THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), AHMEDABAD vs. SHRI KAILASH RAMAVATAR GOENKA, AHMEDABAD

Particulars A.Y. 2016- A.Y. 2017- A.Y. 2018-9 A.Y. 2019- Total 17 18 20 Unaccounted on Money 11,77,25,900 25,78,79,409 47,63,87,060 24,73,11,320 1,09,93,03,689 Receipts Unaccounted Expenses 13,30,54,407 23,56,97,233 47,33,86,785 22,15,26,118 1,06,44,45,543 Total 25,07,80,307 49,35,76,642 94,97,73,845 46,88,37,438 2,16,37,49,232 3.1. In reply to the notice of AO, the assessee provided a summary of categorized working of unaccounted receipts and payments which is presented below:

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

Receipts A.Y. 2016- A.Y. 2017- A.Y. 2018-9 A.Y. 2019- Total 17 18 20 1. Silver Harmony - A-902 - Advance - - 74,92,000 - 74,92,000 2. Internal Circulation of Funds 7,21,80,220 12,18,20,000 29,76,27,650 19,71,65,320 68,87,93,190 3. Plot Improvement Receipts - 5,80,05,600 2,85,00,000 3,17,35,000 11,82,40,600 4. Unexplained Receipts 4,55,45,680 7,80,53,809 14,27,67,410 1,84,11,000 28,47,77,899 5. Personal Expenditure - Total Receipts 11,77,25,900 25,78,79,409 47,63,87,060 24,73,11,320 1,09,93,03,689 Payments 1. Silver Harmony - A-902 - Purchases and 4,80,000 - 12,27,604 24,66,410 41,74,014 Improvement Expenses

3.3. Notices under Section 153A of the Act were issued, requiring the assessee to file returns for multiple years. Accordingly, the assessee filed returns of income, and the assessments were completed by the AO. The Summary of return filed, additions made and income assessed is given below:

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 Sr Particulars A.Y. 2016-17 A.Y. 2017-18 A.Y. 2018-19 A.Y. 2019-20 Total Income as per 1 original return of 1,90,62,210 85,85,650 1,71,38,860 1,78,02,440 income Date of filing 2 Original Return of 30-Sep-2016 17-Oct-2017 28-Sep-2018 30-Sep-2019 Income Total Income as per return of income 3 1,90,62,210 85,85,650 1,71,38,860 NA filed in response to notice u/s 153A Additions on 4 account of - - Unaccounted cash receipts in respect A 12,83,92,220 13,33,20,000 49,03,02,650 31,62,65,320 of internal circulation of funds - Personal b 1,35,03,507 Expenditure 75,80,255 60,61,749 30,95,708 - Unaccounted cash expenses in respect c of A-902, Silver 4,80,000 NIL 12,27,604 24,66,410 Harmony - Unaccounted cash investment in d respect of A-902, NIL NIL 74,92,000 NIL Silver Harmony - Unexplained e expenditure u/s NIL 4,68,00,000 30,00,000 10,00,000 69C - Unaccounted cash investment in f 3,38,050 3,14,74,000 2,30,06,000 respect of Kharoj 6,02,000 and Shilpgram - Unaccounted cash Receipts in respect g NIL 5,80,05,600 2,85,00,000 3,17,35,000 of Kharoj and Shilpgram - Unaccounted cash h 4,55,45,680 7,80,53,809 14,27,67,410 1,84,11,000 receipts - Unaccounted cash i 4,64,61,650 7,45,07,478 14,46,47,732 1,94,62,000 payments Total Assessed 5 25,67,83,317 39,25,26,792 86,11,44,005 45,66,39,878 Income 6 Rounded off 25,67,83,320 39,25,26,790 86,11,44,000 45,66,39,880

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 3.4. In case of additions relating to unaccounted cash receipts and expenses including investments, the AO calculated the tax as per the provisions of section 115BBE of the Act.

