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Facts
The assessee, an individual, filed an income tax return for AY 2017-18. A search and seizure operation was conducted on the RK Group, a real estate business headed by the assessee, revealing involvement in taking 'on-money' or unaccounted cash for property sales across multiple projects. The Assessing Officer subsequently made additions to the assessee's income based on these findings.
Held
The tribunal consolidated 19 appeals from both the assessee and the Revenue, noting common and identical issues. The core issues revolved around the validity of Section 148 notices, the estimation of profit on 'on-money' receipts, additions for negative cash balances, and unexplained money under Section 69A. The tribunal will address these specific grievances.
Key Issues
The key legal issues are the validity of reassessment proceedings initiated under Section 147/148, the appropriate method and rate for estimating profit on undisclosed 'on-money' receipts, and the treatment of alleged negative cash balances and unexplained money.
Sections Cited
Section 147, Section 143(3), Section 148, Section 69A, Section 115BBE, Section 132, Section 133A
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Income Tax Appellate Tribunal, RAJKOT BENCH,
Before: DR. ARJUN LAL SAINI & DR. DINESH MOHAN SINHA
आदेश / O R D E R Per, Bench:
This is bunch of 19 appeals, consisting appeals filed by the Assessee and appeals, filed by the Revenue, pertaining to different assessment years, are directed against the separate orders passed by the commissioner of Income Tax (Appeals), which in turn arise out of separate assessment orders passed by the assessing officer, under section 147 read with section 143(3) of the Act.
Since, the issues involved in all the appeals are common and identical, therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the facts narrated in for assessment Year 2017-18, have been taken into consideration for deciding the above appeals en masse.
Although, these appeals filed by the assessee and appeals filed by the revenue, contain multiple ground of appeal
s. However, at the time of hearing we have carefully perused all the grounds raised by the assessee and revenue. We find that most of the grounds raised by the assessee and revenue are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the assessee and revenue as well. With this background, we summarize and concise the grounds raised by the assessee and revenue, as follows: “(i) “The ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s 2. Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.” ( This ground is raised by the assessee in for AY 2012-13 and Revenue’s cross appeal is in for AY 2012-13) (ii) The ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad, erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.
( This is ground No. 2 in assessee’s appeal in for AY 2013- 14,Ground No.2 in for AY 2014-15,Ground No.2 in for AY 2015-16, Ground No.2 in for AY 2016- 17,Ground No.2 in for AY 2017-18,Ground No.2 in AY 2018-19, Ground No.2 in for AY 2019- 20,Ground No.2 in ITA No. 817/RJT/2024 for AY 2020-21) (iii) The ld. CIT(A)erred on facts as also in law in retaining addition of Rs. 44,88,884/- by estimating profit @ 20% of so called on money receipt in respect of unidentified/coded projects. 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 ground No. 3 & 4 in assessee’s appeal in for AY 2012- 13,Ground No. 3 & 4 in for AY 2013-14,Ground No. 3 & 4 in for AY 2014-15, Ground No. 3 & 4 in for AY 2015-16,Ground No. 3 & 4 in for AY 2016-17,Ground No. 3 & 4 in ITA No. 814/RJT/2024 for AY 2017-18, Ground no.5 & 6 in AY 2018-19,Ground no.4 & 5 in for AY 2019-20, Ground no.5 & 6 in ITA No.817/RJT/2024 for AY 2020-21,Ground no.4 & 5 in ITA No.818/RJT/2024 for AY 2021-22,Ground no.3 & 4 in ITA No.819/RJT/2024 for AY 2022-23.) (This is also Revenue’s ground No. 1 in ITA No. 791/RJT/2024 for AY 2012-13,Ground No. 1 in ITA No.792/RJT/2024 for AY 2013-14, Ground No. 1 in ITA No.793/RJT/2024 for AY 2017-18,Ground no.4 in ITA No.794/RJT/2024for AY 2018-19,Ground no.4 in ITA No.795/RJT/2024 for AY 2019-20,Ground no.5 in ITA No. 796/RJT/2024 for AY 2020-21 and Ground no.4 in IT(ss) No.24/RJT/2024 for AY 2022-23. The Revenue’s plea in these grounds are that addition made by the assessing officer should be sustained.)
(iv) (a) The ld. CIT(A) erred on facts as also in law in retaining addition of Rs. 54,83,000/- out of total addition of Rs. 2,09,63,885/-, made on account of alleged negative cash balance in the Miracle Data. The addition made and retained is bad in law as also in facts therefore the same may kindly be deleted.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 ( This is, assessee's ground No. 5 in for AY 2014-15, Ground no. 6 in for AY 2017-18, Ground no. 7 in AY 2018-19). (iv) (b) The ld. CIT(A) erred on facts as also in law in enhancing addition of Rs. 1,67,52,762/- on account of alleged negative cash balance in the Miracle Data. The addition made and retained is bad in law as also in facts therefore the same may kindly be deleted.
(This is, assessee's ground No.5 in for AY 2015-16, and Ground No.5 in for AY 2016-17.)
(v).On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 3,12,54,700/- made u/s 69A r.w.s 115BBE of the Income tax Act on account of unexplained money u/s 69A of the Income Tax Act. ( This is revenue’s ground no. 2 in for AY 2012-13,Ground No.2 in for AY 2013-14,Ground no. 3 in for AY 2017-18,Ground no.6 in for AY 2018-19 and Ground no.5 in for AY 2019-20).
(vi) The ld. CIT(A)erred on facts as also in law in confirming addition of Rs. 28,87,490/- made by the AO on account of alleged short term capital gain on sale of land at Munjka, Dist. Rajkot. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. ( This is assessee's ground No. 5, in for AY 2017-18) (vii). On the facts and in circumstances of the case and in law, the Ld CIT(A) has erred in directing to delete the profit arising on account of on-money received at 28% for project R. K. Industrial Zone-11, estimated by the AO, as protective addition not appreciating that the profit rate had applied on on-money received which was over and above the disclosed business receipt and ignoring the detailed reasoning given by the AO for adopting the GP rate. ( This is revenue’s ground no. 2 in for AY 2017-18,Ground No.2 in for AY 2018-19, Ground No.2 in for AY 2019-20, Ground No.1 in for AY 2020-21 and Ground No.1 in IT(ss) No. 24/RJT/2024 for AY 2022-23.)
(viii). The ld. CIT(A)erred on facts as also in law in retaining addition of Rs.1,92,000/- by estimating profit 12% of so called on money receipt in respect of project "R K Industrial Zone-9 (Phase-4)". The addition made and retained is bad in law as also on facts therefore the same may kindly be directed to be deleted. ( This is, assessee's ground No. 3 in AY 2018-19, and Ground No.3 in for AY 2019-20)
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 (This is also revenue’s ground No. 1 in for AY 2018-19 and for AY 2019-20. The plea of the revenue in these grounds are that addition made by the assessing officer should be sustained.) (ix).On the facts and in circumstances of the case and in law the Ld. CIT(A) has erred in directing to delete the profit arising on account of on-money received at 25% for project R K Industrial Park-4 estimated by the AO as protective addition not appreciating that the profit rate had applied on on-money received which was over and above the disclosed business receipt and ignoring the detailed reasoning given by the AO for adopting the GP rate. ( This is, revenue's ground no. 3 in for AY 2018-19 and Ground No.3 in for AY 2019-20.)
(x) The ld. CIT(A)erred on facts as also in law in retaining addition of Rs.56,99,160/- by estimating profit @ 12% of so called on money receipt in respect of sale of plots at Village Haripar Dist. Rajkot. The addition made and retained is bad in law as also on facts therefore the same may kindly be directed to be deleted.
( This is assessee’s ground No. 4 in AY 2018-19, Ground No.4 in for AY 2020-21 and Ground no.3 in for AY 2021-22) (This is also revenue’s ground No. 4 in for AY 2018-19 and Ground No.4 in for AY 2019-20) (xi) On the facts and in circumstances of the case and in law the Ld CIT(A) has erred in directing to delete the profit arising on account of on-money received at 25% for project RK Industrial Zone-14 estimated by the AO, as protective addition not appreciating that the profit rate had applied on on-money received which was over and above the disclosed business receipt and ignoring the detailed reasoning given by the AO for adopting the GP rate.
( This is revenue’s ground No. 2 in for AY 2020-21 and Ground No.2 in IT(ss)- No.24/RJT/2024 for AY 2022-23)
(xii).The ld. CIT(A) erred on facts as also in law in retaining addition of Rs.53,55,907/- by estimating profit 12% of so called on money receipt in respect of project "R K Industrial Zone-15”. The addition made and retained is bad in law as also on facts.
(This is assessee's ground No.3 in for AY 2020-21, Ground no. 2 in for AY 2021-22 and Ground No.2 in for AY 2022-23)
(This is also revenue’s ground No. 3 in for AY 2020-21 and Ground no.3 in IT(ss) No.24/RJT/2024 for AY 2022-23. Plea of the revenue, is that addition made by the assessing officer should be sustained)
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 (xiii). On the facts and in the circumstances of the case and in law the Ld CIT(A) has erred in deleting the addition of Rs. 40,19,820/-, made u/s 69A r.w.s. 115BBE of the Income tax Act on account of unexplained money u/s 69A of the Income tax Act. (This is revenue’s ground No. 6 in IT(ss) No. 24/RJT/2024 for AY 2022-23) (xiv) 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 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. 7 in for AY 2018-19, Ground No.6 in for AY 2019-20,Ground No. 6 in for AY 2020-21,Ground No. 5 in IT(ss) No. 24/RJT/2024 for AY 2022-23)”
The relevant material facts, as culled out from the material on record, are as follows. The assessee is an Individual. The Income-tax Return for assessment year (AY) 2017-18, has been filed on 07-11-2017, declaring total income of Rs. 15,20,590/- after claiming deductions under chapter VI-A of the Act of Rs. 1,20,173/-. The gross total income consists of Salary of Rs. 10,50,000/-, Capital Gains of Rs.5,82,794/-, and other incomes of Rs. 7,968/-. 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 the RK 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. M/s RK Group is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. The Group is headed by the assessee (Shri Sarvanand Sadhuram Sonwani) and he is supported by his family members in the management of the business. The Sonwani family is a joint 6 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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.
The assessing officer observed that some projects of RK Group were developed with other groups also. In the RK Group, the main persons / partners are the Sonwani family members. Some projects of RK Group were developed with other groups also. The group is found 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 file. 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 was maintaining the accounts of the R K Group (including parallel unaccounted cash transactions) at the instruction of Shri Sarvanand Sonwani. The relevant part of statement of Shri Girish Vanjani, is reproduced in assessment order page nos. 3 to 5. It can be seen from the statement that Shri Girish Vanjani that 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 assessment order page No. 3. 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 contained key accounting files of the entire group in a very systematic manner. The accounts of (1) Sale of units 7 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 (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 Miracle files are more 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 from 01.08.2009 to 13.08.2021. The details of the three Miracle files are as under:
Sr. No. Name of the file 1 DIVYARAJ & CO. (01.08. 2009 to 30.06.2016) 2 Divyaraj & Co (01.07.2005 to 31.03.2009) 3 RK World (01.04.2009 to...)
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. 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 8 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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. The Assessing Officer, did comparison and corroboration exercise of seized material, which is on page no.5 to 8 of the assessment order.
