THE ACIT, CENTRAL CIRCLE-1, VADODARA vs. M/S. S.S. INFRA, VADODARA

Rs. (Ananta (Ananta 3,68,83,000 2,83,91,000 Swagatam – u/s Swagatam – (Ananta (Ananta 69A) u/s 69A) Swagatam – Swagatam – u/s 69A) u/s 69A) 3. Rs. 2,86,00,000 3. Rs. (Unexplained land 23,30,400 investment – u/s (Cash 69A) expenses – u/s 69C) Total Assessed 11,29,71,118/- 10,77,05,400/- 7,00,24,000/- 3,80,61,740/- Income in Rs.

The assessee carried the matter in appeal before the Ld. CIT(A). The Ld. CIT(A), after detailed examination of the seized documents, assessment records, submissions made, legal position, and considering judicial precedents on the issue of extrapolation of on-money, partly allowed the appeals.

Being aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before us for all the four years. The assessee has not filed any cross-appeal or cross-objection.

Following are the grounds of appeal filed by the Revenue:

We shall now proceed to adjudicate the common grounds of Revenue across all four assessment years. Grounds relating to Unaccounted Receipts / On-Money) 7. Under these grounds the Revenue has challenged the deletion or restriction of additions made on account of unaccounted cash receipts. During the search, various incriminating documents were seized, inter alia, from the back office of Ananta Group and other premises. The following annexures were specifically relied upon by the AO in the assessment proceedings: i. Annexure BS-3 and BS-18 (seized from Bhavani Nagar, GIDC Road), ii. Annexure BS-7 (seized from the back office of Ananta Group at Bhavani Nagar), and iii. Annexure A-1 (seized from Ananta Shreeji Niwas and other premises).

In particular, Annexure BS-7, Page 10 was treated as a crucial document as it contained coded entries relating to unaccounted cash receipts. The decoding method, applied by the Investigation Wing and adopted by the AO, involved multiplying the coded figures by 100. For example, an entry of “17,012” at S.No. 7 on Page 10 of BS-7 was decoded to reflect Rs.17,01,300 as unaccounted receipt from one customer. In support of the evidentiary value of these documents, the AO relied heavily on the IT(SS)A No.78 to 80 and 9 sworn statement of one Shri Karan Thapa, Sales Executive, recorded under section 131. He confirmed that part of the sale consideration was routinely received in cash from customers over and above the documented amount. He further identified entries in the seized materials as representing such on-money transactions. In the case of Ananta Savera, out of 94 villas (61 Type-A and 33 Type-B), 72 villas were found to be sold as on the date of the search. For 36 villas, the AO had complete documentary and customer-wise data. These documents reflected unaccounted receipts aggregating to Rs.7,53,80,999. For the balance 36 villas, the AO adopted an averaging method to estimate on-money. Based on this method, the average on-money per Type-A villa was Rs.23,26,038 and Rs.14,90,400 for Type-B villas. Applying these averages to the unsampled 25 Type-A and 11 Type-B villas, the AO worked out estimated on-money of Rs.7,45,45,350. The total unaccounted receipts thus worked out to Rs.14,99,26,349. However, after allocating the receipts to different assessment years based on booking dates and applying reverse Cost Inflation Indexation (CII) to determine correct year-wise sale prices, the AO finally added Rs.1,49,07,000 under section 69A in A.Y. 2015–16 in respect of Ananta Savera. Similarly, in the case of Ananta Swagatam, which comprised 326 units of varying typologies (duplexes and tenements across Blocks A to F), the AO relied on Annexure BS-7 (Pages 1 and 10), and BS-10 (Pages 34 and 36), which contained various coded entries indicating cash receipts. Applying decoding and corroborative analysis, the AO computed unaccounted receipts aggregating to Rs.8,27,47,199 for A.Y. 2015– 16. Statements of Shri Karan Thapa and partial customer-wise

Accordingly, the CIT(A) applied an embedded profit margin of 20% on the Rs.6.10 crore of verified on-money receipts, and sustained an addition of Rs.1,22,18,100 under section 69A for A.Y. 2015–16.

