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Facts
The case involves cross-appeals by the Assessee and Revenue concerning assessment years from 2015-16 to 2020-21. The appeals arise from assessment orders passed under section 143(3) read with section 147 of the Income Tax Act, where the Assessing Officer (AO) assessed total income significantly higher than the returned income, based on evidence of unaccounted receipts and payments related to the 'The Spire' project found during a search operation.
Held
The tribunal noted that most grounds raised by both parties were either academic or contentious. The primary dispute revolves around the AO's confirmation of unaccounted receipts and the estimation of profits at 16%, as well as the year of taxation for 'on-money' receipts. The tribunal has consolidated multiple appeals due to common issues.
Key Issues
Whether the CIT(A) erred in confirming the AO's action regarding unaccounted receipts under section 147 and the estimation of profit, and whether 'on-money' receipts should be taxed in the year of receipt or sale deed execution.
Sections Cited
147, 148, 143(3)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA
to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates आदेश/ORDER Per, Bench: Captioned cross appeals filed by the Assessee and Revenue, pertaining to assessment years (A.Y.) 2015-16, 2018-19, 2019-20, 2020-21 to 2021-22, are directed against the orders passed by the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, (in short ‘the Ld. CIT(A)’), which in turn arise out of separate assessment orders passed by the assessing officer, under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, ‘the Act’).
Since, the issues involved in all the appeals are common and identical, therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the facts narrated in A.Y. 2018-19, have been taken into consideration for deciding the above appeals en masse.
3.Although, these appeals filed by the assessee and appeals filed by the revenue, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the assessee and revenue. We find that most of the grounds raised by the assessee and revenue are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the assessee and revenue as well. With this background, we summarize and concise the grounds raised by the assessee and revenue, as follows: (i) The Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad has erred in confirming the action of the Assessing Officer in respect of the order Page 2 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates passed u/s 147 of the IT Act whereby assessed the total income of Rs.7,58,45,434 /- as against the returned income of Rs. Nil. It is totally wrong, unwarranted, unjustified and bad in law. (This is ground No.1 in assessee’s appeal in for A.Y. 2018- 19, Ground No.1 in RJT/ 2024, for A.Y. 2019-20, Ground No.1 in RJT/ 2024, for A.Y. 2020-21) (ii) Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad has erred in confirming the action of the Assessing Officer in respect of alleged ground of estimated the profit @ 16%, as the appellant is developer of commercial project and tax such income in the year in which income is recognised in books of account, it is unwarranted, unjustified and bad in law. The various Hon'ble High Courts and Hon'ble ITAT, had held that the profit should be taken at the rate of 6 to 8 percent. ( This is Ground No. 2 to 4 in assessee’s appeal in for A.Y. 2018-19, Ground No. 2 to 4 in for A.Y. 2019-20, Ground No. 2 to 4 in ITA No.508/RJT/2024 for A.Y. 2020-21) ( This is also Revenue’s ground No.1 in ITA 674/ RJT/ 2024, for A.Y. 2015-16, Ground No.1 in ITA 675/ RJT/ 2024, for A.Y. 2018-19, Ground No.1 in ITA 691/ RJT/ 2024, for A.Y. 2019-20) (iii) The Ld.CIT(A) has erred in directing the A.O. 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 ITA 674/ RJT/ 2024, for A.Y. 2015-16, Ground No.2 in ITA 675/ RJT/ 2024, for A.Y. 2018-19, Ground No.2 in ITA 691/ RJT/ 2024, for A.Y. 2019-20)
The brief facts qua the assessee, as per lead case in for assessment year 2018–19, are that the assessee is a partnership -firm engaged in Real Estate business. As per the Income-tax Return for assessment year (AY) 2018-19, filed on 20-08-2018, the total income has been declared at Rs. 91,51,240/-. A Search, Seizure and Survey action was carried out by the office of DDIT (Inv.), Unit-1, Rajkot in the case of leading Page 3 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates real estate builders of Rajkot and their key associates on 24.08.2021. Four different groups were covered in the operation including Praful Gangdev Group of Rajkot. All the four groups are in the business of real estate and are mainly concentrated in and around Rajkot. A total of forty-three (43) premises were covered, out of which 32 premises were covered under section 132 of the Income Tax Act 1961 and the other 11 premises were covered u/s 133A of the Income Tax Act 1961. The premises covered were a mix of residential and business premises of their related entities, their family members, key associates and employees. The Gangdev group has completed several Real estate projects in Rajkot. The main person of the group is Shri Praful Gangdev who takes key decisions and is helped by several other partners. The partners vary for each project but Shri Kinjan Faldu, Shri Chandresh Panara, Shri Siddharth Gangdev are the key partners of Shri Praful Gangdev. The Gangdev group has completed projects like The Spire, The Spire-2, Trinity Towers in the city of Rajkot. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences.
