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Facts
During a search operation, digital data revealed 'on-money' receipts for the assessee's real estate project, 'Vrundavan Flats'. The Assessing Officer (AO) issued a notice under Section 148, and the assessee declared zero income. The AO invoked Section 145(3) due to incomplete books and estimated profit on the 'on-money' receipts.
Held
The tribunal held that only the profit element embedded in the 'on-money' receipts should be taxed, not the entire receipts. The AO's action of estimating profit after invoking Section 145(3) was upheld, aligning with the principle that tax is on income, not gross receipts.
Key Issues
The key legal issues were the validity of the assessment under Section 147/143(3) based on 'on-money' receipts found during a search, and the appropriate method and rate for estimating profit on such undisclosed receipts.
Sections Cited
Section 147, Section 143(3), Section 148, Section 143(2), Section 142(1), Section 145(3)
AI-generated summary — verify with the full judgment below
Since, all four appeals relate to the same assessee and identical facts and issues are involved; therefore, all these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The facts narrated in for assessment Year 2017-18, have been taken into consideration for deciding the above appeals en masse.
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 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. 7,25,575/- as against the returned income of Rs. nil it is totally wrong, unwarranted, unjustified and bad in law. ( This is assessee’s ground No.1 in for A Y. 2017-18, Ground No.1 in for A Y. 2018-19, Ground No.1 in for A Y. 2019- 20, Ground No.1 in 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 @ 24%, 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 for A Y. 2017-18, Ground No.2 to 4 in for A Y. 2018-19, Ground No.2 to 4 in for A Y. 2019-20, Ground No.2 to 4 in A Y. 2020-21)” to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) 4. The relevant material facts, as culled out from the material on record, are as follows. The assessee is a partnership -firm engaged in Real Estate business. As per the Income-tax Return for the year under consideration, filed on 01/06/2017, the total income has been declared at 0/-. A Search, Seizure and Survey action was carried out by the office of DDIT (Inv.), Unit-1, Rajkot in the case of leading 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. 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, and 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. Details of unaccounted transactions pertaining to project "Vrundavan Flats" developed by the assessee- firm “M/s Shiv Enterprise” have been recovered from the material seized during the search operation. As details regarding unaccounted part of the transactions pertaining to the assessee have been gathered from the seized material during the search operation, a notice under section 148 of the Act has been issued on 19/11/2022 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 to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) section 148, the assessee has filed an Income tax return on 22/11/2022 declaring total income of Rs. 0/-.Subsequently, a notice u/s 143(2) of the Income-tax Act has been issued and served on 19/12/2022 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 to the assessee and discussed in the notices issued u/s 142(1) of the Act.
During the course of search at the residence of Shri Siddharth H. Gangdev, mirror imaging of 2 iPhones, 1 One plus, 1 Lenovo all in one, 1 Laptop, one drive cloud, i-cloud, e-mails, one 2TB external HDD and one 1TB external HDD was taken, which was subsequently seized in hard drive inventoried as A-2, A-3, A-4 & A-5 of Annexure A. During the post search analysis of the digital data of the above mentioned devices, some images of diaries are found and extracted. These images extracted from the digital data seized from the residential premise of Shri Siddharth Harshadbhai Gangdev shows that unit-wise details of project "Vrundavan Flats" are maintained in diaries. The pages of these diaries contain unit-wise details i.e. project name, unit number, name of purchaser, on money received in cash (in coded form), date of receipt of on money (in coded form), document value etc. It is pertinent to highlight here that the amount and date noted in these diaries for receipt of sale consideration is in coded form e.g. for the amount received as sale consideration, they used to reduce last two or three digits of actual amount i.e. the amount written as "1000/-" in these diaries is in coded form and the actual amount (decoded amount) it represents is 100000/-.
Therefore, during the assessment proceedings, the assessing officer issued show-cause notices to the assessee, to explain the “on-money” in respect of various projects. to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) 7. In response to the various notices of the assessing officer, the assessee submitted its reply before the assessing officer with documentary evidences. The assessee submitted, that seized documents are dump documents, as they do not contain the signature of the assessee and other party. Therefore, based on these dump documents, no addition should be made in the hands of the assessee. The assessee also submitted that entire sale proceeds cannot be regarded as net profit of the assessee and only profit element is to be taxed. That is, profit element on “on-money” should be taxed in the hands of the assessee. These profit estimation on different project, should be done in accordance with judgement of the jurisdictional High Court of Gujarat in the case of PCIT v. Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, in this judgement, the Hon'ble Gujarat High Court has held that only profit element embedded in the gross “on-money” receipts at the rate of 6% can be taxed. The assessee also relied on various judgements of jurisdictional ITAT, Ahmedabad, where the Tribunal, estimated the profit element on the “on-money” at the rate of 8%.
