MEHUL KESHUBHAI BHALARA,RAJKOT vs. DCIT, CC-1, RAJKOT, RAJKOT

The assessing officer noted that Shri Girish Vanjani has categorically stated that he does the work of accounting for R K Group as per the instructions of Shri Sarvanand Sonwani. Even Shri Sarvanand Sonwani has accepted (in his statements recorded u/s 131 of The Act at the residential premise of Girish Vanjani on 27.08.2021) that Shri Girish Vanjani does the work of accounting as per his instructions. Thus, Shri Girish Vanjani is a key employee and accountant of the R K Group is an admitted and established fact. During the course of search and seizure action at the residential premise of Shri Girish Vanjani, Pen Drives and Hard Discs were recovered. Forensic Mirror Imaging (Digital Data Backup) of these devices was taken and the same were seized. The backup contained key accounting files (Miracle Files) in which unaccounted transactions and some accounted transactions of the entire group were recorded in a very systematic manner. The accounts of 1) Sale of units 2) Cost of lands 3) Expenses incurred on various projects and other miscellaneous transactions made by R K Group members with various counter parties were maintained in accounting software to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT known as MIRACLE. The Multiple miracle files have been found from the digital data that has been imaged and seized during the search operation. Many miracle files found are duplicate copies of each other or either not fully updated. Some Miracle files are more updated than the other. From the plethora of Miracle files that have been found during the post search analysis, 3 files have been isolated which when studied together cover the financial transactions of the group. The details of the three Miracle files as under- Sr. No. Name of the file 1 DIVYARAJ & CO. (01 08 2009 to 30 06 2016) 2 Divyaraj & Co (01 07 2006 to 31 03 2009) 3 RK World (01 04 2009 to ...)

Apart from the above, various documents in the form of loose-papers, excel sheets etc, have also been recovered and seized during the search operation from the premises of the group members highlighting various kind of financial transactions accounted as well as unaccounted. All the data collected and seized during the search and survey operation has been perused and co-related with the actual transactions made by the group persons and entities. The financial transactions pertaining to sale and purchase of various kinds of properties as seized in the form of Digital Data and in the form of Hard Data were also compared and corroborated with the documentary evidences and responses received from the Sub-registrar office and with the data available in public domains on various government portals like (i)garvi.gujarat.gov.in (ii) gujrera.gujarat.gov.in. (iii) anyror.gujarat.gov.in. The transactions entered in the Miracle accounting files seized during the search was also made with those reported on the regular books of various group members and entities. All this comparison and corroboration exercise has revealed following factual aspects about the seized data- to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT Fact 1 The seized Miracle files recovered during the search operation contain transactions that took place between (1) R K Group members and (2) various other parties (counter parties). They include the accounts of cash as well as bank transactions.

During the course of search and seizure action at the residential premise (premise A-6) of Shri Deepak Purswani (relative and close confidant of sonwani family) some loose papers were found and seized as Annexure A-2. In Annexure A-2 on page 130 there is a summary sheet of the Industrial Zone 11 (11A& 11B), On verification of the summary sheet, it is found that 'RT' and 'SS' are distributing 50% of the profits in this project. 'RT' and 'SS' should mean Shri Ramesh Tilara and Sarvanand Sonwani respectively which implies Shri Sarvanand Sonwani is a silent partner in the project. Total sale in the above sheet is shown of Rs. 22,74,65,272/- for the Zone- 11. This figure includes sales receipts for the both 11A & 11B. From the above discussion, the relation of the assessee Shri Mehul Bhalara with RK Group and Sonwani family is established. No need to mention that why the transactions related to the project RK Industrial Zone-11 (11A & to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT 11B) have been found recorded in seized miracle files seized from RK Group and its associates. As the Information related to the assessee was received by the Jurisdictional AO through Insight Portal as per the Risk Management Strategy Formulated by the Board in this regard. The then JAO has initially issued notice u/s 148A(a) on 22.03.2023 for conducting inquiry, however, no response has been received from the assessee. Thereafter, the JAO has issued a show cause notice u/ s148A(b) of the Act on 28.02.2023 confronting therein certain information and the assessee was asked to offer his explanation. In response, the assessee was seeked adjournment for 7 days. The same was considered and hearing extended/adjourned upto 15.03.2023, however, till that date no response received from the Assessee. Therefore, order u/s 148A(d) of the Act concluding therein that income chargeable to tax has escaped assessment in the case of the assessee has been passed by the then AO on 22.03.2023 incorporating therein all the information available with him as on that date. Notice u/s 148 of the Act was issued on 22.03.2023 (copy of order u/s 148A(d) dated: 22.03.2023 was attached thereto) and the assessee has been asked to file his ITR within 30 days. However, no return of income has been filed within time given.

