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Facts
The assessee, Accurate Buildcon, a civil construction firm, was subjected to reassessment proceedings under Section 147/148 of the Income Tax Act, 1961, following a search on Decora Group and a subsequent survey on the assessee. Incriminating documents, including a pen-drive, revealed unaccounted cash payments to the assessee from Aryan Arcade Pvt. Ltd. and other entities, leading to additions to its income.
Held
The tribunal upheld the validity of the reassessment proceedings under Section 147/148, citing that in the new regime, search assessments for both searched and third parties are conducted under this section. Regarding the profit estimation on unaccounted cash receipts, the tribunal found the 12% rate applied by the CIT(A) to be excessive and reduced it to 8%, aligning with precedents from the jurisdictional High Court and ITAT.
Key Issues
The key legal issues were the validity of the reassessment proceedings initiated under Section 147/148 of the Income Tax Act and the appropriate rate for estimating profit on unaccounted cash receipts (on-money) discovered during the search and survey operations.
Sections Cited
Section 147, Section 148, Section 143(3), Section 139, Section 133A, Section 132(4), Section 2(24)(x), Section 36(1)(va), Section 143(2), Section 142(1), Section 250
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA
Date of Hearing : 16/01/2026 Date of Pronouncement : 09/03/2026 आदेश/ORDER Per, Bench:
Captioned appeal filed by the assessee, pertaining to Assessment Year 2017-18 to 2022-23, are directed against the separate orders passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals), which in turn arise out of separate orders passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961.
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.
These appeals filed by the assessee, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the assessee. We find that most of the grounds raised by the assessee 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. With this background, we summarize and concise the grounds raised by the assessee, as follows:
(i) The ld. Commissioner of income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s. 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed. (This is assessee's ground No. 2 in for AY 2017-18, This is assessee's ground No. 2 in AY 2019-20 and, This is assessee's ground No. 2 in for AY 2020-21) (ii) The Id. CIT(A)erred on facts as also in law in retaining addition of Rs. 45,25,000/- by estimating profit at the 12% of so-called unaccounted cash receipt from Aryan Arcade Pvt. Ltd. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. The Id. CIT(A) also erred on facts as also in law in retaining addition of Rs. 69,46,854/-by estimating profit at the 12% of so called unaccounted cash/contractual receipt of Rs 5,78,90,450/- (1) Rs.2,42,50,000/- from Aryan Arcade Pvt. Ltd. (ii) Rs.31,24,950/- as per Annexure A-5 seized from business premises and (iii) Rs. 3,05,15,500/- from R K Infralink LLP. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. (This is assessee's ground No. 3 in for AY 2017-18, This is assessee's ground No. 3 in AY 2019-20, This is assessee's ground No. 3 in for AY 2020-21, This is assessee’s ground no.2 in for AY 2021-22 and, This is assessee’s ground no.2 in for AY 2022-23)
4. The relevant material facts, as culled out from the material on record, are as follows. The assessee, a partnership firm, is engaged in the business of civil Page 2 of 15 construction and works contract services. Income-tax Return (ITR) under section 139 of the Act for the year under consideration has been filed on 26-07-2017 with total income of Rs. 10,75,460/-. On 26/09/2018, a search has been conducted in the case of Decora Group where certain incriminating documents highlighting huge unaccounted cash payments made to Shri Ashish Tank. Consequently, on 02/04/2019, a survey u/s 133A of the Income Tax Act was carried out by the ADIT (Inv.), Rajkot at the business premise of M/s Accurate Buildcon where Shri Ashish Tank is a partner. The facts of the case are that the project Om Decora 9 Square has been promoted by M/s Aryan Arcade Pvt Ltd. Shri Ashish Tank in his firm of M/s Accurate Buildcon has supplied labour for project, Om Decora 9 Square. During the search action carried out on Decora group on 26.09.2018, a pen-drive was found from the residence of Shri Himanshu Raiyani, accountant of the group. In the said pen-drive, there is a ledger account showing payment of Rs. 5,48,10,000/- made to Shri Ashish Tank on behalf of M/s. Accurate Buildcon during 31.07.2016 to 25.08.2018. Date-wise details of payment totaling to Rs. 5,48, 10,000/- by Om Decora Builders to M/s Accurate Buildcon (The assessee) during the period 31.07.2016 to 25.08.2018 are appearing in the ledger account found and impounded. During search, Shri Himanshu Rayani, the person from whose possession, pen-drive was seized has admitted the transactions mentioned in the pen drive are unaccounted. Further, the narration of cash in the ledger also proves that the said transaction have been made via unaccounted cash of M/s Aryan Arcade. It may be reiterated that this fact was admitted by Shri Himanshu Raiyani