Assessing officer noticed that there is unaccounted transactions pertaining to project "The Spire" developed by the assessee-firm, (M/s Buildcon Associates), have been recovered from the material seized during the search operation. The assessing officer noticed that there is unaccounted receipts of Rs. 53,64,60,435/-, against sale of units of the project "The Spire" and there is unaccounted payments of Rs. 35,02,01,050/- for purchase of land for the project "The Spire". As details regarding unaccounted part of the Page 4 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates aforementioned transactions pertaining to the assessee have been gathered from the seized material during the search operation, therefore, a notice under section 148 of the Act has been issued on 23-03-2022, to the assessee after following due procedure as per the Act and with prior approval of the specified authority as per section 151 of the Act. In response to the notice issued under section 148 of the Act, the assessee has filed an Income tax return on 24-11-2022, declaring total income of Rs. 91,51,240/-. Subsequently, a notice u/s 143(2) of the Income-tax Act has been issued and served on 17-12-2022 on the e-filing portal of the assessee. Subsequently, notices u/s 142(1) have been issued from time to time seeking primary as well as further details from the assessee for carrying out the assessment. In view of natural justice, the images of original seized material pertaining to the assessee have been supplied and discussed in the notices issued u/s 142(1) of the Act.
The assessing officer observed that main issue involved during the year is that unaccounted receipts against sale of units of the project The Spire. "The Spire" is a fully commercial project developed by M/s Buildcon Associates, which is a partnership firm. This project is having showrooms at ground & 1st floor and offices at 2nd to 13th floor.During the course of search at the office of Shri Praful Narendrabhai Gangdev, situated at Bungalow, opposite Honest, Kalawad Road, Kotecha Chowk, Rajkot, 1-PC, one Sandisk 8GB Pen drive, one 4 GB pen drive and one 2 TB Hard disk were found and mirror imaging of the same was taken (except one 4 GB pen drive which was seized in original), which was then seized in hard drive inventoried as per Annexure A as A-2 & A-3. During the analysis of the digital data of the Page 5 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates above said devices, one excel file named "The spire" was found from red colour Sandisk, 8 GB Pen drive. This excel file contains different excel sheets within itself namely "THE-SPIRE 30.12.2018" "31.5.18", "30.6.18", "spire 2", "ofc.no", "DOCUMENT 29.11.2018" and "the Spire11-8-18". The excel sheet named "THE-SPIRE 30.12.2018 contains the columns named Sr no., Name, SQ.FT. Rate, Total Amount, A, B, DOC, Received amount and Payable amount. The screen shots of the excel sheet named "THE-SPIRE 30.12.2018, pasted in the assessment, order, page number 3 to7.In the statement recorded u/s 132(4) of the Act, at his residential premises of assessee, (premise A-5), Shri Bharat Sonwani has stated that these paper may be related to project, The Spire in Rajkot. The snapshot of the relevant portion of that statement is reproduced in the assessment order.During the course of recording of the statement of Shri Praful Gangdev, at his residential premises (premise C-1) under section 132(4) of the Act, he categorically accepted taking “on-money” in cash for the sale of real estate property. Further, in his statement recorded at his office premises (premise C-2) under section 132(4) of the Act, Shri Praful Gangdev has stated that out of component A and B of bifurcation of total amount, component B represents amount of “on-money” received per unit sale of the projects in cash and component A is sale deed value. The snapshots of the relevant portion of that statement are reproduced in the assessment order. During the search action, Shri Praful Gangdev was shown the print-outs of this sheet i.e. "THE-SPIRE 30.12.2018" of the excel file "The spire", which were also inventoried and seized at page number 1 to 6 as A-5 of Annexure-A and he was asked to explain the contents of the same.