Thereafter, case has been picked up for faceless assessment proceedings by the NEAC. Notices u/s 142(1) of the Act calling certain details/documents relevant to assessee were issued time to time. In response to the notice issued u/s 142(1) of the Act by NEAC, the assessee, vide his online submission dated: 02.02.2024 has furnished the certain details/ documents and has also taken certain objections against the re-opening of the assessment. Thereafter this case has been centralized to this office by order u/s 127(2) of the Act dated: 07.02.2024 passed by the Pr.CIT-1, Rajkot. It is seen that the assessee bas filed his return in response to notice u/s 148 of the Act on 20.01.2024, therefore, subsequent notice u/s 143(2) of the Act was issued on 13.02.2024. Further, due to change of incumbent a fresh to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT notice u/s 142(1) rws 129 of the Act was issued on 13.02 2024. The objections taken by the assessee has also disposed off therein.

The assessing officer noted that may issues involved in these projects are the receipt of “On-money” on units of R K Industrial Zone 11A. Industrial plotting project RK Industrial Zone-11, has been developed on the land owned by Shri Ramesh Tilara and Shri Mehul Bhalara. This project is divided in two parts i.e. Industrial Zone-11A and 11B. The data relating to the project is found maintained in miracle accounting software that was seized during the search operation. As explained earlier, the name of every project is recorded in coded form in the Miracle files. The project "R K Industrial Zone-11" is mentioned / coded as "IJ11" in the Miracle file. It can be seen that separate ledgers for each and every unit that has been booked are recorded very systematically in the seized Miracle file. The receipt against the bookings of the project are spread in FYs 2017-18, 2018-19, 2019-20, 2020-21 & 2021-22 (till the date of the search). The above is the accounting ledger for unit number 20 of Project RK Industrial Zone- 11 A (coded as IJ11 A). As clarified earlier, the transactions in miracle ledgers have been written in coded form. Date of transactions is back dated by 10 years and amount of transactions is coded by inserting decimal. Before last two zero e.g. Rs.100000/- is recorded in miracle as 1000.00. As per the ledger, unit/ plot no. 20 of RK Industrial zone 11A (part-1) has been booked for sale for total consideration of Rs. 77,77,968/- (coded as 77779.68) and subsequently instances of some receipts which inter alia includes bank as well as cash receipts have been record. As per the ledger amount of Rs.6,64,000/- has been paid through bank/cheque and remaining amount has been paid in cash. Further, on perusal of the respective conveyance deed executed for the above plot, it has been noticed that the amount that has been received through bank are duly recorded thereon and also on regular books, however, the amount that has been received in cash has not been recorded neither on respective conveyance deed nor on regular to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT books of the assessee. It can be seen that the banking transactions appearing on miracle ledgers against the plot no. 20 matches exactly with those recorded on respective conveyance deed and regular books. As per the above ledger, unit no. 03B of the project Industrial Zone -11 (Part A) has been sold to any Mr. Ramani for the total consideration of Rs. 19,70,050/- (in coded form written as 19700.50). Out of the total consideration amount of Rs. 1,78,500/- was paid through bank on 12.12.2018 and remaining amount paid in cash. Bank payment of Rs.47840/- is related to maintenance charges. The banking transactions appearing on seized miracle ledger is duly reflected in bank of the assessee and respective conveyance deed. This is common ledger for unit no. 5A and 6A of the project. Having of common ledger for two units itself show that these units have been purchased either by a single persons or family members. As per the above ledger, the above two units have been sold for total consideration of Rs.43,15,170/-, however, out of the total consideration amount of Rs. 1,78,500/- each for plot no. 5A & 6A has been paid through bank. Banking entries of Rs.47840/- for each unit are related to maintenance fees. The remaining amount has been paid in cash. Further, perusal of the sale register of the assessee, it seen that above two units i.e. 5A & 6A have been purchased by two brothers namely Bhavesh J Kakkad and Ketan J Kakkad. Further, the banking payment appearing on the seized miracle ledger matches exactly with those recorded on sale register. From the above corroboration, the following are established beyond doubts: (i) First and foremost, it is established beyond doubt that the ledgers starting with "IJ11" in the miracle company database file are related to the Project RK Industrial Zone-11. (ii) Part -A of the project (mentioned in miracle as IJ 11A) has been developed by the assessee Shri Mehul Bhalara as the banking transactions appearing on these ledgers are credited in assessee's bank and respective plots are reflecting in his books. (iii) The amount mentioned in miracle file is in coded form by inserting "." Before last two digits and accordingly, to arrive the actual amount of same to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT to be multiplying by 100 or remove decimal. E.g. the amount of 10000 is written as 100.00. The same is corroboratively established in foregoing paras. (iv) Similarly the date of transaction in miracle files is back dated by 10 years. E.g. actual date 22.11.2018 is mentioned in miracle files as 22.11.2008. (v) Banking transactions appearing on these ledger are duly accounted for and are duly reflecting bank/regular books of the assessee, however, the cash receipts appearing on the same ledgers are not appearing on respective conveyance deed/ sale register which proves that cash receipts appearing on the above ledgers are nothing but cash on-money receipts of the assessee for the project and the same has been received over and above the amount recorded on regular books.

