DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(4), AHMEDABAD, AHMEDABAD vs. S K Z DEVELOPERS LLP, AHMEDABAD

& 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

3 5. In law and in the facts and circumstances of the case of the Assessee, the Ld. CIT(A) has erred in sustaining the addition towards Deemed Rent u/s 23(5) of the Act @ 3% of cost of the project, when no such addition on account of deemed rent can be made. 6. The Assessee craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”

3. Ground No. 1: The assessee vide Ground No. 1 has raised the legal issue relating to the validity of assessment order passed by the AO. Ld. AR of the assessee has not pressed this ground. Ground No. 1 is accordingly dismissed as not pressed.

4. Ground Nos. 2 to 4: Vide Ground No. 2 to 4, the assessee has contested the action of the CIT (A) in confirming the impugned additions by holding that the assessee has received "on-money" receipts for projects "Privilon" and "Paarijat Eclate" and thereby estimating the sale value at a flat rate of Rs.6,500 per sq. ft. and thereafter applying an estimated net profit ratio of 17% and confirming the addition to that extent as against action of the AO in making the addition of the entire alleged on-money receipt.

4 units. The Assessing Officer observed that assessee LLP was a part of the same business group. On the basis of the appraisal of the seized materials, the AO formed the view that the assessee had received on-money on sale of units of the Project Privilon and Paarijat Eclate. From the seized excel files titled “cost details privilon.xlsx” and “cost details parijat.xlsx”, the AO estimated the total project cost at Rs. 399.31 crore (Rs. 223.86 crore for Privilon and Rs. 175.45 crore for Paarijat Eclate). The Assessing Officer further worked out the basic construction cost at around Rs. 5,000 per sq.ft. of super built-up area for Privilon and Rs. 4,600 per sq.ft. for Paarijat. The AO further noted that several registered sale deeds for units in both projects reflected basic rates which were significantly below the above estimated costs by the AO. The AO observed that in the ordinary course of business, no real estate developer would sell the flats below its construction costs. Therefore, he concluded that the difference between book rate/sale deed rate and the price as estimated by the AO represented unaccounted on-money received in cash by the assessee.

5.1. The assessee’s submission that registered rates did not include certain other development and approval charges etc. was rejected by the AO by observing that the cost amount computed from seized material also did not include such charges and that even, after adding AEC/AUDA charges of Rs.1,000 per sq.ft. for Privilon and Rs. 400 per sq.ft. for Paarijat, the accounted/booked rates remain below the construction cost estimated by the AO. The AO further observed that the seized material contained the unit-wise areas, and an “Offer Rate” column indicating rates ranging from Rs. 6,500 to Rs. 8,600 per sq.ft. for various floors, whereas, many sale deeds were executed at much lower prices. The AO rejected the assessee’s contention that these were rough/indicative quotations and were not the actual sale The AO also relied on excel sheets seized from City Estate Management, the assessee’s broker, & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

5 allegedly containing unit-wise rates substantially higher than registered deed rates. The AO further referred to a loose paper seized from the residence of Shri Vineet Kanodia CA (Annexure A-1 Page 14 of seized material) containing handwritten details of units B-2001, A-602, B-701 of Paarijat and A-1906 of Privilon with names of customers, dates, areas and basic rates such as Rs. 6,700, Rs. 6,150, Rs. 6,100 and Rs. 7,350 per sq. ft. The AO, in this respect, observed that these units were, in fact, sold to the same persons around the same dates, and the area sold exactly matched with registered deeds, specifically, for unit A-1906, the sale price of which was entirely reflected in the registered deed, which proved the authenticity of seized documents and therefore, he observed that the other entries on the same sheet, where registered rates were lower, might have involved the receipt of on-money. The AO also refers to WhatsApp chats extracted from Vineet Kanodia’s mobile, quoting a rate of Rs. 6,200 per sq. ft. for a unit for which registered sale deed subsequently reflected Rs. 4,000 per sq. ft.. The AO, therefore, held that the assessee had received on-money over and above the sale price shown in the books of account. The AO also rejected the alternate contention of the assessee that only profit element embedded in the on-money received should be taxed. The AO, therefore, made the addition of the total alleged on-money received of Rs. 53,36,73,988.