In regard to the statement of Shri Karan Thapa, the then Sales Executive of the assessee group, the CIT(A) exercised cautious judicial discretion. While noting that the statement contained general observations and claims of systematic receipt of on-money, the CIT(A) was of the view that such oral statements could not be given primacy unless they were independently corroborated by contemporaneous documentary material pertaining to the year in question. The CIT(A) therefore placed very limited reliance on the said statement, using it only as a corroborative indicator where direct documentary evidence existed. Lastly, the CIT(A) proceeded to delete all post-A.Y. 2015– 16 additions on the ground that those were founded solely on projection and extrapolation, without any seized document or corroboration for the relevant years. The CIT(A) emphasized that although the AO is not expected to prove every detail to perfection, some direct nexus to the year under assessment is essential under the scheme of section 153C.

On the other hand, the learned Authorised Representative (AR) for the assessee strongly supported the order passed by the learned CIT(A), contending that the appellate authority had rightly restricted the additions only to those amounts for which there existed specific incriminating material seized during the course of search. It was submitted that the additions sustained by the CIT(A) for A.Y. 2015–16 were solely based on deciphered documentary evidence found in the form of Annexures BS-7 and BS-10, and to that extent, the assessee had not disputed the underlying factual substratum. However, the AR asserted that the AO’s attempt to extend this data by means of extrapolation to subsequent years— namely A.Ys. 2016–17, 2017–18 and 2018–19—was wholly

After considering the detailed material on record, the well‑reasoned impugned assessments, the CIT(A)’s order, submissions of both parties, and applicable judicial precedents, we find that the CIT(A) correctly noted that specific decoded entries evidencing unaccounted cash receipts were available only for A.Y. 2015‑16, and none for subsequent years. The verified seized figures accepted by the CIT(A) were tabulated as follows:

Under Paras 6.17–6.18 of the CIT(A)’s order, the statement of Shri Karan Thapa recorded under section 131 was subjected to rigorous scrutiny. We agree with the CIT(A)’s evaluative approach. The reliance placed by the AO on the statement of Shri Karan Thapa is misplaced and unsustainable in law. Shri Thapa, being merely a sales executive, held a subordinate position within the organisational hierarchy and had no authority to negotiate or IT(SS)A No.78 to 80 and 18 finalise sale transactions. His statement, recorded under section 131 of the Act, consisted largely of generalised assertions regarding the alleged practice of receiving cash over and above the recorded sale consideration, without furnishing any specific customer-wise quantification or linking such assertions to the decoded entries in the seized documents. Critically, the Revenue has not brought on record any independent corroborative evidence, such as statements from the buyers, confirmation from the partners of the assessee-firm, or actual evidence of cash flow, to substantiate the claim that the on-money was actually received. In the absence of such supporting material, the statement of Shri Thapa cannot be relied upon as the sole basis for making substantive additions. It is well settled that statements recorded during search or post- search proceedings, without corroboration, do not possess conclusive evidentiary value. This principle, as noted by the CIT(A) in his order, has been emphatically laid down by the Hon’ble Supreme Court in the case of S. Khader Khan Son [(2012) 352 ITR 480 (SC)], and reaffirmed by the Hon’ble Kerala High Court in Paul Mathews & Sons [(2003) 263 ITR 101 (Ker)], holding that such uncorroborated oral statements cannot constitute the foundation for making additions under the Income Tax Act. While quantifying the addition, the CIT(A) proceeded to quantify the real income assessable under section 69A in a judicious and legally sound manner. As observed in para 7.1 of the order, the learned CIT(A) noted that the AO had quantified total on-money receipts for A.Y. 2015–16 at Rs.14,99,26,349 across the Ananta Savera and Ananta Swagatam projects. However, upon careful scrutiny, it was found that only Rs.6,10,90,501 was supported by seized documents and IT(SS)A No.78 to 80 and 19 corroborated by decoded entries and partial customer-wise details. Thereafter, in para 8 of the order, the CIT(A) recorded a categorical finding that taxing the entire gross receipt of Rs.6,10,90501/- as income would amount to assessment of turnover rather than the profit element embedded therein. The CIT(A) placed reliance on the well-settled legal position laid down by the Hon’ble Gujarat High Court and the Co-ordinate Bench ( as cited by the CIT(A) in Paras 6.10 to 6.12) where it was held that in cases involving unaccounted sales, it is only the profit component therein that can be brought to tax, and not the entire sales amount. In para 8.1, the CIT(A) proceeded to apply a net profit rate of 20% on the verifiable on- money receipts of Rs.6,10,90,501, which was considered to be a fair and conservative estimation considering the margins typically earned in the real estate business. The CIT(A) also relied on various judicial precedents where profit margin ranging from 8% to 16% was adopted. During the course of appellate proceedings, when queried as to why the assessee accepted a higher profit margin of 20%—despite judicial precedents suggesting acceptance of profit margins in the range of 8% to 16% in comparable cases, the learned AR submitted that the assessee chose to accept such estimation in order to buy peace of mind and bring finality to the long-drawn controversy. It was submitted that the assessee, while maintaining that only the embedded profit on verifiable on-money receipts could be brought to tax, did not press for further reduction in the profit percentage so as to avoid protracted litigation. This submission, in our considered view, further reinforces the bona fides of the assessee’s stand and lends credence to the reasonableness of the estimation adopted by the CIT(A).