in his statement recorded under section 132(4) of the Income Tax Act, 1961. When the director of M/s Aryan Arcade Limited, Shri Nikhil Patel, also accepted above narrated facts. Chetan Rokad and Shri Gopal Chudasma were confronted with the same fact during post. Apart from the above, on perusal of the tax audit report filed by the assessee -firm for the year under consideration, it is observed that Rs. 1,34,776/- received by the assessee firm from its employees Page 3 of 15 to which the provisions of section 2(24)(x) apply, is credited by the assessee to the employee's account in the provident fund after the due date by which the assessee-firm was required as an employer to credit the same as per the relevant Act for the provident fund. Thus, the above payment of Rs. 1,34,776/- which is not in accordance with the provisions of section 36(1)(va) of the Income-tax Act should have been disallowed at the time of preparing the Income tax return for the year under consideration. However, no such disallowance is noted from the ITR filed by the assessee for the year. In view of the above stated facts and observations, a notice under section 148 of the Income-tax Act has been issued to the assessee-firm after recording reasons for the same and obtaining approval from the competent authority. In response to the notice, the assessee has filed an ITR on 19/11/2021 declaring total income of Rs. 14,10,240/-. Following, additional income has been offered over and above the income (Rs. 10,75,460/-) reported in the ITR filed u/s 139 of the Act originally. The amount of Rs. 1,34,776 has been disallowed in view of provisions of section 36(1) (va) of the Act as pointed out in the reasons for reopening. Ad-hoc business income of Rs. 2,00,000/- has been offered additionally. A copy of reason recorded for reopening has been provided to the assessee-firm Vides letter dated 17/12/2021. Further, the objection raised against initiation of proceedings us 147 of the Act has also been disposed of by way of written order and communicated to the assessee vide letter dated 16/02/2022. Subsequently, notice under section 143(2) of the Act has been issued Necessary details required for carrying out assessment have been called for by notice u/s 142(1) of the Act and are available on records.
During the assessment proceedings, the assessee-firm was requested to provide cogent explanation for the facts discussed (supra) and the details discussed in the reasons along with supporting evidence. In response, vide reply dated 24/12/2021, following arguments (in brief) were submitted by the assessee stating Page 4 of 15 that document or data found from the premises of third party cannot be binding to the assessee especially in absence of corroborative evidence found. During the survey at the office premise of the assessee -firm, no such corroborative evidence was found. There is no reference of any name related to the assessee -firm i.e. Accurate Buildcon in the said seized paper. The allegation made without establishing any live link between the noting in the seized document with the assessee -firm is totally misplaced and is based upon suspicion only. The claim that during the survey at the premise of the assessee -firm, no evidence highlighting cash transactions with decora group have been found is not correct. Page no. 4 of Annexure A-4 and page no. 5 of Annexure A-13 impounded during the survey proceedings at the premise of the assessee- firm clearly highlight that the assessee- firm has infect transacted in unaccounted cash for the projects of decora group. Though the unaccounted cash receipts from Decora as appearing from page 5 of Annexure A-13 does not pertain to the year under consideration, it highlights a fact that the assessee- firm was in receipt of unaccounted cash from Decora group. Further, during the survey proceeding at the premise of the assessee -firm the impugned seized ledger has been confronted to Shri Ashish Tank (Partner of the firm). It can be seen that the partner of the assessee -firm has not denied the cash receipts from Om Decora 9 square project rather he has stated that he could not answer this question (which cannot be construed as denial of cash receipts). The partner restrained himself from answering this particular question for the reasons best known to him. Besides, he has confirmed two facts as appearing on the seized ledger, viz: 1) the transaction from Gopal Chudasama and 2) Booking of office B-702 in the project. In view of these facts, the seized document cannot be termed as a dumb document as it is highlighting the facts as admitted by the partner of the assessee-firm during the course of survey at its premise. Further, the argument that there is no reference of any name related to the assessee firm i.e. Accurate Buildcon in the said seized paper is not acceptable, Page 5 of 15 it is pertinent to mention that M/s Aryan Arcade has obtained contractual services of M/s Accurate Buildcon during the year under consideration and Ashishbhai Tank is a main partner of M/s Accurate Buildcon. This fact is sufficient enough to establish live link that the unaccounted payment recorded in the seized ledger in the name of Ashishbhai Tank Contractor pertain to no one else but M/s Accurate Buildcon.