As per Assessing Officer, following unaccounted transactions pertaining to the assessee (falling under multiple financial years) have been gathered that have direct or indirect bearing on the income of the assessee. A summary of all such transactions are as under : (i) Project - R K Industrial Zone 9 (Phase 4) Unaccounted receipts of Rs. 2,89,06,720/- on account of sale of units as well as repayments / return out of the unaccounted receipts of Rs. 26,18,390/- on account of cancellation or excess receipt of on-money. (FYs 2017-18 to 2018-19) Unaccounted payments of Rs. 1,98,97,500/- towards purchase of land for the project. (FY 2018-19) Unaccounted expenses of Rs. 38,60,803/- related to the project. (The seized papers indicated total 4 phases of R K Industrial Zone 9, of which, only the 4th phase has been developed on the land owned by the assessee. Details of expenses of all four phases together were seized, therefore, the amount is split into 4 equal parts)
(ii) Project - RK Industrial Zone 11 Unaccounted receipts of Rs. 23,72,83,932/- on account of sale of units as well as repayments / return out of the unaccounted receipts of Rs. 3,06,39,080/-on account of cancellation or excess receipt of on-money. (FYs 2017-18 to 2021-22) Unaccounted payments of Rs. 12,70,06,750/- towards purchase of land for the project. (FY 2017-18) Unaccounted expenses of Rs. 2,38,54,012/-related to the project. The seized papers indicated 50% beneficiary share of the assessee in R K Industrial Zone 11. (iii) Project - RK Industrial Zone 14 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Unaccounted receipts of Rs. 6,94,80,460/- on account of sale of units as well as repayments / return out of the unaccounted receipts of Rs. 96,02,820/-, on account of cancellation or excess receipt of on-money (FYs 2019-20 to 2021-22) Unaccounted payments of Rs. 5,61,88,700/- towards purchase of land for the project. Unaccounted expenses of Rs. 36,68,640/-related to the project. The seized papers indicated 75% beneficiary share of the assessee in RK Industrial Zone 14 (iv) Project-R K Industrial Zone 15 Unaccounted receipts on account of sale of units of R K Industrial Zone 15 of Rs. 11,50,71,840/- as well as repayments / return out of the unaccounted receipts of Rs. 56,66,960/- on account of cancellation or excess receipt of on-money (FYs 2019-20 to 2021-22) Unaccounted payments of Rs. 8,73,59,880/- towards purchase of land for the project. Unaccounted expenses of Rs. 85,07,420/- related to the project R K Industrial Zone 15 (v) Project-R K Industrial Park (Phase 4) Unaccounted receipts on account of sale of units of R K Industrial Park (P4) of Rs. 5,45,98,590/- as well as repayments / return out of the unaccounted receipts of Rs. 41,04,350/- on account of cancellation or excess receipt of on-money (FYs 2017-18 to 2018-19) Unaccounted expenses (including land payments) of Rs. 7,09,53,690/- related to the project R K Industrial Park (P4) (FYs 2016-17 to 2017- 18) The seized papers indicated 50% beneficiary share of the assessee in R K Industrial Park (P4) (vi) Unaccounted receipts of Rs. 5,18,93,000/- for sale of plots at Haripar Village. (FYs 2017-18, 2019-20 & 2020-21) (vii) Project The Spire (being partner of the firm M/s Buildcon Associates) Unaccounted receipts of Rs. 53,64,60,435/- against sale of units of the project "The Spire". 10 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Unaccounted payments of Rs. 35,02,01,050/- for purchase of land for the project "The Spire". (FYs 2013-14 to 2016-17) (viii) Purchase and Sale of Land situated at Munjka Unaccounted payments of Rs. 7,20,99,100/- in acquisition of the plot of land situated Munjka. (FY 2015-16) Unaccounted receipts of Rs. 7,49,86,590/- on sale of the plot of land situated Munjka. (FY 2016-17)
(ix) Unaccounted receipts of Rs. 25,83,20,710/- from some unidentifiable projects recovered from the seized Miracle file. (FYs 2011-12 to 2021-22) Rs. 1,66,73,150/- from a project coded as "AC" Rs. 76,46,280/- from a project coded as "GG" Rs. 3,92,16,700/- from a project coded as "KVD GIDC" Rs. 15,18,34,550/- from a project coded as "LDK" Rs. 1,22,47,050/- from a project coded as "SURYA" Rs. 3,07,02,980/- from a project coded as "VG" Other unidentifiable transactions from the seized Miracle files. (FYs 2011-12 to 2021-22)
8. As details regarding unaccounted transactions related to the assessee, as discussed above, have been gathered from the seized material during the search operation, therefore, a notice under section 148 of the Act has been issued on 03- 01-2023, to the assessee after following due procedure as per the Act and with prior approval of the specified authority as per section 151 of the Act. In response to the notice issued under section 148, the assessee has filed an Income tax return on 11-01-2023. Subsequently, a notice u/s 143(2) of the Income-tax Act has been issued and served on 21-02-2023 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 objections raised by the assessee against initiation of proceedings u/s 148 of the Act have been disposed of and the Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 images of original seized material pertaining to the assessee have been supplied and discussed in the notices issued u/s 142(1) of the Act from time to time by the assessing officer.
9. Thereafter, the Assessing Officer, after considering the reply of the assessee, discussed the issues that have direct or indirect implication for assessment of income for the year under consideration, one by one, in the assessment order, as follows: (i)Project - R K Industrial Zone 9- On-money receipts and repayments RK Industrial Zone-9 is an industrial plotting project developed in a phased manner by RK Group. This zone has been developed on the parcels of land that is owned by following persons and the project has been marketed under the brand name of RK Group: Zone Name Phase Miracle ledger Owner start with RK Industrial Zone-9 Phase-1 IJ9 Vandanaben J Sonwani RK Industrial Zone- Phase-2 IJ9(2) Vandanaben J Sonwani 9(2) RK Industrial Zone- Phase-3 IJ9(3) Bharat Sonwani 9(3) Phase-4 IJ9(4) Sarvanand Sonwani RK Industrial Zone- 9(4)
The assessee Shri Sarvanand Sonwani has developed the phase (4) of R K Industrial Zone-9 and the transactions relating to the project are found maintained in miracle accounting software. Details in the form of financial transactions recorded in Miracle accounting software have been seized during the search and seizure action. These miracle files contains accounted as well as unaccounted data relating to various Real Estate Projects undertaken by the R K Group members Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 and the business concerns run by them. The name of every project developed by the Group is in coded form in the Miracle files. The project "R K Industrial Zone- 9" is mentioned as "IJ9" in the Miracle file. An excerpt of the ledgers containing the code name "IJ9" from the miracle data is reproduced by AO in the assessment order page no.11. Separate ledgers for each and every unit/plot that has been booked/sold are recorded very systematically in the seized Miracle file. For better understanding of the ledgers related to the project "R K Industrial Zone-9" and to establish that 'IJ9' is the project 'R K Industrial Zone-9' and entries contained in the ledger names starting with "IJ9(4)" contain genuine and absolutely correct data of transactions of the project R K Industrial Zone-9 phase -4, a snap shot of Ledger account of "IJ9(4) 08 09 10 11 Pankajbhai" related to plot no. 8 to 11 of R K Industrial Zone-9 (phase-4) from the seized Miracle file is pasted in assessment order to explain the correctness of data in the Miracle files and to calculate the actual receipt of on-money in cash.
10. The Assessing Officer from the snap shot of ledger "IJ9(4) 08 09 10 11 Pankajbhai ", noted that Shri Sarvanand Sonwani has received payment in the form of bank receipts as well as Cash receipts. On perusal of the ledger, it was seen that the plots numbered 8 to 11 have been sold for Rs. 1,17,12,740/-, in coded form, it is shown as 117127.40. However, Rs. 21,17,720/- only have been received through bank and reported on the regular books of the assessee. In response to the summon dated 26/09/2021 issued to Shri Sarvanand Sonwani, he submitted the regular books of accounts on 08/11/2021 and also provided the bank book of RNSB account no.45964. On perusal of the bank book, it was noticed that the bank entries as recorded in the seized Miracle ledger appear in the bank book. Snapshot of relevant part from the bank book is pasted in the assessment order Page No. 13. Moreover, the two bank entries of Rs.75,060/-, as mentioned in the Miracle ledger has been deposited in the account no. Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 472100050300641 of Tamilnad Mercantile Bank Ltd of the Industrial Zone 9 Owners Association. The details of the account were called for from the bank and have been examined by the assessing officer. Snap shot of the same is pasted in the assessment order Page No.13. Therefore, assessing officer noticed that all the bank entries as mentioned in the Miracle ledger have been tallied. Thus establishing the correctness of the ledger. The Assessing Officer, therefore, noted that it is very clear that the total amount of sale consideration of plots numbered 8 to 11 of R K Industrial Zone-9 (Phase 4) is Rs.1,17,12,740/-, however, the respective conveyance deeds have been registered at a very lower value and only Rs. 21,17,720/- has been recorded on the regular books. The remaining amounts of Rs. 95,95,020/- are not passed through the regular books. In view of the above, the AO noted that following are established beyond doubt that:
(i) The entries in the miracle ledger coded as IJ9 are genuine and absolutely correct data and are related to the Project RK Industrial Zone-9. Similarly, the ledger started with IJ9(4) are related to phase-4 of this project and that this phase has been developed by the assessee Shri Sarvanand Sonwani. (ii) The amount in miracle files have been mentioned in coded form by inserting '.' before last two digits and, therefore, to find the actual value the same to be read by removing. (iii) The year of transaction in miracle file is deliberately back dated by 10 years. (iv) The sale consideration received through bank is the value that is mentioned on respective conveyance/sale deed and the same is recorded in books of the assessee. The amount received in cash has not been recorded in regular books by the assessee, hence these cash receipts remained unaccounted.
11. The assessing officer, also noted that similar type of transactions have been recorded for other units also. The summary of year wise cash unaccounted Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 receipts for the units of all four phases of R K Industrial Zone-9 is mentioned by AO in assessment order Page Nos. 14 to 19. Therefore, assessing officer noticed that assessee has received total cash on money Rs.2,89,06,720/- from the plot sold/booked at phase-4 of project, which has not recorded in the books of accounts. In similar way, the assessing officer also discussed the following projects in his assessment order, which are as follows: (i). Project – RK industrial zone -9-repayment of the cash on cancellation of sale ( AO order page no. 19 to 22) (ii) Project-R K industrial zone -9 ( phase 4)-uncounted investment in land. ( AO order page no. 21 to 24) (iii)Project RK industrial zone-9 unaccounted cash expenses, ( AO order page no. 25 to 26). (iv).Project-RK industrial zone-11-on money receipts and repayments (AO order page no. 26 to 37). (v) Project-RK industrial zone-11-unaccounted payments for purchase of land. (AO order page no. 38 to 44). (vi) Project-RK industrial zone-11- Unaccounted payments for other project related work. (AO order page no. 44 to 53) (vii) Project-RK industrial zone-14- Unaccounted payments for other project related work. (AO order page no. 55 to 58) (viii)Project-RK industrial zone-15- On-money receipts and repayments. (AO order page no. 58 to 71) (ix) Project-RK industrial zone-15- Unaccounted payments for other project related work. (AO order page no. 71 to 73) (x). Project-RK industrial park (phase-4)-On-money payments for acquisition of land for the project. (AO order page no. 73 to 78) (xi). Project-RK industrial park (phase-4)- On money receipts and repayments. (AO order page no. 78 to 84)
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 (xii) Project-RK industrial park (phase-4)- other cash expenses incurred for the project. (AO order page no. 84 to 85) (xiii) The plots at Haripar village ( Pariraj Park)-own money receipts. (AO order page no. 86 to 93) (xiv) Unaccounted cash payments for acquisition of land for the project Spire, Unaccounted receipts, and payments pertaining to land situated at Munjika, and other unidentified coded Projects, unidentified transactions were discussed by the assessing officer. (AO order page no. 93 to 107)
Thereafter, the assessing officer issued a show-cause notice to the assessee to explain the “on money” transactions in various projects noted above. In response to the notice of the assessing officer, the assessee submitted its reply before the assessing officer along with documentary evidences. The assessee denied carrying out any unaccounted transactions, which has been worked out by the AO on the basis of so-called account data (Miracle File) seized from the possession of one Shri Girish Vanjani and also relied on all the earlier replies filed from time to time in the assessment proceeding for AY 2021-22. Therefore, it was requested to consider the replies /submissions/objections already made in the assessment proceeding for AY 2021-22 on same or similar issue and on this ground, addition proposed in the show-cause notice was strongly objected. The assessee submitted that he along with his family members were earlier engaged in the business of money-lending and financing through their flagship firm namely M/s. RK Agency. However, during the course of time, assessee has diversified and ventured into the business as real estate builders & developers. The assessee as a group of family members (known as "R K Group") along with other partners have carried out various residential & commercial projects in the Rajkot and outskirts of Rajkot. Further, R K Group has also undertaken the project of development of Industrial Plotting Scheme outside the municipal limits of Rajkot and at nearby villages such as Sanosara, Jiyana, Ranpur, Bamanbor etc. 16 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Sometimes, the project of industrial plotting scheme may have undertaken by third parties, but assessee has helped them to manage and execute the project on the basis of R.K group experience and expertise in this field and also allowed to use the banner of "R K Group" to attract the investors. For such activity, though entire project receipts & income belongs to such third parties, assessee may have received some royalty and interest income if the finance of the project was made by us. Also, in certain cases, the projects are owned & developed by third parties, but the units in the project are marketed /sold by R.K Group. In such activity, R.K. group has derived brokerage / commission income only.
The assessee explained the modus operandi of conducting huge residential & commercial projects, that first they identify the suitable land for the project and negotiation on the value of land and time-period of payment is made by R K Group with the sellers. Generally, R.K. Group get instalments for making payment for the land up to two years and therefore, payment for the land is mostly funded from the booking advances / instalments received from the investors and customers. Simultaneously, construction activities of the project are commenced with the help of contractor with whom the legal contract is executed for carry out construction activities with or without material. After completing the construction activities, sale deeds of the constructed units are made in favour of the investors & customers and at that point of time, sales are accounted for in the books of account of relevant person / concern. However, at times, the customers / investors cancel his booking and, in that case, R.K.group refunds entire advances received and, in that place, new booking received from new investor or customer. In view of the above, there is no much own capital deployed in the business as assessee used to receive substantial amount of advances from the customers at the time of launching of project (due to good reputation and brand name in market) and simultaneously, getting prolonged instalment/time-period for making payment Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 for purchase of land. Therefore, the working capital required for execution of project is funded out of the project receipts only and sometimes, excess fund in hand is utilized for other investment and land purchase for another project also. Apart from assessee’s family members (including brother, sister-in-law, cousins and nephews), various other persons are also willing to join with us in the project undertaken by R K Group. In such joint-venture projects also, R.K.Group is looking after the whole things beginning from land acquisition, terms of payment, construction work execution and selling the project to investors/customers. Thus, entire project related finances and accounts is managed by R.K Group.