6 corroborating or legally admissible evidence. The learned CIT(A) observed that the loose excel sheets relied upon by the AO merely contained indicative floor-wise offer rates and appeared to be initial internal quotation workings, which did not contain any details of specific units sold, names of purchasers, dates of negotiation, terms of payment, confirmation of deal closure, or any evidence indicating receipt of cash component by the assessee. Therefore, such documents could not be assumed to represent actual sale price. The Ld. CIT(A) further noted that the AO had failed to establish any trail of cash movement either from the possession of the assessee or from any third party, and that no buyer or broker had confirmed any alleged cash payment. He observed that no evidence of investment, application or utilisation of any alleged unaccounted money had been found or established by the AO. The CIT(A), therefore, held that in the complete absence of corroborative evidence, it was not permissible to conclude that the assessee had sold units at rates mentioned in such loose working sheets. He observed that the AO had proceeded purely on assumptions, conjectures, and surmises, without any independent enquiry or verification from purchasers or any other entity.

6.1. However, the Ld. CIT(A) further observed that during search operations, certain excel cost working files were found, namely “cost details privilon.xlsx” and “cost details parijat.xlsx”, as per which the project cost per sq.ft. approximately was at Rs. 5,000 and Rs.4,600 respectively. He noted that these computation sheets were part of seized material and the assessee could not rebut the correctness of such cost working. The CIT(A), accordingly, held that the sale consideration for units in both projects could not rationally be below the cost price itself. The Ld. CIT(A) also noted that certain loose materials and digital working sheets recovered from the premises of brokers (including City Estate Group) and WhatsApp messages found from Shri Vineet Kanodia were & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

7 indicative of rates and negotiated prices for some units ranging from ₹6,100 to ₹7,350 per sq. ft., thus showing that sale deals were discussed at value higher than the prices recorded in registered sale deeds. After considering the aforesaid facts, the Ld. CIT(A) held that some reasonable estimation of fair sale value was required to be made, which the Ld. CIT(A) computed at Rs.6,500/- per sq.feet. The Ld CIT(A), accordingly, directed the AO to compute the sale value of units by applying a flat fair market rate of Rs. 6,500 per sq. ft., inclusive of all charges (including parking, AEC/AUDA and AMC), except for units already sold at a higher value recorded in registered sale deeds. The Ld. CIT(A) further relying upon the decision of the jurisdictional Gujarat High Court including Jay Builders (33 taxmann.com 62) and PCIT vs. Anupam Organisers (Tax Appeal No. 168/2020) held that only the profit element embedded in such estimated on-money receipts can be brought to tax, and not the entire alleged receipt itself. Though, the assessee relied upon various case laws to stress that the profit element should be estimated from 6% to 10%, the learned CIT(A), however, estimated the profit element at 17%, and accordingly directed the AO to recompute business income by applying a flat fair market rate of Rs. 6,500 per sq. ft., and thereafter to tax the profit element embedded therein @ 17% of the recomputed price.

& 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

8 8. We have heard the rival contentions and gone through the record. The Ld. AR of assessee has contended that the impugned additions have been made solely on the basis of loose sheets, rough notings, third-party excel files and interpretative assumptions arising out of search proceedings in the B-Safal Group. That neither these documents bear signatures of the assessee, nor contained the names of actual buyers, none show dates of negotiations vis-à-vis final registered sale deeds, none indicate actual receipt of cash, and none of these documents have any linkage to the audited books of accounts or registered documents. That the AO has attempted to infer alleged “on-money” solely on the basis of these unsigned, uncorroborated loose sheets which were nothing but negotiation proposals and that the final prices were dependent upon various factors such as floor height, view, vastu preferences, booking timing, financial capacity of the buyer, relationship, bulk booking, broker involvement, payment schedule and market conditions prevalent at that time. He therefore, has contended that the reliance on these uncorroborated loose sheets to compute the actual sale price was not justified at all. The Ld. AR for the assessee has further submitted that even the excel sheets relied upon by the AO, both in the Privilon and Parijaat Eclat projects, were nothing but internal costing documents or third-party workings that do not indicate the selling price or any cash element whatsoever. That even the project name itself was incorrectly spelled in the excel file. That even there was absolutely no cash trail or unaccounted investment discovered during the search action. That despite full details of purchasers being furnished during assessment proceedings, no notice under section 133(6) was issued to any of the buyers to verify whether any money was paid outside the books. The Ld. AR has further submitted that such loose sheet was found during the course of search at City Estate Group and estimated addition of brokerage was made in the hands of Mr. Pravin Bavadiya, broker of such group, wherein, the co-ordinate Ahmedabad bench of this & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23 to 1691/Ahd/2024 vide order dated 09-05-2025 has deleted entire addition of brokerage income in his hand based on these very documents which have been relied upon by the lower authorities in the case of the assessee.

