
16. In view of the above, alleged unaccounted receipts (on-money) estimated in respect of entire project, i.e., 509 units is unjustified in as much as that many units amongst them had not even been booked at the time of survey and also, even this date.
Furthermore, on the expense side also, estimation made is completely in arbitrary manner and so the project income worked out is also not correct and real. Though, not at all accepted and admitted, your good self had in the earlier notice dated 19.02.2022 list out the following alleged unaccounted payments / expenses for the project:
Though, we strongly denied the above-stated unaccounted payments / expenses for the project, for sake of academical purpose, it is submitted that estimated of such payments /expenses in the show cause notice for AY 2020-21 at Rs. 19,71,74,689/- is without any cogent reasons and seems arbitrary only with a view to determine higher / unreal / incorrect unaccounted income.
Therefore, on this ground also, addition of alleged estimated unaccounted income proposed in the impugned show-cause notice is strongly objected.
20. Without prejudice to the above, it is also submitted that in the various judgements / orders of jurisdictional High Court as well as other courts / ITATS, the judiciaries have Page 13 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. taken consistent view in determining real income of builders / developers by estimating income / profit on the on-money component over and above the net profit declared in books of account. Hon'ble ITAT, Ahmedabad Bench in the case of Jay Kesar Bhavani Developers Pvt. Ltd. Vs. ITO in held that - We of the considered opinion that learned Commissioner (Appeals) was not justified in confirming the addition of entire on-money receipts amounting to Rs. 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 assessment year 2010-11. Further, the Hon'ble High Court in the case of CIT v. Abhishek Corporation (supra) 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 80IB(10) of the Act, hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking in to account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on-money receipts of Rs. 4,72,02,368. Accordingly, the assessing officer is directed to tax net profit @6% on total on-money receipts of Rs. 4,72,02,368.
21. Reliance is also placed on the following decisions:
Hon'ble High Court of Gujarat in the case of Jay Builder v. ACIT (2013) 215 Taxman 50 (Gujarat) Hon'ble Gujarat High Court in the case of DCIT V. Panna Corporation 74 DTR 89held that 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. Hon'ble ITAT, Ahmedabad Bench in the case of Abhishek Corporation v. DCIT [1999] 63 TTJ 651 (Ahd.), wherein, it was held that where it was found that assessee had been charging on money /premium in respect of booking of flats, the entire receipts on account of on money /premium charged by the assessee on booking of flats would not be the undisclosed income of the assessee for the block period, but only net profit rate could be applied on unaccounted sales/receipts for the purpose of making the addition. Hon'ble ITAT Surat bench in the case of ACIT v. Mansi Reality Pvt. Ltd. in net profit of on-money receipts was adopted by the Ld. CIT(A) was upheld by the tribunal by holding that in the case of on-money receipts, only profit embedded therein is to be taxed. Hon'ble ITAT, Indore Bench in the case of Pumarth Infrastructure Pvt. Ltd. vs. ACIT in IT(SS) No. 175 to 177/Ind/2017 Page 14 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd.
Hon'ble ITAT, Mumbai Bench in the case of ACIT vs. Shankar Developers in & 6236/Mum/2012 13. We notice that the assessing officer has determined the on-money receipts as per the disclosure made by the assessee before the Settlement Commission. There is no dispute that the Settlement Commission has agreed with the contentions of the assessee that the entire amount of on-money receipts cannot be considered as income of the assessee. Accordingly the Settlement Commission has estimated the income from on-money receipts @ 17% in assessment year 2005-06. Since the assessing officer has estimated the on- money receipts as per the disclosure made before Settlement Commission, we are of the view that the learned Commissioner (Appeals) was justified in estimating the income from the on-money receipts @ 17% for this year also by following the order passed by the Settlement Commission. Accordingly we confirm the order passed by learned Commissioner (Appeals).
Hon'ble ITA, Mumbai Bench 'A' in the case of DCIT vs. Adarsh Industrial Estate Pvt. Ltd. (2021) 190 ITD 878 13. Following the above decisions, we are inclined to held that the Ld. CIT(A) is not correct in not following the order of settlement commission wherein a rate of 12% has been applied on the on money to assess income embedded therein. Accordingly, we modify the finding of Ld. CIT(A) and direct the AO to assess the on money @ 12% as per the system of accounting followed by the assessee as has been decided by us in ground No. 1.