The assessee submitted that during the course of search action carried out at the residential premises of assessee’s employee Shri Girish Vanjani, digital data stored in the pen-drive containing accounting data files (Miracle Software) were seized. In this regard, assessee had in his statement recorded during the search clarified that though Shri Girish Vanjani is the accountant of R. K. Group and working on the directions issued by assessee, the entries in the seized data are very complex and are not appearing as correct and complete. Thus, there was clear and unambiguous assertion that impugned data/noting are not decisive, clear and complete. Further, immediately after the conclusion of search, assessee had in his duly sworn affidavit dated 28.08.2021 clarified the correct facts and it was again stated that documents and data seized from the premises of Shri Girish Vanjani and other employees / family members are not correct, complete & exhaustive and therefore, no cognizance can be taken on the basis of such erroneous and incomplete data / documents. Copy of affidavit is already placed on record. In the above-stated affidavit filed, assessee had highlighted various contradictions in the digital data seized from the possession of Shri Girish Vanjani, but in order to avoid long drawn litigation and to put quietus to the issue, the assessee had voluntarily declared the ad-hoc additional income of Rs. 10.00 crores on behalf of entire group. The said additional income was declared in order 18 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 to cover up any error, omission, defect or discrepancy in the documents / data seized during the course of search subject to the condition that no penalty or any other harsh measure shall be initiated. Further, it was reiterated that digital data (Miracle Files) recovered from the premises of Shri Girish Vanjani do not contain correct and complete information and as such, reliance placed on such disputed data for making high-pitched addition in assessee’s hands is strongly objected. Further, assessee reiterated the averments made in his duly sworn affidavit as well as affidavit of Shri Girish Vanjani, wherein, it has clearly been stated that the data relied upon by the Department is not correct and sacrosanct and hence, addition of unaccounted income cannot be made solely on the basis of such independent data. Furthermore, right from the post-search investigation and in assessment proceeding, all the other members and partners of R K Group have denied any link or relation with the alleged seized data. Further, no corroborative, correlating or circumstantial evidence related to entries made in the said disputed data have been found from assessee’s premises or the premises of the family members of R. K. Group. Hence, the nature of seized data does not point any strong/reliable or standalone presumption under section 292C of the Act against assessee or other members/partners of R K Group. In this connection reliance was placed on the following judicial pronouncements: (i)Hon'ble Allahabad High Court in the case of CIT vs. Babu Mohanlal Arya Smarak Educational Trust (2014) 42 taxmann.com 255 (Allahabad) has observed that where in a case no evidence of actual receipt of own money/capitation was found during the search action, no incriminating evidence or corroborative evidence was found. The presumption under section 292C stands rebutted by denial of the assessee under such circumstances. (ii)Hon'ble Delhi High Court in the case of Pr. CIT vs. Delco India Pvt. Ltd.(2016) 67 taxman.com 357 (Del.) has observed that where the assessee had clearly denied having any dealing with the concern mentioned in the loose papers Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 found and has also produced all necessary details before AO to make necessary enquiries in this respect and the AO has made such enquiries, then, under such circumstances, such presumption stands rebutted. (iii)Hon'ble ITAT, Kolkata Bench in the case of Nirmal Fashions Pvt. Ltd. vs. DCIT (2008) 25 SOT 387 (Kol.) has held that section 292C is a presumptive provision but same is a rebuttable presumption and the document found during the search action has to be considered, considering the totality of the facts of the case. The deeming provision cannot be applied mechanically ignoring the facts of the case and the surrounding circumstances of the facts are to be considered before the drawing and inference of undisclosed income on the basis of loose papers. Where the Revenue has searched the business premises as well as residential premises of the firm/partners and not a single evidence of purchase or sale outside the books of account was found, and, under the circumstances, it seems impossible to carry on business on a huge scale outside the books unless there is some unrecorded stock, cash, debtors etc; when no significant asset outside the books or no evidence of ostensible expenditure is found outside the books, under such circumstances, additions made on the basis of loose papers by making certain presumptions, which were found to be untenable or contrary to other evidence on record, cannot be held to be justified and deserved to be deleted. (iv)The co-ordinate Nagpur bench of the Tribunal in the case of ACIT vs. Buldana Urban Co-operative Credit Society Ltd. (2013) 153 TTJ (Nag) 728 in somewhat similar circumstances has observed that presumption given under section 292C is not conclusive but is rebuttable.
The assessee, since, in the beginning has denied that the loose papers found were not belonging to him and the same were not in the handwriting of any of the employees; there being no corroborative evidence available on record found during the course of search which may prove wrong the contention of the assessee Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 that the said paper does not belong to him and the assessee offers a plausible explanation regarding the recovery of such a document in his premises, then under the circumstances the additions in the absence of any corroborative evidence cannot be held to be justified. The assessee relied on the decision of Lucknow Bench of the Tribunal in the case of Satnam Singh Chhabra vs. DCIT (2002) 74 TTJ 976 (Lucknow) wherein it was held that the uncorroborated loose papers found during search action cannot be taken as a sole basis for the determination of undisclosed income. The circumstantial evidences in the case in hand, such as there being no soft copy/data available in the computer systems of the assessee in relation to the alleged document or correlating any transaction as mentioned in the said document; no recovery of any valuable asset, bullion money or jewellery or any other evidence of any investment at the premises of the assessee; no discovery of any incriminating evidence despite thorough investigations of the books of account, bank accounts and other evidences during the survey action, post survey action and during the assessment proceedings; the fact that the assessee during his statement recorded during the survey action and post survey action, though, offered additional income of 4 crore, but, has specifically denied his relation or link or entering into any transaction depicted in the said document; the assessee has not been found in relation or in contact with any of the person named in such document, no connection of the assessee with any of the bank accounts mentioned in the recovered documents and further the fact that the assessee has not introduced any cash in his books of accounts on account of additional income, for which he had already paid tax also, together constitute good rebuttal to the initial presumption u/s 292C in this case.
Without prejudice to the above, the assessee submitted that on verification of alleged digital data / Miracle Files recovered from the premises of Shri Girish Vanjani, it is seen that the opening cash balance in the data is itself negative i.e., (-6,20,93,842) and subsequently, various entries on debit & credit side are found 21 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 recorded without any narration / explanation. In this context, it is submitted that if the data would have maintained systematically then certainly, it would not show negative cash balance. Further, in the impugned notice issued, the assessing officer has also observed that the balancing figure of cash on hand in the seized digital data at various place comes to negative i.e., below zero. Therefore, if the seized data would be correct, complete and exhaustive, the cash balance can never be negative. This proves that the entries made in the seized data is in haphazard manner which serves no purpose to the assessee or any other member/partner of the Group. It is also submitted that assessee or other member/partner of the Group has never accessed such data and there was no use of such incorrect/incomplete /erroneous data for assessee. It was also submitted that various entries in disputed Miracle Files represents the investment in properties, which in fact have not purchased by any of the family members or group concerns. In certain cases, the description of property as inferred from the ledger name had been acquired much before that is, before 2010 but the entries in the seized data is appearing in the assessment years under consideration. Therefore, it is submitted that the seized data is not correct and it does not show true picture of the group affairs. Furthermore, in the SCN itself, it is admitted by the assessing officer that there are various entries in ledger accounts which cannot be identified with reference to any party or project. In this regard, it was submitted that assessee has not carried out any such transactions and hence, income proposed to be added in respect of such unknown and unidentified entries is completely unjustified. It is also seen that in many cases, the seized data does not contain proper nomenclature of the ledger name and grouping. The entries in the ledger account are made by Shri Girish Vanjani on the basis of his limited understanding and knowledge, which is also accepted by him in his duly sworn affidavit. Therefore, transaction recorded in the seized data cannot be interpreted in the way as it is appearing in data, but the same has to be logically arranged and understood to determine Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 correct implication and to arrive at conclusion. Hence, no conclusion can be derived on the basis of such haphazard and unsystematic data alone.
The assessee also submitted that decoding of dates and figures allegedly made on the basis of statement recorded from Shri Girish Vanjani is also not accepted since Shri Girish Vanjani himself in his duly sworn affidavit has retracted from the statement recorded in stressed situation. The cash book in the seized data contains 79540 entries divided in three different files and almost 6200 ledger accounts named as per the limited understanding of Shri Girish Vanjani. Therefore, to re-arrange and re-grouping of such accounts in correct manner is really a very complex and impossible task in absence of any underlying data or prime records on the basis of which entries in the impugned data has been made. Therefore, high-pitched addition proposed to be made on the basis of entries recorded in certain ledger accounts (after allegedly decoding of dates and figures) is strongly objected. As regard the allegation of unaccounted cash receipts against sale consideration of units in various projects, unaccounted expense incurred and unaccounted investment in land, it is reiterated that assessee or any member/partner of R K Group has not undertaken such unaccounted transactions. Therefore, it is not known as to how and for what purpose entries of alleged cash receipts/payments in the seized data has been made. It was also submitted that actual receipts on sale of units in the project developed by assessee and other family members/group concerns as well as purchase of land and construction expenses is as per the books of account and all such transactions are carried out at or higher than the fair market value prescribed by the state government for collecting stamp duty and other valuation standards. Therefore, any doubt regarding valuation of the land or constructed units can also be resolved from the Valuation Cell or by making inquiries with the sub-registrar office. Further, in case of provisions of RERA applicable to any projects, details regarding cost of project, sales, booking amount etc. has been submitted before the authority from 23 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 time to time, which has also been accepted. Therefore, there is no room for any unaccounted transactions be it receipts or payments in the project.
It was also submitted that various family members have been entrusted with various work and duties and all the persons are working independently under the common banner of "R K Group". During the post-search, it was also realized that some of the family members had started to provide add-on services to customers at his own, which includes customization in flat/office, extra civil and interior work, taking connection of electricity, water, gas etc., purchase of stamp papers for registration of Satakhat / Sale Deed, payment of registration fees and legal fees to advocate on behalf of customer etc. These all activities were made by the different family members at their own and noting & account regarding such activities may have made by Shri Girish Vanjani in the digital data (Miracle Files). Similarly, payment made towards such additional/extra cost and for stamp paper/registration fees may have also recorded in the seized data under different nomenclature and grouping. Therefore, family members of R K Group have received the funds from the customer, which has been utilized for the specific purpose and as such assessee has only acted as a facilitator/conduit between the customer and third-party agency/ supplier /contractor. In view of the above, addition proposed by assessing officer was strongly objected. Further, it was also submitted that on perusal of the impugned data as well as loose papers and various excel sheets seized during the search, it is seen that there is no systematic and project-wise noting in any data or documents or excel sheets. Therefore, chances of duplications/overlapping/mistakes/ errors of omission and commission could not be ruled out. Further, data of those excel files referred to in the notices issued to group concerns have not been provided fully, therefore, no verification could be made in this regard. It appears that figures found in impugned data are lower as compared to that mentioned in the notice, however it is stated that same are in coded for and back dated. This finding of the department seems based on 24 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 suspicion, without having any corroborative evidence on record. Therefore, working out the profit attributable to the projects on the basis of impugned data / documents / excel sheet is impossible especially where nature of entries recorded in the seized data may be of varied nature and hence, on this ground also proposed addition of profit element was strongly objected.
As regard the various allegations of unaccounted receipts / expenses pertaining to the projects "R K Industrial Zone-11 (Part A & B)", it was submitted that assessee has not undertaken these projects, but the owners of these projects are Shri Ramesh Tilala and Shri Mehul Bhalala. The assessee has just acted as a facilitator and financer for the projects undertaken by these persons and therefore, income from these projects cannot be assessed in assessee’s hands and hence, addition proposed on account of unaccounted profit earned from the project "R K Industrial Zone-11 (Part A & B)" was strongly embedded.
Similarly, the project "R K Industrial Zone-14" and "R K Industrial Park (Phase-4)" was developed by Smt. Priya Vinod Devra, wherein, assessee has just facilitated her to sale the units under the banner of "R K Group". Therefore, assessee has not earned any income from this project and hence, addition proposed in assessee’s hands was strongly objected.
It was also submitted that the impugned data is totally misleading and not reliable, even in the various assessment proceeding in Central Charge as is appearing in the decided case laws, the assessing officer has determined the assessable income by estimating the net profit at 6%, and 8%, on unaccounted receipts as the case may be in the case of builders /developers. Even, the scheme of offering an income on estimate basis at the rate of 8% / 6% is also available in the Income-tax Act i.e., Section 44AD of the Act. Therefore, proposing high pitched addition without following the settled judicial interpretations and findings 25 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 is not the right spirit of conducting assessment proceeding and the same is against the principle of natural justice. Reliance was placed on the following decisions:
1. Hon'ble ITAT, Ahmedabad in the case of Greenfield Reality Pvt. Ltd. vs. ACIT, Central Circle-1(2), Ahmedabad in to 322/Ahd/2018, wherein, it is 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 Ld. CIT(A), and in the light of judgment of Hon'ble jurisdictional High Court in the case of Panna Corporation (supra) as well as Kishor 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.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-A] 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) 220 (2) TMI 884-ITAT AHMEDABAD - M/S. JAY KESAR BHAVANI DEVELOPERS PVT. TD. VERSUS INCOME TAX OFFICER, WARD-1 (3) SURAT “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 Rs. 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) TMI 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 80IB(10) hence, 26 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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 receipts - Appeal of the assessee is partly allowed. (iii). 2022 (2) TMI 815-ITAT CHENNAI - SHRI T.R. SHANMUGASUNDARAM VERSUS DCIT CENTRAL CIRCLE-1, CBE COIMBATORE. AND (VICE-VERSA) “Addition on account of unaccounted/suppressed sales- The sale figures could not be said to be the income of the assessee. It is trite law that only the real income earned by the assessee could be brought to tax. It is the finding that the assessee has sold developed sites during these years which would entail incurring of expenditure on the part of the assessee. Therefore, it would be in the fitness of things to estimate profit element embedded in unaccounted sale transactions since entire sales figures could not be held to be the income of the assessee. As per statutory mandate, a presumptive rate of 8% is applicable on civil construction business. Taking cue from the same, we apply the same rate to the unaccounted sales as computed by Ld. AO. Accordingly, Ld. AO is directed to estimate profit rate of 8% on unaccounted sales”
It was also submitted that 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. Therefore, working of year-wise on-money is against the principle of real income as well as binding judicial precedents. it is submitted that, the amount which has been received on booking of the units will partake the character of income when the registry of conveyance deed is done. Reliance is placed on following authorities.