Similar type transactions have been recorded for other units also. Thus, from the above discussion, it is evident that the assessee has received total cash of Rs.5,35,61,290/-during FY 2018-19 for the units as discussed above, however, the same has not been recorded in books of account, hence not offered for taxation. Accordingly, vide notice u/s 142(1) of the Act, the assessee has been asked to show cause, whether the above cash on-money receipts are recorded on his regular books and has been taken into consideration while computing taxable income. However, the assessee has simply denied to have receipt any cash on- money/unaccounted money over and above the banking receipts/ value recorded on regular books. The contention of the assessee is not acceptable in view of the self speaking and duly corroborative nature of seized miracle files which inter alia includes cash as well as banking transactions. It is established that the banking transactions appearing on seized miracle are also reflecting in respective conveyance deed/ regular book (bank/sale register) of the assessee, however, the cash receipts appearing on same ledgers are not recorded on regular books. It is well established/settled law that the seized /impounded documents should be read as whole and where banking transactions & some other details appearing on these seized documents are found to be correct and genuine, then cash transactions appearing on same seized documents can't be ignored/overlooked. The assessee to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT as per his convenient can't accept some of the transactions as genuine and others (appearing on same page) as non-genuine. Further, the transactions in seized files have been maintained in very systematic manner. It is seen that where more than one unit have been purchased by a single persons or family members of one family, one common ledger for such units has been prepared. Preparation /maintaining of data in such sophisticated manner per se show the purpose of the author that same has been prepared to track the exact position of inflows / outflows or profitability of the project. Considering these facts, the assessing officer issued show cause notice to the assessee to explain the “on money”. The assessee has been asked to submit his reply on or before 27.02.2024. In response, on 29.02.2024, the assessee has submitted a comprehensive response to the show cause notice clarifying the issues and raising various contentions.The sum and substance of the reply of the assessee are as follows: (i) No unaccounted transac�ons took place. (ii) Addi�on can not be made solely based on the statement of Shri GirishVanjani (iii) if the department uses any material recovered or statement recorded from third party opportunity of cross - examina�on to other partners to be provided. (iv) The sale value has been recorded in the books as per stamp duty value / fair market value any doubt in the ma�er of valua�on can be resolved from valua�on cell. (v) Adverse inference cannot be taken relying on data recovered from third party i.e. Shri GirishVanjani. (vi) Shri GirishVanjani, Shri Sarvanand Sonwani and other partners of the firm have denied the unaccounted transac�ons.