In the result, the appeal of the assessee is allowed.
22. From perusal of the above judgments common view has been taken thereby confirming the addition only for the profit element in on-Money, which is evidenced from the documents / data impounded or seized. Therefore, in the case under consideration also, what is to be taxed is the estimated element of profit from the alleged on-money evidenced from the impounded documents /data.
23. In context to the above, without making any admission of alleged unaccounted receipts / payments, it is reiterated that by taking recourse to the provision of Section 44AD of the Act, even if the net profit rate of 8% is taken on the alleged on-money receipts of Rs. 20.95 crores, then also real income works out to Rs. 1.68 crores. Therefore, it is humbly requested to not to make high-pitched addition of unreal income and oblige.
The reply of the assessee has been examined carefully and it is noticed the contention taken by the assessee are identically same to those raised during the assessment proceedings for A. Y. 2016-17 to 2018-19 and A.Y. 2020-21. During the assessee proceedings for these years the objections / taken by the assessee were duly disposed off /rejected. In view of the above stated facts and findings, Page 15 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. the on-money income on the flats sold during the year is estimated as under after invoking the provisions of section 145(3) of the Act and added to the returned business income as under – Page 16 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd.
8. Penalty proceedings for underreporting of income in consequence of misreporting as per provisions of section 270A of the Act are also initiated for the addition made above.
9. Aggrieved by the various additions made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A) The learned CIT(A) dismissed the technical grounds raised by the assessee, challenging reopening of assessment under section 147/148 of the Act. On merit, learned CIT(A), estimated the profit element on the “on money”, at the rate of 8%, 12%, 16% etc, in a different assessment years. Therefore, assessee, as well as, revenue, both are in appeal before us. The main contention of the revenue in these appeals are that the addition made by the assessing officer should be confirmed. Whereas, main contention in the assessee’s appeals is that the profit estimation on “on -money”, is on higher side, therefore, it should be reduced to a reasonable extent, by following the judgement of Hon’ble Jurisdictional High Court of Gujarat in various cases such as, in the case of Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, wherein 6% addition on “on money, was upheld. In various judgements of jurisdictional ITAT Ahmedabad, (cited by assessee in legal compilation) held that the addition on “on money” at the rate of 8% is sufficient to plug the leakage of the revenue. Therefore, the solitary grievance of the assessee in assessee’s appeals are that reasonable estimation may be made in the hands of the assessee. The findings of the learned CIT(A) would be discussed while adjudicating the relevant issue involved in concise and summarised grounds noted above.
Page 17 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. 10. Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows:
11. 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 dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s. 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed. (This is assessee's ground No. 2 in for AY 2018-19, This is assessee's ground No. 2 in for AY 2019-20, This is assessee's ground No. 2 in AY 2020-21)
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We have carefully considered the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record. We note that issue under consideration is squarely covered against the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below: “11. We have heard both the parties. We find that in the new regime/ scheme of search assessment, the proceedings for search assessment of search party as well as third- party are made under section 147 of the Act, unlike in the earlier/ old scheme of search assessment, wherein the search assessment of searched party was made under section 153A of the Act, whereas the assessment of third-party, was made under section 153C of the Act. Since, in the present reassessment proceedings, both of the searched party, as well as third party assessments are covered. It is observed that the initiation of reassessment proceedings in the present case is valid in law. While passing the assessment order, the assessing officer also observed that search was carried out at the assessee`s premises on 24.08.2021, and pursuant to the search, notice under section 148 of the Act, was issued in case of the assessee. As search was carried out in the case of the assessee after 01.04.2021, wherein, provisions of section 148 were amended Page 18 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. and provides deemed satisfaction for three assessment years prior to the date of search, and even on this ground, the assessing officer has validly issued notice under section 148 of the Act. Hence, there is no defect in the reassessment proceedings, therefore, we dismiss the ground raised by the assessee and confirm the findings of the learned CIT(A).”