(i)Hon'ble High Court of Gujarat in the case of CIT v. Shivalik Buildwell (P.) Ltd. (2014) 220 Taxman 3 (Gujarat) (MAG) (ii)Hon'ble High Court of Gujarat in the case of CIT v. Ashaland Corporation (1982) 133 ITR 55 (Gujarat) (iii)Hon'ble High Court of Gujarat in the case of CIT vs. Motilal C. Patel & Co. (1988) 173 ITR 666 (Gujarat) (iv)Hon'ble Income Tax Appellate Tribunal, Mumbai Bench 'E' in the case of DCIT v. Shiv Sai Developers (2011) 10 (TR(T) 80 (Mumbai) 27 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 23. As regard the proposal to reject book results by invoking provision of Section 145(3) of the Act, it was submitted that the transactions of land purchase and sale of units have been carried out through banking channel and at the value or higher than the value prescribed by stamp valuation authority of state. Also, Therefore, there is no defects, discrepancies or any doubts in the completeness or correctness of accounts and hence, proposal to invoke provision of Section 145(3) of the Act and to disturb the book results was strongly objected. So far as proposal of making addition of Rs. 3,12,54,700/- in AY 2012-13 on the alleged ground of opening cash balance (seed capital) in the seized MIRACLE File, it is reiterated that the entries recorded in the seized data are not correct, complete and exhaustive and as such, reliance placed on such data is completely misplaced. Without prejudice to the above and without admitting the authenticity of seized data, it was also submitted that the seized data contains entries of alleged cash receipts / payments from 01/08/2009 and hence, cash balance as on 01/04/2011 is carried forward balance from the earlier year i.e., FY 2010-11. Therefore, it is not a case of fresh receipts/income in FY 2011-12, but the opening balance is result of closing balance of earlier year. Therefore, addition proposed in respect of said opening balance, which is carried forward from earlier year is totally unjustified and hence, strongly objected. As regard the addition proposed of Rs. 2,61,43,920/- in respect of negative cash balance in the cash book as per seized data, it is submitted that said negative balance itself proves that the seized data is not reliable and complete. If the data would have been maintained systematically, there could never be a negative balance. Further, there is no use of such data, which shows negative cash balance and hence, cognizance taken on such unsystematic and incomplete data was strongly objected. Furthermore, there is no evidence that the negative balance in the seized data is only because of non- recording of any income in such data. Therefore, addition proposed without having any evidence of unaccounted income earned is completely on surmises & conjectures. 28 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 24. In Sr. No. 11 of the notice, it is alleged that digital data seized from the possession of Shri Girish Vanjani contains two MIRACLE data files named as "Shrushti Enterprise" and "Nav Shrushti Enterprise" contain common constant cash book for the period from 01-10-2012 to 30-06-2016 and transactions recorded in such cash book are not identifiable and attributable to any specific entity or person. In absence of any clarity on the nature of transactions recorded in these data, it is proposed to make addition of peak cash balance of Rs. 8,23,46,050/- in the relevant year. In connection with the above, it was submitted by the assessee that above-stated MIRACLE files and entries recorded therein are not pertaining to assessee or his family members/associated concerns. Further, assessee has never directed Shri Girish Vanjani to make data entries in the above- stated Miracle Files. Therefore, cognizance taken on the basis of above-stated two data files is completely unjustified. Further, it is also seen that the period of cash book in the above-stated seized data is from 01/10/2002 to 30/06/2006, which is much prior to the search relevant assessment years. It is understood that the date / period in the seized data is interpreted as 10 years backdated without at logic/reason. There is no evidence that the entries in such seized data are recorded backdated and hence, addition proposed on the basis of said data in the assessment year under consideration was objected. Furthermore, figures / amount in the seized data is allegedly decoded by adding to digits after the decimal, which is also incorrect and without any reason. These seized data are altogether different from other three Miracle Files and it is not correct to apply same reasoning/logic in these two data files. Therefore, decoding of figures made is also not correct and addition proposed on that basis was strongly objected. Without prejudice to the above and without admitting the content and authenticity of seized data, it was requested to provide benefit of telescoping in respect of alleged unaccounted income from various real estate projects proposed to be added in assessee’s hands against addition proposed on account of peak cash balance as per the aforesaid seized data. Since, the entries of cash inflow / outflow in the above-stated two 29 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 data filed i.e., "Shrushti Enterprise" and "Nav Shrushti Enterprise" are not identifiable or attributable to any specific person / entity, it was requested to treat the same as rotation of own funds i.e., funds available with various family members and associated concerns and once, additional income has already been estimated and taxed in all such cases, further making addition in respect of peak balance will tantamount to double addition.
25. Conclusion of the assessing officer The assessing officer, after considering the above reply of the assessee, decided to tax only the profit element embedded in the entire set of various kinds of unaccounted transactions that came to surface from the seized Miracle data. After thorough examination of the response to show- cause notices and rebuttal of various contentions raised by the assessee in its reply, the assessing officer noticed that the seized digital data in the form of accounting entries on Miracle file is accurate, reliable and self-explanatory. Further, there is also no doubt that the accounts of the assessee where all the transactions are not reflected cannot be relied upon as they present incomplete and incorrect state of affairs of business of the assessee and therefore requires to be disregarded invoking the provisions of section 145(3) of the Act.
Rejection of books of accounts by the assessing officer Accordingly, provisions of section 145(3) of the Act 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. As per the material gathered during the search and submissions available on records, the assessee was found to have indulged in the practice of suppressing both receipts (on account of sale) and payments (on account of purchase) made for the projects undertaken/developed during the year.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 The assessing officer, therefore, noticed that there is no uniform method that can be employed to compute income when part receipts on account of sale are not included on the books. The method differs from case to case depending upon various factors, 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 observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below:
"It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts."
Therefore, assessing officer noticed 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. The assessing officer also noticed that 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 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 has held that only profit element embedded in the gross on-money receipts can be taxed. For this, the Hon'ble court has derived reference from its earlier decision delivered in the case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89. Relevant part of the decision is as under :
"it has been consistently held by this court and some other courts have been following the principle that even up on 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 Gujarat High Court that while dealing with addition on account of unaccounted sales, in absence of any material on record to show that there was any unexplained investment/expense made by the assessee, there could be a presumption of such expenditure. In such event also it is held that only profit on suppressed sales could be brought to tax [CIT v. Gurubachhan Singh J Juneja [2008] 171 Taxman 406 (Gujarat)] Hence, assessing officer noticed that 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.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 27. Estimation of rate of profit in Industrial Projects, by the assessing officer The assessing officer noticed that details of 25 Industrial projects undertaken by the searched group members and their partners have been recovered from the seized Miracle File. Some projects were in completion stage whereas some were just started. Besides, in respect of some projects comprehensive details i.e. Land purchase, Project expenses, On-money receipts have been recovered from the seized data whereas in other projects very limited details, that is, only on-money receipts were recovered. 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 237% to 51%. 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, following ten projects have been identified by the assessing officer as reference :
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 The assessing officer noticed that the net receipts of all these 10 projects have been calculated and it is seen that after considering all kind of transactions, that is, net on-money receipts, expenses for running the project including the Land purchase there remained average net surplus of 21% in the hands of respective developer/owner. The relevant chart is reproduced below:
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024
Therefore, the assessing officer observed that there is violation of various other provisions of the law which are in place to discourage the practice of Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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 21% to 25%. Accordingly, 25% has been set as benchmark rate for the projects where details of unaccounted receipts as well as unaccounted expenses have been recovered from same set of the seized material.
The assessing officer further noted that there are some projects where details of only unaccounted receipts were recovered from the seized material. It would not be fair if the same benchmark of 25% is also taken for such projects, where no evidence regarding any kind of unaccounted payments are gathered during search or available on records. At the same time, because all the projects are being pursued by the same group of people, it is more likely that they would have deployed same pattern for all their projects. Hence, possibility of having incurred expense on these projects can also not be undermined. Besides, the decisions of jurisdictional high court discussed (supra) also endorse the preposition that it is not reasonable to tax entire on-money receipts. Therefore, in such projects, where only unaccounted receipts were recovered, a higher rate of 50% is adopted.
Computation of unaccounted profit estimation, by the assessing officer, from various projects undertaken by the assessee In view of the above discussion on adoption of appropriate rate of profit as per specifics of each and every projects, the rate of profits to be adopted for the projects under consideration comes to as under:
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024
Accordingly, the computation of unaccounted profit element embedded in the gross receipts from all the above projects is as under :
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024
Name of FY 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 the Project AY 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 R K Net on 16,00,000 2,62,35,100 Industrial Money Zone 9(P4) Receipts Profit @ 4,00,000 65,58,775 25% R K Net on 67,55,500 6,00,10,655 2,08,65,291 1,06,46,765 Money Industrial Receipts Zone 11 Profit @ 18,91,540 1,68,02,983 58,47,881 29,81,094 28% (Protective 50% stake) RK Net on 2,74,31,588 Industrial Money Zone 14 Receipts (Protective Profit @ 68,57,897 75% stoke) 25% RK Net on 4,45,32,560 Industrial Money Zone 15 Receipts Profit @ 1,11,58,140 25% RK Net on 1,44,33,605 1,08,13,515 Industrial Money Park 4 Receipts (Protective Profit @ 16,08,401 27,03,379 50% stake) 25% Plots at Net on 4,74,93,000 14,00,000 Haripar Money Village Receipts (Parijat Profit @ 2,37,46,500 7,00,000 Plots) 50% Other Net on 2,24,44,420 74,56,370 27,16,110 49,84,050 62,80,550 1,11,93,900 2,98,51,500 1,53,11,450 20,47,780 coded Money projects Receipts from the Profit @ 1,12,22,210 37,28,185 13,58,055 24,92,040 31,40,275 55,96,950 1,49,25,750 26,55,725 10,23,890 seized 50% Miracle Total 1,12,22,210 37,28,185 13,58,055 24,92,040 31,40,275 74,88,400 5,94,83,635 2,27,65,760 2,27,21,021
32. Thus, addition of Rs. 74,88,490/-, for assessment year 2017–18, 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 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. 74,88,490/- as estimated unaccounted business income.
Addition under the head Capital Gain The assessing officer noted that the assessee has sold land situated at Munjka during FY 2016-17. In this regard, the unaccounted receipts and payments related to this transaction have also been recovered from the seized miracle files. The Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 summary of the transactions found recorded on the seized Miracle ledger pertaining to this land is as under:
However, the assessee has reported following short term capital gain on account of this land in this return of income for FY 2016-17 (relevant AY 2017-18), which is reproduced below:
SHORT TERM CAPITAL GAIN Purchase Date Sale Date Sale Value Purchase Cost S.T.C.G. 24/06/15 03/09/16 1,43,64,000 1,39,71,758 3,92,242 Here, the difference in the sale value as reported by the assessee and the bank receipt as per the miracle ledger is Rs. 1,43,640/- (1,43,64,000 -1,42,20,360) which is nothing but lesser receipt in the bank of the assesse on account of TDS @ 1% of the sale value. Further, the difference in the purchase cost as reported by the assesee and the bank payment as per miracle ledger also is nothing but on the account of the stamp duty and registration charges born by the assessee at the time of acquisition of the property @ 6% (approx.) of the purchase value. Thus, it is abundantly clear that the cash receipt and cash payment in the seized miracle Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 ledger is not reported by the assessee at the time of filing his income tax return. Therefore, the differential amount of cash receipt and cash payment, that is, Rs. 28,87,490/- was treated as undisclosed short -term capital gain in the hands of the assessee for AY 2017-18. Therefore, assessing officer made addition of Rs. 28,87,490/- being undisclosed Short Term Capital Gain.
Additions as per the provisions of chapter-VI of the Income-tax Act The assessing officer observed that the opening balance (as on 01-04-2011 Rs. 3,12,54,700/-) of the common cash book of the three Miracle files on the account of its unaccounted application (as a seed capital) requires to be added in the hands of the assessee being the main person behind these transactions. Further, it is noted that the constant cash book of the seized Miracle files was reflecting negative balance of funds at some point of times which implies that cash was brought in from outside sources. It was seen that cash balance of the constant Miracle data goes negative during FYs 2017-18 and 2018-19. The maximum negative cash balance is noted at Rs. 1,09,42,100/-, as on 21-04-2017 (FY 2017- 18) and at Rs. 2,61,43,920/-, as on 18-05-2018 (FY 2018-19). Therefore, following amounts were treated as deemed income in the hands of the assessee as unexplained money u/s 69A of the Act :
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 35. Apart from the above discussed three Miracle files, two (2) more files have also been found from the seized digital data recovered from the possession of Shri Girish Vanjani during the course of search. The details of the same are as under:
These two files also contain a common constant cash book starting from 01-10- 2012 to 30-06-2016.
The assessing officer noticed that the beneficiaries of these two miracle files are not identifiable in particular, therefore, unlike the earlier discussed miracle data the receipts of these two miracle files cannot be attributed to any specific entity or person in absence of any cogent explanation in this regard from the assessee. Since the transactions are recorded at the instructions of the assessee, Shri Sarvanand Sonwani, it would be proper and fair to tax the unaccounted cash as per the common-constant cash book of these two files in the hand of the assessee. Since the receipts of these files are not explained by the assessee, the maximum cash available for each and every year of the common-constant cash book of these two files should be brought to tax in the hands of the assessee. Accordingly, addition of maximum cash balance in respective years that was necessary to carry out the unaccounted transactions found noted on these two files is also being made in hands of the assessee as unexplained money within the meaning of section 69A of the Act, as under Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 F.Y. Maximum Surplus Difference Addition to be Balance available from made earlier years (as per column E cumulative) A B C D=B-C E=B-C 2012-13 2,59,60,555 2,59,60,555 2,59,60,555 2013-14 4,69,24,440 2,59,60,555 2,09,63,885 2,09,63,885 2014-15 3,56,13,930 4,69,24,440 -1,13,10,510 -- 2015-16 2,85,63,760 4,69,24,440 -1,83,60,680 -- 2016-17 8,23,46,050 4,69,24,440 3,54,21,610 3,54,21,610 Therefore, assessing officer also made addition based on two miracle files to the tune of Rs.3,54,21,610/-, under section 69A of the Act for assessment 2017–18.