However, the assessing officer partly accepted the above submissions of the assessee. A�er considering all the objec�ons of the assessee in its reply to the show cause no�ce and taking into considera�on the facts and material available on records following conclusion has been drawn by the assessing officer: (i) Rejec�on of books of accounts by the assessing officer After thorough examination of the response to show cause notice and dismissing various contentions raised by the assessee in its reply, it has been made clear that the seized digital data in the form of accounting entries on Miracle file is accurate, reliable and self-explanatory. Further, there is also no doubt that the accounts of the assessee, where all the transactions are not reflected cannot be relied upon as they present incomplete and incorrect state of affairs of business of the assessee and requires to be disregarded invoking the provisions of section 145(3) of the Act. Accordingly, provisions of section 145(3) were invoked by the assessing officer and the assessment of total income of the assessee is being made after taking into account all relevant material gathered during the search and the assessment proceedings. As per the material gathered during the search and submissions available on records the assessee is found to have indulged in the to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT practice of suppressing both receipts (on account of sale) and payments (on account of purchase) made for the projects undertaken / developed during the year. There is no uniform method that can be employed to compute income when part receipts on account of sale are not included on the books. The method differs from case to case depending upon various factors i.e. type of business, modus operandi of the assessee, sufficiency of data available for estimation etc. In a case where the evidence available on record contains details of corresponding unaccounted payments which are also partly included on the books, such partly. recorded payments should also be taken into consideration. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below: "It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We have carefully considered the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record. We note that issue under consideration is squarely covered against the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below: “11. We have heard both the parties. We find that in the new regime/ scheme of search assessment, the proceedings for search assessment of search party as well as third- party are made under section 147 of the Act, unlike in the earlier/ old scheme of search assessment, wherein the search assessment of searched party was made under section 153A of the Act, whereas the assessment of third-party, was made under section 153C of the Act. Since, in the present reassessment proceedings, both of the searched party, as well as third party assessments are covered. It is observed that the initiation of reassessment proceedings in the present case is valid in law. While passing the assessment order, the assessing officer also observed that search was carried out at the assessee`s premises on 24.08.2021, and pursuant to the search, notice under section 148 of the Act, was issued in case of the assessee. As search was carried out in the case of the assessee after 01.04.2021, wherein, provisions of section 148 were amended and provides deemed satisfaction for three assessment years prior to the date of search, and even on this ground, the assessing officer has validly issued notice under section 148 of the Act. Hence, there is no defect in the reassessment proceedings, therefore, we dismiss the ground raised by the assessee and confirm the findings of the learned CIT(A).”

We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record. We note that assessing officer did not reach on right conclusion, based on seized material and the profit estimation sustained by the learned CIT(A), on “on money”, is on very higher side, and we note that both the lower authorities, did not follow the mandatory judgement of Hon’ble Jurisdictional High Court of Gujarat (Supra) wherein, 6% addition was made on the “on-money”. In all the projects of M/s R.K. Group, on the “on-money” different estimation of profit element have been made by ld CIT(A), which are, at the rate of 8%, 12%, 12.5%, 16% and 20% etc. After all, it is “on money”, therefore, a uniform profit estimation on account of profit element on “on money” should be made.