13. Respectfully following the above findings in assessee’s own case, we dismiss the following grounds in assessee’s appeals. (i) Ground No. 2 in for AY 2018
19. (ii) Ground No. 2 in for AY 2019
14. Summarized and Concise ground No.(ii) is reproduced below for ready reference: (ii) The ld. CIT(A)erred on facts as also in law in estimating profit @ 22% on so called on money receipt on sale of flats at project Dream City. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. (This is assessee's ground No. 3 in for AY 2018-19, This is assessee's ground No. 3 in for AY 2019-20) (This is also in revenue's ground no. 1 in for AY 2019-20)
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.
Page 19 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd.
We note that “On-money” receipts are undisclosed receipts, and only the profit element embedded in such receipts can be taxed, not the entire “on-money” amount. However, the rate of profit is always a matter of estimation and must depend on following factors, such as, nature of project, location, type of construction, cost structure, evidence of expenses and past profit margins. We note that in R.K. Group cases, expenses and cost in every project is higher side, due to locational disadvantage, and the profit element is below 10%, as per the past audited profit and loss accounts and evidences available in search and seizure proceedings. It is settled position of law and we also note that Courts and Tribunals have emphasized that the profit rate must have a reasonable basis in each case, and cannot be arbitrarily fixed. Since “on-money” receipts represent undisclosed sales, only the profit element embedded therein can be taxed; however, the rate of profit estimation depends on the facts of each case. We have examined the seized material and past records and noted that in RK group cases, under consideration, the past profit margin as per audited books of accounts and as per seized material is 7% (average) only, this is because, due to location of the project and moreover, the cost and expenses are more than other similar projects. In these circumstances, we find that profit element embedded in commercial projects and housing projects should be estimated by applying the uniform rate of 10% on “on-money”. Therefore, considering the mandatory judgement of the jurisdictional Hon’ble Gujarat High Court, in the case of Ms. Jay Kesar Bhavani Developers Pvt. Ltd(Supra) and considering the peculiar facts of the assessee’s case, narrated above, we are of the view that profit estimation on, “on money” at the rate of, 10% is fair and reasonable.
17. We note that issue under consideration is squarely covered in favour of the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the decision Page 20 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. of Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below: “14. In this summarised and concise ground, the plea of the assessee is that estimated profit at the rate of 16% on the so called “on money” is on higher side, considering the judgement of the jurisdictional High Court of Gujarat. However, plea of the revenue is that addition made by the assessing officer at the rate of @ 35% should be sustained. 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 - Page 21 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. 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:
Page 22 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. "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 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.
17. Next question arose, what is the element of income involved in this on- money. On one hand, the assessee is showing income at 8%, on the other hand, the ld. CIT(A) is estimating it at 20%. It is pertinent to observe that section 144 of the Income Tax Act provides discretion in the assessing officer to pass best judgment when an assessee failed to appear before him, and to submit requisite details. In other words, it provides power in the assessing officer to estimate an income of the assessee. We deem it appropriate to take note the relevant part of this section. It reads as under:. "24. We have considered rival submissions and gone through the record carefully. There is no dispute that during the course of search certain material/loose papers were found exhibiting the fact that the assessee has received cash, over and above, the amounts stated in the booking register. This cash was not accounted for in the books. It has been treated as on-money for sale of flats/shops. Simultaneously certain loose papers were found disclosing the fact that the expenditure were incurred in cash and accounted in the books. The Ld.CIT(A) made an analysis of this, and then held that the moment assessee's income is being assessed at 8% of the gross on-money, then the remaining amount 92% could take care of unexplained expenditure. It can be explained by a simple, viz. an assessee has received Rs.100/- in cash for sale of flat. Out of that, element of income embedded in this Rs. 100/-has been determined by us at Rs.8/-. Remaining Rs.92/- must have been incurred by the assessee for developing that flat. Thus, in other words, the expenditure whose details were found being incurred in cash could be construed as coming out of these Rs.92/-. Thus, there cannot be any separate addition of unexplained expenditure. The Ld.CIT(A) has rightly deleted the addition."
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 Page 23 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. 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 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%.