Aggrieved by the various additions made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A) The learned CIT(A) dismissed the technical grounds raised
by the assessee, challenging reopening of assessment under section 147/148 of the Act. On merit, learned CIT(A), estimated the profit element on the “on money”, at the rate of 8%, 12%, 16% etc, in a different assessment years. 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 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
42. Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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:
Summarized and Concise ground No.1 is reproduced below for ready reference: “(i) The ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.” ( This ground is raised by the assessee in for AY 2012-13 and Revenue’s cross appeal is in for AY 2012-13)
Learned Counsel for the assessee, at the outset submitted that in the assessee’s case, (R.K. Group case), search and seizure proceedings were conducted on 24.08.2021, which falls in the previous year 2021–22 ( 01.04.2021 to 31.03.2022) and relevant assessment year is 2022–23 ( 01.04.2022 to 31.03.2023). Therefore, assessment year 2022–23 became first assessment year and assessment year 2013–14 became 10th assessment year, therefore, notice under section 148 of the Act, issued by assessing officer for reopening assessment for assessment year 2012-13 is barred by limitation, as per section 149 of the Act. Therefore, reassessment proceedings initiated under section 147/148 of the Act, by the assessing officer against the assessee for assessment year 2012–13 should be quashed.
On the other hand, learned DR for the revenue fairly agreed that assessment 2012–13, falls beyond the period of 10 year, hence reassessment proceedings Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 cannot be initiated. However, on merit, learned DR relied on the findings of the assessing officer.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We find merit in the submissions of learned Counsel for the assessee, to the effect that where search was conducted in Financial Year 2021–22, assessment year 2022-23 became first assessment year and assessment year 2013-14 became tenth assessment year, therefore, notice under section 148 issued for reopening assessment for assessment year 2012–13, is barred by limitation as per section 149 of the Act, which is produced below:
“149. Time limit for notice (1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of- (i)an asset; (ii)expenditure in respect of a transaction or in relation to an event or occasion or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more: Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March 2021”
Considering the above factual position and position in law, the assessment cannot be reopened beyond the period of 10 years, for this reliance is placed on the judgement of jurisdictional High Court of Gujarat in the case of Jayantibhai Karamshibhai Maniya, [2026] 182 taxmann.com 493 (Gujarat), wherein it was held that where search was conducted in FY 2024-25, assessment year 2025-26 became first assessment year and assessment year 2016-17, became tenth assessment year, so notice under section 148 issued for reopening assessment for year 2015-16 was barred by limitation as per section 149 read with sections 153A and 153C of the Act. The detailed findings of the Hon’ble Court is reproduced below:
“ANALYSIS AND OPINION: 7. We have heard the learned advocates at length. We have also perused the case laws cited above and have considered the provisions threadbare.
The facts which are established from the pleadings are that a search action under Section 153A of the Act against the searched person was undertaken on 09.05.2024, which indubitably falls in the Financial Year 2024-25. The revenue found some incriminating material against the present petitioner and accordingly issued the impugned notices for reopening the assessment for the year 2015-16. The notice has been issued under Section 148 of the Act. With reference to the date of search, it is necessary to refer to the provisions of Section 152(3) of the Act, which read as under: "Section 152(3) "Where a search has been initiated under section 132 or requisition is made under section 132A or a survey is conducted under section 133A [other than under sub-section (2A)] on or after the 1st day of April, 2021 but before the 1st day of September, 2024, the provisions of section 147 to 151 shall apply as they stood immediately before the commencement of the Finance (No. 2) Act, 2024." Thus, since the date of search falls within the period from the 1st day of April, 2021 to the 1st day of September, 2024, the provisions of Sections 147 to 151, as they stood prior to the Finance Act (No. 2), 2024, shall apply.
Section 149 (Old regime) of the Act reads thus: "Time limit for notice. 45 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 149. (1) No notice under section 148 shall be issued for the relevant assessment year, (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of- (i) an asset, (ii) expenditure in respect of a transaction or in relation to an event or occasion, or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:] Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under Section 153-A, or Section 153-C read with Section 153-A, is required to be issued in relation to a search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132-A, on or before the 31st day of March, 2021." 9.1 Section 149(1)(b) of the Act refers to the limitation period of ten years, which has elapsed from the end of the "relevant assessment year". The relevant assessment year in the present case is 2015-16, which is prior to the cut-off date of 1st April, 2021, as specified in the first proviso. The link between Section 149 and Sections 153A and 153C of the Act is found in the first proviso to Section 149(1) of the Act. The expression "relevant assessment year" is explained under Explanation 1 to the fourth proviso to Section 153A(1). The first proviso to Section 149(1) of the Act bars the issuance of notice under Section 148 of the Act for the relevant assessment year beginning on or before 01st April, 2021, if a notice under Section 148 or Section 153A or Section 153C of the Act could not have been issued at that time on account of it being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of Section 149 of the Act or Section 153A or Section 153C of the Act. In the present case, the notice under Section 148 of the Act emanates from the search proceedings undertaken under Sections 132/132A of the Act, and hence the provisions of Sections 153A and 153C of the Act would get attracted, and the reassessment of the petitioner has to be examined by keeping in mind the limitation provided under Section 153C of the Act, which is pari materia to Section 153A of the Act.
At this stage, we may refer to the provisions of Section 153A(1)(b) and Explanation (1) to Section 153A of the Act, on which the learned advocates have premised their submissions. Section 153A(1)(b) and Explanation (1) to Section 153A of the Act read as under: "SECTION 153A Assessment in case of search or requisition. 46 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- XXX XXX XXX (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years:
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years): Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate, Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso, specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years Provided also that no notice for assessment reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless- (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years, (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years, and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017 Explanation 1 For the purposes of this sub-section, the expression "relevant assessment year shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made."
9.2 The provisions of Sections 153A/153C of the Act find place in the proviso to Section 149 of the Act and, hence, the limitation as provided in Sections 153A/153C of the Act gets triggered upon the initiation of assessment proceedings emanating from a search under Sections 132/132A of the Act. We may, at this stage, mention that the Delhi High Court as well as the Madras High Court has already considered the implications of Explanation (1) to Section 153A 47 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 of the Act to the limitation and the expression "relevant assessment year" used therein in Explanation (1) to Section 153A of the Act. The Delhi High Court, in the case of Ojjus Medicare (P.) Ltd. (supra), after considering an array of judgments of other High Courts as well as of the Supreme Court and upon a threadbare consideration and analysis of the statutory provisions of Sections 153A, 148 and 149 of the Act, has held thus:
"88 Section 153A replicates the basis on which the six AYs' are to be identified and computed with the solitary distinction being that in the case of the searched person, the six AYs' are liable to be computed from the AY pertaining to the FY in which the search was conducted. The starting point for the purpose of identifying the six AYs' in the case of section 153A would thus turn upon the year of search as opposed to the handover of material which is spoken of in the First Proviso to section 153C. If one were to therefore assume that a search took place on a person between 01 April 2021 to 31 March 2022, the pertinent AY would become AY 2022-23 and the corresponding six AYs' would by as follows:
Computation of the six-year block period as provided under section 153C of the No of Act years AY 2021-22 1 AY 2020-21 2 AY 2019-20 3 AY 2018-19 4 AY 2017-18 5 AY 2016-17 6 89. That takes us then to the issue of identifying the "relevant assessment year" for the purposes of computing the ten-year block. Explanation 1 to section 153A specifies the manner in which the entire ten AY period is to be computed. While the computation of six AYs follows the position as enunciated and identified above, Explanation I prescribes that the ten AYs' would have to be computed from the end of the AY relevant to the FY in which the search was conducted or requisition made. The ten AY period consequently is to be reckoned from the end of the AY pertaining to the previous year in which the search was conducted as distinct from the preceding year which is spoken of in the case of the six relevant AYs.
Viewed in that light, and while keeping the period of 01 April 2021 to 31 March 2022 as the constant, the relevant AY would be AY 2022-23. The ten AYs would have to be computed from 31 March 2023 with the said date indubitably constituting the end of the AY relevant to the previous year of search. Viewed in light of the above, the block period of 10 AYs would be as follows.- Computation of the six-year block period as provided under section 153C No of years read with Section 153A AY 2022-23 1 AY 2021-22 2 AY 2020-21 3 AY 2019-20 4 AY 2018-19 5 AY 2017-18 6 AY 2016-17 7 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 AY 2015-16 8 AY 2014-15 9 AY 2013-14 10
Tested on the aforesaid precepts, it would be manifest that AY 2022-23 would form the first year of the block of ten AYs' terminating in AY 2013-14. We, in this regard also bear in consideration the following instructive passages as appearing in the decision handed down by a learned Judge of the Madras High Court in A.R.Safiullah. We deem it appropriate to extract the following paragraphs from that decision: - "9 Explanation-I is clear as to the manner of computation of the ten assessment years. It clearly and firmly fixes the starting point. It is the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. There cannot be any doubt that since search was made in this case on 10.04.2018, the assessment year is 2019-20. The end of the assessment year 2019-20 is 31.03.2020. The computation of ten years has to run backwards from the said date i.e. 31.03.2020. The first year will of course be the search assessment year itself. In that event, the ten assessment years will be as follows: 1st Year 2019-20 2nd Year 2018-19 3rd Year 2017-18 4th Year 2016-17 5th Year 2015-16 6th Year 2014-15 7th Year 2013-14 8th Year 2012-13 9th Year 2011-12 10th Year 2010-11 The case on hand pertains to AY 2009-10. It is obviously beyond the ten year outer ceiling limit prescribed by the statute. The terminal point is the tenth year calculated from the end of the assessment year relevant to the previous year in which search is conducted. The long arm of the law can go up to this terminal point and not one day beyond. When the statute is clear and admits of no ambiguity, it has to be strictly construed and there is no scope for looking to the explanatory notes appended to statute or circular issued by the department.
10. In the case on hand, the statute has prescribed one mode of computing the six years and another mode for computing the ten years. Section 153A(1)(b) states that the assessing officer shall assess or reassess the total income of six years immediately preceding the assessment year relevant to the previous year in which search is conducted. Applying this yardstick, the six years would go up to 2013-14. The search assessment year, namely, 2019-20 has to be excluded. This is because, the statute talks of the six years preceding the search assessment Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 year. But, while computing the ten assessment years, the starting point has to be the end of the search assessment year. In other words, search assessment year has to be including in the latter case. It is not for me to fathom the wisdom of the parliament. I cannot assume that the amendment introduced by the Finance Act, 2017 intended to bring in four more years over and above the six years already provided within the scope of the provision. When the law has prescribed a particular length, it is not for the court to stretch it. Plasticity is the new mantra in neuroscience, thanks to the teachings of Norman Doidge. It implies that contrary to settled wisdom, even brain structure can be changed. But not so when it comes to a provision in a taxing statute that is free of ambiguity, Such a provision cannot be elastically construed.
One other contention urged by the standing counsel has to be dealt with. It is pointed out that the petitioner has invoked the writ jurisdiction at the notice stage. Since the petitioner has demonstrated that the subject assessment year lies beyond the ambit of the provision, the respondent has no jurisdiction to issue the impugned notice. Once lack of jurisdiction has been established, the maintainability of the writ petition cannot be in doubt." In our considered opinion, the decision in A.R Safiullah correctly expounds the legal position and the interpretation liable to be accorded to the identification of the ten AYs which are spoken of in sections 153A and 153C." 9.3 Thus, it is precisely held hereinabove that the statute prescribes different modes of computation for six years and ten years. We reiterate that the provisions of Section 153A(1) (b) of the Act stipulate that the Assessing Officer shall assess or reassess the total income of six years immediately preceding the assessment year relevant to the previous year in which the search is conducted. However, the ten assessment year period, consequently, is to be reckoned from the end of the assessment year pertaining to the previous year in which the search was conducted, as distinct from the preceding year which is spoken of in the case of the six relevant assessment years. Thus, the contention with regard to the computation of six years as well as ten years under the provisions of Section 153A of the Act has already been gone into by the Delhi High Court as well as the Madras High Court, and we have no convincing reason to take a divergent view from the view expressed hereinabove. Applying the aforesaid computation to the facts of the present case, taking the date of the search as 09.05.2024 during the Financial Year 2024-25, the Assessment Year 2025-26 will become the first assessment year and, in the same manner, the Assessment Year 2016-17 will become the tenth assessment year. Thus, the year under consideration, namely, Assessment Year 201516, for which the impugned notice has been issued under Section 148 of the Act, would fall beyond the period of ten years prescribed under the statute as it stood immediately before the commencement of the Finance Act, 2021, and hence, on this count, the impugned notice can be said to be barred by limitation. 9.4 However, since an additional submission has been advanced by learned Senior Standing Counsel Mr. Yajnik to the extent that the expression used in the proviso to Section 149(1) of the Act, to the extent that "if a notice under Section 148 or Section 153A or Section 153C could not have been issued at that time on account of being beyond the time limit specified", would mean that the Assessing Officer is competent to issue notice under Section 148 of the Act, since he would only gain knowledge of incriminating material against the third person after the search, and the limitation prescribed under the provisions of Sections 153A or 153C of the Act cannot restrict his power, and such limitation will start running from the day of search. We fail to grasp the said submission and the impact of such submission on the limitation prescribed in the first proviso, which relates to Sections 153A or 153C of the Act. Hence, it is not dealt.