Page 6 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 7.In reply, the assessee stated that these are related to sales of commercial units of project The Spire developed by Buildcon Associates and the B component represents amount of ‘on money’ received per unit sale in the project in cash. Therefore, it is clear from the above statement of Shri Praful N. Gangdev that the B component i.e. column G of excel sheet named "THE-SPIRE 30.12.2018" of the excel file named "The spire" represents the ‘on money’ received per unit sale in the project "The Spire".To further establish that the excel file found is absolutely correct, copies of sale deeds of showrooms / offices of the project "The Spire" were called for from the Sub-registrar office as well as from Shri Praful Gangdev. On comparing these data i.e. data received from the Sub-registrar office, Shri Praful Gangdev and the digital data seized from the office premises of Shri Praful Gangdev, it can be seen that the document value mentioned in component A in the excel sheet named "THE-SPIRE 30.12.2018" is same to the document value as per sale deed. For the purpose of reference and proving the correctness of this data, a comparison of 50 units out of the total of more than 180 units of this project is shown. The matching of values as shown in the table mentioned in the assessment order, proves beyond doubt that the ‘on money’ has been received from customers. Comparison of the document value as per seized digital data and data received from the Sub-registrar office and from Shri Praful Gangdev is tabulated in the assessment order, page number 16 to 19. According to excel sheet of Spire project named "THE-SPIRE 30.12.2018", the purchaser of showroom number 3 & 4 is "Jayesh Jogia" and total document value is Rs. 1,35,00,000/-. These details are matched with the sale deed obtained from sub-registrar office as well as from Praful Gangdev. The document amount mentioned in the registered Page 7 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates sale deed and the amount mentioned as component A (document value) in the excel sheet named "THE-SPIRE 30.12.2018" are same. The snap shots of relevant pages of the sale deeds of some of showrooms/offices are reproduced in the assessment order.
Therefore, it is established beyond doubt the correctness of the data in the excel file. The 'B' component represents the ‘on-money’ accepted in cash. Therefore, assessing officer observed that based on the above discussion, it is established that units of showrooms / offices sold in the project have been sold over and above the registered price of that unit. It is clear that the firm i.e. M/s Buildcon Associates has received ‘on-money’ in cash. As the date- wise data of ‘on money’ is not available and the same has also not been provided in response to the summons issued, it is logically understood that the ‘on-money’ has been paid at the time of registration of property. Therefore, the financial year wise bifurcation of ‘on money’ received by the firm is done on the basis of date of registration of sale deed. After analysing the data seized, data received from the sub-registrar office and submission received, unit-wise and financial year wise, ‘on money’ received by the firm is tabulated in the assessment order, page number 21 to 31.Total year-wise ‘on money’ received by the firm for the project The Spire 25 is tabulated as under: F.Y. On money received 2017-18 17,10,10,753/- 2018-19 35,60,26,040/- 2019-20 94,23,642/- Total 53,70,22,035/- Page 8 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates Thus, it is abundantly clear that the assessee-firm has received total unaccounted (on-money) receipts of Rs. 53,70,22,035/- from the project "The Spire" which is over and above the value as per registered conveyance deeds. Under these circumstances, the completeness and correctness of the accounts of the assessee-firm are not established satisfactorily and, therefore, vide notice dated 21-01-2023, the assessee-firm has been asked to show cause as to why provisions of section 145(3) of the Act should not be invoked for the year under consideration and profits element embedded in the unaccounted transactions for respective years be estimated keeping in mind the material available on records.