4. The assessee preferred an appeal before CIT(A). The CIT(A) provided relief in areas involving double taxation and adopted a pragmatic approach by confirming selective additions based on profits. The CIT(A) identified and dealt with the following categories of transactions in his order: • Transactions Related to Immovable Properties: Unaccounted sale of immovable properties, including land parcels and flats, with receipts of on-money (unrecorded cash). These were related to properties such as Khoral Land (Survey 38/1/1), Shilpgram Land (Jaspur - 651) and Flat advances for A-902 Silver Harmony. The CIT(A) concluded that the transactions were capital in nature and are to be taxed under capital gains. The CIT(A) allowed deduction for unaccounted expenses related to these transactions for calculating taxable gains and restricted indexation benefits to the year of receipt of sale consideration. • Internal Circulation of Funds: Such transactions include Fund transfers within group entities treated as unexplained income by the AO. The CIT(A) recognised these as internal fund movements and treated as not taxable income. The CIT(A) deleted the entire addition to prevent repetitive taxation. • Unexplained Cash Receipts and Payments: Seized documents showed unexplained cash receipts and payments, not recorded in books of accounts. AO added the gross receipts as income, without considering the related expenses or fund circulation. The CIT(A) deleted fund circulations within the group entities to avoid double taxation and applied a 30% profit rate on unexplained cash receipts instead of taxing the gross amount. These amounts also included unaccounted franchise fees and royalty income related to hospitality businesses which were identified as part of unaccounted receipts and taxed only the profit element embedded in these transactions along with other unaccounted receipts.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

• Personal Expenditure: Such transactions include Purchase of Gold, Home Renovations and other miscellaneous expenses. The CIT(A) concluded that these expenditures were funded from unaccounted income already taxed during assessments and deleted additions to avoid double taxation. 5. Aggrieved by the order of CIT(A), both assessee and revenue are in appeals with following grounds of appeal(s):

I. Grounds of Appeal in IT(SS)A No.1/Ahd/2023 for AY 2016-17 (Assessee’s appeal):

“1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer which are not emanating from any of the incriminating material found during the search.

3. The learned CIT(A) has erred in law and on facts of the case in not accepting the peak balance theory with respect to alleged unexplained receipts and payments found during the search proceedings.

4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 79,26,000/- by estimating profit margin at the rate of 30% of the gross receipts. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. Grounds of Appeal

5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

II. Grounds of Appeal in IT(SS)A No.2/Ahd/2023 for AY 2017-18 (Assessee’s appeal):

“1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer which are not emanating from any of the incriminating material found during the search.

3. The learned CIT(A) has erred in law and on facts of the case in not accepting the peak balance theory with respect to alleged unexplained receipts and payments found during the search proceedings.

4. The learned CIT(A) has erred in law and on facts of the case in confirming addition of Rs. 1,67,91,000/- by estimating profit margin at the rate of 30% of the gross receipts. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

III. Grounds of Appeal in IT(SS)A No.3/Ahd/2023 for AY 2018-19 (Assessee’s appeal):

“1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer which are not emanating from any of the incriminating material found during the search.

3. The learned CIT(A) has erred in law and on facts of the case in not accepting the peak balance theory with respect to alleged unexplained receipts and payments found during the search proceedings.

4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 3,50,93,295/- by estimating profit margin at the rate of 30% of the gross receipts. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

IV. Grounds of Appeal in for AY 2019-20 (Assessee’s appeal):

“1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer which are not emanating from any of the incriminating material found during the search.

3. The learned CIT(A) has erred in law and on facts of the case in not accepting the peak balance theory with respect to alleged unexplained receipts and payments found during the search proceedings.

4. The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 54,19,596/- by estimating profit margin at the rate of 30% of the gross

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 receipts. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

6. The learned CIT(A) has erred in law and on facts of the case in not accepting the contention of the appellant that the amount of Rs. 1,00,00,000 received from Mr. Pawan Jalan was part of internal circulation and therefore, not unexplained receipt at all.

7. Alternatively and without prejudice, such a sum of Rs.1,00,00,000/- ought to have been treated as gross receipts and only a profit element embedded therein ought to have been brought to tax.

8.Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

9. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

10. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

V. Grounds of Appeal in IT(SS)A No.5/Ahd/2023 for AY 2016-17 (Revenue’s appeal):

“1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 12,83,92,220/- made on account of cash receipts in respect of internal circulation of funds, holding that the said amounts has merely changed hands within the group persons and the same have already tax in the hands of respective entities, without appreciating the fact that during the course of assessment proceedings the assessee has failed furnish the cash flow statement and also several entries are not pertained to group entities, but outside parties.

2 In the facts and on the circumstances of the case and in law, the Ld. CIT(A) in deleting the addition towards unaccounted receipts of Rs.3,76,19,680/- out of total addition of Rs. 4,55,45,680/-.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash payments (expenses) u/s 69C of Rs.4,64,61,650/- after giving set off of unaccounted income in the form cash receipts.

4. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash expenses u/s 69C of Rs. 30,00,000/- after giving set off of unaccounted income in the form cash receipts.