We note that “On-money” receipts are undisclosed receipts, and only the profit element embedded in such receipts can be taxed, not the entire “on-money” amount. However, the rate of profit is always a matter of estimation and must depend on following factors, such as, nature of project, location, type of construction, cost structure, evidence of expenses and past profit margins. We note that in R.K. Group cases, expenses and cost in every project is higher side, due to locational disadvantage, and the profit element is below 10%, as per the to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT past audited profit and loss accounts and evidences available in search and seizure proceedings. It is settled position of law and we also note that Courts and Tribunals have emphasized that the profit rate must have a reasonable basis in each case, and cannot be arbitrarily fixed. Since “on-money” receipts represent undisclosed sales, only the profit element embedded therein can be taxed; however, the rate of profit estimation depends on the facts of each case. We have examined the seized material and past records and noted that in RK group cases, under consideration, the past profit margin as per audited books of accounts and as per seized material is 7% (average) only, this is because, due to location of the project and moreover, the cost and expenses are more than other similar projects. In these circumstances, we find that profit element embedded in commercial projects and housing projects should be estimated by applying the uniform rate of 10% on “on-money”. Therefore, considering the mandatory judgement of the jurisdictional Hon’ble Gujarat High Court, in the case of Ms. Jay Kesar Bhavani Developers Pvt. Ltd(Supra) and considering the peculiar facts of the assessee’s case, narrated above, we are of the view that profit estimation on, “on money” at the rate of, 10% is fair and reasonable.

We note that issue under consideration is squarely covered in favour of the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below: “14. In this summarised and concise ground, the plea of the assessee is that estimated profit at the rate of 16% on the so called “on money” is on higher side, considering the judgement of the jurisdictional High Court of Gujarat. However, plea of the revenue is that addition made by the assessing officer at the rate of @ 35% should be sustained. Learned Counsel for the assessee submitted that judgements of Hon`ble jurisdictional High Court of Gujarat, in respect of addition on “on-money”, should be followed. The Hon`ble jurisdictional High Court of Gujarat in the following cases held that profit element embedded in the “on-money” should be added in the hands of the assessee and not the entire “on-money”, and estimated addition on “on money” should be at the rate of 6% or at the rate of 8%, may be made, depending upon the facts and to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT

Next question arose, what is the element of income involved in this on- money. On one hand, the assessee is showing income at 8%, on the other hand, the ld. CIT(A) is estimating it at 20%. It is pertinent to observe that section 144 of the Income Tax Act provides discretion in the assessing officer to pass best judgment when an assessee failed to appear before him, and to submit requisite details. In other words, it provides power in the assessing officer to estimate an income of the assessee. We deem it appropriate to take note the relevant part of this section. It reads as under:.. "24. We have considered rival submissions and gone through the record carefully. There is no dispute that during the course of search certain material/loose papers were found exhibiting the fact that the assessee has received cash, over and above, the amounts stated in the booking register. This cash was not accounted for in the books. It has been treated as on-money for sale of flats/shops. Simultaneously certain loose papers were found disclosing the fact that the expenditure were incurred in cash and accounted in the books. The Ld.CIT(A) made an analysis of this, and then held that the moment assessee's income is being assessed at 8% of the gross on-money, then the remaining amount 92% could take care of unexplained expenditure. It can be explained by a simple, viz. an assessee has received Rs.100/- in cash for sale of flat. Out of that, element of income embedded in this Rs. 100/-has been determined by us at Rs.8/-. Remaining Rs.92/- must have been incurred by the assessee for developing that flat. Thus, in other words, the expenditure whose details were found being incurred in cash could be construed as coming out of these Rs.92/-. Thus, there cannot be any separate addition of unexplained expenditure. The Ld.CIT(A) has rightly deleted the addition."

We note that the average profit of the assessee as per audited books of accounts is 7%, therefore, profit estimation done by the learned CIT(A) at the rate of 16% on the “on-money” is higher side. Considering the nature of business and voluminous ‘on- money’ and taking into account, the fact that there is expenditure made by the assessee to develop the project out of the “on-money”, therefore, profit margin in this type of to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT business normally is 10% on “on-money”. We proceed to work out the estimation of profit keeping in mind the following facts: (i)The estimate is not opened up to be framed in an arbitrary manner. (ii) The estimate by rule of thumb is absolutely infirm. (iii)The estimation of rate of profit return must necessarily vary with the nature of the business. (iv)There cannot be any uniform yardstick. (v)An assessment to be best of judgement can only be based on the material available on record and past records and considering the totality of the facts. (vi) Only real income and neither notional income nor astronomical income, can be taxed under the I.T. Act, 1961. Accordingly, we note that estimation the profit element on ‘on-money’ at the rate of 10%, should be fair, keeping in mind the principle laid down by Hon'ble Supreme Court in the case of H. M. Esufali Abdulali that the method to be adopted must be which is approximately nearer to the truth.

