M/S. KANAK PROJECTS LTD.,KOLKATA vs. A.C.I.T., CIRCLE - 8(1),, KOLKATA

आयकर अपीलȣय अͬधकरण, कोलकाता पीठ, कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA

SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
&
BEFORE SHRI SONJOY SARMA, JUDICIAL MEMBER
M/s Kanak Projects Ltd.

Salarpuria Jajodia @ Co.7,
Chittaranjan Avenue, Kol-72. Vs
ACIT, Circle-8(1), Kolkata
PAN No. : AABCK1255F
(अपीलाथȸ /Appellant)
..
(Ĥ×यथȸ / Respondent)

Ǔनधा[ǐरती कȧ ओर से /Assessee by :
Shri S. Jhajharia, AR
राजèव कȧ ओर से /Revenue by :
Shri Pankaj Pandey, JCIT, Sr. DR
सुनवाई कȧ तारȣख / Date of Hearing
:
09/09/2025
घोषणा कȧ तारȣख/Date of Pronouncement
:
08/12/2025
आदेश / O R D E R
PER SONJOY SARMA, JM :

This appeal by the assessee arises against the order dated
09.04.2025 of the National Faceless Appeal Centre (hereinafter referred to as the ‘CIT(A)’) passed under section 250 of the Income- tax Act, 1961 (the ‘Act’).
2. Brief facts of the case are that the assessee filed its original return of income for the assessment year under consideration declaring a total income of ₹99906480. The assessee subsequently filed a revised return declaring the same income. The case was selected for scrutiny and statutory notices under section 142(1) were served. In response, the assessee filed audited financial statements, computation of income, details of receipts and expenses, and explanations as called for. From the tax audit
M/s Kanak Projects Ltd.

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report, the Assessing Officer (AO) noticed that employees’
contribution to provident fund amounting to ₹28,356 had been deposited by the assessee beyond the due date prescribed under the Employees’ Provident Fund Act. Invoking section 2(24)(x) read with section 36(1)(va), the AO added the delayed deposit to the total income of the assessee. The AO further observed from the financial statements that the assessee had acquired a basement property in New Friends Colony, New Delhi during the relevant previous year. The assessee explained that the property was obtained pursuant to a family settlement and the assessee had incurred ₹10385700 towards development of the property. It had paid amount of ₹14614300 as reimbursement of expenses to the parties who were the owners of the land and the amount of ₹2.5
crore, shown in earlier years as advance, was adjusted against the purchase consideration on obtaining possession. The AO, however, doubted the genuineness of the family settlement on the ground that the property was not registered in the assessee’s name in earlier years, No valuation report was furnished and agreements executed between family members and the assessee created ambiguity regarding the nature of the transaction.
Accordingly the AO formed the view that the assessee acted as a property developer and that the amount of ₹2.5 crore represented turnover from a development project. He further held that developers in Delhi generally earn 15–20% profit margins; therefore, he applied an average rate of 17.5% to the alleged turnover of ₹2.5 crore and estimated profit of ₹43,75,000, which he added to the total income of the assessee. Accordingly, the AO assessed total income at ₹10,43,09,874. M/s Kanak Projects Ltd.

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3. Aggrieved assessee preferred an appeal before the ld. CIT(A) where the appeal of the assessee is partly allowed and regarding the addition of ₹43,75,000, the CIT(A) restricted to the extent of 10% of the turnover of Rs.2,50,00,000/- i.e. Rs.25,00,000/-.
4. The assessee, being aggrieved, has approached this Tribunal. The primary grounds raised by the assessee relate to the fact that the illegality of treating the purchase consideration of ₹2.5 crore as turnover and failure on the part of the AO to reject the books of account under section 145(3) of the Act before estimating profit, the addition made purely on suspicion, conjecture, and presumption. Therefore the sustaining the addition by the CIT(A) without independent reasoning. The learned
AR argued the amount of ₹2.5 crore was purchase consideration, not turnover as learned AO held while passing the Assessment
Order. Besides the AO made the addition without conducting any enquiry and no defect was pointed out in the books of account and, in absence of rejection of book of account under section 145(3) of Act , estimation of profit is contrary to law. He further stated that the family settlement and subsequent agreements were genuine, and reimbursements were duly reflected in books in earlier years. Therefore, the addition is baseless, arbitrary and violative of settled judicial principles.
5. On the other hand Ld. (DR) supported the order of the authorities below. However, when specifically asked, the DR could not dispute that the AO had not rejected the books of account, and that the amount of ₹2.5 crore was in fact recorded as purchase price and not as turnover.
M/s Kanak Projects Ltd.

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6. We have considered the rival submissions and perused the records we find that the in the present case of the assessee the Books of Account were not rejected under Section 145(3) of the act before estimating the profit. It is noteworthy that nowhere in the assessment order has the AO invoked section 145(3) of the Act to reject the books of account. The law is well settled that unless the books are first rejected under section 145(3) of the Act, the AO cannot estimate income, nor can he apply profit rates based on industry standards. Thus, any estimation of income without rejecting the books is per se unsustainable. Moreover, the assessee had shown the amount of ₹2.5 crore as advance in earlier years and, upon acquiring possession, adjusted it against the purchase price of the basement property. This is also supported by ledger extracts and agreements placed on record.
There is no evidence that ₹2.5 crore represents sales proceeds, turnover from a development project, or consideration received from third parties. Thus, the very foundation of the addition treating purchase price as turnover is erroneous. Therefore, the view taken by the ld. CIT(A) is mechanical and without application of mind. In the present case of assessee, the AO did not reject the books of account under section 145(3) of the Act and the amount of ₹2.5 crore represents purchase consideration, not turnover as alleged by the AO. Therefore, the addition of ₹43,75,000 is based purely on presumption and conjecture and profit estimation can never be made in isolation without rejecting books of Account.
Moreover, doing so the ld. CIT(A) without going into the facts of the case simply restrict the addition of Rs.25,00,000/- by treating purchase price of Rs.2,50,00,000/- as the turnover of the assessee which is totally unsustainable and bad in law. Accordingly, the Ld.
M/s Kanak Projects Ltd.

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CIT(A) failed to rectify these legal infirmities. Accordingly, we hold that the addition of ₹25,00,000 sustained by the CIT(A) is bad in law and liable to be deleted.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 08/12/2025. (RAJESH KUMAR) (SONJOY SARMA)
ACCOUNTANT MEMBER
JUDICIAL MEMBER

Ǒदनांक Dated: 08/12/2025
RS

आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER,

(