8.1. The Ld. AR has further contended that the WhatsApp chat relied upon by the AO was not only from a different year altogether, but the sender of the message, Shri Vineet Kanodia, has sworn an affidavit that he acted in his personal capacity, providing quotations to multiple parties even after units were booked, and that no cash was ever received by the assessee. The AO neither rebutted this affidavit nor examined him nor issued summons nor carried out any cross-verification. That the chat itself showed that the quoted rate was lower than actual rate/registered rate indicating the very presence of negotiation and disproving the AO’s theory that the brochure rate was a fixed selling rate. The Ld. AR has further submitted that the fact that the year and date of chat were subsequent to the booking of the flats showed that the rates mentioned by the broker might be resale proposal/price by first buyers. He in this respect submitted that this fact is further fortified from the fact that one third-party excel sheet showed that in a resale transaction, the assessee received only the cheque portion i.e. Rs.5,000 per sq. ft. and any excess amount was exchanged between first and second buyers without involving the developer. He therefore, has submitted that this categorically proved that any difference in the ultimate resale consideration cannot be attributed to the assessee.

8.2. The Ld. AR has also stated that the AO has mechanically adopted the highest quoted rate of a given date and applied it to all units sold on that date, without appreciating that in real estate business, the prices are not uniform rather, it involves complex negotiation process. He therefore, has contended & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

10 that the additions made by the lower authorities were not supported by any corroborative material such as unaccounted cash, unexplained expenditure, investments, confirmation of buyers, or their cross-examination, hence were totally unjustified.

8.3. The Ld. AR has further contended that the Ld. CIT(A) was not justified in estimating on-money receipts after considering aggregate sale value of each unit at Rs.6,500/- per sq.ft. The Ld. AR has relied upon various case-laws including the decision of the Hon’ble Supreme Court in the case of “CBI v. V.C. Shukla” 998 SC 1406 and in “Common Cause (Sahara Diaries)” [2017] 77 taxmann.com 245, to contend that the loose-papers have zero probative value in the absence of independent, corroborative evidences.

8.4. The Ld. AR, however, without prejudice to the above submissions, has alternatively contended that profit embedded on alleged on-money receipt @ 17% was even otherwise very high.

10.1. Before us, the Ld. DR could not rebut the contentions of the Ld. AR that the documents relied upon by the AO, were nothing but dumb documents as & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

11 these loose sheets did not contain details of buyers, date of receipt of alleged on money, signature of buyer or agreement to sale. Therefore, the contention of the Ld. AR that these loose-papers were just quotations/offer price only cannot be brushed aside. Moreover, as noted by the AO also, in the relevant column of these seized documents, it was mentioned a “Offer Rate”.We agree with the contentions of the Ld. AR that in the real estate business, offer rates are always on the higher side and are subject to negotiation. There is no evidence on the file that any transaction actually materialized at the rates in the relevant assessment year as depicted in the alleged seized documents. The Ld. AR has also explained that the AO has wrongly assumed/interpreted the various short-words/abbreviations to his convenience and linked the same to assume higher sale rates of the units. He has also demonstrated that the AO found notes saying "1P=4L" and assumed this meant "1 Parking Spot = Rs. 4 Lakhs in cash. "The Ld. AR, however, explained that "P" actually stood for "Painting" (interior finishing works like painting and panelling), which is an optional service. This type of abbreviations, in our view, can be well explained by the person who has written these abbreviations or the person in whose possession these documents were found. If such a person gives the explanation/full-form of these abbreviation and the same are found convincing, looking into the facts and circumstances of the case, then, in our view, the other interpretation done by the AO to assume higher sale price would not be justified, especially when there is no corroborative evidence to such assumptions. In this case, even the AO did not verify his assumptions as no buyers were questioned to confirm if they paid any cash over and above the sale price mentioned in the deed. Even, the AO used internal Excel files containing budget projections to calculate the project cost of Rs. 5,000 per sq. ft. The AO then assumed that any unit sold below this rate implies that the difference was collected in cash. However, the case of the assessee is that these & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