For the foregoing reasons, the impugned notice dated 31.03.2025 issued under Section 148 of the Income-tax Act, 1961 by the respondent - Department seeking to reopen the income-tax 50 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 assessment of the petitioner for the respective assessment year is hereby quashed and set aside. The petitions are allowed accordingly. RULE is made absolute accordingly, with no order as to costs.”
From the above judgement of the jurisdictional High Court of Gujarat, in the case of Jayantibhai Karamshibhai Maniya(supra). It is vivid that when the law has prescribed a particular length, it is not for the court to stretch it. The terminal point is the tenth year calculated from the end of the assessment year relevant to the previous year in which search is conducted. The long arm of the law can go up to this terminal point and not one day beyond. When the statute is clear and admits of no ambiguity, it has to be strictly construed and there is no scope for looking to the explanatory notes appended to statute or circular issued by the Department. Considering these facts and circumstances of the case, we quash the reassessment order framed by the assessing officer under section 147 read with section 143 of the Income tax Act 1961, dated 21.04.2023, for assessment year 2012–13. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
In the result, appeal filed by the assessee in for AY 2012-13, is allowed, whereas Revenue’s cross appeal in for AY 2012-13, is dismissed.
Summarised and concise ground No.(ii), is reproduced below for ready reference:
(ii) The ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad, erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 ( This is ground No. 2 in assessee’s appeal in for AY 2013- 14,Ground No.2 in for AY 2014-15,Ground No.2 in for AY 2015-16, Ground No.2 in for AY 2016- 17,Ground No.2 in ITA No. 814/RJT/2024 for AY 2017-18,Ground No.2 in AY 2018-19, Ground No.2 in for AY 2019- 20,Ground No.2 in ITA No. 817/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 is reproduced below:
“11. We have heard both the parties. We find that in the new regime/ scheme of search assessment, the proceedings for search assessment of search party as well as third-party are made under section 147 of the Act, unlike in the earlier/ old scheme of search assessment, wherein the search assessment of searched party was made under section 153A of the Act, whereas the assessment of third-party, was made under section 153C of the Act. Since, in the present reassessment proceedings, both of the searched party, as well as third party assessments are covered. It is observed that the initiation of reassessment proceedings in the present case is valid in law. While passing the assessment order, the assessing officer also observed that search was carried out at the assessee`s premises on 24.08.2021, and pursuant to the search, notice under section 148 of the Act, was issued in case of the assessee. As search was carried out in the case of the assessee after 01.04.2021, wherein, provisions of section 148 were amended and provides deemed satisfaction for three assessment years prior to the date of search, and even on this ground, the assessing officer has validly issued notice under section 148 of the Act. Hence, there is no defect in the reassessment proceedings, therefore, we dismiss the ground raised by the assessee and confirm the findings of the learned CIT(A).”
Respectfully following the above findings in assessee’s own case, we dismiss the assessee’s appeals.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 48. In the result, following grounds of appeal of assessee, are dismissed: for AY 2013-14, (ii)Ground No.2 in for AY 2014-15, (iii).Ground No.2 in for AY 2015-16, (iv)Ground No.2 in for AY 2016-17, (v)Ground No.2 in for AY 2017-18, (vi)Ground No.2 in AY 2018-19, (vii)Ground No.2 in for AY 2019-20, (viii)Ground No.2 in ITA No. 817/RJT/2024 for AY 2020-21.
49. Following summarised and concise grounds, pertain to estimation of profit element on “on money” are as follows:
(iii) The ld. CIT(A)erred on facts as also in law in retaining addition of Rs. 44,88,884/-by estimating profit @ 20% of so called on money receipt in respect of unidentified/coded projects. 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 ground No. 3 & 4 in assessee’s appeal in for AY 2012- 13,Ground No. 3 & 4 in for AY 2013-14,Ground No. 3 & 4 in for AY 2014-15, Ground No. 3 & 4 in for AY 2015- 16,Ground No. 3 & 4 in for AY 2016-17,Ground No. 3 & 4 in ITA No. 814/RJT/2024 for AY 2017-18, Ground no.5 & 6 in AY 2018- 19,Ground no.4 & 5 in for AY 2019-20, Ground no.5 & 6 in ITA No.817/RJT/2024 for AY 2020-21,Ground no.4 & 5 in ITA No.818/RJT/2024 for AY 2021- 22,Ground no.3 & 4 in ITA No.819/RJT/2024 for AY 2022-23.) (This is also Revenue’s ground No. 1 in ITA No. 791/RJT/2024 for AY 2012-13,Ground No. 1 in ITA No.792/RJT/2024 for AY 2013-14, Ground No. 1 in ITA No.793/RJT/2024 for AY 2017- 18,Ground no.4 in ITA No.794/RJT/2024for AY 2018-19,Ground no.4 in ITA No.795/RJT/2024 for AY 2019-20,Ground no.5 in ITA No. 796/RJT/2024 for AY 2020-21 and Ground no.4 in IT(ss) No.24/RJT/2024 for AY 2022-23. The Revenue’s plea in these grounds are that addition made by the assessing officer should be sustained.) (viii). The ld. CIT(A)erred on facts as also in law in retaining addition of Rs.1,92,000/- by estimating profit 12% of so called on money receipt in respect of project "R K Industrial Zone- 9 (Phase-4)". The addition made and retained is bad in law as also on facts therefore the same may kindly be directed to be deleted. 53 Shree Sarvandand Sadhuram Sonvani ITA No. 809 to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 ( This is, assessee's ground No. 3 in AY 2018-19, and Ground No.3 in for AY 2019-20) (This is also revenue’s ground No. 1 in ITA No. 794/RJT/2024 for AY 2018-19 and ITA No.795/RJT/2024 for AY 2019-20. The plea of the revenue in these grounds are that addition made by the assessing officer should be sustained.) (x) The ld. CIT(A)erred on facts as also in law in retaining addition of Rs.56,99,160/-by estimating profit @ 12% of so called on money receipt in respect of sale of plots at Village Haripar Dist. Rajkot. The addition made and retained is bad in law as also on facts therefore the same may kindly be directed to be deleted.
( This is assessee’s ground No. 4 in AY 2018-19, Ground No.4 in for AY 2020-21 and Ground no.3 in for AY 2021- 22) (This is also revenue’s ground No. 4 in for AY 2018-19 and Ground No.4 in for AY 2019-20) (xii).The ld. CIT(A) erred on facts as also in law in retaining addition of Rs.53,55,907/- by estimating profit 12% of so called on money receipt in respect of project "R K Industrial Zone- 15”. The addition made and retained is bad in law as also on facts.
(This is assessee's ground No.3 in for AY 2020-21, Ground no. 2 in for AY 2021-22 and Ground No.2 in for AY 2022-23)
(This is also revenue’s ground No. 3 in for AY 2020-21 and Ground no.3 in IT(ss) No.24/RJT/2024 for AY 2022-23. Plea of the revenue, is that addition made by the assessing officer should be sustained)
Facts of the case have already been explained in para No. 4 to para No.33 of this order, therefore, we do not repeat the facts again for the sake of brevity.
Learned Counsel for the assessee, vehemently argued that in M/s R.K. Group cases, in different projects, the learned CIT (Appeals) estimated the profit element on “on money”, at the rate of 8%, 12%, 12.5%, 16% and 20% etc. These profit estimation on different project, is not 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 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 gross on-money receipts at the rate of 6% can be taxed. For this, the Hon'ble court has derived reference from its earlier decision delivered in the case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89. Relevant part of the decision is as under :
"it has been consistently held by this court and some other courts have been following the principle that even up on 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."
Besides, Hon’ble jurisdictional ITAT Ahmedabad Bench, in many cases held that profit estimation at the rate of 8% on “on money”, is sufficient to protect the interest of the revenue. Therefore, learned Counsel for the assessee, contended that profit estimation on “on- money”, made by the Ld. CIT(A), is on very higher side. Therefore, it should be reduced to a reasonable extent as per the mandatory jurisdictional judgement of Hon’ble Gujarat High Court, on this issue.
On the other hand, learned DR for the revenue submitted that profit estimation made by the assessing officer on, “on money” should be upheld.
We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld. DR for the Revenue and evidences on record. In the case of Union of India v. Raghubir Singh (1989) 178 ITR 548 (SC), the Supreme Court held that the doctrine of binding precedent has merit of promoting certainty and consistency in judicial decisions. As per the doctrine of precedent, all lower Courts, Tribunals and authorities exercising judicial or quasi- judicial functions are bound by the decisions of the High Court within whose territorial jurisdiction these Courts, Tribunals & authorities functions. The law declared by the Hon’ble Supreme Court is binding on all courts in India. Therefore, we note that considering the judgement of the jurisdictional High Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Court of Gujarat, and considering the judgement of the jurisdictional ITAT Ahmedabad, we find that profit estimation on “on money”, is on higher side, in the assessee’s case under consideration. We note that assessing officer did not reach on right conclusion, based on seized material and the profit estimation sustained by the learned CIT(A), on “on money”, is on very higher side, and we note that both the lower authorities, did not follow mandatory judgement of Hon’ble Jurisdictional High Court of Gujarat (Supra) wherein, 6% addition was made on the “on-money”. In all the projects of M/s R.K. Group, on the “on- money” different estimation of profit element have been made by ld CIT(A), which are, at the rate of 8%, 12%, 12.5%, 16% and 20% etc. After all, it is “on money”, therefore, a uniform profit estimation on account of profit element on “on money” should be made.
We note that “On-money” receipts are undisclosed receipts, and only the profit element embedded in such receipts can be taxed, not the entire “on-money” amount. However, the rate of profit is always a matter of estimation and must depend on following factors, such as, nature of project, location, type of construction, cost structure, evidence of expenses and past profit margins. We note that in R.K. Group cases, expenses and cost in every project is higher side, due to locational disadvantage, and the profit element is below 10%, as per the past audited profit and loss accounts and evidences available in search and seizure proceedings. It is settled position of law and we also note that Courts and Tribunals have emphasized that the profit rate must have a reasonable basis in each case, and cannot be arbitrarily fixed. Since “on-money” receipts represent undisclosed sales, only the profit element embedded therein can be taxed; however, the rate of profit estimation depends on the facts of each case. We have examined the seized material and past records and noted that in RK group cases, under consideration, the past profit margin as per audited books of accounts and as per seized material is 7% (average) only, this is because, due to location of the 56 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 project and moreover, the cost and expenses are more than other similar projects. In these circumstances, we find that profit element embedded in commercial projects and housing projects should be estimated by applying the uniform rate of 10% on “on-money”. Therefore, considering the mandatory judgement of the jurisdictional Hon’ble Gujarat High Court, in the case of Ms. Jay Kesar Bhavani Developers Pvt. Ltd(Supra) and considering the peculiar facts of the assessee’s case, narrated above, we are of the view that profit estimation on, “on money” at the rate of, 10% is fair and reasonable.
We note that issue under consideration is squarely covered in favour of the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of M/s. R K Infralink LLP, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below:
“14. In this summarised and concise ground, the plea of the assessee is that estimated profit at the rate of 16% on the so called “on money” is on higher side, considering the judgement of the jurisdictional High Court of Gujarat. However, plea of the revenue is that addition made by the assessing officer at the rate of @ 35% should be sustained. Learned Counsel for the assessee submitted that judgements of Hon`ble jurisdictional High Court of Gujarat, in respect of addition on “on-money”, should be followed. The Hon`ble jurisdictional High Court of Gujarat in the following cases held that profit element embedded in the “on-money” should be added in the hands of the assessee and not the entire “on-money”, and estimated addition on “on money” should be at the rate of 6% or at the rate of 8%, may be made, depending upon the facts and circumstances of the case. The relevant judgements of the Hon`ble jurisdictional High Court of Gujarat and Hob`ble ITAT Ahmedabad, are reproduced below: (i). 2020 (4) TMI 844ITAT AHMEDABAD GREENFIELD REALITY P. LTD. VERSUS ACIT, CENT. CIR. 1 (2) AHMEDABAD AND DOIT, CENT. CIR. 1 (2) AHMEDABAD, VERSUS GREENFIELD REALITY P. LTD. “Estimation of Income on-money received by the assessee on booking of flats and shops in "VesuProject"Income offered by the assessee at 8% of the alleged gross receipts source of payment of cash for purchase of the land-HELD THAT:- On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money.After going 57 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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): "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 58 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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 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.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Thus, in other words, the expenditure whose details were found being incurred in cash could be construed as coming out of these Rs.92/-. Thus, there cannot be any separate addition of unexplained expenditure. The Ld.CIT(A) has rightly deleted the addition."
15. We note that the assessee is in appeal before us and praying the Bench that estimated addition is very higher side and it should be reduced, at a reasonable level. However, learned DR for the revenue submitted that addition made by the assessing officer may be confirmed. We note that the estimation of income is based on facts and will vary from business to business and year to year, depending on the business conditions. We note that ld.CIT(A) has estimated the profit on the “on-money” at the rate of 16% but the ld.CIT(A) has failed to bring on record any comparable case in support of his estimation that too @ 16% and in some cases 8% and 12% etc. No doubt estimate of the profit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as comparable cases. Without this the estimation so made cannot be said to be valid estimation. The jurisdictional Hon’ble High Court of Gujarat, in case of estimation of profit element on, “on-money” has taken the view that estimation of profit in these type of cases of “on-money” had been held between range of 6% to 8%.
