TITANIUM BUILDCON LLP,RAJKOT vs. DCIT, CC-1, RAJKOT, RAJKOT

to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 4. The premise of Shri Girish Vanjani, was also covered during the search action. Shri Girish Vanjani, was maintaining the accounts of the RK Group (including parallel unaccounted cash transactions) at the instruction of Shri Sarvanand Sonwani. Relevant part of his statement is reproduced on page number three of the assessment order. It can be seen from the statement that Shri Girish Vanjani has categorically stated that he does the work of accounting as per the instructions of Shri Sarvanand Sonwani. Even Shri Sarvanand Sonwani, has accepted (in his statements recorded u/s 131 of the Act at the residential premise of Girish Vanjani on 27.08.2021) that Shri Girish Vanjani does the work of accounting as per his instructions. A snapshot of the relevant portion of statement of Shri Sarvanand Sonwani is pasted in the assessment order, page number three. Thus, Shri Girish Vanjani is a key employee and accountant of the RK Group is an admitted and confirmed 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 contains key accounting files of the entire group 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. Details of sale of units maintained in various excel sheets were also found and seized from the premise of Shri Girish Vanjani. Multiple miracle files have been found from the digital data that has been imaged and seized during the search operation. Many miracle files found are duplicate copies of each other or either not fully updated. Some Mrade files are more to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP updated than the other. From the plethora of Miracle files that have been found during the post search analysis, 3 files have been isolated which when studied together cover the financial transactions of the group. The details of the three Miracle files are as under :

Fact 1 The seized Miracle files recovered during the search operation contain transactions that took place between (1) R K Group members and (2) various other parties (counter parties). They include the accounts of cash as well as bank transactions. 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 in the Miracle files mentioned at Sr. no. 2 & 3 and (2) the amounts have been divided by 100 i.e. Rs. 2,50,000/- is entered as 2500.00/- in all the three miracle files. 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 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 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) RK Supreme is mentioned as SPM etc.

The firm has developed The City Center project. Details of following unaccounted transactions pertaining to the project have been recovered from the material seized during the search operation: (i)Unaccounted receipts of Rs. 72,31,16,300/- against sale of units of the project and repayments of Rs. 12,06,06,146/-, on account of cancellation or excess receipts as culled out from the seized Miracle data. (ii)Unaccounted expense/investment of Rs. 24,88,50,000/- made in the purchase of land for the project as culled out from the seized Miracle data. (iii)Unaccounted expenses of Rs. 9,46,22,113/- incurred for the project as culled out from the seized Miracle data. to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP (iv) Unaccounted payments of Rs. 3,20,00,000/- made to the contractor as per one excel sheet named "Rameshbhai - TCC" seized from the office premise of the RK Group.

(i) No unaccounted transactions took place.

(ii) Addition cannot be made solely based on the statement of Shri Girish Vanjani. The assessee is unable to check/verify the allegations made in the notice in absence of the seized material.

(iii) If the department uses any material recovered or statement recorded from third party opportunity of cross- examination to other partners to be provided.

(iv) The sale value has been recorded in the books as per stamp duty value / fair market value any doubt in the matter of valuation can be resolved from valuation cell.

(vi) Adverse inference cannot be taken relying on data recovered from third party i.e. Shri GirishVanjani. Shri GirishVanjani, Shri SarvanandSonwani and other partners of the firm have denied the unaccounted transactions.

(vii) The allegation leveled on the assessee has no legal sanctity. In case, confirmation from the customers / buyers required. The same can be furnished. to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP (viii)The data in Miracle is not complete and correct. (ix)Addition, if any, should be made in the hands of Shri Sarvanand Sonwani (Point no. 10 of the response).The unaccounted profit pertain to Shri Sarvanand Sonvani only is not admissible as the corroborative bank transactions appearing from the seized Miracle Ledgers with code name 'TCC' does not appear on the bank book of Shri Sarvanand Sonvani. Rather, they exactly match with the transactions recorded on the books of the assessee-firm.

(x) The income of the real estate builder is taxable at the time of transfer of title & possession of property in favour of customer and not at the time of booking of unit by customer.

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.

"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 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP be a presumption of such expenditure. In such 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.

Therefor 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.

