DY. COMMISSIONER OF INCOME TAX, CC-4, SURAT, SURAT vs. M/S. SHREE KUBERJI ASSOCIATES, SURAT

Brief facts of the case are that assessee is a partnership firm engaged in the business of real estate development. The assessee filed original returned of income for assessment year 2019-20 on 30.09.2019 declaring income at Rs.88,75,880/-. A search action under section 132 of the Act was conducted in the case of M/s Kuberji Group of Surat on 06.02.2020. The assessee is one of the entities of Kuberji Group, was covered in the search action. In the search action as per assessing officer various incriminating documents / evidences were found. Consequent upon, the cases of entire group were centralized by passing order under section 127 of the Act. Notice under section 153A dated 15.04.2021 was issued to the assessee to furnish return of income for various assessment years. In response to notice under section 153A, the assessee filed its return of income on 20.04.2021 declaring same income as declared originally income i.e., IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates Rs.88,75,880/-. Statutory notice under section 143(2) was issued to the assessee for scrutiny.

During assessment, Assessing Officer noted that assessee during the relevant period the assessee developed a joint venture project for development of “Shree Kuberji Textile World”. During search action, several instances of on-money in respect of sale of units / shops in the commercial project, Kuberji World executed by the assessee jointly with Shree Kuberji Associates at Saroli village, Kadodara Road, Surat in the form of loose paper found, which was inventories as Annexure- AP-1. The details of image of such inventories was recorded at page-4 of assessment order. In the seized material the details contained the booking of three projects of Kuberji Group namely, Kuberji Textile Deck, Shree Kuberji Textile World and Capital Palace. At the time of search, Shri Bhaskar Agarwal was present in the premises and his statement was recorded. Shri Bhaskar Agarwal in his statement disclosed that an amount of Rs.5.20 crores as per loose paper was received in financial year 2015-16. He further stated that he has no knowledge whether the said receipts were accounted in the books of account. The Assessing Officer further recorded that other documents inventory i.e., BS-1 was also found from the office of assessee, details of which were also reproduced at page-5 of assessment order, which is the “satakhat” relating to the sale of shop Nos. 3001 and 3002 in Kuberji Textile World to Shri Dheerajbhai Devjibhai Gagnani for a consideration of Rs.17.50 lakh. On the left side of the seized paper, besides figure of Rs.17.50 lakh another amount of Rs.32.38 lakh was IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates written with “BL”. The Assessing Officer decoded the word “BL” as black-money / on-money component against shop No(s). 3001 and 3002. The Assessing Officer further noted that the statement of Shri Prateek Agarwal, son-in-law of Shri Naresh Agarwal, was also recorded, who stated that transaction in Kuberji Group has 35% in cheque and 65% of cash component. The Assessing Officer further noted that the statement of Naresh Agarwal and Vikash Agarwal were also recorded during the search cation. Further certain images from mobile data was downloaded from mobile of Naresh Agarwal which is reproduced at page-11 of assessment order, which is also contained the shop number, area of shop and value of shops in coded figures, such details are recorded at page-11 of the assessment order. Further from the mobile data of Vikas Agarwal, the details of shop number, G- 123, 124, 125 and 101 also recorded in coded form, such details are recorded at page-12 of the assessment order and details were decoded by Assessing Officer by adding “000” in the figure mentioned in the seized material / images found from the mobile data. Therefore, the Assessing Officer recorded that there were 384 shops on different floors of Shree Kuberji Textile World and assessee has received total sale consideration of Rs.246.85 crores. The Assessing Officer after reducing the sale price shown with registered sale deed at Rs.71.54 crores worked out total on-money at Rs.175.30 crores. In order to determine the cost project, the Assessing Officer referred the matter to the District Valuation Officer (DVO) of the Income Tax Department, Ahmedabad. The DVO estimated the amount of construction at IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates Rs.136.31 crores. The Assessing Officer in para-6.3 of the assessment order recorded that the project of Shree Kuberji Textile World consists of 384 shops for sale. Out of 335 shops, sale deed of 44 shops were completed in assessment year 2019-20 thereby the Assessing Officer made bifurcation of on-money in assessment years 2019-20 and 2020-21 and considered the amount of Rs.16.25 crores in assessment year 2019-20 and remaining amount of Rs.159.05 crores in assessment year 2020-21 (16.25 crores + 159.05 =175.30 crores).