16. We note that the average profit of the assessee as per audited books of accounts is 7%, therefore, profit estimation done by the learned CIT(A) at the rate of 16% on the “on-money” is higher side. Considering the nature of business and voluminous ‘on-money’ and taking into account, the fact that there is expenditure made by the assessee to develop the project out of the “on-money”, therefore, profit margin in this type of business normally is 10% on “on- money”. We proceed to work out the estimation of profit keeping in mind the following facts: (i)The estimate is not opened up to be framed in an arbitrary manner. (ii) The estimate by rule of thumb is absolutely infirm. (iii)The estimation of rate of profit return must necessarily vary with the nature of the business. (iv)There cannot be any uniform yardstick. (v)An assessment to be best of judgement can only be based on the material available on record and past records and considering the totality of the facts. (vi) Only real income and neither notional income nor astronomical income, can be taxed under the I.T. Act, 1961. Accordingly, we note that estimation the profit element on ‘on-money’ at the rate of 10%, should be fair, keeping in mind the principle laid down by Hon'ble Supreme Court in the case of H. M. Esufali Abdulali that the method to be adopted must be which is approximately nearer to the truth.
17. Considering the facts and circumstances, narrated above, we find that the estimation done by the assessing officer, and re-estimated addition, sustained by the Ld. CIT(A) @ 16% is very higher side. Therefore, we are of the view that the estimated addition on “on-money” should be @ 10%, which will take care of inconsistency in the undisclosed income of the assessee. Therefore, the assessing officer, is directed to make the addition in the hands of assessee, at the rate of 10%, on “on-money”. Hence, we allow above appeals of these assessee partly and dismiss all the appeals of the revenue.”
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 56. 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 2012-13, (ii)Ground No. 3 & 4 in for AY 2013-14, (iii)Ground No. 3 & 4 in for AY 2014-15, (iv)Ground No. 3 & 4 in for AY 2015-16, (v)Ground No. 3 & 4 in for AY 2016-17, (vi)Ground No. 3 & 4 in ITA No. 814/RJT/2024 for AY 2017-18, (vii)Ground no.5 & 6 in AY 2018-19, (viii)Ground no.4 & 5 in for AY 2019-20, (ix)Ground no.5 & 6 in ITA No.817/RJT/2024 for AY 2020-21, (x)Ground no.4 & 5 in ITA No.818/RJT/2024 for AY 2021-22, (xi)Ground no.3 & 4 in ITA No.819/RJT/2024 for AY 2022-23. (xii)Ground No. 3 in AY 2018-19, (xiii)Ground No.3 in for AY 2019-20 (xiv) Ground No. 4 in AY 2018-19, (xv)Ground No.4 in for AY 2020-21 (xvi)Ground no.3 in ITA No.818/RJT/2024 for AY 2021-22 (xvii)Ground No.3 in ITA No. 817/RJT/2024 for AY 2020-21, (xviii)Ground no. 2 in ITA No.818/RJT/2024 for AY 2021-22, (xix)Ground No.2 in ITA No. 819/RJT/2024 for AY 2022-23 Following appeals of the revenue, are dismissed:
(i)Revenue’s ground No. 1 in for AY 2012-13, (ii)Ground No.1 in for AY 2013-14, (iii)Ground No.1 in for AY 2017-18, (iv)Ground no.4 in for AY 2018-19, (v)Ground no.4 in for AY 2019-20, (vi)Ground no.5 in ITA No. 796/RJT/2024 for AY 2020-21, (vii)Ground no.4 in IT(ss) No.24/RJT/2024 for AY 2022-23, (viii) Ground No. 1 in ITA No. 794/RJT/2024 for AY 2018-19, (ix)Ground No. 1 in ITA No.795/RJT/2024 for AY 2019-20 (x) Ground No. 4 in ITA No. 794/RJT/2024 for AY 2018-19, (xi)Ground No.4 in ITA No. 795/RJT/2024 for AY 2019-20, (x)Ground No. 3 in ITA No. 796/RJT/2024 for AY 2020-21, (xi)Ground no.3 in IT(ss) No.24/RJT/2024 for AY 2022-23.
Summarised and concise ground No.(iv)( a) and (iv)( b), are reproduced below for reference:
(iv) (a) The ld. CIT(A) erred on facts as also in law in retaining addition of Rs. 54,83,000/- out of total addition of Rs. 2,09,63,885/-, made on account of alleged Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 negative cash balance in the Miracle Data. The addition made and retained is bad in law as also in facts therefore the same may kindly be deleted. ( This is, assessee's ground No. 5 in for AY 2014-15, Ground no. 6 in for AY 2017-18, Ground no. 7 in AY 2018-19). (iv) (b) The ld. CIT(A) erred on facts as also in law in enhancing addition of Rs. 1,67,52,762/- on account of alleged negative cash balance in the Miracle Data. The addition made and retained is bad in law as also in facts therefore the same may kindly be deleted.
(This is, assessee's ground No.5 in for AY 2015-16, and Ground No.5 in for AY 2016-17.)
Brief facts qua the above issue are that these grounds, pertain to addition on account of negative cash balance in the Miracle data. In this regard, the findings of learned CIT (A) is relevant, which is reproduced below:
“16.13 As per the working of re-casted cash flow submitted by the assessee, it is seen that after merging the different cash books (five miracle files seized) and other documents seized from the premises of Shri Deepak Purswani, Shri Brijlal Sonvani and the assessee himself, highest negative cash balance works out to Rs. 5,63,12,000/-, which is bifurcated in various years from AYs 2014-15 to 2018-19 as under: AY Amount 2014-15 54,83,000/- 2015-16 1,67,52,762/- 2016-17 2,96,69,238/- 2017-18 4,90,000/- 2018-19 39,17,000/- Total 5,63,12,000/- 16.14 Since, the unaccounted transactions as per the merged cash book are already taken care while determining the unaccounted income in the hands of various real estate group concerns and members of RK Group, there is no reason in making addition in respect of peak (maximum) cash balance from the merged cash book. However, negative cash balance (deficit of fund) implies that the assessee has infused his own capital for the various business operations by RK Group, which has not been recorded in the documents / data found during the search. Therefore, the aforesaid negative cash balance (deficit of funds) is required to be taxed in the hands of the assessee subject to verification of said working by the AO.”
From the above findings of the learned CIT(A), it is abundantly clear that learned CIT (A), remitted these issue back to the file of the assessing officer for 62 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 verification of working of cash flow submitted by the assessee, and adjudicate the issue after verification of cash flow of the assessee. Therefore, we find that these grounds have already been restored back by the learned CIT(A) to the file of the assessing officer for verification of cash flow therefore, we do not find any infirmity in restoring this issue back to the file of the assessing officer, for verification, hence we confirm the findings of the learned CIT(A), and dismiss the above grounds of the assessee.
In the result, following grounds of the assessee (appeal-wise), are dismissed: (i) Ground No. 5 in for AY 2014-15, (ii)Ground no. 6 in for AY 2017-18, (iii)Ground no. 7 in AY 2018
19. (iv)Ground No.5 in for AY 2015-16, (v)Ground No.5 in for AY 2016-17,
Summarised and concise ground No.(v) and (xiii) are reproduced below for ready reference:
(v).On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 3,12,54,700/- made u/s 69A r.w.s 115BBE of the Income tax Act on account of unexplained money u/s 69A of the Income Tax Act. ( This is revenue’s ground no. 2 in for AY 2012-13,Ground No.2 in for AY 2013-14,Ground no. 3 in for AY 2017-18,Ground no.6 in for AY 2018-19 and Ground no.5 in for AY 2019-20). (xiii). On the facts and in the circumstances of the case and in law the Ld CIT(A) has erred in deleting the addition of Rs. 40,19,820/-, made u/s 69A r.w.s. 115BBE of the Income tax Act on account of unexplained money u/s 69A of the Income tax Act. (This is revenue’s ground No. 6 in IT(ss) No. 24/RJT/2024 for AY 2022-23)
We have heard both the parties. 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 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 LLP, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below:
“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 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.
Learned DR for the revenue argued that Ld.CIT(A) ought not to have deleted the addition which pertains to loan given by the assessee to others, as the assessee is not entitled for telescoping benefit. On the other hand, learned Counsel for the assessee, defended the order passed by the learned CIT (A).
33. We have considered submissions of both the parties. We note that this ground is against the action of the ld.CIT(A), in deleting the addition of Rs.97,30,000/-, by providing telescoping benefit. This addition was made by the assessing officer on account of alleged cash loans/advances on the basis of loose papers seized from the premises of Shri Deepak Purswani at page no. 1 & 2 of Annexure A-4. The assessee, during the appellate proceedings, has relied on the decision of the Hon'ble High Court of Bombay in the case of Commissioner Of Income- Tax, Poona vs Jawanmal Gemaji Gandhi [1983] 15 Taxman 487(Bom), which is on similar and identical facts. The ld.CIT(A) noted that benefit of telescoping, should be provided to the assessee, as the addition had been made on account of alleged profit embedded in the unaccounted transactions from the project "R K Empire" and delete the addition accordingly. The ld.CIT(A) observed that it is undisputed fact revealed from the assessment order that the assessee -firm had received net on-money amounting to Rs.13,11,88,020/- during the year under consideration and the assessing officer had made addition of Rs.4,59,15,807/-, on account of estimation of net profit @35% of total net ‘on-money’ receipt of Rs. 13,11,88,020/-. Further, while adjudicating the appeal of the assessee, the ld. CIT(A) has confirmed unaccounted profit @ Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 16% of total “on-money” receipt. It means that estimated unaccounted profit was more than the cash advanced by the assessee. Therefore, the assessee is entitled to get the benefit of telescoping of confirmed unaccounted profit against the cash advanced of Rs.97,30,000/-. Therefore, considering these facts, the learned CIT(A) deleted the addition. We have gone through the above findings of the learned CIT(A) and noticed that there is no infirmity in the conclusion reached by the learned CIT(A). That being so, we decline to interfere with the order of ld. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.”
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).The revenue’s ground no. 2 in for AY 2012-13, (ii).Ground No.2 in for AY 2013-14, (iii)Ground no. 3 in for AY 2017-18, (iv)Ground no.6 in for AY 2018-19 (v)Ground no.5 in for AY 2019-20. (vi)Ground No. 6 in IT(ss) No. 24/RJT/2024 for AY 2022-23
The summarised and concise ground No.(vi) is reproduced below for reference:
(vi) The ld. CIT(A)erred on facts as also in law in confirming addition of Rs. 28,87,490/- made by the AO on account of alleged short term capital gain on sale of land at Munjka, Dist. Rajkot. The addition made and retained is bad in law as also on facts therefore the same may kindly be deleted. ( This is assessee's ground No. 5, in for AY 2017-18)
Brief facts, qua the issue are that assessing officer, during the assessment proceedings noticed that the assessee has sold land situated at Munjka during FY 2016-17. In this regard, the unaccounted receipts and payments related to this transaction have also been recovered from the seized miracle files. The summary of the transactions found recorded on the seized Miracle ledger pertaining to this land is as under:
Miracle ledger by the Receipts Payments name of "Munjka 37"
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 Bank 1,42,20,360 1,31,78,920 Cash 7,49,86,590 7,20,99,100 Total 8,92,06,950 8,52,78,020 However, the assessee has reported following short- term capital gain on account of this land in return of income for FY 2016-17 (relevant AY 2017-18): SHORT TERM CAPITAL GAIN Purchase Date Sale Date Sale Value Purchase Cost S.T.C.G. 24/06/15 03/09/16 1,43,64,000 1,39,71,758 3,92,242 The difference in the sale value as reported by the assessee and the bank receipt as per the miracle ledger is Rs. 1,43,640/- (1,43,64000- 1,42,20,360) which is nothing but lesser receipt in the bank of the assessee on account of TDS @ 1% of the sale value. Further, the difference in the purchase cost as reported by the assessee and the bank payment as per miracle ledger also is nothing but on the account of the stamp duty and registration charges born by the assessee at the time of acquisition of the property @ 6% (approx.) of the purchase value.The assessing officer noticed that the cash receipt and cash payment in the seized miracle ledger is not reported by the assessee at the time of filing his income tax return. Therefore, the differential amount of cash receipt and cash payment, that is, Rs. 28,87,490/- ( 7,49,86,590-7,20,99,100) was treated as undisclosed short term capital gain in the hands of the assessee for AY 2017-18.
On appeal, the ld.CIT(A) confirmed the action of the assessing officer. The ld.CIT(A) noticed that the digital data contains the details of land purchased and sold by the assessee at village Munjka. The purchase and sale of land at Munjka has been recorded as "Munjka 37" in such digital data which was also corroborated by the AO from the ledger maintained by the accountant named as "Munjka 37" wherein the bank entries recorded in the Miracle ledger was 66 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 matched with the document price of land and books of account. The entries has been backdated by 10 years and the amount has been divided by 100, so as to mislead the reader of the data. Therefore, ld.CIT(A) confirmed the action of the assessing officer. Aggrieved by the order of the learned CIT(A). The assessee is in further appeal before us.
We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record. Learned Counsel for the assessee relied on the submissions made before the assessing officer. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. We have considered submissions of both the parties and noted that assessing officer has rightly observed that since the cheque amounts recorded in such ledger exactly matches with the document price. The cash transactions mentioned in such ledger would also be received by the assessee in cash and accordingly the AO concluded that the assessee has paid as well as received on-money in respect of sale of land at Munjka which is evident from the seized data. The AO has corroborated the banking entries wherein the amount received through banking channel matches with the amount mentioned in the conveyance deed and exactly the same amounts are recorded by the assessee in its books of account. In view of the above corroboration, the AO concluded that the assessee has actually received the on- money as well as paid on-money as mentioned in the miracle ledger which is over and above the amounts received through banking channel and recorded in the books of accounts. Therefore, we confirmed the findings of the assessing officer and dismiss the ground raised by the assessee.
