R K TRADELINK,RAJKOT vs. DCIT, CC-1, RAJKOT , RAJKOT

Facts of the case as per lead case in are as follows. The assessee is a partnership firm engaged in business of construction of commercial /residential buildings. Income Tax Return of the year under consideration i.e. AY 2014-15 was filed on 31.07.2014 declaring therein Rs. Nil Income. 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. 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 Page 2 of to 594/Rjt/2024 R K Tradelink (Group Case) 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. RK Group has developed / is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. The Group is headed by Shri Sarvanand Sadhuram Sonwani and he is supported by his family members in the management of the business. The Sonwani family is a joint unit for the purpose of business. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences In the RK Group the main persons/partners were Sonwani family Some projects of RK Group were developed with other groups also. The group was mainly involved in taking on-money/unaccounted cash on selling of units in its projects and giving on money on purchasing of the land. The data of on-money/unaccounted cash was being maintained in a very systematic manner in Miracle software. In Miracle files mainly unaccounted transaction has been entered with some banking transaction as well.. The premise of Shri Girish Vanjani was also covered during the search action. Shri Girish Vanjani is the accountant for the group who has been initiating the accounts of the RK Group (including parallel unaccounted cash transactions). Mr. Girish Vanjani, in his statement recorded one path during search action has stated that he is the accountant of group and has been associated for last 25 years. He further explained that accounting of financial transactions of RK Group has been maintained in two accounting software i.e. tally and Miracle software. The transactions that are reported on regular books of account of group have been maintained in tally software where a miracle software contain both type of transactions i.e. bank transactions that are reported in regular books) and cash transactions (unaccounted transaction, not to be reported in regular books).

It can be seen that Shri Girish Vanjani has categorically stated that he does the work of accounting for RK Group as per the instructions of Shri Sarvanand Sonwani and also explained how the transactions are recorded in accounting software. Even Shri Sarvanand Sonwani has accepted (in his statements recorded u/s 131 of The Act at the residential premise of Girish Vanjani on 27.08.2021) that Shri Girish Vanjani does the work of accounting as per his instructions. Thus, Shri Girish Vanjani is a key employee and accountant of the RK Group is an admitted and established fact. During the course of search and seizure action at the residential premise of Shri Girish Vanjani, Pen Drives and Hard Discs were recovered. Forensic Mirror Imaging (Digital Data Backup) of these devices was taken and the same were seized. The backup contained key accounting files (Miracle Files) in which unaccounted transactions and some accounted transactions of the entire group were recorded in a very systematic manner. The accounts of 1) Sale of units 2) Cost of lands 3) Expenses incurred on various projects and other miscellaneous transactions made by RK Group members with various counter parties were maintained in accounting software known as MIRACLE. All the data collected and seized during the search and survey operation has been perused and co-related with the actual transactions made by the group persons and entities. The financial transactions pertaining to sale and purchase of various kinds of properties as seized in the form of Digital Data and in the form of Hard Data were also compared and corroborated with the documentary evidences and responses received from the Sub-registrar office and with the data available in public domains on various government portals like 1) anyror.gujarat.gov.in 2) garvi.gujarat.gov.in and 3) gujrera.gujarat.gov.in. Comparison of the financial transactions entered in the Miracle accounting files seized during the search was also made with those reported on the regular books of various group members and entities. Multiple miracle files have been found from the digital data that has been imaged and seized during the search operation.