The Assessing Officer after show cause notice on the discrepancies in the books of accounts and giving opportunities to assessee rejected the books of account. The assessing officer thereafter proceeded to estimate the profit on the component of ‘on money’ by relying on the decision of Hon’ble jurisdictional High Court in the case of Naresh B Agarwal (HUF) & Magatulal Harlalka (HUF) order dated 03.05.2022 and CIT vs. Abhishek Corporation (2000) 158 CTR 374 (Guj) and in the case of Kishore Mohan Telwala vs. ACIT (1999) 63 TTJ (Ahd. Trib.) 651 dated 02.09.1998, wherein the net profit of on-money was estimated from 8% to 20% thereby the Assessing Officer estimated 30% of profit from on-money as net profit of the assessee. The assessing officer thereby working out profit of Rs.52.59 crores. The Assessing Officer further recorded that assessee in its submission, submitted that they have made disclosure in Income Disclosure Scheme, 2016 (IDS-2016) of Rs.13.00 crores thereby the assessee may be given benefit of such disclosure made in respect of projects of Shri Kuberji Textile World and Shri Kuberji Textile Crown. For Shri IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates Kuberji Textile World, the assessee made disclosure of Rs.13 crores thereby assessee was granted set off / benefit of Rs.13 crores being amount disclosed in IDS-2016 thereby remaining amount of Rs.39.59 crores was worked out as taxable profit (52.59 crores – 13 crores). The Assessing Officer further noted that as per Memorandum of Understanding (MoU) / venture agreement, Kuberji Leisure & Infraspace LLP (assessee) was entitled for eligible 80% of sale profit and 20% to be received by Kuberji Associates. The Assessing Officer on such observation noted that as per share of assessee, the assessee has received 9.28% in assessment years 2019-20 and 91.72% in 2020-21 respectively thereby worked out the total addition on account of on-money of Rs.2.93 crores in assessment years 2019-20 and remaining amount of Rs.28.73 crores in assessment year 2020-21. In the assessment order passed under section 153A r.w.s. 143(3) dated 24.03.2022.