12 excel-sheets were internal estimates and budgets, not actual sales. Moreover, neither any unaccounted cash in the possession of the assessee, nor any "cash book" or informal ledger recording on-money receipts or any other evidence of the utilization of such alleged cash (e.g., unexplained investments or expenses) or any day to day cash trail was found or noticed during the search action. The AO did not make any inquiries with the purchasers by issuing notices u/s 133(6) of the Act. Conversely, the assessee voluntarily filed affidavits from the buyers, who categorically denied paying any amount in cash over the registered value. The AO has not referred to any single corroborative evidences containing date wise cash receipt from any member or loose material bearing signature of buyer confirming cash payment or other evidences which clearly bifurcates negotiated deal into “cash component” and “cheque component”. That even there was a timing mismatch as the units in question were booked during the years 2014–2016 at lower market rates, which were compared with a cost average calculated years later in 2021–22. Even, we find force in the contention of the Ld. AR that the prices quoted in the loose-papers/chats found from the broker would have been the resale offer/negotiation price offered by the first buyer as these documents//chats were of the later period, even after the booking of the flats by the assessee.

10.2. Even the adoption of a uniform rate of Rs 6,500/- by the Ld. CIT(A) for all units sold is purely based on assumptions and presumptions. The Ld. CIT(A) on the one hand has rejected the methodology and assumptions made by the AO on the basis of seized loose-papers and held that these documents did not prove that the assessee had sold the units at the price mentioned in those documents as those documents were dumb documents and were not corroborated with any evidence as observed above. On the other hand, the Ld. CIT(A) himself proceeded to firstly calculate the construction cost, then & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

13 applied such construction cost to all the units irrespective of their size, location and the amenities offered therein. The Ld. AR has demonstrated that the value of a unit is determined by its floor level, direction (Vaastu), proximity to amenities, and the time of booking (early bird vs final phase). Therefore, the action of the Ld. CIT(A) in assuming a flat-rate for all units and without there being any corroborative evidence and merely on assumption basis cannot be held to be justified.

10.3. The facts and issue involved in this case are covered by the decision of the Hon’ble Gujarat High court in the case of “Maulikkumar K. Shah” 307 ITR 137,wherein, in somewhat identical circumstances, the Hon’ble High Court has held as under: “The assessee had constructed certain shops. There was a search at the assessee's premises and a diary was seized in which the assessee had estimated rates of these shops. The assessee had booked/sold 35 shops as on date of search. Because of the difference in rates as mentioned in the seized paper and the books of account, the Assessing Officer calculated the 'on-money' and made addition accordingly.

Held that notings in the seized diary found from the premises were the only material on the basis of which the Assessing Officer had made the impugned additions. The Assessing Officer had not brought any corroborative material on record to prove that such sales were made and 'on-money' was received by the assessee outside the books of account. The Assessing Officer had not examined any purchaser to whom the sales of shops were effected. Onus heavily lay on the revenue to prove with corroborative evidence that the entries in the seized diary actually represented the sales made by the assessee. Such onus had not been discharged by the revenue. Mere entries in the seized material were not sufficient to prove that the assessee had indulged in such a transaction.

The inference of the Assessing Officer that the assessee has received 'on-money', was merely based on suspicion and surmises and there was no material whatsoever to support the conclusion of the Assessing Officer that the assessee had in fact received any 'on-money'. The addition as made by the Assessing Officer being based on mere & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

14 presumptions and assumptions and without any corroborative evidence, could not be sustained.”

10.4. Reliance in this respect can also be placed on the decision of the coordinate Kolkata bench of the Tribunal in the case of “M/s. Fort Projects (P) Ltd. vs. Deputy Commissioner of Income-tax, Central Circle-VI, Kolkata” vide I.T(SS).A Nos. 15 to 21/Kol/2011, wherein, it has been held as under:

“In view of the above explanation, we are of the view that decision to sell a particular flat at a particular price was taken out of commercial expediency and on valid grounds and cannot be randomly doubted by Department in the absence of any tangible evidence to show that the same did not depict the actual state of affairs. Even otherwise, under taxing system, it is for the assessee to decide how to conduct the business. The Revenue cannot justifiably claim to put itself in the armchair of businessman and judge how business should be conducted or at what price a particular product should be sold. Hence, we are of the view that in the absence of conclusive evidence suggesting receipt of on money by assessee, prices at which flats were sold to purchasers vide duly executed agreement cannot be doubted and moreover, flats were sold to known and identifiable party at the rate mentioned above as per duly executed agreement. The agreements with the buyers of the flats were part of regular records and could have very well been verified by the AO and CIT(A). Accordingly, we have no hesitation in deleting the addition made in respect of Fort Royal Projects for AY 2007-08.”

10.5. In the case of “Umacharan Shaw & Bros. vs. CIT” [1959] 37 ITR 271, the Hon’ble Supreme court has held that suspicion, however strong, cannot take place of evidence.