In light of the foregoing discussion, we find no infirmity in the approach adopted by the CIT(A) in restricting the additions to Rs.1,22,18,100/- for A.Y. 2015–16, being 20% of the verifiable unaccounted cash receipts of Rs.6,10,90,501/-, and in deleting the extrapolated additions made for A.Ys. 2016–17, 2017–18 and 2018–19 in the absence of year-specific seized material. The reliance placed by the AO on the uncorroborated statement of the sales executive, Shri Karan Thapa, without any supporting inquiry from the partners or purchasers, and the application of a reverse indexation method lacking statutory or judicial backing, cannot sustain the additions beyond what is found in the seized documents. The CIT(A) has rightly applied the settled principle that only the embedded profit in unaccounted receipts can be brought to tax. We, therefore, uphold the findings and conclusion of the CIT(A) on this issue, and dismiss the Revenue’s grounds relating to unaccounted cash receipts. Ground relating to addition on account of alleged Unaccounted Land Investment – Rs. 2,86,00,000 [IT(SS)A No.78/Ahd/2021 - A.Y. 2015–16] 19. During the course of the search operation conducted at the premises of the assessee group, the Investigation Wing seized various documents from the Bhavani Nagar back office, including Annexures BS-7 and BS-9. In particular, the AO relied upon Page 56 of Annexure BS-9, which, according to him, indicated cash

The learned CIT(A), while examining this issue (refer paragraphs 6.20 to 6.22 of the common appellate order), noted that the same set of seized documents—including Pages 10 and 34 of BS‑7 and BS‑10—also revealed unaccounted cash receipts aggregating to Rs.6,10,90,501/- in the form of on-money received from flat buyers in the same assessment year. he CIT(A) held that when both cash inflows and outflows are discernible from the same group of seized material, a logical nexus can be inferred. In view of this, the CIT(A) accepted the assessee’s alternate plea of telescoping—that the alleged unaccounted land investment was met out of the unaccounted on-money receipts, particularly when such receipts were already taxed on the basis of embedded profit. The CIT(A) concluded that taxing the cash outflow separately, when the source had already been assessed, would result in double taxation, which is not permissible. Accordingly, the CIT(A) deleted the entire addition of Rs.2,86,00,000/- made under section 69 of the Act.