Therefore, during the assessment proceedings, the A.O. issued the show cause notice to the assessee, to explain the transaction. In response to the show cause notice, the assessee submitted its reply which is reproduced below:
"Vide above show cause notice your honour has proposed to make addition of entire amount of Rs. 17,10,10,753 on account of alleged on money received during the assessment year under consideration i.e. AY 2018-19. In this context, it is humbly submitted that the entire sales proceeds (in cash) of Rs. 17,10,10,753/ cannot be treated as unexplained it settled principle that entire amount of sale proceeds cannot be regarded as profit of the assessee, the net profit rate had to be adopted for the purpose of addition. It is further submitted that the entire amount of sale proceeds cannot be regarded as profit of the assessee, the net profit rate had to be adopted for the purpose of addition In such circumstances, an estimate of the probable profit has to be made having regard to the surrounding circumstances, ground realities, corroborative evidence in the form of profits shown in comparative cases and other factors that are relevant to determine the real income of the appellant. In case of CIT v President Industries (2002) 268 ITR 654 (Guj), Honble Gujarat High Court held that where unaccounted sales were revealed during course of survey, entire sale proceeds cannot be added as undisclosed income of the assessee, but addition could only be to the extent of profit embedded in sales. It Page 9 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates was further observed by Honble High Court that entire amount of sales could not represent the income of the assessee, who had not disclosed the sales. CIT v Gurubachhan Singh J Juneja 215 CTR 0509 (Gujarat-HC) Head note from Tax publishers is reproduced as under "Addition under section 69-Alleged unaccounted sales-During search proceedings under section 132 various books of accounts and documents were seized from the residential and business premises of assessee. It was found that the amount of certain sales was not accounted for in books of accounts. AO made addition being the value of unaccounted sales. However, the finding of Tribunal was that assessee could not be taxed the entire amount but was liable to be taxed only on earned on the said sales, thereby deleted addition. Revenue had not proved by bringing any material on record that assessee had made any investment to make alleged unaccounted sales. Held. In the absence of any material on record to show that there was any unexplained investment made by assessee which was reflected by alleged unaccounted sales, the finding of Tribunal that only GP on the said amount could be brought to tax did not call for any interference. ITO Vs M/s. Karthik Poultry Farm - 05(8)/2004-"It is well settled law that the entire amount of sale does not represent income of the assessee. It is only a price received by the seller of the goods and only the realization over cost that can be the profit. In case of CIT v. BalchandAjit Kumar (2003) 263 ITR 610 (MP), held that entre amount of sale proceeds cannot be regarded as profit of the assessee, the net profit rate had to be adopted for the purpose of addition. Similarly, Honble Gujarat High Court in the cate of CIT Saint Synthetics Mill (2010) 3261TR 410 (Guj), held that addition was to be made not in respect of sale consideration but only in respect of the profits. Further, the Court observed that it can thus, be seen that consistently, this Court and some other Courts have been following the principle that even upon detection of on-money receipts or unaccounted cash receipts what can be brought to tax is the profit embedded in such receipts and not the entire receipts, themselves. If that be the legal position, what should be estimated as a reasonable profit out of such receipt must bear an element of estimation. In view of the legal position that not the entire receipts, but the profit element embedded in such receipts, can be brought to tax. Further, it would not be out of place to mention here that while determining the figure of on money receipt aggregating to Rs. 48,65,22,573/ the Authorised Officer has failed to appreciate and consider that the assessee had debited Page 10 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates expenses relating to unaccounted sales in its books of accounts without considering the unaccounted investment for making this unaccounted sales. 8.3 Hence, adding entire amount of sale consideration received in cash will not serve the end of justice. Sale proceeds comprise of cost, expenses (as tabulated above) and profits. Out of entire sale proceeds, only profit element is liable to tax. When the appellant is found to have not incorporated entire sale proceeds in the regular books of account and the assessing officer is not satisfied about the correctness and completeness of the accounts of assessee, the same are liable to be rejected.Under these circumstances estimation of profit is to be made in respect of sale proceeds not accounted for. Accordingly, profit element in the unaccounted sale proceeds received in cash is to be brought to tax net.”
The assessing officer accepted the above submissions of the assessee, however, noted that at some instances, it is contended by the assessee that incomplete details/ data cannot be accepted to be actual/ real. Whatever unaccounted receipts are logically deducible from the seized document, the same is only proposed for addition in the show cause notice. Further, it requires to be made clear that the addition proposed in the show cause notice is not solely based on the statement of Shri Praful Gangdev, rather the data seized is duly corroborated with real events and it is established that the seized data relating to ‘on-money’ receipts is very speaking in nature and reliable. Further, the assessing officer noticed that in most part of the reply, the assessee is seeking to make a point that entire ‘on-money’ receipts should not be taxed with the help of various judicial decisions from different judicial forums. After thorough examination of the response to show cause notice and considering the averments made by the assessee in its reply, there is 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 Page 11 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 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.
The assessing officer noticed that as per the material gathered during the search and submissions available on records, the assessee is found to have indulged in the 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."