5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained expenses towards personal expenditure of Rs. 1,35,03,507/-.

6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unaccounted cash expenses in respect of A- 902 Silver Harmony of Rs.4,80,000/-.

7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unaccounted investment in respect of Khoraj and Shilpgram of Rs.3,38,050/-.

8. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in calculating capital gain after providing benefit of indexation to the assessee as on the unaccounted on-money payments to the seller for acquiring the plots, Shilpgram, Jaspur 651 and Khoraj Survey 381/1 and received on-money on sale of said plots.

9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

10. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.”

VI. Grounds of Appeal in IT(SS)A No.6/Ahd/2023 for AY 2017-18 (Revenue’s appeal):

“1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 13,33,20,000/- made on account of cash receipts in respect of internal circulation of funds, holding that the said amounts has merely changed hands within the group persons and the same have already tax in the hands of respective entities, without appreciating the fact that during the course of assessment proceedings the assessee has failed furnish the cash flow statement and also several entries are not pertained to group entities, but outside parties.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) in deleting the addition towards unaccounted receipts of Rs.6,02,62,809/- out of total addition of Rs.7,80,53,809/-.

3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash payments (expenses) u/s 69C of Rs. 7,45,07,478/- after giving set off of unaccounted income in the form cash receipts.

4. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash expenses u/s 69C of Rs. 10,00,000/- after giving set off of unaccounted income in the form cash receipts.

5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained expenses towards personal expenditure of Rs. 75,80,255/-.

6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the total addition to Rs. 1,43,82,753/-, out of addition of Rs.3,14,74,000/- towards unaccounted investment and addition of Rs.5,80,05,600/- towards on money receipts in Khoraj and Shilpgram land.

7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in calculating capital gain after providing benefit of indexation to the assessee as on the unaccounted on-money payments to the seller for acquiring the plots, Shilpgram, Jaspur 651 and Khoraj Survey 381/1 and received on-money on sale of said plots.

8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

9. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.”

VII. Grounds of Appeal in IT(SS)A No.7/Ahd/2023 for AY 2018-19 (Revenue’s appeal):

“1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.49,03,02,650/- made on account of cash receipts in respect of internal circulation of funds, holding that the said amounts has merely changed hands within the group persons and the same have already tax in the hands of respective entities, without appreciating the fact that during the course of assessment proceedings the assessee has failed furnish the cash flow statement and also several entries are not pertained to group entities, but outside parties.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) in deleting the addition towards unaccounted receipts of Rs. 10,76,74,115/- out of total addition of Rs. 14,27,67,410/-.

3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash payments (expenses) u/s 69C of Rs. 14,46,47,732/- after giving set off of unaccounted income in the form cash receipts.

5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.74,92,000/- on account of cash investment in A- 902, Silver Harmony.

6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of unaccounted cash expenses of Rs. 12,27,604/- in A-902, Silver Harmony.

7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of on-money receipts of Rs. 2,85,00,000/- in Khoraj and Shilpgram.

8. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition for payment of Rs. 2,30,60,000/- u/s 69 of the Act in Khoraj and Shilpgram

9. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in calculating capital gain after providing benefit of indexation to the assessee as on the unaccounted on-money payments to the seller for acquiring the plots, Shilpgram, Jaspur 651 and Khoraj Survey 381/1 and received on- money on sale of said plots.

10. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

11. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.”

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

“1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.31,62,65,320/- made on account of cash receipts in respect of internal circulation of funds, holding that the said amounts has merely changed hands within the group persons and the same have already tax in the hands of respective entities, without appreciating the fact that during the course of assessment proceedings the assessee has failed furnish the cash flow statement and also several entries are not pertained to group entities, but outside parties.

2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) in deleting the addition towards unaccounted receipts of Rs. 1,29,91,404/-out of total addition of Rs. 1,84,11,000/-.

3. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained cash payments (expenses) u/s 69C of Rs. 1,94,62,000/- after giving set off of unaccounted income in the form cash receipts

4 In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained expenses towards internal circulation under payments (unexplained expenses) of Rs.4,68,00,000/- after giving set off of unaccounted income in the form cash receipts.

5. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of unexplained expenses towards personal expenditure of Rs.30,95,708/-

6. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 24,66,410/- on account of cash investment in A-902, Silver Harmony

7. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition of cash investment of Rs.6,02,000/- in Khoraj and Shilpgram.

8. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Addition on account of cash receipts of Rs. 3,17,35,000/- in Khoraj and Shilpgram.

9. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in calculating capital gain after providing benefit of indexation to the assessee as on the unaccounted on-money payments to the seller for acquiring the plots, Shilpgram, Jaspur 651 and Khoraj Survey 381/1 and received on-money on sale of said plots.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

11. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.”

A. Unaccounted Transactions relating to Sale of Immovable Properties

- Receipts in A.Y. 2018-19 Rs. 74,92,000/- - Payments – - in A.Y. 2016-17 Rs. 4,80,000/- - in A.Y. 2018-19 Rs. 12,27,604/- - in A.Y. 2019-20 Rs. 24,66,410/- Total Rs. 41,74,014/-

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

9.1. The AO highlighted that the evidence, which included noting from seized documents and statements from key individuals, confirmed the unaccounted nature of these transactions. The assessee claimed the payments were made for improvements to the flat, which was later sold. However, the AO concluded that the payments were part of the flat's purchase consideration and not for improvements, as claimed by the assessee. The AO emphasized that the taxability of unaccounted payments arises in the years when such receipts/payments occur, irrespective of the accounting method adopted by the assessee. The AO acknowledged that the capital gain from the sale of the flat had been offered for taxation in AY 2020-21. However, the unaccounted payments related to its purchase were treated as separate and unexplained.

10. Before the CIT(A), the assessee contended that the unaccounted receipts pertain to the transfer of capital assets and, therefore, should be taxed under the head "Capital Gains" in the year of transfer only. The assessee further claimed that the unaccounted expenses have been sourced from the same receipts and thus no separate addition under Section 69C is warranted. The CIT(A) concluded that the unaccounted cash receipts sufficiently explain the unaccounted expenses incurred by the assessee and no separate addition under Section 69C is required for unexplained expenses, as the remaining portion of receipts is deemed to cover such expenses. The CIT(A) emphasized that taxation must be limited to the real income, and no arbitrary additions can be made in the absence of supporting evidence. CIT(A) referred to several

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 judicial precedents, including Kedarnath Jute Manufacturing Co. Ltd. v. CIT (82 ITR 363), CIT v. Gurubachan Singh J. Juneja (171 Taxman 406), and Jay Builder v. ACIT (33 taxmann.com 62), to emphasize that only real income or profits should be subjected to tax. The CIT(A) relied on the principle that only the profit element from unaccounted sales or receipts can be brought to tax. Referring to decisions in cases like Greenfield Realty P. Ltd. v. DCIT, (IT(SS) A No.320,321,322 and 329/Ahd/2018) the CIT(A) opined that the remaining portion of unaccounted receipts may cover unexplained expenses, leaving no room for separate addition of expenses under Section 69C. The CIT(A) dealt with the issue of capital gains comprehensively by analysing the unaccounted receipts from the sale of capital assets and the corresponding unaccounted expenditures incurred by the assessee. The CIT(A) examined capital gains arising from the properties such as Land at Shilpgram 651 (Short-Term and Long-Term Gains), Land at Khoraj (Long-Term Gain) and Flat at Silver Harmony (Short-Term Gain). The total taxable capital gains computed at Rs. 6,61,31,749/- by the CIT(A) across properties and assessment years were as follows:

• Short-Term Capital Gains (Shilpgram - AY 2017-18): Rs. 1,43,82,753/-. • Long-Term Capital Gains (Shilpgram - AY 2019-20): Rs. 1,07,53,755/-. • Long-Term Capital Gains (Khoraj - AY 2019-20): Rs. 3,76,77,305/-. • Short-Term Capital Gains (Silver Harmony - AY 2020-21): Rs. 33,17,936/-.

10.1. Accordingly, the AO was directed to tax the capital gains year-wise under the appropriate heads and provide relief for the disallowed expenses

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 that were explained by the unaccounted receipts. While restricting the benefit of indexation to the year of receipt of sale proceeds the CIT(A) observed that the assessee received sale consideration well in advance and incurred major expenditure from such unaccounted sale proceeds thus no undue hardship in terms of cost inflation was faced by the assessee.