During the course of hearing, the learned DR relied heavily on the order of the AO, particularly paras 9.7 to 9.12, to argue that the alleged land payments were made prior to the period when the IT(SS)A No.78 to 80 and 23 on-money receipts arose. According to the DR, the time gap between land acquisition and sale transactions disentitles the assessee from claiming telescoping. It was submitted that the assessee had failed to produce any cogent evidence to establish a proximate nexus between the land payments and the alleged cash receipts. Hence, the DR contended that the CIT(A) erred in accepting the assessee’s explanation in absence of corroborative evidence and sought restoration of the addition.

The learned AR for the assessee opposed the addition of Rs.2,86,00,000/- made under section 69 on account of alleged cash payments for purchase of land at Moje Bil, which was purportedly used for development of the real estate projects “Ananta Savera” and “Ananta Swagatam.” The AR submitted that the very basis of the AO’s conclusion that the impugned cash payments represented initial investment made prior to the availability of on-money receipts, was factually erroneous. In this regard, the AR specifically invited attention to para 9.7 of the assessment order, wherein the AO has reproduced a detailed date- wise chart of the alleged cash payments based on page no. 56 of seized Annexure BS-9. This chart clearly demonstrates that all twelve payments aggregating to Rs.2.86 crore were made during the financial year 2014–15, relevant to A.Y. 2015–16, the very year in which the on-money receipts have been assessed to tax. The AR thus contended that there was no temporal disconnect between the receipt and application of funds, and the AO's observation that these were “initial investments” made in earlier years is factually unsustainable. Further, the AR submitted that once the Revenue has brought to tax the source of such funds (i.e., on-money

We have carefully considered the rival submissions, the material placed on record, and the detailed orders passed by both the AO and the learned CIT(A). The core issue for adjudication under these grounds is whether the sum of Rs.2,86,00,000/-, alleged to have been paid in cash for the purchase of land used in the assessee’s real estate projects—namely Ananta Savera and Ananta Swagatam—can be treated as unexplained investment under section 69 of the Act, despite the assessee’s explanation that such payments were made out of on-money receipts which have already been brought to tax in the same year. The AO, in para 9.7 to 9.12 of the assessment order for A.Y. 2015–16, has based the addition on entries recorded on page 56 of seized Annexure BS-9, which contains date-wise noting of cash payments aggregating to Rs.2.86 crore. The AO has noted that the payments were made in financial year 2014–15, though the registered sale deeds for the corresponding land parcels were executed in subsequent years. The AO further proceeded on the footing that these payments represented initial capital investment, allegedly made prior to the generation of unaccounted sale receipts, and accordingly held the same to be unexplained in the hands of the assessee, not eligible for telescoping. However, we find that this assumption of the AO is IT(SS)A No.78 to 80 and 25 not borne out from the factual record. As rightly pointed out by the learned Authorised Representative, the entire sum of Rs.2.86 crore was paid between April 2014 and August 2014, squarely falling within financial year 2014–15, which is relevant to the very assessment year 2015–16, in which the unaccounted on-money receipts from the sale of villas and flats in the two projects have been brought to tax. The AO himself has taxed on-money receipts of Rs.1,49,07,000/- for Ananta Savera and Rs.8,27,47,199/- for Ananta Swagatam in A.Y. 2015–16, aggregating to Rs.9,76,54,199/-, based on seized material including Annexure BS-7 and BS-10. Having already taxed the source (i.e., on-money receipts), the AO cannot, in absence of contrary evidence, deny credit for application of funds toward land acquisition made during the same year, especially when the assessee has directly explained the application from that very source. The presumption of unexplained investment under section 69 cannot be invoked when the source is clearly traceable to income already taxed in the hands of the assessee. Furthermore, we find no rebuttal by the Revenue to the assessee’s specific claim that these land payments were made out of unaccounted receipts already taxed. There is no material brought on record to show that the cash payments emanated from any independent or unexplained source. Nor has the AO shown that the timing or quantum of the payments was inconsistent with the flow of receipts assessed in the same year.