Net receipts of all these 5 projects have 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 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP remained average net surplus of 31% in the hands of respective developer / owner. The calculation of the assessing officer, is reproduced below:

As can be seen from this table, the net surplus in the hands of the assessee- firm is around 37% which is higher than the benchmark of 35%. Hence, it would be appropriate to adopt a higher rate of profit in view of the specific facts of this particular case. Accordingly, the net unaccounted profit for this particular project was estimated at the rate of 39%.As far as the profit for the year under consideration i.e. FY 2017-18 is concerned, the same was computed by the assessing officer, as under: to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP Thus, addition of Rs. 1,18,24,995/- 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. 1,18,24,995/- 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. Therefore, assessing officer made addition of Rs. 1,18,24,995/-, in the hands of the assessee.

to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP Thus, during the year under consideration there was net shortage of funds of Rs. 18,49,99,370/- in the hands of the assessee- firm which must have been born by the partners as their respective unaccounted capital introduction in the firm from their personal sources. The deficit at the rate of 30% i.e. Rs. 5,54,99,811/- have been born by the R K Group members (i.e. Sonwar family members) and the rest of the part of Rs. 12,94,99,559/- should have been born by other partners. As far as the sources of funds of Rs. 5,54,99,811/- in the hands of RK Group members (i.e. Sonwani family) are concerned, as the transactions have been flowing from the same seized Miracle files, the sources are traceable and are being taxed in the assessments of their respective projects running simultaneously from where the funds are flowing in. Further, since the assessment of Shri Harish Lakhani is also being pursued simultaneously his explanation regarding sources of the short funds of his share @ 15% Rs. 2,77,49,906/- has also to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP been sought in his personal assessment proceedings where he could explain the sources to the extent of unaccounted receipts from project "The Imperia" where also he held share at the rate 125% and the details of the unaccounted receipts of that project were also recovered from the same set of the seized material during the same search operation. As per the seized data, unaccounted receipts (net of repayments) from the project "The Imperia" during FY 2017-18 is Rs. 11,30,99,000/- as against this there were project related unaccounted payments were Rs. 1,39,91,365/- leaving unaccounted surplus of Rs. 9,91,07,635/- out of which the unaccounted surplus in the hands of Shri Harish Lakhani, as per his share of 25% in the Imperia project, comes to Rs. 2,47,76,909/-. Thus, the shortage of unaccounted funds in the hands of Shri Harish Lakhan also can be traced to the extent of Rs. 2,47,76,909/- from the same set of seized data recovered during the search operation leaving the remaining Rs. 29,72,997/- as unexplained. As far as the sources of the remaining funds of Rs. 10,47,22,650/- (18,49,99,370- 5,54,99,811-2,47,76,909) in the hands of the other partners of the assessee- firm are concerned, the sources remain unexplained since their respective parts of payments are not traceable from the seized material recovered during the search. Hence, looking to the overall facts of the case, the sources of shortage of the funds (being excess expenses incurred) to the extent of Rs. 10,47,22,650/- remains unexplained in the hands of the assessee-firm. Accordingly, Rs.10,47,22,650/- being unexplained sources of expenses is being treated as deemed income in the hands of the assessee- firm for the year under consideration (Substantively) and in the hands of the respective partners in proportion of their unexplained shares (Protectively) i.e. Shri Harish Lakhani (Rs. 29,72,997/-); Shri Darshan Lakhani (Rs. to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 2,77,49,906/-), Shri Atul Ganatra (Rs. 5,54,99,811/-); Shri Jagjivan Sakhia (Rs.1,84,99,937/-) for the year under consideration within the meaning of section 69C r. w. s. 115BBE of the Act.

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. Therefore, assessee, as well as, revenue, both are in appeal before us. The main contention of the revenue in these appeals, are that the addition made by the assessing officer should be confirmed. Whereas, main contention in the assessee’s appeals is that the profit estimation on “on -money”, is on higher side, therefore, it should be reduced to a reasonable extent, by following the 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 that 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. to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP

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

“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, to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 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).”

22. Summarized and concise ground No.(ii), is reproduced below for ready reference:

(ii)The ld. CIT(A) erred on facts as also in law in retaining addition of Rs. 48,51,280/-by estimating profit at the 16% of so called on money receipt. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. Alternatively, the addition made by estimating rate of profit is very much on higher side and therefore the same may kindly be directed to be reduced and oblige ( This is assessee's ground No. 3 & 4 in for AY 2018-19, Ground No. 3 & 4 in for AY 2019-20, Ground No.3 &4 in for AY 2020-21, Ground No.2 & 3 in AY 2021-22 and Ground No.2 & 3 in for AY 2022-23) ( The same ground is raised by the revenue in ground No.1in for AY 2018- 19, Ground No.1in for AY 2019-20, Ground No.1in ITA No.659/RJT/2024 for AY 2020-21, Ground No.1in ITA No.661/RJT/2024 for AY 2021-22 and Ground No.1in ITA I.T.A Nos. 632 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP No.662/RJT/2024 for AY 2022-23. The plea of the revenue in these grounds is that addition made by the assessing officer may be sustained)

“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 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 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): "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) to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 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 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 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 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. to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP (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.

24. 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 for AY 2018-19, (ii)Ground No. 3 & 4 in for AY 2019-20, (iii)Ground No.3 &4 in for AY 2020-21, (iv)Ground No.2 & 3 in AY 2021-22 and (v)Ground No.2 & 3 in for AY 2022-23 Whereas, the following grounds raised by the revenue, are dismissed: for AY 2018-19, (ii)Ground No.1in for AY 2019-20, (iii)Ground No.1in for AY 2020-21, (iv)Ground No.1in ITA No.661/RJT/2024 for AY 2021-22 and (v)Ground No.1in ITA No.662/RJT/2024 for AY 2022-23.