Therefore, respectfully following the binding judgement of the Co-ordinate Bench of ITAT Rajkot in assessee’s own group case (Supra), we direct the assessing officer to tax “on-money” at the rate of 10%, therefore, we partly allow the following appeals of the assessee: (i) Ground No. 3 & 4 in for AY 2020-21 (ii) Ground No. 2 & 3 in for AY 2021-22 (iii) Ground No. 2 & 3 in AY 2022-23 Whereas following appeals of the revenue, are dismissed: for AY 2021- to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT 22. Summarized and Concise ground No.(iii) is reproduced below for ready reference: (iii) The Ld CIT(A) has erred in deleting the AO to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the on-money has been received, ignoring that the same is not in accordance with Accounting principles as per ICDS-3 applicable to Real Estate Developers and also not appreciating that the income on account of undisclosed on-money receipt was required to be assessed in the year of receipt. (This is revenue's ground no. 2 in for AY 2021-22) 23. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We have heard learned DR for the revenue in detail and learned Counsel for the assessee also. In our considered view, it was wholly erroneous on the part of the authorities below to apply the accounting principles of ICDS-III, as it is not applicable to the assessee, under consideration. We note that issue under consideration is squarely covered in favour of the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co- ordinate Bench of ITAT Rajkot is reproduced below: “21. Learned DR for the revenue argued that Ld.CIT(A) ought not to have directed the assessing officer, to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the “on-money” has been received. The treatment of revenue recognition adopted by the learned CIT(A) is not in accordance with Accounting principles as per ICDS-3, which is applicable to Real Estate Developers. The learned DR, therefore, stated that the income on account of undisclosed “on- money” receipt was required to be assessed in the year of receipt.

On the other hand, learned Counsel for the assessee submitted that assessee has been following the accrual basis of accounting and percentage of completion method. Therefore, revenue should be recognised in the year in which the transaction got materialised, that is, in assessee`s case, when the document is registered and executed, then only the revenue is recognised, with certainty. Hence, learned CIT(A) has rightly directed the assessing officer to recognise the revenue in the year in which the transaction/sale of flat is registered.

We have considered the submissions of both the parties, and we note that ICDS- 3 refers to Income Computation and Disclosure Standard–III, issued by the Central Board of Direct Taxes under section 145(2) of the Income-tax Act, 1961. It deals with computation of income from construction contracts for tax purposes. It is largely to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT based on the earlier Accounting Standard AS-7 but contains important differences relevant for income tax computation. We note that ICDS–III applies to construction contracts of contractors, however, assessee under consideration is not a contractor, but he is a contractee. A person who undertakes contract to do a job/work for others, is contractor. However, assessee under consideration is not a contractor but a contractee, who gets the work done from contractor and assessee pays the amount to the contractors for services rendered by them to it ( assessee), therefore, ICDS-III is not applicable to the assessee under consideration. Hence, we are of the view that ICDS- III applies to Contractors (not contractees). Fundamental Accounting Principle, as per ICDS-III is the Percentage of Completion Method (POCM). The Percentage of Completion Method is mandatory method under ICDS-III. Under ICDS-III the Revenue from variations, claims and incentives shall be recognised only when there is reasonable certainty of its ultimate collection.