The learned CIT(A), in our considered view, has rightly appreciated the factual matrix and allowed the assessee's claim by observing that taxing the land payments separately under section 69 would result in double taxation of the same income, once as IT(SS)A No.78 to 80 and 26 unaccounted receipts and again as unexplained investment. The CIT(A) has further noted that the explanation of the assessee was not only plausible but supported by the very evidence relied upon by the AO i.e., seized Annexure BS-9 and BS-7, the cash flow pattern, and the admitted fact that the land transactions were executed for the same real estate projects for which on-money receipts were assessed. Accordingly, we find no infirmity in the decision of the CIT(A) in deleting the addition of Rs.2,86,00,000/- made under section 69 of the Act. The conclusion reached is not only consistent with the facts and evidence on record but also in conformity with well-established legal principles governing telescoping and avoidance of double taxation. We accordingly uphold the order of the CIT(A) on this issue and dismiss the Revenue’s ground.

This ground pertains to the Revenue’s challenge to the deletion of an addition of Rs.23,30,400/- made under section 69C of the Act by the AO in A.Y. 2018–19. The said addition was based on the notings found in cash vouchers and loose sheets seized during the search and seizure action conducted under section 132 of the Act at the residential premises of Shri Nilay Chotai, one of the group functionaries, located at Plot No. 75, Ananta Shreeji Niwas, B/h. Utopian Center, Gori Sevasi Road, Ankodia, Vadodara. During the course of assessment proceedings, the AO referred to these seized documents, which were impounded and IT(SS)A No.78 to 80 and 27 marked as Annexure A-1, and inferred that the same reflected cash payments allegedly made by the assessee firm toward expenses relating to construction of certain bungalows in the Ananta Savera project. Since no corresponding entries were found in the books of account, and no proper explanation was offered by the assessee to reconcile the same, the AO treated the aggregate sum of Rs.23,30,400/- as unexplained expenditure under section 69C and added it to the total income of the assessee.

Before the learned CIT(A), the assessee challenged the correctness of the addition of Rs.23,30,400/- on multiple grounds. It was submitted that the vouchers relied upon by the AO were not in the name of the assessee and bore no reference linking the purported payments to the assessee’s books of account or business operations. The assessee further clarified that the said vouchers appeared to relate to certain site-level expenses incurred in connection with the construction of a bungalow, but no such construction activity was undertaken by the assessee under the Ananta Savera project. According to the assessee, the references found in the seized vouchers pertained to a private or personal project, possibly relating to an individual, Shri Nilesh Chotai, and could not be attributed to the business or projects of the assessee firm. In the absence of a direct and cogent nexus between the impugned documents and the assessee’s affairs, it was contended that no addition was legally permissible in the hands of the assessee.

The CIT(A), after considering the material on record and examining the seized documents in question, concurred with the IT(SS)A No.78 to 80 and 28 assessee’s position. It was observed that the identity of the person to whom the cash payments were allegedly made was neither established nor verified by the AO. The vouchers in question did not contain the name of the assessee, and no effort was made to demonstrate how or in what manner the amounts reflected in such documents were connected with the business activity or real estate projects of the assessee. The CIT(A) held that the absence of any corroborative material linking the seized notings to the assessee’s accounts or operations was a serious flaw. In such circumstances, where the documents were recovered from a third-party residential premise and lacked any direct linkage to the assessee, the addition based solely on assumption or presumption could not be sustained. Accordingly, the CIT(A) deleted the addition of Rs.23,30,400/- made under section 69C of the Act.

