ACIT CENTRAL CIRCLE 1(3), AHMEDABAD, AHMEDABAD vs. RAKESHKUMAR MAHENDRAKUMAR SHAH , AHMEDABAD

The Department has raised the following grounds of appeal: “1) In the facts and on the circumstances of the case and in law, the ld. CIT(A) has erred in considering Rs. 12,22,36,163/- as business income as against undisclosed income under Section 69A and 69B of the Act without appreciating the specific finding of the assessment order ignoring that this amount represented seizure of cash amounting to Rs.11,84,34,650/- and jewellery amounting to Rs.3,35,80,173/- found during the course of search u/s. 132 of the Act.

The assessee has raised the following grounds of appeal: “1. In law and in the facts and circumstances of the appellant’s case, the Hon’ble CIT(A)-11 has grossly erred in upholding the order of assessment dated 20.03.2024 passed in the concerned assessment year.

In law and in the facts and circumstances of the appellant’s case, the Hon’ble CIT(A)-11, has grossly erred in upholding the validity of assessment proceedings initiated under section 143(3) of the Income Tax Act, 1961 even whereas such proceedings are bad- in-law.

In law and in the facts and circumstances of the appellant’s case, the Hon’ble CIT(A)-11 has grossly erred in treating an amount of Rs. 50,00,000/- as brokerage income instead of GAP income as already disclosed in the return of income filed.

The appellant craves to add, amend, alter or withdraw any ground either before or at time of the appeal hearing.”

The brief facts of the case are that the assessee filed his original return of income on 21.10.2022 under section 139(1) of the Act declaring income of Rs.14,73,11,550/-, which was processed under section 143(1) of the Act. A search action under section 132 was carried out on ITA Nos. 1713&1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Asst. Year–2022-23 - 3–

03.2022 in the Urmin Group and its key associates, including at the residential premises of the assessee, where substantial incriminating material in the form of loose sheets, WhatsApp chats and other digital data was found and seized. Upon examination of this material, the Department concluded that several land/property transactions pertained to the assessee, and cash of Rs.11,84,34,650/-, jewellery valued at Rs.3,35,80,173/- and U 18,700 were found and seized from his residence and lockers. Notices under sections 143(2) and 142(1) were issued on various dates, namely 04.10.2023, 14.08.2023, 22.08.2023, 09.01.2024, 18.01.2024 and 21.02.2024, calling for explanations from the assessee. Though several opportunities were provided, the assessee filed delayed and non-specific replies and avoided answering transaction-wise queries, compelling the Assessing Officer to complete the assessment based on the seized material, statements recorded and available records.

1 During the search proceedings, the assessee’s statement under section 132(4) was recorded on oath on 08.03.2022, 09.03.2022 and 10.03.2022. In these statements, as reproduced in the assessment order, the assessee admitted that he had been facilitating land/property deals since 2018 and earned brokerage income at the rate of 1% from both buyer and seller, and the assessee stated that he had earned brokerage of Rs. 7,06,86,000/- since 2018, much of which was retained in cash. He further confirmed that significant cash was kept at his residence and that relevant land deals included the Rancharda lands (Survey Nos. 743 and 1093) and Mulsana land parcels. At the time of recording, the assessee did not express

2 With respect to the undisclosed brokerage income, the Assessing Officer reproduced the exact answers given under section 132(4), where the assessee voluntarily admitted earning brokerage since 2018. Relying on this admission, the AO held that the assessee had consistently charged 1% brokerage from both sides in each land transaction. Based on seized WhatsApp chats showing at least 41 land/property deals, the ITA Nos. 1713&1724/Ahd/2024 ACIT Vs. Rakeshkumar Mahendrakumar Shah & Asst. Year–2022-23 - 5–

3 As regards the cash, jewellery and foreign currency found and seized, the assessee contended that these were sourced from land trading and GAP income, yet admitted in the affidavit that he had no records of any such land trading or any land from which such income was allegedly derived. He further admitted that transactions were mostly done “on trust” and often without written documentation. The AO held that the assessee failed to provide even a single evidence such as farmer confirmations,

4 The AO therefore re-characterised the returned income of Rs. 14,73,11,550/- by holding that Rs. 2,50,75,387/- represented brokerage income chargeable under section 28 of the Act, comprising Rs. 19,00,000/- from KCL House (admitted by the assessee), Rs. 50,00,000/- from Rancharda Land, and Rs.1,81,75,387/- from Mulsana Land. The balance Rs. 12,22,36,163/- was held to be unexplained money or investment. The total assessed income was assessed at Rs.14,73,11,550/-, and penalty proceedings under sections 271AAB and 270A were initiated.