Where suppression of sales receipts is involved, the question is whether the entire sales or only a percentage of profit should be adopted as income. In CIT v. President Industries [2002] 124 Taxman 654 (Gujarat), the Assessing Page 12 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates Officer had found evidence of suppression of sales. He adopted the entire receipt (sales) as income but the Hon'ble Jurisdictional High Court has held that the entire undisclosed receipts (sales) cannot constitute income. The sales only represent the price received by the seller of the units for which the seller has already incurred the cost in order to acquire or process the inventory. Therefore, it is the realization of excess consideration over the cost incurred which should be assessed as profit or income. In other words, profit component embedded in the sales could be treated as income. Recently, in the case of PCIT v. Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, the Hon'ble Guj. High Court has held that only profit element embedded in the gross on-money receipts can be taxed. For this, the Hon'ble court has derived reference from its earlier decision delivered in the case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89. Relevant part of the decision is as under-
"it has been consistently held by this court and some other courts have been following the principle that even upon defection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that were the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation"
The assessing officer noticed that even in those cases where no details regarding unexplained payments / investments are available on records, it has been held by the Hon'ble Gujarat High Court that while dealing with addition on account of unaccounted sales, in absence of any material on record to show that there was any unexplained investment/expense made by the assessee, there could be a presumption of such expenditure. In such event also it is held that only profit on suppressed sales could be brought to Page 13 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates tax [CIT v. Gurubachhan Singh J Juneja [2008] 171 Taxman 406 (Gujarat)] Hence, in such cases, both the Supreme Court and the Jurisdictional High Court have consistently held that where evidences regarding unaccounted receipts are being assessed, it is not reasonable to consider the entire unaccounted receipts for taxation. Rather, only profit element lying therein should be estimated keeping in mind the facts and surrounding circumstances of the case at hand. Therefore, respectfully following the ratio laid down by the Apex Court and the Jurisdictional High Court and in view of the facts of the case it would be fair if reasonable rate of profit is adopted to tax the unaccounted income of the assessee.
13.Estimation of rate of profit in Commercial Projects, by the assessing officer The assessing officer noticed that details of various projects undertaken by the searched group members and their partners have been recovered from the seized Miracle File. Some projects were in completion stage whereas some were just started. Besides, in respect of some projects comprehensive details i.e. Land purchase expense, ‘on-money’ receipts have been recovered from the seized data whereas in other projects very limited details i.e. only on- money receipts were recovered during the search operation.Wherever, details of receipts and payments were recoverable form the seized data, it is noticed that the net surplus funds available with these projects were ranged from (-) 1271% to 35%. Reason for this vast gap between the upper and lower ends of this net surplus range was primarily attributable to the stage in which a particular project has reached since its inception. For example, if any project is just launched then its % of net surplus funds would be lower Page 14 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates because most of the funds are spent / applied on inventory and the inflow of ‘on-money’ has not started in full pace. Due to combined effect of these two aspects the availability of surplus funds remains either on lower side or sometimes in negative state. Thus, it is understood that taking reference from the net surplus / unaccounted profits of such just launched projects would not give true picture of the potential profitability of such projects. In order to estimate a reasonable rate of profit, it is taken that only those projects for which maximum data is available from the seized material should be relied upon. At the same time, it is also ensured that the project that almost reached its final stage (with respect to construction activity and receipt of on-money both) should only be taken as reference for adoption of an appropriate rate of profit. After considering all the above aspects, only one project i.e. The Spire which has been developed by the assessee-firm (M/s Buildcon Associates) has been identified.
Net receipts of this project has been calculated and it is seen that after considering all kind of transactions i.e. Net on-money receipts, Expenses for running the project including the Land purchase there remained average net surplus of 35% in the hands of respective developer/owner i e. the assessee- firm. (Total unaccounted receipts of Rs. 53,64,60,435/- and unaccounted payments of Rs. 35,02,01,050/- Net difference of Rs. 18,62,59,385 is 35% of the total unaccounted receipts). Apart from this, it is also important to keep in mind violation of various other provisions of the law which are in place to discourage the practice of indulging in such unaccounted transactions. Having said that and considering the facts of the present case and binding judicial precedents as discussed earlier, if all the expenses / payments are Page 15 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates disallowed then the ratio laid down by the Hon'ble High Court with regard to not faxing all the receipts would remain on papers only. Therefore, with a view to strike a proper balance between the factual vis-à-vis the legal aspects, it is decided to further enhance the aforementioned average net profit rate from 35% to 39%. Accordingly, 39% has been set as benchmark rate for the projects where details of unaccounted receipts as well as unaccounted expenses have been recovered from same set of the seized material.