10.6. The facts in the hands clearly suggest that both the lower authorities have proceeded on the basis of their own assumptions and presumptions to assume the receipt of ‘on-money’ by the assessee on sale of units without any corroborative evidence being found during the search action or during the course of post-search inquiries. In view of detailed discussion made herein & 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

15 above, entire addition of on money made by the AO for Rs.20,24,12,970/- for project "Privilon" and Rs.33,12,61,018/- for project Parijat Eclate" is ordered to be deleted. Therefore, Ground of Appeal Nos. 2 to 4 of assessee appeal are allowed.

11. Ground No.5:- Vide Ground No.5, the assessee has contested the addition of deemed rent made by the AO @7.5 of the value of the property, however, restricted by Ld. CIT (A) @ 3% of market value of unsold unit. The AO observed that BU permission for project developed by assessee was taken on 22-01-2019 and as per provision of Section 23(5) of the Act, two years had passed on 31-03-2021, hence, addition of deemed rent @ 7.5% of value of property was required to be made. The AO, accordingly, estimated deemed rent u/s 23(5) of the Act at Rs.2,79,39,625/. This addition was challenged by assessee before the Ld. CIT (A), who, in principle, agreed with the finding of A.O. that deemed rent was required to be computed as per provision of Section 23(5) of the Act. He, however, restricted such estimated rent @ 3% of fair market value of property and directed AO to allow 30% standard deduction on such estimated rent as per provision of Section 24 of the Act. Being aggrieved by above finding, the assessee has come in appeal before us.

11.1. The Ld. AR for the assessee has contended that the construction of both the projects, on which deemed rent was estimated by the lower authorities, was started prior to introduction of Section 23(5) of the Act, hence, such provisions were not applicable to the case of the assessee. The Ld. AR in his alternate contention has contended that estimated rent by the Ld. CIT(A) was on higher side.

& 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

16 12. On the other hand, the Ld. DR has stated that A.O. has given detailed finding while estimating deemed rent @ 7.5% on fair market value of property and such addition needs to be restored.

In ITA No. 1729/Ahd/2024.

1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to recompute the sale consideration at Rs. 6,500/- per sq. ft., inclusive of all charges, and thereafter, to estimate the profit arising on account of on- money received at 17% of the same ignoring the detailed reasoning given by the AO.

& 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

17 2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting deemed rent to the extent of 3% as against 7.5% computed by AO as per the decision of Hon'ble Supreme Court of India in Dr. Balbir Singh V/s Municipal Corporation, Delhi [1985]. 3. The Revenue craves leave to add/alter/amend and/or substitute any or all of the grounds of appeal.

17. Ground No.1:- The Revenue vide Ground No.1 has agitated against the action of the Ld. CIT(A) in estimating/recomputing the sale consideration at flat rate of Rs.6,500/- per sq.ft. and thereafter, estimating the profit element on such sales @ 17% and has pressed for the confirmation of additions made by the AO on this issue. In view of our discussion made above, while adjudicating the Ground Nos.2 to 4 of the assessee’s appeal, wherein, we have also discussed about the action of the Ld. CIT(A) in estimating such profits and held that such action of the Ld. CIT(A) was not justified and, hence, ordered to delete the additions made by the AO on this issue. In view of this, there is no merit in this ground of the appeal of Revenue, the same is, accordingly, dismissed.

Ground No.2:- This issue already stands adjudicated by us in Ground 18. No.5 of the assessee’s appeal for the year under consideration, whereby, we have upheld the action of the Ld. CIT(A) in estimating the rental @ 3 % of the market value. Therefore, there is no merit in this ground of appeal also and, the same is, accordingly, dismissed.

19. Ground No.3 is general in nature.

& 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

18 Now coming to the Cross-appeals, i.e. of the Assessee as well as the Revenue for A.Y. 2021-22 Assessee’s Appeal in 21. The assessee, in this appeal, has taken the following grounds of appeal:

“1. In the facts and circumstances of the case, the Ld. CIT(A) ought to have quashed the Assessment being void ab initio, illegal, without jurisdiction and not following the principle of natural justice.

& 1688/Ahd/2024 (By Assessee) & & 1729/Ahd/2024 (By Revenue) Asst. Years : 2021-22 & 2022-23

“1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to estimate the profit arising on account of on-money received at 17% ignoring the detailed reasoning given by the AO.

Order pronounced in the Open Court on 09 /01/2026.