Aggrieved by the addition made in the assessment order, the assessee filed appeal before Ld. CIT(A). Before ld CIT(A), the assessee challenged the addition of on-money. The assessee filed detailed written submission and submission of assessee is recorded in para- 6.6 of the order of Ld.CIT(A). The assessee submitted that as per Annexure-AP-1, total amount of Rs.5.20 crores is mentioned in respect of three projects – namely, Kuberji Deck, Kuberji World and Kuberji Palace and there is no evidence that said amount was actually received. It is mere estimation and hand-writing was not known on such papers. There was no project-wise bifurcation and it was a mere IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates reference the word “OM” and not “ON” is assumed to be on-money and this may be same estimate which was made for probable booking of three projects, which ought not to be considered for actual received of on-money. There is no reference of any rate of per square meter of any project. The assessee submitted that satakhat was seized on Annexure-BS-1 relating to shop No.3002 of Kuberji Textile World which contents the amount of sale value. The Assessing Officer further relied on loose paper at page No.142 of Annexure-BS-1 as recorded on page-4 of assessment order which relates to shop No.3001 & 3002 of Kuberji Textile World from premises of Dhirajbhai D Gangani. The Assessing Officer assumed that value of shops would be at Rs.58.00 lakh out of which Rs.17.50 lakh by cheque and Rs.32.38 lakh by cash. The Assessing Officer assumed that Rs.32.38 lakh received as on-money for one shop only on the basis of reference of word “BL”. The word “BL” was assumed as black money, which was used as on-money. The assessee submitted that the details of amount received for shop Nos.3001 & 3002 were fully accounted in regular accounts that there were some jottings on the bottom of page which was assumed as “black money” and no addition on the base of such assumption and presumption is permissible. The assessee submitted that there is amount of Rs.1.52 lakhs against which, blank is mentioned and therefore on-money should be considered at Rs.1.52 lakh only. On such material, found from the third person and presumption under section 132(4A) r.w.s. 292C is not applicable. The assessee strongly opposed the estimation of Rs.58.00 lakh per shop IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates on third floor, which is not possible. The assessee further stated that Assessing Officer relied on general statement of Pratik Agrawal, wherein in Q/A No.44 is stated that 35% was received by cheque and 65% in cash. The final decision was taken by Hemant Agrawal and Naresh Agrawal that there was reference of receipt of actual amount of cash against a particular shop. Therefore, no addition ought to be made relying on such vague statement. The assessee also objected against the reliance on the statement of Vikas Agrawal and submitted that he has given general statement about ratio of on-money from 22% to 25% and no details were furnished by him. On the digital image from the mobile phone data as recorded on page 10 of assessment order. The assessee submitted that there is no date and there is no actual payment received and no names of buyers or seller were mentioned. Therefore, such digital image should be considered as dumb paper. The assessee also objected against the digital image recovered from Vikas Agarwal about shop No. G-123 to 125 and G- 101 for Rs.1200 as mentioned. The assessee further objected about decoding “Rs.12/-“ as “1200” by putting “000” without any base. The assessee further objected that Assessing Officer estimated on-money for 384 shops on different floors of Kuberji Textile World. The price of shops are always negotiable and discount of 35% was allowed which is itself evidence from the seized record. Therefore, 35% may be reduced from the alleged on-money. The assessee further stated that mere booking of shops does not amount to sale and no profit on mere booking is permissible. To support various submission, the assessee IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates relied on various case law of Hon’ble jurisdictional High Court and various Tribunal order as recorded on page-9 of order of Ld. CIT(A). The assessee in other alternative submission, submitted that margin of profit of on-money at 30% is too high when assessee has already disclosed Rs. 13.00 crores under IDS 2016. The assessee submitted that in various decisions profit is estimated from 1.00% to 13.00% and assessee also objected by treating the addition as taxable under section 115BBE of the Act. The assessee submitted that on such amount is business income and required to be taxed under normal rate as “business profit”. To support such view, the assessee also relied on certain case law.

The Ld. CIT(A) on considering the submission made by assessee identified about core issues for his adjudication (i) the Assessing Officer adopted uniform rats of on-money on the basis of evidence / incriminating materials found in respect of a few shops (ii) Assessing Officer not excluded the shops which were not actually sold rather merely booked, (iii) adopting margin of profit 30% and (iv) the addition made under section 69A. The Ld.CIT(A) noted that Assessing Officer adopted and applied uniform rates of on-money for all floors irrespective location of shops. The Ld. CIT(A) was of the view that price of shops in different floors cannot be uniform as it depends upon location, entrance, size frontage etc. The Assessing Officer has not applied any such filters. Further assessee’s contention was that price quoted were negotiable with WhatsApp images were relied without any additional and corroborative evidence. No benefit of IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates discount offered by assessee was allowed. Considering the submission of assessee a reasonable percentage of 15% of gross on-money was allowed by Ld. CIT(A) (para 6.9).