In view of the aforementioned facts and findings, it is quite clear that unaccounted cash of Rs. 1,81,10,000/- has been received during the year under consideration. Therefore, a show cause notice proposing to treat the same as unaccounted business receipts for the year has been issued to the assessee. In view of the above stated facts and findings, an addition of 25% of the total cash receipts is made after considering the reply of the assessee to the show cause notice, the case laws quoted therein and all the expenses that would have been incurred by the assessee-firm in discharging its contractual obligation. Accordingly, an amount of Rs. 45,25,000/- (@25% of Rs. 1,81,00,000/-) is added as unaccounted business income in the hands of the assessee-firm for the year under consideration.
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) dismissed the technical grounds raised
by the assessee, challenging reopening of assessment under section 147/148 of the Act. On merit, learned CIT(A), estimated the profit element on the “on money”, at the rate of 8%, 12%, 16% etc, in a different assessment years in similar group cases. Therefore, assessee, is in appeal before us. The 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 Page 6 of 15. 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, summarized and concise grounds of appeal, one by one, as follows:
Summarized and Concise ground No.(i) is reproduced below for ready reference: (i) The ld. Commissioner of income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s. 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed. (This is assessee's ground No. 2 in for AY 2017-18, This is assessee's ground No. 2 in AY 2019-20 and, This is assessee's ground No. 2 in for AY 2020-21)
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 similar group cases, M/s R.K. Group, in ITA Page 7 of 15 No. 528/RJT/2024 & 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 are 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).”
Respectfully following the above findings in assessee’s own case, we dismiss the assessee’s appeals.
In the result, following grounds of appeal of assessee, are dismissed:
12. Summarized and Concise ground No.(ii) is reproduced below for ready reference:
(ii) The Id. CIT(A)erred on facts as also in law in retaining addition of Rs. 45,25,000/- by estimating profit at the 12% of so-called unaccounted cash receipt from Aryan Arcade Pvt. Ltd. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. The Id. CIT(A)also erred on facts as also in law in retaining addition of Rs. 69,46,854/-by estimating profit at the 12% of so called unaccounted cash/contractual receipt of Rs 5,78,90,450/- (i) Rs.2,42,50,000/- from Page 8 of 15
Aryan Arcade Pvt. Ltd. (ii) Rs.31,24,950/- as per Annexure A-5 seized from business premises and (iii) Rs 3,05,15,500/- from R K Infralink LLP. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. (This is assessee's ground No. 3 in for AY 2017-18, This is assessee's ground No. 3 in AY 2019-20, This is assessee's ground No. 3 in for AY 2020-21, This is assessee’s ground no.2 in for AY 2021-22 and, This is assessee’s ground no.2 in for AY 2022-23)
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 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 Page 9 of 15 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 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 circumstances of the case. The relevant judgements of the Hon`ble jurisdictional High Court of Gujarat and Hob`ble ITAT Ahmedabad, are reproduced below:
(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 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 Page 11 of 15 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 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.
Page 12 of 15 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 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.”
Therefore, respectfully following the binding judgement of the Co-ordinate Bench of ITAT Rajkot in assessee’s similar group case (Supra), hence we direct the assessing officer to tax “on-money” at the rate of 10%, therefore, we partly allow the following appeals of the assessee: for AY 2021-22 (v) Ground No. 2 in for AY 2022-23
In the combined result, appeals filed by the assessee, are partly allowed to the extent indicated above (appeal-wise). Order pronounced in the open court on 09-03-2026 .