25. Summarized and concise ground No.(iii), is reproduced below for ready reference:

(iii) The Ld CIT(A) has erred in directing the AO, to tax, the unaccounted profit in the year in which sale deed is executed instead of the year in which the on-money has been received, ignoring that the same is not in accordance with Accounting to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP principles as per ICDS-3 applicable to Real Estate Developers and also not appreciating that the income on account of undisclosed on-money receipt was required to be assessed in the year of receipt. ( This is revenue's ground no. 2 in for AY 2018-19,Ground No.2 in for AY 2019-20, Ground No.2 in for AY 2020-21, Ground No.2 in for AY 2021-22 and Ground No.2 in ITA No. 662/RJT/2024 for AY 2022-23)

We have heard both the parties. Facts of the case have already been 26. 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 ITAT Rajkot. The findings of the Co- ordinate Bench of ITAT Rajkot is reproduced below:

“21. Learned DR for the revenue argued that Ld.CIT(A) ought not to have directed the assessing officer, to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the “on-money” has been received. The treatment of revenue recognition adopted by the learned CIT(A) is not in accordance with Accounting principles as per ICDS-3, which is applicable to Real Estate Developers. The learned DR, therefore, stated that the income on account of undisclosed “on-money” receipt was required to be assessed in the year of receipt.

23. We have considered the submissions of both the parties, and we note that ICDS- 3 refers to Income Computation and Disclosure Standard–III, issued by the Central Board of Direct Taxes under section 145(2) of the Income-tax Act, 1961. It deals with computation of income from construction contracts for tax purposes. It is largely based on the earlier Accounting Standard AS-7 but contains important differences relevant for income tax computation. We note that ICDS–III applies to construction contracts of contractors, however, assessee under consideration is not a contractor, but to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP he is a contractee. A person who undertakes contract to do a job/work for others, is contractor. However, assessee under consideration is not a contractor but a contractee, who gets the work done from contractor and assessee pays the amount to the contractors for services rendered by them to it ( assessee), therefore, ICDS-III is not applicable to the assessee under consideration. Hence, we are of the view that ICDS-III applies to Contractors (not contractees). Fundamental Accounting Principle, as per ICDS-III is the Percentage of Completion Method (POCM). The Percentage of Completion Method is mandatory method under ICDS-III. Under ICDS-III the Revenue from variations, claims and incentives shall be recognised only when there is reasonable certainty of its ultimate collection.

I.T.A Nos. 632 to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP 27. Respectfully following the binding judgement of the ITAT Rajkot in the assessee’s, own case (Supra), we dismiss the following grounds raised by the revenue. (i). Ground no. 2 in for AY 2018-19, (ii)Ground No.2 in for AY 2019-20, (iii)Ground No.2 in for AY 2020-21, (iv)Ground No.2 in for AY 2021-22 and (v)Ground No.2 in for AY 2022-23

“30. The brief facts qua the above summarise ground are that during the assessment proceeding, the assessing officer had found that the promissory notes seized from the premises of Shri Deepak Puruswani reveals that the assessee -firm had advanced cash loan to various persons. In this regard, the assessee- firm had objected the allegation of the assessing officer and denied of advancement of cash loan. However, without prejudice, the assessee had requested to provide benefit of telescoping as the addition had been made on account of alleged profit embedded in the unaccounted transactions from the project "R K Empire". Therefore, if any addition on account of alleged unaccounted income would be made in case of assessee- firm then application of such income in form of alleged unaccounted loans/advances is to consider to avoid duplication to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP of addition. The submission made by the assessee has been reproduced by the assessing officer in para 13 of the assessment order. However, the assessing officer had rejected the contention of the assessee and held that benefit of telescoping cannot be given, as for claiming the benefit of telescoping, the assessee should in first place, accept the intangible addition and then claim the benefits of telescoping. However, as the assessee during the entire proceedings denied and nowhere accepted the addition, benefit of telescoping cannot be given. Therefore, the assessing officer had made addition of Rs 97,30,000/- on account of cash advanced to others, while passing the assessment order.

31. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the learned CIT(A), who has deleted the addition made by the assessing officer by giving telescoping benefit to the assessee. Dissatisfied with the order of the learned CIT (A), the revenue is in appeal before us.

of the Revenue are dismissed.” to 636, 657 to 659 & 661 to 662 / Rjt/2024 - Titanium Buildcon LLP

30. Therefore, respectfully following the judgement of the Co-ordinate Bench of ITAT Rajkot, in the assessee’s own group case (supra), the following appeals of the revenue, are dismissed:

(i) Revenue's ground No. 3 in for AY 2018-19, is dismissed.

Order pronounced in the open court on 23-02-2026