Apart from the above, various documents in the form of loose-papers, excel sheets etc. have also been recovered and seized during the search operation from the premises of the group members highlighting various kind of financial transactions accounted as well as unaccounted. Careful perusal and comparative analysis of seized documents have been made. All this comparison and corroboration exercise has revealed following factual aspects about the seized data- Fact 1 The seized Miracle files recovered during the Search operation contain transactions that took place between RK Group members and 2) various other parties (counter parties). They include the accounts of cash as well as bank transactions. It is seen in most of the ledgers from the seized Miracle file that they contain some Bank transactions which are found recorded on the regular books and some Cash transactions which are normally not recorded on the regular books of the respective Group member. This manner of recording the transactions highlights a fact that one part (mostly in Bank) of every deal was being reported on the regular books and the other part (mostly in cash) of the deal was not being reported on the regular books. Thus, some transactions from the Miracle files were accounted for whereas some were not accounted for in the regular books of the respective group member who owns the transaction. Fact 2 The data entered in the Miracle software is in coded form - 1) The entries have been backdated by 10 years i.e. 01-04-2019 is entered as 01-04-2009 (except the miracle file mentioned at Sr. No.1 at pare no.9 (also Page 5 of to 594/Rjt/2024 R K Tradelink (Group Case) referred as miracle-1) i.e. DIVYARAJ & CO. (01 08 2009 to 30 06 2016. In this file actual dates of transactions are mentioned)), and 2) the amounts have been divided by 100 i.e. Rs. 2,50,000/- is entered as 2500.00/- Fact 3 The names of the ledgers of different projects, persons have been written in coded form. It is seen that mostly the names of the projects for which any particular transaction is recorded on the seized file were mentioned with the initials. For example 1) RK Residency is mentioned as RKR. 2) R K Prime is mentioned as RKP, 3) The City Centre is mentioned as TCC, 4) R K Supreme is mentioned as SPM etc. All the above factual aspects are discussed with example in the later part of this order.

The assessee, M/s RK Residency (RK Tradelink) is a firm of the RK Group members, Complete partnership structure of the firm is as under- Name of the partner Share Brijlal Sadhuram Sonwani 50% Kamal Sadhuram Sonwani 50%

The assessee firm has developed two residential projects namely "RK Dreamland-2" and "RK Residency" Following unaccounted transactions pertaining to the projects have been recovered from the material seized during the search operation. Project RK Dreamland-2  Unaccounted receipts of Rs. 7,34,10,730/- against sale of units of the project and repayments of Rs. 1,24,95,059/ on account of cancellation or excess receipts as culled out from the seized Miracle data.

It can be seen from the above ledger that flat no. 303 of the project has been sold for Rs.24.25,000/- (in coded form it is written as 24250 00). Out of this Rs. 13,50,000/- (Rs 135000 on 01/08/2016 and Rs 12,15,000/- on 12/08/2016) has been received through banking channel and remaining amount has been received in cash Further, it is seen that the conveyance deed for the above flat has been executed for Rs. 13,50,000/- (which is same the amount received through bank) Furthermore, sole for the above flat has been recognized/recorded of Rs. 13,50,000/-only in assessee's regular books of account and the amount received in cash has been neither recorded on respective conveyance deed nor recognized as sale consideration in books of account of the assessee and thus same is remain untaxed. It can be seen from the above ledger that flat no. 305 of the project has been sold for Rs. 17.21,000/- (in coded form it is written as 17210.00) Out of this Rs.4,50,000/- was received through banking channel and remaining amount was received in cash. Further, it is seen that the conveyance deed for the above flat has been executed for Rs 4,50,000/- (which is same the amount received through bank). Furthermore, sale for the above flat has been recognized /recorded at Rs.4,50,000/- only in regular books and the amount received in cash has been Page 9 of to 594/Rjt/2024 R K Tradelink (Group Case) neither recorded on respective conveyance deed nor recognized as sale consideration in books of account of the assessee and thus same is remain untaxed.

As per the above ledger, the assesse firm received total amount of Rs 30,77,200/-(in coded form it is written as 30772.00) for the flat no. 104 and out of total receipts amount of Rs. 10,00,000/-(Rs.800000 on 18.12.2014, Rs.80,000/- and Rs 20,000/- on 26/12/2014) and the remaining amount of Rs.20,77,200/- have been received in cash. On perusal of the sale register of the assessee firm, it is noticed that the above flats has been sold by the assessee firm through registered conveyance deed no. 7876 and sale value recorded in books is Rs. 10,00,000/- only i.e. same the amount received through banking channel. From the above, it is clear that the sale consideration received in cash has neither been recorded on respective conveyance deed nor considered by the assessee as sales in its regular books of account. Therefore, the said cash is remain untaxed. From the above discussed ledgers in context to data contained in Miracle Nes, registered conveyance deed and regular books of the assessee M/s RK Tradelink, the following things are established  First and foremost, it is established beyond doubt that the data recorded in the miracle files are correct and genuine data.