13.1. After a detailed examination of the submissions made by the assessee and the revenue, and a thorough review of the material on record, we conclude that the CIT(A) correctly held that only the net capital gains arising from the sale of properties can be brought to tax. The CIT(A)’s approach aligns with the settled legal principle that only real income, and not arbitrary or notional amounts, can be taxed. The provisions of the Income Tax Act, particularly Section 48, mandate the computation of capital gains by deducting the cost of acquisition and improvement (duly indexed in the case of long-term capital assets) from the sale consideration. Therefore, once the transaction is accepted as a capital gains transaction, only the resultant net gains—after necessary statutory adjustments—can be subjected to taxation. In contrast, the AO attempted to separately tax both the unaccounted sale receipts and the corresponding unaccounted expenditures under Section 69C. This approach effectively treated the unaccounted receipts as income in their entirety, while simultaneously disallowing the unaccounted expenditures linked to the same transaction, thereby inflating the taxable amount artificially. Such an approach is not only contrary to the statutory scheme of capital gains taxation but also results in double taxation, as the same funds are effectively being taxed twice—first as unexplained income and then as unexplained expenditure. The unaccounted expenses incurred by the IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 assessee, as reflected in the seized documents, pertain directly to the properties in question and are adequately explained by the corresponding unaccounted sale proceeds. The principle that source and application of funds must be viewed together has been upheld by various judicial precedents, which recognize that if an assessee is able to demonstrate that unaccounted expenditures were met out of unaccounted receipts, then such expenditures cannot be taxed independently under Section 69C. Therefore, we concur with the CIT(A) that once the unaccounted receipts from the sale of properties are subjected to taxation as part of the capital gains computation, the related unaccounted expenditures stand explained and cannot be taxed separately as unexplained expenses. Accordingly, no further addition under Section 69C is warranted. This ensures that only the net real income is taxed, in line with the statutory provisions and the principles of equity and justice.

13.2. On the specific issue of indexation benefit, we agree with the assessee’s contention that once the capital gains arising from the transfer of the asset are accepted, its computational mechanism, including the benefit of indexation, must also be adopted in accordance with Section 48 of the Act. Clause (iii) of the Explanation to Section 48 clearly defines "indexed cost of improvement" to include indexation up to the year in which the asset is transferred, irrespective of the timing of the receipt of sale proceeds or the incurrence of expenditure. By restricting the benefit of indexation to the year of receipt of sale proceeds, the CIT(A) failed to adhere to the statutory provisions governing the computation of long-term capital gains. Therefore, we allow this ground in favour of the assessee and directs the AO to re-compute the long-term capital gains for both Shilpgram and Khoraj properties by applying

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 the Cost Inflation Index (CII) of the year of transfer while determining the indexed cost of acquisition and improvement.

13.3. The Revenue’s contention that there is no nexus between unaccounted receipts and expenses is rejected. The CIT(A) has correctly analysed the seized evidence and noted that the unaccounted receipts adequately explain the unaccounted payments. The DR’s reliance on the AO’s findings is unsupported by evidence, as no contrary material was presented to dispute the CIT(A)’s conclusions.

B. Grounds relating to Addition in respect of Internal Circulation of Funds and Unaccounted Receipts and Payments 15. The issue involved under these grounds pertain to unaccounted cash receipts and unaccounted cash payments, as reflected in the seized documents during the search operation. The AO made substantial additions based on these receipts and payments, rejecting the assessee's claim of internal circulation of funds. The AO noted that the assessee received unaccounted cash receipts totaling to Rs. 106,83,80,190/- during the relevant period, as per the seized documents. Similarly, an amount of Rs. 5,08,00,000/-

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 was identified as unexplained payments under internal circulation. Assessment year-wise details of these receipts and payments are:

A.Y(s). Receipts (Rs.) Payments (Rs.) A.Y. 2015-16 1,00,000 - A.Y. 2016-17 12,83,92,220 30,00,000 A.Y. 2017-18 13,33,20,000 10,00,000 A.Y. 2018-19 49,03,02,650 - A.Y. 2019-20 31,62,65,320 4,68,00,000

Total 1,06,83,80,190 5,08,00,000 15.1. These receipts were meticulously recorded with details such as dates, amounts, and noting in the diaries maintained by group members. The AO concluded that these cash receipts represented unaccounted and undisclosed income of the assessee, as the source of the cash remained unexplained. The AO added these receipts in income of respective assessment years as undisclosed income for the year under consideration and taxed it under Section 115BBE without allowing deductions.

15.2. The AO also observed that the seized records detailed substantial unaccounted cash payments made to various external parties. These

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 payments were not reflected in the regular books of accounts and were claimed by the assessee to represent internal circulation of funds within the group. The AO rejected the claim of internal circulation, pointing out that the recipients of these payments were outsiders and not part of the assessee's group entities. The AO concluded that these were unexplained cash outflows and invoked Section 69C (Unexplained Expenditure), deeming the payments as the assessee’s income since no satisfactory explanation was provided for their source.