16. We note that the average profit of the assessee as per audited books of accounts is 7%, therefore, profit estimation done by the learned CIT(A) at the rate of 16% on the “on-money” is higher side. Considering the nature of business and voluminous ‘on- money’ and taking into account, the fact that there is expenditure made by the assessee to develop the project out of the “on-money”, therefore, profit margin in this type of business normally is 10% on “on-money”. We proceed to work out the estimation of profit keeping in mind the following facts: (i)The estimate is not opened up to be framed in an arbitrary manner. (ii) The estimate by rule of thumb is absolutely infirm. (iii)The estimation of rate of profit return must necessarily vary with the nature of the business. (iv)There cannot be any uniform yardstick. (v)An assessment to be best of judgement can only be based on the material available on record and past records and considering the totality of the facts. (vi) Only real income and neither notional income nor astronomical income, can be taxed under the I.T. Act, 1961. Accordingly, we note that estimation the profit element on ‘on-money’ at the rate of 10%, should be fair, keeping in mind the principle laid down by Hon'ble Supreme Court in the case of H. M. Esufali Abdulali that the method to be adopted must be which is approximately nearer to the truth.
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.”
18. Therefore, respectfully following the binding judgement of the Co-ordinate Bench of ITAT Rajkot in assessee’s own case (Supra), we direct the assessing officer to tax “on-money” at the rate of 10%, therefore, we partly allow the following appeals of the assessee:
Page 24 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. (i) Ground No. 3 in for AY 2018-19 (ii) Ground No. 3 in for AY 2019-20 Whereas following appeals of the revenue, are dismissed: for AY 2019-20
19. Summarized and Concise ground No.(iii) is reproduced below for ready reference: (iii) The Ld CIT (A) has erred in directing 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 for AY 2016-17)
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We have heard learned DR for the revenue in detail and learned Counsel for the assessee also. In our considered view, it was wholly erroneous on the part of the authorities below to apply the accounting principles of ICDS-III, as it is not applicable to the assessee, under consideration. We note that issue under consideration is squarely covered in favour of the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co- ordinate Bench of ITAT Rajkot is reproduced below: “21. Learned DR for the revenue argued that Ld.CIT(A) ought not to have directed the assessing officer, 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. The treatment of revenue recognition adopted by the learned CIT(A) is not in accordance with Accounting principles as per ICDS-3, which is applicable to Real Estate Developers. The learned DR, therefore, stated that the income on account of undisclosed “on- money” receipt was required to be assessed in the year of receipt.
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22. On the other hand, learned Counsel for the assessee submitted that assessee has been following the accrual basis of accounting and percentage of completion method. Therefore, revenue should be recognised in the year in which the transaction got materialised, that is, in assessee`s case, when the document is registered and executed, then only the revenue is recognised, with certainty. Hence, learned CIT(A) has rightly directed the assessing officer to recognise the revenue in the year in which the transaction/sale of flat is registered.
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.
We note that even if the addition on account of estimated profit on alleged “on- money” cash receipts is made, the same should be made in the year of actual sale when the conveyance deed is executed in the favour of buyer when the significant risk and rewards are transferred. It is observed that the assessee has consistently followed revenue recognition method whereby sale is offered to tax when registered sale deed of particular unit is executed, that is, date on which significant risk and reward has been transferred to buyer. This method of accounting has been followed consistently by assessee on year to year basis and assessing officer has not disturbed such methodology. This method of accounting of recognizing revenue has been accepted by Hon'ble Gujarat High court in the case of Shivalik Buildwell Pvt Ltd. [2013] 40 taxmann.com 219 wherein it is held as under: "Section 5 of the Income-tax Act, 1961 Income Accrual of [Booking amount received by builder] - Assessee was a builder and developer - He received certain amount as advance from different parties Assessing Officer added said amount to assessee's taxable income Tribunal set aside addition made by Assessing Officer holding that assessee being a developer of project, profit in its case would arise only on transfer of title of property and, therefore, receipt of any advance or booking amount could not be treated as trading receipt of year under consideration Whether on facts, impugned order passed by Tribunal deleting addition was to be upheld - Held, yes [Para 4] [In favour of assessee]"
On identical facts, it is relevant to refer to the Decision of Hon'ble ITAT Ahmedabad in the case of M/s D R. Construction Vs. Income Tax Officer in wherein Hon'ble ITAT has held as under:-
Page 26 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. "Unaccounted expenditure-receipt of 'on money' in the present case assessee is dealing in several immovable property ie, flats and shops which he has constructed. A single flat is a capital asset for the purchaser but for the assessee all the flats together constitute stock-in- trade. HELD THAT:-it is undisputed position that out of this on money assessee has incurred various expenditure/investment. Therefore, 'on money' as such and as a whole cannot be taxed over and above the income accruing on the basis of entries recorded in the books of account on the basis of decision held in E.D, Sassoon & Co. Ltd. & Ors. vs. CIT (1954 (5) TMI 2 SUPREME COURT we hold that advance money received either by way of cheque or by way of cash will partake the character of taxable income when registered sale deed of the flats is executed in subsequent years. As a result, the sum of 10 crores will not taxable in Asst. Year 2008-09. The appeal of assessee is accordingly allowed.”