Apart from this, it is also necessary to keep in mind violation of various other provisions of the taw 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 disallowed then the ratio laid down by the Hon'ble High Court with regard to not taxing all the receipts would remain on 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 aforementioned average net profit rate from 41% to 45% Accordingly, 45% 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. In respect of the project under consideration to R K Residency 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 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 Page 15 of to 594/Rjt/2024 R K Tradelink (Group Case) 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. 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%. Accordingly, 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 net unaccounted profit for this particular project is estimated at the rate of 50% and the profit for the year under consideration i.e. FY 2013-14 is computed as under- Thus, addition of Rs 1,16,20,995/-being unaccounted profit embedded in the gross unaccounted receipts is made over and above the regular business income reported by the assessee in the Income-tax Return filed for the year under consideration Consequently, total business income for the year under consideration is enhanced by Rs 1,16,20,995/- for the year under consideration invoking provisions of section 145(3) of the Act and after considering all the facts and submissions of the assessee.

Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows:

Summarized and concise ground No.(i), is reproduced below for ready reference: “(i) The Id. 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. Page 17 of to 594/Rjt/2024 R K Tradelink (Group Case) 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.” (This is Ground No. 2 in assessee's appeal in AY 2014-15; This is Ground No. 2 in assessee's appeal in for AY 2015-16; This is Ground No. 2 in assessee's appeal in for AY 2016-17; This is Ground No. 2 in assessee's appeal in for AY 2017-18; This is Ground No. 2 in assessee's appeal in for AY 2018-19; This is Ground No. 2 in assessee's appeal in for AY 2019-20; This is Ground No. 2 in assessee's appeal in ITA No. 594/RJT/2024 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 assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot 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).”

In the result, following grounds of appeal of assessee, are dismissed: (i) This is Ground No. 2 in assessee's appeal in AY 2014-15; (ii) This is Ground No. 2 in assessee's appeal in for AY 2015-16; (iii) This is Ground No. 2 in assessee's appeal in for AY 2016-17; (iv) This is Ground No. 2 in assessee's appeal in for AY 2017-18; (v) This is Ground No. 2 in assessee's appeal in for AY 2018-19; (vi) This is Ground No. 2 in assessee's appeal in for AY 2019-20; (vii) This is Ground No. 2 in assessee's appeal in ITA No. 594/RJT/2024 for AY 2020-21.

We have heard both the parties. Facts of the case have already been narrated above, therefore we do not repeat the same for the sake of brevity. 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 Page 19 of to 594/Rjt/2024 R K Tradelink (Group Case) 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 - Page 20 of to 594/Rjt/2024 R K Tradelink (Group Case) 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.

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."

Therefore, respectfully following the binding judgement of the Co-ordinate Bench of ITAT Rajkot in assessee’s own case (Supra) we partly allow the following appeals of the assessee: i. Ground No. 3 & 4 in assessee's appeal in AY 2014-15; ii. Ground No. 3 & 4 in assessee's appeal in for AY 2015-16; iii. Ground No. 3 & 4 in assessee's appeal in for AY 2016-17; iv. Ground No. 3 & 4 in assessee's appeal in for AY 2017-18; v. Ground No. 3 & 4 in assessee's appeal in for AY 2018-19; vi. Ground No. 3 & 4 in assessee's appeal in for AY 2019-20; vii. Ground No. 3 & 4 in assessee's appeal in ITA No. 594/RJT/2024 for AY 2020-21

In the combined result, appeals filed by the assessee, are partly allowed to the extent indicated above.