15.3. The CIT(A)'s order focuses on determining the taxability of unexplained receipts and payments found in the seized material. The issue revolved around whether these amounts represented unaccounted business income, internal circulation of funds, or transactions with outsiders that warranted addition under Sections 69C and 115BBE of the Act. The CIT(A) observed the following based on the seized documents:

Particulars Receipts Payments Rs. Rs. Internal Circulation of Funds 46,03,60,220 46,08,09,220 Unexplained Transactions 22,84,32,970 22,80,41,200

Total 68,87,93,190 68,88,50,420 15.4. The assessee argued that the entries in the seized material represented cash inflows and outflows within the group arising out of the hospitality business, franchisee operations, real estate, and advances. It was submitted that taxing these amounts would lead to double taxation since the same funds

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 had already been subject to tax in the hands of respective entities. The assessee acknowledged that some entries could not be attributed to specific entities and proposed to consolidate such receipts as business income at a reasonable profit rate of 25%. The assessee submitted the bifurcation of unexplained transaction as:

Category Receipts Rs. Payments Rs. Net Amount Rs. Within the 21,74,32,970 14,07,88,700 7,66,44,270 Group (Internal Circulation) With Outsiders 1,10,00,000 8,72,52,500 -7,62,52,500

Total 22,84,32,970 22,80,41,200 3,91,770 15.5. Relating to Internal Circulation of Funds (Rs.46,03,60,220 in Receipts and Rs.46,08,09,220 in Payments), the CIT(A) noted that the transactions categorized as "internal circulation" merely represented the flow of cash between different entities and individuals within the group. He also noted that evidence from diaries and records showed that these transactions primarily involved transfers between the same parties (e.g., Jigar, Hemedrabhai, KRG, and Kailash Goenka). The CIT(A) also noted assessee’s claim that such movements of funds represented cash management rather than any unaccounted business income. The CIT(A) emphasized that taxing these transactions separately, in addition to the amounts already taxed in the hands of respective entities, would lead to double taxation.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 15.6. Apart from these receipts and payments of internal circulation, following unexplained receipts and payments were noted by the AO:

Particulars A.Y. 2016-17 A.Y. 2017-18 A.Y. 2018-19 A.Y. 2019-20

Unaccounted / 4,55,45,680 7,80,53,809 14,27,67,410 1,84,11,000 Unexplained cash receipts

Unaccounted / 4,64,61,650 7,45,07,478 14,46,47,732 1,94,62,000 Unexplained cash payments 15.7. The AO noted that the transactions in the seized diaries included both cash receipts and cash payments. The unaccounted receipts pertain to various sources such as real estate sales, franchise fees, royalty, and hospitality- related income. The payments were primarily towards operational expenses, repayment of advances, and investments, but remained unrecorded in the books. The AO rejected the assessee's claim for peak credit by citing that the peak theory can be applied only if the unaccounted cash transactions form a continuous cycle of inflow and outflow. In this case, the assessee failed to establish any link between receipts and payments. The AO also concluded that the assessee did not furnish complete details, such as the source of cash received and details of counterparties.

16.1. Relating to Unexplained Receipts and Payments (Rs.22,84,32,970 in Receipts and Rs.22,80,41,200 in Payments), the CIT(A) noted the contention of the assessee that these transactions were part of regular business activities, such as franchise fees, hospitality receipts, restaurant sales, and advances related to real estate. However, due to the large number of entries in the seized documents, the assessee could not correlate all transactions to specific group entities. The CIT(A) found that most entries appeared consistent with the nature of the group’s businesses but acknowledged the absence of conclusive evidence to attribute specific receipts to particular business entities. To address the issue fairly, the CIT(A) adopted a profit rate of 30% on the total receipts, based on the profit margins typically observed in similar group businesses. The CIT(A) noted that this approach aligned with the principle of taxing real income and avoided the risk of overestimating the taxable income. The final addition confirmed was Rs.6,52,29,891 (i.e., 30% of Rs.21,74,32,970 as detailed below:

Assessment Year (AY) Receipts Profit Addition Rs. Rate Confirmed (30%) Rs.