On the similar facts, the learned CIT(A) relied on the judgement of the Hon'ble Supreme Court. The Hon'ble Supreme Court upheld the order passed by the Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Happy Home Corporation [2018] 94 taxmann.com 292 wherein it was held as under: "Section 145 of the Income-tax Act, 1961 Method of accounting (Project completion method) - Assessee was engaged in construction business - It was subjected to a survey action which was conducted on business. premises - During course of survey, statement of one partner of firm was recorded in which, he admitted of firm having received a sum of Rs.26.05 crores not disclosed in books of account-While doing so, he further stated that same would be subject to registration of sale deeds When assessment was undertaken, assessee contended that firm was following project completion method of accounting and income would be offered to tax as and when final sale deeds were registered Assessee firm thus offered only a sum of Rs.1 crore during year under consideration Assessing Officer rejected assessee's stand and added entire amount of Rs.26.05 crores as income of assessee during current year Tribunal accepted assessee's contention that since firm was following project completion method for offering income to tax, same would be subjected to tax upon completion of sale, though amount may have been received earlier from buyer Revenue filed instant appeal on ground that in his statement, partner of firm had disclosed entire amount as income of relevant year - Whether in view of fact that while agreeing that sum of Rs. 26.05 crores was undisclosed income of assessee for relevant current year, said partner of firm added a clarification that same would be subject to execution of sale deeds, there was no error in impugned order of Tribunal and, thus, same was to be upheld-Held, yes [Para 5] [in favour of assessee]”
In the light of the above judgement of the Hon’ble Supreme Court, in the case of Happy Home Corporation (supra), and Hon’ble jurisdictional High Court of Gujarat in the case of Shivalik Buildwell Pvt Ltd(supra) and decision of Ahmedabad Tribunal, in the case of M/s D R. Construction, we find that unaccounted profit estimated on ‘on- money’ receipt is required to be taxed in the year in which sale deed is executed by Page 27 of to 787 & 765/Rjt/2024 Six Twenty Realty Pvt. Ltd. assessee or significant risk and rewards is transferred to buyer. As in case in hand, the assessee has been following revenue recognition method on execution of sale deed, only on-money receipt as computed in present case would be taxable in the year in which sale deed is executed and not when ‘on-money’ was received. Besides, we find that ICDS-III is not applicable to the assessee under consideration, therefore, we dismiss the ground raised by the revenue.”
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 for AY 2016-17
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 11-03-2026.
Sd/- Sd/- (Dr. Arjun Lal Saini) (Dr. Dinesh Mohan Sinha) लेखा सद�य/Accountant Member �याियक सद�य/Judicial Member राजकोट /Rajkot िदनांक/Date: 11/03/2026 आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : अपीलाथ�/ The Assessee ��यथ�/ The Respondent आयकर आयु�/ CIT आयकर आयु�(अपील)/ The CIT(A) िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, राजकोट/ DR, ITAT, RAJKOT गाड� फाईल/ Guard File By order/आदेश से, //True Copy//
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