The assessing officer noticed that since the details regarding receipts and payments both have been recovered from the seized material and is available on records, the net unaccounted profit on the unaccounted receipts for the assessee-firm is estimated at the rate of 39%. As far as the profit for the year under consideration is concerned, the same was computed by the assessing officer, as under- Sl. Particulars Amount No. 1 Gross on-money receipts during the year 17 10,10,753 2 Unaccounted profit at 39% of 17,10,10,753/- 6,66,94,194 Thus, addition of Rs. 6,66,94,194/-, being unaccounted profit, was made by the assessing officer, over and above the regular business income reported by the assessee, in the Income-tax Return filed for the year under consideration invoking provisions of section 145(3) of the Act.
Aggrieved by the various additions made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A), estimated the profit element on the “on money”, at the rate of 8%, Page 16 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 12%, 16%, 20% etc, in a different assessment years. Therefore, assessee, as well as, revenue, both are in appeal before us. The main contention of the revenue in these appeals are that the addition made by the assessing officer should be confirmed. Whereas, main contention in the assessee’s appeals is that the profit estimation on “on -money”, is on higher side, therefore, it should be reduced to a reasonable extent, by following the judgement of Hon’ble Jurisdictional High Court of Gujarat in various cases such as, in the case of Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, wherein 6% addition on “on money, was upheld. In various judgements of jurisdictional ITAT Ahmedabad, (cited by assessee in legal compilation) held the addition on “on money” at the rate of 8% is sufficient to plug the leakage of the revenue. Therefore, the solitary grievance of the assessee in assessee’s appeals are that reasonable estimation may be made in the hands of the assessee. The findings of the learned CIT(A) would be discussed while adjudicating the relevant issue involved in concise and summarised grounds noted above.
Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows:
18.Summarized and Concise grounds pertaining to estimation of profit element, are reproduced below for ready reference: (i) The Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad has erred in confirming the action of the Assessing Officer in respect of the order passed u/s 147 of the IT Act whereby assessed the total income of Rs.7,58,45,434 /- as against the returned income of Rs. Nil. It is totally wrong, unwarranted, unjustified and bad in law.
Page 17 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates (This is ground No.1 in assessee’s appeal in for A.Y. 2018- 19, Ground No.1 in RJT/ 2024, for A.Y. 2019-20, Ground No.1 in RJT/ 2024, for A.Y. 2020-21) (ii) Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad has erred in confirming the action of the Assessing Officer in respect of alleged ground of estimated the profit @ 16%, as the appellant is developer of commercial project and tax such income in the year in which income is recognised in books of account, it is unwarranted, unjustified and bad in law. The various Hon'ble High Courts and Hon'ble ITAT, had held that the profit should be taken at the rate of 6 to 8 percent. ( This is Ground No. 2 to 4 in assessee’s appeal in for A.Y. 2018-19, Ground No. 2 to 4 in for A.Y. 2019-20, Ground No. 2 to 4 in ITA No.508/RJT/2024 for A.Y. 2020-21) ( This is also Revenue’s ground No.1 in ITA 674/ RJT/ 2024, for A.Y. 2015-16, Ground No.1 in ITA 675/ RJT/ 2024, for A.Y. 2018-19, Ground No.1 in ITA 691/ RJT/ 2024, for A.Y. 2019-20)
We have heard both the parties. 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 Gangadev 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 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 Page 18 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates case. We have examined the seized material and past records and noted that in Gangadev group cases, under consideration, the past profit margin ( net margin) as per audited books of accounts and as per seized material is 6.5% (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 identical and similar 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 are 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 circumstances of the case. The relevant judgements of the Hon`ble jurisdictional High Court of Gujarat and Hob`ble ITAT Ahmedabad, are reproduced below:
Page 19 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates (i). 2020 (4) TMI 844ITAT AHMEDABAD GREENFIELD REALITY P. LTD. VERSUS ACIT, CENT. CIR. 1 (2) AHMEDABAD AND DOIT, CENT. CIR. 1 (2) AHMEDABAD, VERSUS GREENFIELD REALITY P. LTD. “Estimation of Income on-money received by the assessee on booking of flats and shops in "VesuProject"Income offered by the assessee at 8% of the alleged gross receipts source of payment of cash for purchase of the land-HELD THAT:- On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money.After going through the well-reasoned order of the Id.CIT(A), and in the light of judgment of Hon'ble jurisdictiona' High Court in the case of Panna Corporation [2014 (11) TMI 797 GUJARAT HIGH COURTI as well as Koshor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-AI we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.Element of income involved in this on- money assessee is showing income at 8%, AND CIT(A) is estimating it at 20% HELD THAT:- CIT(A) has also not mentioned any attending circumstances for harbouring a belief that 20% could have been earned from this activity. Thus after taking guidance from the judgment of Kishor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-Al we deem it proper that the assessee has rightly disclosed the profit element embedded in the gross profit at 8%. Accordingly, we allow the ground of appeal raised by the assessee, and hold that profit which has been directed to be adopted by the Ld.CIT(A) at 20% of the alleged turnover should be taken at 8%. (ii)Tax appeal No.267 of 2022 dated 07.07.2022 M/S. JAY KESAR BHAVANI DEVELOPERS PVT. LTD.( Guj-HC) “Rejection of books of accounts u/s 145(3) On money receipt estimation of income addition on account of entire construction receipts as alleged unrecorded receipts - HELD THAT: CIT (A) was not justified in confirming the addition of entire on- money receipts amounting to 4,72,02,368. Therefore, only estimated net profit is required to be taxed. We find that the assessee has shown net profit at 4.55.% for the assessment year under consideration and 4.59% for A.Y. 2010-11. Further, the Hon'ble High Court in the case of CIT V. Abhishek Corporation [1998 (8) TIMI 110 ITAT AHMEDABAD-C) has upheld the net profit at 1.31% as declared by the assessee in that case. The net profit rate disclosed at 4,55% during the assessment year under consideration by the assessee in books of accounts and Page 20 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates considering the facts that the project undertaken by the assessee comes under deduction of section 801B(10) hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking into account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on-money. (iii)The Commissioner of Income Tax vs. Shri Hariram Bhambhani INCOME TAX APPEAL NO.313 OF 2013 (BOM)(HC): "In any view of the matter, the CIT(A) and Tribunal have come to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and a possible view. Thus, no substantial question of law arises for our consideration.” (iv) The ACIT Central Circle - 3, Jaipur Vs Shri Nawal Kishore Soni :
1257, & 1258/JP/2019 [ITAT] [Jaipur]: "23.4 It is settled law that not only from the illegal business but also the unaccounted transaction of purchase and sale only profit/ income on sales could be assessed as undisclosed income and could be subjected to tax. Case laws to the point are as under:
1. Dr. T.A. Quereshi (157 taxmann.com 514) (Supreme Court)
2. Piara Singh (124 ITR 40) (Supreme Court)
3. S.C. Kothari (82 ITR 794 (Supreme Court) 23.5 The assessee admitted such profit at Rs. 45,00,000/- and disclosed that on said transactions income in PMGKY, 2016 and paid due tax thereon. The copy of certificate issued by PCIT is placed on record. Thus when that transactions are of unrecorded purchase and sale of gold, which Ld. assessing officer also admits in assessment order, then simply that name & address of purchasers are not provided the entire amount of sale cannot in law be treated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax more so when the assessee has disclosed in PMGKY the said undisclosed income of Rs.45,00,000/- and paid tax in accordance with scheme and received certificate there for from Pr. Commissioner of Income Tax, hence the same disclosed income cannot be included as income is assessment as per Section 199-l of PMKGY. However Ld. A.O. has allowed credit of amount of disclosed income in PMKGY from total income as so the addition on this account is restricted to Rs.45,00,000/- and balance is deleted. The assessee thus gets relief of Rs.3,02,00,000-45,00,000 = Rs. 2,57,00,000/-." (v) Greenfield Reality P. Ltd IT(SS) A No. 320,321 and 322/Ahd/2018 & 329/Ahd/2018: "
16. We have duly considered rival submissions and gone through the record carefully. On an analysis of the record, it would reveal that during Page 21 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land. Therefore, the Ld.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money. Therefore, after going through the well-reasoned order of the Ld.CIT(A), IT(SS)A No.289 Ahd/2018 (7 Others) Greenfield Reality P. Ld. Vs. DCIT and in the light of judgment of Hon'ble jurisdictional High Court in the case of Panna Corporation (supra) as well as Koshor Mohanlal Telwala (supra), we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.