2016-17 2,64,20,000 30% 79,26,000

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 2017-18 5,59,70,000 30% 1,67,91,000 2018-19 11,69,77,650 30% 3,50,93,295 2019-20 1,80,65,320 30% 54,19,596

Total 21,74,32,970 6,52,29,891 16.2. Relating to Transactions with Pawan Jalan (Rs.1,10,00,000), the assessee contended that payments of Rs. 1 crore and Rs. 1.5 crores were made to Pawan Jalan in 2017 and 2018, and Rs. 1 crore was received back in 2018. The CIT(A) observed that the repayment of Rs. 1 crore could not conclusively be linked to earlier payments due to the time gap. The CIT(A) treated Rs. 1.10 crore as unexplained receipts over two assessment years (Rs. 10 lakhs in AY 2017-18 and Rs. 1 crore in AY 2019-20).

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 the AR relied on several judicial precedents. The AR argued that these decisions consistently upheld the principle that only the profit embedded in unaccounted receipts is taxable and that gross receipts cannot be taxed without corresponding adjustments for expenditures. The AR further contended that the AO’s mechanical application of Section 69C led to double taxation, which is against established judicial principles. The AR objected to the AO’s approach of selectively treating unaccounted receipts as taxable income while disregarding the corresponding unaccounted payments. It was emphasized that the seized material must be interpreted holistically rather than selectively, as adopting a "pick and choose" approach distorts the factual position. The AR submitted that when considered in totality, the seized materials clearly indicated that the unaccounted receipts and payments were interrelated transactions within the same business framework. The AR clarified that the CIT(A)’s findings were based solely on the seized material and existing records, without any reliance on fresh evidence or additional claims. It was submitted that the CIT(A) meticulously analyzed the seized diary entries and financial records to arrive at a just conclusion. The AR highlighted those entities within the group, such as Sujan Infrastructure Pvt. Ltd. and Sankalp Inn, had already offered the relevant unaccounted income during reassessment proceedings. Thus, taxing the same amount in the hands of the assessee individually would result in double taxation, which is impermissible under the law. In response to the DR’s contention regarding the Rs.1 crore transaction involving Mr. Pawan Jalan, the AR reiterated that the seized diary entries confirmed that Rs.1.5 crore was handed over to Mr. Jalan earlier and Rs.1 crore was later returned. The AR argued that this was not fresh income but merely the return of previously disbursed funds.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 Therefore, the AO’s addition of this amount as unexplained income was unjustified.

4. The AR submitted that the assessee had voluntarily offered 25% as a reasonable rate of profit to determine the taxable component embedded in the unaccounted receipts. It was argued that the CIT(A) did not provide any substantive reasoning for rejecting the 25% rate and adopting 30% instead. The AR emphasized that discretionary powers must be exercised judiciously and that the offered 25% rate was consistent with industry standards and the actual nature of business operations. The AR contended that the CIT(A)'s adoption of a higher profit rate of 30% was arbitrary and lacked a factual basis, especially considering that the group entities had declared profit rates ranging from 10% to 50% depending on their business segments. The AR further argued that the offered 25% rate appropriately captured the "real income" arising from unaccounted transactions across business segments such as hospitality, franchise operations, and real estate. In the absence of any evidence to show that the profit margin was higher than 25%, the CIT(A) should have accepted the rate proposed by the assessee in the interest of justice. The AR urged the Tribunal to uphold the principle of fairness and adopt the offered 25% profit rate, as it was in line with judicial precedents that only real income should be taxed. The AR referred to Sankalp Recreation Pvt. Ltd. v. ACIT (IT(SS)A 65/Ahd/2022) and other judicial pronouncements, emphasizing that the IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 taxation of unaccounted receipts must be based on realistic profit margins rather than arbitrary estimations.

19.1. The AR emphasized that the addition of Rs.1,00,00,000/- in respect of unaccounted receipts from Mr. Pawan Jalan is based solely on assumptions made by the AO. The AR reiterated that the seized material clearly shows that the assessee had advanced Rs.1,50,00,000/- to Mr. Jalan on 03.05.2018, out of which Rs.1,00,00,000/- was returned to the assessee on 11.06.2018. Both transactions occurred within the same financial year, which supports the contention that the receipt was not a fresh inflow of income but merely a return of funds previously advanced. The AR further argued that the CIT(A) failed to provide any cogent evidence to challenge the genuineness of these transactions or to prove that the receipt represented new unaccounted income. Instead, the addition was made based on mere conjecture without considering the entries in the seized diaries in their entirety. In the alternative, the AR submitted that if the addition is to be sustained, it should be restricted to the "profit element" embedded within the receipt by applying the same 25% rate of profit offered by the assessee, consistent with the principle of taxing real income.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

C. Internal Circulation of Funds:

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 Hemedrabhai, KRG, and Kailash Goenka. We concur with the CIT(A) that the amounts represented cash transfers within the group, which had already been taxed in the hands of the respective entities. The CIT(A) emphasized that taxing the same amounts again in the assessee's hands would result in double taxation, which contravenes the principle of taxing "real income". CIT(A)'s deletion upheld for all assessment years, confirming that the amounts categorized as internal circulation should not be taxed in the hands of the assessee.