Having gone through the reply of the assessee, the assessing officer was also of the view that only profit element embedded in the “on-money” should be taxed. Therefore, after thorough examination of the response to show cause notice and considering the averments made by the assessee in its reply, the assessing officer observed that there is no doubt that the accounts of the assessee, where all the transactions are not reflected, therefore, cannot be relied upon, as books of accounts, present incomplete and incorrect state of affairs of business of the assessee and requires to be disregarded invoking the provisions of section 145(3) of the Act. Accordingly, provisions of section 145(3) were invoked by the assessing officer, and the assessment of total income of the assessee was being made after taking into account all relevant material gathered during the search and the assessment proceedings. The assessing officer noted that there is no uniform method that can be employed to compute income when part receipts on to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) account of sale are not included on the books. The method differs from case to case depending upon various factors, that is, 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 assessing officer relied on the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) which 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."
Therefore, assessing officer observed that 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 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 to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) 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 detection 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."
Even in those cases where no details regarding unexplained payments / investments are available on records, it has been held by the Hon'ble Guj. 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 an event also it is held that only profit on suppressed sales could be brought to 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.
Estimation of rate of profit by the assessing officer.
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 to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) 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 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 M/s. Buildcon Associates has been identified.Net receipts of this project (The Spire) 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. Moreover, in respect of the project under consideration, the material gathered during search operation indicated “on-money” receipts only. Under these circumstances, it would not be fair if the same benchmark rates adopted for other projects where receipts and payment both kinds of transactions are available are to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) also applied to the project where only on-money receipts are available. At the same time, considering that the assessee is also in the same line of business with the same group of persons, the possibility of having incurred unaccounted expenses cannot be ruled out completely (No data is recovered during search does not necessarily mean no unaccounted expenses incurred). Further, various judgments discussed earlier also endorse the same preposition that only profit embedded in the gross unaccounted receipts should be taxed and not the entire unaccounted receipts.
The assessing officer also noticed that apart from this, it is also necessary 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 presidents as discussed earlier if all the expenses / payments are disallowed than the ratio laid down by the Hon'ble High Court regarding not taxing all the receipts would remain in papers only. Thus, with a view to strike a proper balance between the factual vis-à-vis the legal aspects it is decided to further enhance the average net profit rate to 50%.Considering complete facts of the case under consideration it is felt reasonable to adopt a higher rate of 50% as profit earned on the gross unaccounted receipts of this project. Accordingly, the profit for respective years were computed by the assessing officer, as under:
Sr Particulars FY 2016-17 (AY FY 2017-18 (AY FY 2018-19 (AY FY 2019-20 (AY No 2017-18) 2018-19) 2019-20) 2020-21) 1. Gross on-money 14,51,150 78,77,000 4,11,41,850 51,25,000 receipts (100150+1351000) 2. Unaccounted 7,25,575 39,38,500 2,05,70,925 25,62,500 profit at 50% Since, the firm was not incorporated during FY 2015-16, Rs. 100150 received during FY 2015- 16, are considered along with receipt of FY 2016-17. to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) Thus, additions of Rs. 7,25,575/-, Rs. 38,38,500/-, Rs. 2,05,70,925/-and Rs. 25,62,500/-, being unaccounted profits for AYs 2017-18, 2018-19, 2019-20 and 2020-21 respectively were made, by the assessing officer, over and above the regular business income reported by the assessee in the Income-tax Return filed for the respective years 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%, 12%, 16% , 20% and 24% etc., in a different assessment- years. 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 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:
14. Summarized and Concise ground No.(i) and (ii) are pertaining to estimation of profit element on “On-money” which are reproduced below for ready reference: to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) “(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. 7,25,575/- as against the returned income of Rs. nil it is totally wrong, unwarranted, unjustified and bad in law. ( This is assessee’s ground No.1 in for A Y. 2017-18, Ground No.1 in for A Y. 2018-19, Ground No.1 in for A Y. 2019- 20, Ground No.1 in 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 @ 24%, 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 for A Y. 2017-18, Ground No.2 to 4 in for A Y. 2018-19, Ground No.2 to 4 in for A Y. 2019-20, Ground No.2 to 4 in A Y. 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 note that issue under consideration is squarely covered in favour of the assessee in similar and identical 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 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: to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) (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 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): to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) "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. 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 to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) 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%.
to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) 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 identical and similar group case (Supra), we direct the assessing officer to estimate the profit element on “on-money” at the rate of 10%, therefore, we partly allow the following appeals of the assessee:
(i) Assessee’s ground No.1 in for A Y. 2017-18, (ii)Ground No.1 in for A Y. 2018-19, (iii)Ground No.1 in for A Y. 2019-20, to 616/Rjt/2024 – A.Ys. 2017-18 to 2020-21 (Shiv Enterprise vs. DCIT) (iv)Ground No.1 in A Y. 2020-21 (v) Ground No. 2 to 4 in for A Y. 2017-18, (vi)Ground No.2 to 4 in for A Y. 2018-19, (vii)Ground No.2 to 4 in for A Y. 2019-20, (viii)Ground No.2 to 4 in A Y. 2020-21.
In the combined result, appeals of the assessee, are partly allowed, to the extent indicated above.
Order is pronounced in the open court on 27/02/2026.