In appeal before CIT(Appeals), the assessee challenged the additions made by the Assessing Officer on the basis of seized material, the statements recorded under section 132(4) of the Act, and the rejection of the assessee’s subsequent retraction affidavits. The CIT(Appeals) noted that although Ground No. 1 questioned the validity of the assessment order under section 143(3) of the Act, no specific submissions were filed during

1 With respect to Grounds 3 and 4, which concerned the addition of Rs. 1,81,75,387/- on account of alleged brokerage income from the Mulsana land transaction and the addition of Rs. 12,22,36,163/- under sections 69A and 69B of the Act, the CIT(Appeals) examined the assessment order and the record of search in detail. He noted at the outset that during the search at the assessee’s premises, substantial cash, jewellery and foreign currency were found and that in the return of income the assessee had already disclosed Rs. 14,73,11,550/- comprising Rs. 19,00,000/- as brokerage income and Rs. 14,50,00,000/- as land trading and GAP income. The Assessing Officer, however, treated Rs. 2,50,75,387/- as brokerage income including brokerage attributed to Rancharda and Mulsana properties, and treated the balance amount of Rs. 12,22,36,163/- as unexplained income assessable under sections 69A or 69B. The CIT(Appeals) observed that although the AO referred broadly to digital evidences and WhatsApp chats indicating forty-one property transactions, the assessment order did not rely on any specific incriminating document establishing unexplained investment or unexplained money. Instead, the AO placed primary emphasis on the assessee’s statement under section 132(4) of the Act.

2 The CIT(Appeals) then examined the assessee’s affidavits dated 21.04.2022 (filed before the AO on 20.10.2022) and 12.01.2024. He held that these affidavits were not in the nature of a retraction of income disclosed during search but were clarificatory statements explaining that the assessee was engaged in land trading and GAP-based transactions rather than brokerage transactions in the strict sense, and that the cash and jewellery found represented business income earned through such dealings. The CIT(Appeals) rejected the AO’s assertion that the affidavits were afterthoughts or that they lacked authenticity, noting that the assessee had not denied the ownership of cash or jewellery but had merely explained the correct nature of income. The CIT(Appeals) also held that if the AO intended to rely on the statement recorded under section 132(4) of the Act, the statement had to be read as a whole and not selectively, relying on the principles laid down by the Hon’ble Gujarat High Court in Glass Lines Equipments Co. Ltd. v. CIT (119 Taxman 813) and Navjivan Oil Mills v. CIT (124 Taxman 392), wherein it was held that a document must be read integrally and cannot be used piecemeal.

3 The CIT(Appeals) observed that in the assessee’s statement under section 132(4), the assessee repeatedly stated that the cash and jewellery found belonged to him and were earned from dealings in immovable properties, described by him as brokerage in the ordinary sense. This, according to the CIT(Appeals), aligned with the concept of GAP or margin income that brokers routinely earn by negotiating between buyers and sellers. He found force in the assessee’s explanation that land traders

4 After considering the evidence and circumstances, the CIT(Appeals) held that the AO was not correct in treating Rs. 12,22,36,163/- as unexplained income under sections 69A or 69B of the Act, because the assessee had already disclosed this amount as business income under section 28 of the Act. The CIT(A) held that the presence of substantial cash and jewellery, combined with the assessee’s repeated admission during search that such assets emanated from dealings in land, supported the stand that the income was from business activities of land trading and not unexplained sources. He therefore directed the AO to treat the entire amount of Rs. 14,50,00,000/- disclosed as land trading/GAP income as business income under section 28, and not as unexplained income under sections 69A or 69B.