D. Unaccounted Business Receipts and Payments:

25.1. The assessee contested the 30% profit rate adopted by the CIT(A) for unaccounted receipts, arguing that the rate was excessive and lacked factual justification. The assessee proposed a 25% profit rate as reasonable, stating

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 that it was consistent with the group's business nature and historical profit margins. The unaccounted receipts included franchise fees, royalties, real estate advances, and hospitality income. The Revenue supported the CIT(A)’s determination of a 30% profit rate, contending that franchise and royalty fees generally yield higher profit margins compared to other revenue streams. It was also contended that no specific bifurcation of amounts relating to Franchise Fees and Royalties, was provided by the assessee.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 income streams of the business, especially Franchise Fees and Royalty. It is also observed that revenues such as Franchise Fees and Royalty were not present in case of other group entities. Accordingly, the addition of Rs.6,52,29,891 across the relevant assessment years calculated at the rate of 30% of receipts is confirmed.

E. Issue of Transactions with Pawan Jalan:

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 was a fresh inflow of income. The addition was primarily based on assumptions and a mechanical reading of Section 69C. We once again emphasize that taxation should be based on real income rather than notional or gross receipts. Judicial precedents consistently advocate that only the profit component in unaccounted transactions should be taxed. Considering the detailed submissions, we accept the assessee’s alternative proposal to tax the transaction at 25% of the receipts. We observe that this approach balanced fairness and legal compliance, ensuring that only the embedded profit was taxed while avoiding double taxation.

F. Additions in respect of personal Expenditure:

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 Particulars - 2015-16 2016-17 2017-18 2018-19 2019-20 Total Rs. A.Y. -> Gold & 76,000 22,83,573 10,17,750 14,10,214 8,00,000 55,87,537 Jewelry Purchase Home 74,000 59,69,107 13,99,000 3,90,540 1,93,971 80,26,618 Renovation Expenses

Other 5,31,000 52,50,827 51,63,505 42,60,995 21,01,737 1,73,08,064 Personal Expenses

Total 6,81,000 1,35,03,507 75,80,255 60,61,749 30,95,708 3,09,22,219 30.1. The AO emphasized that these expenses, acknowledged by the assessee, were personal in nature and incurred in cash. The AO invoked Section 69C, noting that the assessee failed to provide sufficient documentary evidence regarding the nature, source, and necessity of these cash payments. The AO rejected the assessee's claim for any allowance under Section 37(1), observing that the expenses were not related to the business, the payments were not incurred wholly and exclusively for business purposes and no nexus was established between the cash outflows and revenue generation. The AO highlighted that payments exceeding Rs.10,000/- (Rs.20,000/- before the relevant amendments) were made in cash, violating Section 40A(3). Since these payments were not made through account-payee cheques or demand drafts, they were disallowed. Citing Sections 101-104 and 106 of the Indian Evidence Act, the AO placed the burden of proof on the assessee. Despite being given opportunities, the assessee failed to produce corroborative

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20 evidence, such as PANs and addresses of recipients, or documentation demonstrating the business necessity of the expenditure.

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

IT(SS)A No.1/Ahd/2023 Kailash Ramavatar Goenka vs. ACIT and seven other appeals (By Assessee and By Revenue) Asst. Years : 2016-17 to 2019-20

Sl. AY(s) ITA/ Type of Result No(s) IT(SS)A/Nos. Appeals 1. 2016-17 IT(SS)A Nos: Assessee Partly Allowed 1/Ahd/2023 2. 2017-18 2/Ahd/2023 Assessee Partly Allowed 3. 2018-19 3/Ahd/2023 Assessee Partly Allowed 4. 2016-17 5/Ahd/2023 Revenue Dismissed 5. 2017-18 6/Ahd/2023 Revenue Dismissed 6. 2018-19 7/Ahd/2023 Revenue Dismissed 7. 2019-20 Assessee Partly Allowed 19/Ahd/2023 8. 2019-20 67/Ahd/2023 Revenue Dismissed Order pronounced in the Open Court on 10th January, 2025 at Ahmedabad.