During the course of hearing before us, the learned DR supported the action of the AO. The DR submitted that the seized vouchers, though recovered from the residence of Shri Nilesh Chotai, pertained to cash expenses incurred in connection with the Ananta Savera project, as evident from noting therein. The DR contended that the assessee failed to furnish any satisfactory explanation or documentary evidence to rebut the inference drawn by the AO from such material, and the absence of the assessee's name on the vouchers did not ipso facto discredit the evidentiary value of the documents when viewed in the context of the search. On the other hand, the learned AR for the assessee supported the order passed by the CIT(A) and submitted that the CIT(A) had correctly appreciated the facts and legal position. It was IT(SS)A No.78 to 80 and 29 emphasised that the seized vouchers neither bore the name of the assessee nor were they linked to the books or projects of the assessee firm. The AR reiterated that the Ananta Savera project did not include construction of any such bungalow, and the documents were unrelated to the assessee’s business. In absence of a clear nexus between the seized material and the assessee, no valid addition could be made in its hands. The AR, therefore, urged that the deletion of the addition by the CIT(A) be upheld.

We have considered the rival submissions, the material placed on record, and the findings of the lower authorities. The addition of Rs.23,30,400/- made by the AO under section 69C of the Act pertains to cash expenses allegedly incurred for construction of a bungalow in the Ananta Savera project. The basis of the addition is a bundle of loose vouchers found and seized during the search from the residential premises of one Shri Nilay Chotai (Plot No. 75, Ananta Shreeji Niwas), a person said to be connected with the larger Ananta Group. These vouchers listed various cash payments to carpenters, interior decorators, masons, and contractors, dated 14.10.2017. As noted in the assessment order (Para 9.3), the AO issued a show cause notice to the assessee to explain the nature and source of the cash payments, failing which the same would be added as unexplained expenditure under section 69C. The assessee, vide reply dated 27.12.2019, submitted that these transactions could not be attributed to it, and further pointed out that the seized vouchers did not carry its name, were not recorded in its books, and appeared to pertain to a personal project or other group entity. It was also submitted that, in any IT(SS)A No.78 to 80 and 30 case, the cash flow between various entities of the Ananta Group was often intermingled, and that a large number of firms within the group had approached the Hon’ble Income Tax Settlement Commission. The AO, in paras 9.4 to 9.6 of the assessment order, rejected this explanation, observing that the matter had not been admitted by the Settlement Commission and that the assessee had failed to discharge its statutory burden under section 69C. The AO thus concluded that the said expenditure remained unexplained and added Rs.23,30,400/- to the total income. Before the CIT(A), the assessee reiterated that the vouchers were not in its name, did not pertain to any expenditure recorded or incurred by it, and that no nexus had been established by the AO between the impugned payments and its projects. The CIT(A), upon perusal of the seized vouchers, found that they did not bear the name of the assessee, nor did the AO bring any material on record to establish that the expenditure was actually incurred by the assessee firm. The CIT(A) held that the identity of the payees was not proved, the source of cash was not established, and no linkage was drawn with the assessee’s books of account or its construction activity. The CIT(A), therefore, deleted the addition.

We find no infirmity in the decision of the CIT(A). The documents forming the basis of the addition were found from a third party’s residence and lacked any express or implied connection to the assessee’s business. The AO has not examined the person from whose premises the vouchers were recovered, nor made any enquiry with the listed payees to establish whether the payments were made by or for the assessee firm. There is no IT(SS)A No.78 to 80 and 31 corroboration by way of entries in the assessee’s books or statements of its partners. In such a situation, the presumption that the impugned expenditure was incurred by the assessee is not legally sustainable. In the absence of nexus between seized documents and the assessee’s income or business, mere possession or recovery of such documents does not ipso facto justify an addition under section 69C.

In light of these facts, we are in agreement with the view taken by the CIT(A). The AO has failed to establish that the cash expenses reflected in the seized vouchers were incurred by the assessee firm. Accordingly, the addition of Rs.23,30,400/- made under section 69C cannot be sustained. The ground raised by the Revenue is dismissed.

In the result, for the detailed reasons recorded above while adjudicating each of the grounds, all the grounds raised by the Revenue in these appeals for the assessment years 2015–16 to 2018–19 stand dismissed. Accordingly, all the appeals filed by the Revenue are dismissed.