5 Turning to the brokerage additions, the CIT(Appeals) distinguished between the Rancharda and Mulsana transactions. Regarding the Rancharda lands (Survey Nos. 743 and 1093), the assessee had in his

6 As a result, the CIT(Appeals) directed that Rs. 50,00,000/- alone be treated as brokerage income under section 28 and that the balance of Rs. 14,00,00,000/- be taxed as land trading/GAP income, both forming part of business income. Grounds concerning penalties under sections 271AAB and 270A were held to be premature and dismissed, and the general ground was also dismissed. The appeal was accordingly partly allowed.

7 Both the assessee and Department are in appeal before us against the order passed by CIT(Appeals). The Department is in appeal before us

We have heard the rival contentions and perused the material on record.

On careful consideration of the rival submissions, the material placed on record, the detailed findings in the assessment order as well as that of the CIT(Appeals), and applying the settled legal position emerging from the authorities cited before us, we find no infirmity in the well- reasoned conclusions drawn by the CIT(Appeals). The Assessing Officer proceeded mainly on the basis of the assessee’s statement recorded under section 132(4) of the Act and on general references to digital material without identifying any specific incriminating document evidencing unexplained investment or unexplained money. The CIT(Appeals), on the other hand, has examined the record in a balanced manner and has rightly held that the seized assets and cash were already disclosed as business income of the assessee and that the Assessing Officer had not brought any corroborative evidence to justify the invocation of deeming provisions under sections 69A or 69B of the Act.

1 We find that the CIT(Appeals) has correctly appreciated the ratio of judicial precedents which consistently hold that a mere statement, without corroboration, cannot form the sole basis for additions under deeming provisions, such as the judgment of the Hon’ble Madras High

2 The CIT(Appeals) has also applied the correct principles relating to the treatment of income arising from land-related transactions, particularly in situations where the assessee has admitted that the assets represent business income generated through land deals negotiations. The CIT(Appeals) has rightly found that there was no separate material showing unexplained sources and that the seized cash and jewellery were already subsumed in the assessee’s declared land trading/GAP income. This view is fortified by the Chandigarh Tribunal decision in DDK Spinning Mills v. DCIT [2023] 157 taxmann.com 817 (Chandigarh- Trib.), wherein it was held that when the assessee has already offered the surrendered amount as business income and when there is no independent material showing any unexplained investment exceeding

3 Similarly, the Bangalore Bench in Ramachandra Setty & Sons (supra) held that excess stock or assets found during search, where the assessee is engaged in a single known line of business and no other sources are detected, must be treated as business income and cannot be reclassified as unexplained investment under section 69B, unless independently corroborated. The CIT(Appeals) has applied this principle while holding that the assessee’s declared land trading/GAP income was to be taxed under section 28 and not under sections 69A or 69B read with section 115BBE.

4 With respect to brokerage additions, the CIT(Appeals) has differentiated the Rancharda and Mulsana transactions on sound reasoning. As regards Rancharda, there was a clear admission of having received Rs. 25,00,000/- each from the buyer and seller, with no contrary affidavit or evidence. Thus, sustaining the addition of Rs. 50,00,000/- was justified. As regards the Mulsana land transaction, however, the CIT(Appeals) noted that no admission of brokerage was ever made, and that the Assessing Officer adopted a mechanical 1% formula, unsupported by any document or third-party confirmation. This conclusion of the CIT(Appeals) is entirely in line with the principle stated in Glass

5 In view of the above settled legal position, and finding that the CIT(Appeals) has thoroughly examined the evidentiary record, applied correct legal tests, and drawn conclusions that are balanced, reasonable and fully supported by judicial authority, we find no justification to interfere with his findings. The Department’s appeal challenging the deletion of the addition relating to Mulsana brokerage and the treatment of Rs. 14,50,00,000/- as unexplained income under Section 69A and 69B of the Act is without merit. Likewise, the assessee’s appeal challenging the sustenance of Rs. 50,00,000/- as brokerage income is also devoid of merit, since the CIT(Appeals) has relied on the assessee’s own categorical admission and the absence of any contrary evidence.

Accordingly, both the appeal of the Department as well as the appeal of the assessee stand dismissed, and the order of the CIT(Appeals) is hereby affirmed in toto. This Order pronounced in Open Court on 16/12/2025 (DR. BRR KUMAR) JUDICIAL MEMBER Ahmedabad; Dated 16/12/2025