We note that even if the addition on account of estimated profit on alleged “on- money” cash receipts is made, the same should be made in the year of actual sale when the conveyance deed is executed in the favour of buyer when the significant risk and rewards are transferred. It is observed that the assessee has consistently followed revenue recognition method whereby sale is offered to tax when registered sale deed of particular unit is executed, that is, date on which significant risk and reward has been transferred to buyer. This method of accounting has been followed consistently by assessee on year to year basis and assessing officer has not disturbed such methodology. This method of accounting of recognizing revenue has been accepted by Hon'ble Gujarat High court in the case of Shivalik Buildwell Pvt Ltd. [2013] 40 taxmann.com 219 wherein it is held as under: "Section 5 of the Income-tax Act, 1961 Income Accrual of [Booking amount received by builder] - Assessee was a builder and developer - He received certain amount as advance from different parties Assessing Officer added said amount to assessee's taxable income Tribunal set aside addition made by Assessing Officer holding that assessee being a developer of project, profit in its case would arise only on transfer of title of property and, therefore, receipt of any advance or booking amount could not be treated as trading receipt of year under consideration Whether on facts, impugned order passed by Tribunal deleting addition was to be upheld - Held, yes [Para 4] [In favour of assessee]"

On identical facts, it is relevant to refer to the Decision of Hon'ble ITAT Ahmedabad in the case of M/s D R. Construction Vs. Income Tax Officer in wherein Hon'ble ITAT has held as under:- "Unaccounted expenditure-receipt of 'on money' in the present case assessee is dealing in several immovable property ie, flats and shops which he has constructed. A single flat is a capital asset for the purchaser but for the assessee all the flats together constitute stock-in- trade. HELD THAT:-it is undisputed position that out of this on money assessee has incurred various expenditure/investment. Therefore, 'on money' as such and as a whole cannot be taxed over and above the income accruing on the basis of entries recorded in the books of account on the basis of decision held in E.D, Sassoon & Co. Ltd. & Ors. vs. CIT (1954 (5) TMI 2 SUPREME COURT we hold that advance money received either by way of cheque or by way of cash will partake the to 648/Rjt/2024 Shri Mehul Keshubhai Balhara vs. DCIT character of taxable income when registered sale deed of the flats is executed in subsequent years. As a result, the sum of 10 crores will not taxable in Asst. Year 2008-09. The appeal of assessee is accordingly allowed.”

On the similar facts, the learned CIT(A) relied on the judgement of the Hon'ble Supreme Court. The Hon'ble Supreme Court upheld the order passed by the Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Happy Home Corporation [2018] 94 taxmann.com 292 wherein it was held as under: "Section 145 of the Income-tax Act, 1961 Method of accounting (Project completion method) - Assessee was engaged in construction business - It was subjected to a survey action which was conducted on business. premises - During course of survey, statement of one partner of firm was recorded in which, he admitted of firm having received a sum of Rs.26.05 crores not disclosed in books of account-While doing so, he further stated that same would be subject to registration of sale deeds When assessment was undertaken, assessee contended that firm was following project completion method of accounting and income would be offered to tax as and when final sale deeds were registered Assessee firm thus offered only a sum of Rs.1 crore during year under consideration Assessing Officer rejected assessee's stand and added entire amount of Rs.26.05 crores as income of assessee during current year Tribunal accepted assessee's contention that since firm was following project completion method for offering income to tax, same would be subjected to tax upon completion of sale, though amount may have been received earlier from buyer Revenue filed instant appeal on ground that in his statement, partner of firm had disclosed entire amount as income of relevant year - Whether in view of fact that while agreeing that sum of Rs. 26.05 crores was undisclosed income of assessee for relevant current year, said partner of firm added a clarification that same would be subject to execution of sale deeds, there was no error in impugned order of Tribunal and, thus, same was to be upheld-Held, yes [Para 5] [in favour of assessee]”

In the light of the above judgement of the Hon’ble Supreme Court, in the case of Happy Home Corporation (supra), and Hon’ble jurisdictional High Court of Gujarat in the case of Shivalik Buildwell Pvt Ltd(supra) and decision of Ahmedabad Tribunal, in the case of M/s D R. Construction, we find that unaccounted profit estimated on ‘on- money’ receipt is required to be taxed in the year in which sale deed is executed by assessee or significant risk and rewards is transferred to buyer. As in case in hand, the assessee has been following revenue recognition method on execution of sale deed, only on-money receipt as computed in present case would be taxable in the year in which sale deed is executed and not when ‘on-money’ was received. Besides, we find that ICDS-III is not applicable to the assessee under consideration, therefore, we dismiss the ground raised