17. 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."
15. We note that the assessee is in appeal before us and praying the Bench that estimated addition is very higher side and it should be reduced, at a reasonable level. However, learned DR for the revenue submitted that addition Page 22 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates made by the assessing officer may be confirmed. We note that the estimation of income is based on facts and will vary from business to business and year to year, depending on the business conditions. We note that ld.CIT(A) has estimated the profit on the “on-money” at the rate of 16% but the ld.CIT(A) has failed to bring on record any comparable case in support of his estimation that too @ 16% and in some cases 8% and 12% etc. No doubt estimate of the profit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as comparable cases. Without this the estimation so made cannot be said to be valid estimation. The jurisdictional Hon’ble High Court of Gujarat, in case of estimation of profit element on, “on-money” has taken the view that estimation of profit in these type of cases of “on-money” had been held between range of 6% to 8%.
16. 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 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.
17. Considering the facts and circumstances, narrated above, we find that the estimation done by the assessing officer, and re-estimated addition, sustained by the Ld. CIT(A) @ 16% is very higher side. Therefore, we are of the view that the estimated addition on “on-money” should be @ 10%, which will take care of inconsistency in the undisclosed income of the assessee. Therefore, the assessing officer, is directed to make the addition in the hands of assessee, at the rate of 10%, on “on-money”. Hence, we allow above appeals of these assessee partly and dismiss all the appeals of the revenue.”
Page 23 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 20. Therefore, respectfully following the binding judgement of the Co- ordinate Bench of ITAT Rajkot in identical and similar group case (Supra), we direct the assessing officer to tax the “on money” at the rate of 10%, hence, we partly allow the following appeals of the assessee: for A.Y. 2018-19, (ii) Ground No.1 in RJT/ 2024, for A.Y. 2019-20, (iii) Ground No.1 in RJT/ 2024, for A.Y. 2020-21, (iv) Ground No. 2 to 4 in for A.Y. 2018-19, (v) Ground No. 2 to 4 in for A.Y. 2019-20, (vi) Ground No. 2 to 4 in ITA No.508/RJT/2024 for A.Y. 2020-21.
Whereas following appeals of the revenue are dismissed:
(i) Ground No.1 in ITA 674/ RJT/ 2024, for A.Y. 2015-16, (ii) Ground No.1 in ITA 675/ RJT/ 2024, for A.Y. 2018-19, (iii) Ground No.1 in ITA 691/ RJT/ 2024, for A.Y. 2019-20.
Summarized and concise ground number (iii) is reproduced below for reference: (iii) The Ld.CIT(A) has erred in directing the A.O. 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 ITA 674/ RJT/ 2024, for A.Y. 2015-16, Ground No.2 in ITA 675/ RJT/ 2024, for A.Y. 2018-19, Ground No.2 in ITA 691/ RJT/ 2024, for A.Y. 2019-20)
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 Page 24 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 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 on identical and similar group cases, of 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 are 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.
22. 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 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- Page 25 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 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 character of taxable income when registered sale deed of the flats is executed in subsequent years. As a result, the sum of 10 crores Page 26 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates 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 Page 27 of to 508, 674 to 675 & 691/Rjt/2024 Buildcon Associates applicable to the assessee under consideration, therefore, we dismiss the ground raised by the revenue.”
23. Respectfully following the binding judgement of the ITAT Rajkot in the group cases, on identical and similar facts (Supra), we dismiss the following grounds raised by the revenue.
(i) Ground No.2 in ITA 674/ RJT/ 2024, for A.Y. 2015-16, Ground No.2 in ITA 675/ RJT/ 2024, for A.Y. 2018-19, (ii) (iii) Ground No.2 in ITA 691/ RJT/ 2024, for A.Y. 2019-20.
24. In the combined result, appeals filed by the assessee, is partly allowed to the extent indicated above, whereas, appeals filed by the revenue, are dismissed.
Order pronounced in the open court on 09-03-2026.