In the result, assessee's ground No. 5, in for AY 2017-18, is dismissed. 67 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 69. Summarized and concise grounds raised by the revenue pertaining to protective addition deleted by the learned CIT(A) are as follows:
(vii). On the facts and in circumstances of the case and in law, the Ld CIT(A) has erred in directing to delete the profit arising on account of on-money received at 28% for project R. K. Industrial Zone-11, estimated by the AO, as protective addition not appreciating that the profit rate had applied on on-money received which was over and above the disclosed business receipt and ignoring the detailed reasoning given by the AO for adopting the GP rate. ( This is revenue’s ground no. 2 in for AY 2017-18,Ground No.2 in for AY 2018-19, Ground No.2 in for AY 2019-20, Ground No.1 in for AY 2020-21 and Ground No.1 in IT(ss) No. 24/RJT/2024 for AY 2022-23.) (ix).On the facts and in circumstances of the case and in law the Ld. CIT(A) has erred in directing to delete the profit arising on account of on-money received at 25% for project R K Industrial Park-4 estimated by the AO as protective addition not appreciating that the profit rate had applied on on-money received which was over and above the disclosed business receipt and ignoring the detailed reasoning given by the AO for adopting the GP rate. ( This is, revenue's ground no. 3 in for AY 2018-19 and Ground No.3 in ITA No.795/RJT/2024 for AY 2019-20.) (xi) On the facts and in circumstances of the case and in law the Ld CIT(A) has erred in directing to delete the profit arising on account of on-money received at 25% for project RK Industrial Zone-14 estimated by the AO, as protective addition not appreciating that the profit rate had applied on on-money received which was over and above the disclosed business receipt and ignoring the detailed reasoning given by the AO for adopting the GP rate.
( This is revenue’s ground No. 2 in for AY 2020-21 and Ground No.2 in IT(ss)- No.24/RJT/2024 for AY 2022-23) 70. All the above grounds of the revenue, pertains to protective addition deleted by the learned CIT(A). The learned CIT(A) held that since the substantive additions have already been confirmed in the hands of the assessee, in the respective years, and in case of respective seized material, therefore, learned CIT(A) has deleted the protective additions made by the assessing officer.
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 68 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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 protective assessment is an assessment which is made ex abundanti cautela where the department has a "doubt as to the person who is or will be deemed to be in receipt of the income". A departmental practice, which has gained judicial recognition, has emerged where it appears to the Assessing Officer that income has been received during the relevant Assessment Year, but where it is not clear or unambiguous as to who has received the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether particularly in cases where the Revenue has to be protected against the bar of limitation. But equally while a protective assessment is permissible a protective recovery is not allowed.
We find that learned CIT(A) has identified the real owner, and then after the protective additions were deleted in the respective years. In this regard, the findings of the learned CIT(A) are reproduced below: “In case of Smt. Priyaben Devra and in case of Shri Ramesh Tilara additions of unaccounted business income from the projects have been confirmed on substantive basis. Therefore, once the substantive addition has been confirmed, consequential protective addition in the hands of the appellant is required to be deleted. The courts have held that when the substantive addition is confirmed than the protective addition is liable to be deleted. Reliance in this regard is placed on the decision of: i. Hon'ble Delhi ITAT "H" Bench in the case of VKS Properties P Ltd vs DCIT (ITA No: 8410/DEL/2019) ii. Hon'ble Delhi ITAT"A" Bench in the case of Anand Kumar Jain vs ACIT (ITA No: 1318/Del/2019) 86.2 In this regard, it is relevant to mention here that the undersigned has adjudicated the appeal in the case of Smt. Priya Devra and have confirmed substantive addition for the project R K Industrial Zone 14 in her case and have estimated profit @ 12% on the unaccounted cash receipt on merit vide appeal no CIT(A), Ahmedabad-11/10700/2019-20 dated 18.06.2024. 86.3 Since the undersigned has confirmed the substantive addition in cases of Smt. Priya Devra and have estimated profit @ 12% on the unaccounted cash receipt for the project R K Industrial Zone 14 on merit, therefore, the protective addition for the same addition in the hand of appellant does not survive.
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 86.4 In view of the above, the AO is directed to delete the protective addition made. Thus, the ground of appeal no 5 is allowed.”
73. We note that Indian tax jurisprudence clearly holds that protective additions cannot survive once substantive additions on the same income are finally sustained in the hands of the correct assessee, because the same income cannot be taxed twice. Protective assessment/addition is only a temporary measure adopted by the Assessing Officer when there is doubt about the real person in whose hands income is taxable. Once such doubt is resolved and the income is finally assessed substantively in the hands of one person, the protective addition in the hands of the other person must be deleted. Allowing both ( substantive and protective) to stand, would amount to double taxation of the same income, which is impermissible. Protective assessment is permissible only to safeguard the interest of Revenue. Once it is found as to who is the real assessee, the income can be assessed only in his hands and not in the hands of any other person. In the case of Jaswant Singh v. CIT (1974) 94 ITR 246 (SC), Hon`ble Supreme Court held that the same income cannot be assessed in the hands of two different assessees. The Protective assessment loses its relevance once substantive assessment is made. Therefore, in all the cases, the learned CIT (A) identified the real owner in whose hands substantive additions were made, and hence learned CIT(A) deleted the various protective additions, which is correct in the eye of Law. We also note that ld.CIT(A) has also confirmed the substantive addition in the hands of the real person, hence, protective addition needs to be deleted.
74. In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. The CIT(A), in our view, has rightly deleted the various protective additions. We, thus decline to interfere with the conclusion so Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 drawn by the CIT(A) whose order is under challenge by the revenue. Hence, we dismiss the grounds raised by the revenue.
75. In the result, following grounds raised by the revenue, are dismissed:
(i) Revenue’s ground no. 2 in for AY 2017-18, (ii) Ground No.2 in for AY 2018-19, (iii) Ground No.2 in for AY 2019-20, (iv) Ground No.1 in for AY 2020-21 (v) Ground No.1 in IT(ss) No. 24/RJT/2024 for AY 2022-23. (vi) Ground no. 3 in for AY 2018-19 (vii) Ground No.3 in ITA No.795/RJT/2024 for AY 2019-20. (viii) Ground No. 2 in ITA No. 796/RJT/2024 for AY 2020-21 (ix) Ground No.2 in IT(ss)- No.24/RJT/2024 for AY 2022-23 76. Summarised and concise ground No.14, is reproduced below for ready reference:
(xiv) 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 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. 7 in for AY 2018-19, Ground No.6 in for AY 2019-20,Ground No. 6 in for AY 2020-21,Ground No. 5 in IT(ss) No. 24/RJT/2024 for AY 2022-23)”
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We have heard learned DR for the revenue in detail and learned Counsel for the assessee also. In our considered view, it was wholly erroneous on the part of the authorities below to apply the accounting principles of ICDS-III, as it is not applicable to the assessee, under consideration. We note that issue under consideration is squarely covered in favour of the assessee in the assessee’s own group cases, M/s R.K. Group, in & others in the case of Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 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.
22. On the other hand, learned Counsel for the assessee submitted that assessee has been following the accrual basis of accounting and percentage of completion method. Therefore, revenue should be recognised in the year in which the transaction got materialised, that is, in assessee`s case, when the document is registered and executed, then only the revenue is recognised, with certainty. Hence, learned CIT(A) has rightly directed the assessing officer to recognise the revenue in the year in which the transaction/sale of flat is registered.
We have considered the submissions of both the parties, and we note that ICDS-3 refers to Income Computation and Disclosure Standard–III, issued by the Central Board of Direct Taxes under section 145(2) of the Income-tax Act, 1961. It deals with computation of income from construction contracts for tax purposes. It is largely based on the earlier Accounting Standard AS-7 but contains important differences relevant for income tax computation. We note that ICDS–III applies to construction contracts of contractors, however, assessee under consideration is not a contractor, but he is a contractee. A person who undertakes contract to do a job/work for others, is contractor. However, assessee under consideration is not a contractor but a contractee, who gets the work done from contractor and assessee pays the amount to the contractors for services rendered by them to it ( assessee), therefore, ICDS-III is not applicable to the assessee under consideration. Hence, we are of the view that ICDS-III applies to Contractors (not contractees). Fundamental Accounting Principle, as per ICDS-III is the Percentage of Completion Method (POCM). The Percentage of Completion Method is mandatory method under ICDS-III. Under ICDS-III the Revenue from variations, claims and incentives shall be recognised only when there is reasonable certainty of its ultimate collection.
We note that even if the addition on account of estimated profit on alleged “on-money” cash receipts is made, the same should be made in the year of actual sale when the conveyance deed is executed in the favour of buyer when the significant risk and rewards are transferred. It is observed that the assessee has consistently followed revenue recognition method whereby sale is offered to tax when registered sale deed of particular unit is executed, that is, date on which significant risk and reward has been transferred to buyer. This method of accounting has been followed consistently by assessee on year to year basis and assessing officer has not disturbed such methodology. This method of accounting of recognizing revenue has been accepted by Hon'ble Gujarat High court in the case of Shivalik Buildwell Pvt Ltd. [2013] 40 taxmann.com 219 wherein it is held as under: "Section 5 of the Income-tax Act, 1961 Income Accrual of [Booking amount received by builder] - Assessee was a builder and developer - He received certain amount as advance from different parties Assessing Officer added said amount to assessee's taxable income Tribunal set aside addition made by Assessing Officer holding that assessee being a developer of project, 72 Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 profit in its case would arise only on transfer of title of property and, therefore, receipt of any advance or booking amount could not be treated as trading receipt of year under consideration Whether on facts, impugned order passed by Tribunal deleting addition was to be upheld - Held, yes [Para 4] [In favour of assessee]"
On identical facts, it is relevant to refer to the Decision of Hon'ble ITAT Ahmedabad in the case of M/s D R. Construction Vs. Income Tax Officer in wherein Hon'ble ITAT has held as under:- "Unaccounted expenditure-receipt of 'on money' in the present case assessee is dealing in several immovable property ie, flats and shops which he has constructed. A single flat is a capital asset for the purchaser but for the assessee all the flats together constitute stock-in-trade. HELD THAT:-it is undisputed position that out of this on money assessee has incurred various expenditure/investment. Therefore, 'on money' as such and as a whole cannot be taxed over and above the income accruing on the basis of entries recorded in the books of account on the basis of decision held in E.D, Sassoon & Co. Ltd. & Ors. vs. CIT (1954 (5) TMI 2 SUPREME COURT we hold that advance money received either by way of cheque or by way of cash will partake the character of taxable income when registered sale deed of the flats is executed in subsequent years. As a result, the sum of 10 crores will not taxable in Asst. Year 2008-09. The appeal of assessee is accordingly allowed.”
26. On the similar facts, the learned CIT(A) relied on the judgement of the Hon'ble Supreme Court. The Hon'ble Supreme Court upheld the order passed by the Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Happy Home Corporation [2018] 94 taxmann.com 292 wherein it was held as under: "Section 145 of the Income-tax Act, 1961 Method of accounting (Project completion method) - Assessee was engaged in construction business - It was subjected to a survey action which was conducted on business. premises - During course of survey, statement of one partner of firm was recorded in which, he admitted of firm having received a sum of Rs.26.05 crores not disclosed in books of account-While doing so, he further stated that same would be subject to registration of sale deeds When assessment was undertaken, assessee contended that firm was following project completion method of accounting and income would be offered to tax as and when final sale deeds were registered Assessee firm thus offered only a sum of Rs.1 crore during year under consideration Assessing Officer rejected assessee's stand and added entire amount of Rs.26.05 crores as income of assessee during current year Tribunal accepted assessee's contention that since firm was following project completion method for offering income to tax, same would be subjected to tax upon completion of sale, though amount may have been received earlier from buyer Revenue filed instant appeal on ground that in his statement, partner of firm had disclosed entire amount as income of relevant year - Whether in view of fact that while agreeing that sum of Rs. 26.05 crores was undisclosed income of assessee for relevant current year, said partner of firm added a clarification that same would be subject to execution of sale deeds, there was no error in impugned order of Tribunal and, thus, same was to be upheld-Held, yes [Para 5] [in favour of assessee]”
Shree Sarvandand Sadhuram Sonvani to 819/RJT/2024, ITA(ss) no. 23&24/RJT/2 to 796/RJT/2024 27. In the light of the above judgement of the Hon’ble Supreme Court, in the case of Happy Home Corporation (supra), and Hon’ble jurisdictional High Court of Gujarat in the case of Shivalik Buildwell Pvt Ltd(supra) and decision of Ahmedabad Tribunal, in the case of M/s D R. Construction, we find that unaccounted profit estimated on ‘on-money’ receipt is required to be taxed in the year in which sale deed is executed by assessee or significant risk and rewards is transferred to buyer. As in case in hand, the assessee has been following revenue recognition method on execution of sale deed, only on-money receipt as computed in present case would be taxable in the year in which sale deed is executed and not when ‘on-money’ was received. Besides, we find that ICDS-III is not applicable to the assessee under consideration, therefore, we dismiss the ground raised by the revenue.”
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. 7 in for AY 2018-19, (ii)Ground No.6 in for AY 2019-20, (iii)Ground No. 6 in for AY 2020-21, (iv)Ground No. 5 in IT(ss) No. 24/RJT/2024 for AY 2022-23.
In the combined result, appeals filed by the assessee, are partly allowed to the extent indicated above (appeal-wise), whereas all appeals filed by the Revenue, are dismissed.
Order is pronounced in the open court on 23/02/2026