On the other contention, Ld. CIT(A) noted that general trend of booking in real estate in Surat is that on-money received when booking was made and registration property is done when amounts are paid by cheque produced by the buyers. In some cases, there is an inordinate delay in getting the registration of property as the buyers faced difficulty in arranging such finance through financial agency or by paying from their own source. Thus, the action of Assessing Officer in taxing the on-money of all shops booked irrespective of fact whether units / shops were registered or not was held as justifiable. So far as estimating net profit on the on-money @ 30% of such on- money, the Ld. CIT(A) noted that jurisdictional Tribunal as well as Hon’ble jurisdictional High Court have confirmed the net profit rate of on-money ranging from 8% to 17% as the case may be, which were situated in the city vicinity of Surat. The assessee has submitted that their project is located in the outskirt of Surat city and margin of profit is lower than the Surat city project. The assessee submitted that margin of city project should not be applied in their project. Further assessee has declared Rs. 13.00 Crore under IDS 2016. So the estimate on profit of on-money should not be taken more than the profit declared by assessee. The Ld. CIT(A) on considering the submission held that project of assessee is on outskirts of the City, considered the profit @13% of booking receipt in the seized material IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates and allowed relief to the extent of 17% thereby grant substantial relief. On the bifurcation of addition for assessment years 2019-20 and 2020-21 as well as profit of partner in the joint venture, the Ld.CIT(A) held that assessee has 80% share in the project and 20% share with M/s Kuberji Associates and worked out the calculation thereof. The Ld. CIT(A) directed to tax 9.2% in assessment years 2019-20 and balance of 91.28% in assessment year 2020-21. Further aggrieved the assessee as well as Revenue have filed their respective appeals and cross-appeals before the Tribunal.

We have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and Ld. Commissioner of Income Tax- Departmental Representative (Ld. CIT-DR) for the Revenue. The Ld. AR for the assessee submits that assessee has challenged the action in upholding @ 13.00% of on-money as well as taxing the addition under section 115BBE. Similarly, the Revenue has challenged the action of Ld.CIT(A) in granting / allowing deduction of 15% on the gross of on-money as well as applying net profit @ 13% of on-money against the addition @ 30% of on-money adopted by Assessing Officer. The ld AR for the assessee submits that assessee is a builder and developer and assessee developed a project “Kuberji World”. During the relevant period, a search action was carried out in the case of Kuberji Group on 06.02.2020. During search action, certain incriminating materials were seized, the incriminating materials in the form of WhatsApp data, certain entry on the loose papers, statement of key person of the assessee was recorded on the basis of alleged IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates incriminating materials. The Assessing Officer estimated the on- money receipt of Rs.175.30 crores and Assessing Officer considered the profit of on-money @ 30% as undisclosed income of assessee. The Ld. AR submits that assessee has already disclosed Rs.13 crores for the said project under IDS 2016 and remaining amount was taxed as “undisclosed income” of assessee. The Assessing Officer extrapolated the figure of on-money on the basis of alleged incriminating material found in respect of few shops. The Assessing Officer applied the similar rate in respect of all the shops irrespective of different floors, location, frontage or size. The assessee was constructed the said project under joint venture with Kuberji Associates having 80% share as per MoU and the assessee was having 80% shares of such project. The Assessing Officer while making addition bifurcated the addition in the same ratio. On appeal before Ld. CIT(A) the assessee filed detailed written submission. The Ld.AR submits that the contents of all written submission may be considered as his submission. The Ld. CIT(A) on considered the submission of assessee granted @ 15% discount on the alleged on-money though assessee requested to allow 35% by taking plea that there is nothing on the seized materials that assessee received on-money in respect of all the units. The Ld. CIT(A) allowed only 15% of the discount and after allowing 15% discount on entire alleged on-money and estimated 13% profit of on-money. The Ld. CIT(A) also allowed set off of income declared under IDS 2016 and balance of amount was bifurcated in assessment years 2019-20 and 2020-21 respectively. The Ld. AR for the assessee submits that IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates assessee has already declared Rs.13 crores under IDS 2016 and further declared profit of 7.40% therefore everything was covered under IDS 2016 estimating further 13.00 % profit on alleged on- money is highly unreasonable. The Ld. AR for the assessee submits that assessee voluntarily offered sufficiently good profit and also declared substantial amount in IDS-16, so no addition is to be sustained. On taxing the addition under Section 115BBE, the ld. AR of the assessee submits that Assessing Officer made estimation of on- money and invoked Section 69A of the Act. Since provision of Section 115BBE was not specifically invoked in the assessment order, the estimate of profit ought to be treated as business income and to be taxed as per regular rate of tax applicable on assessee. The various Benches of Tribunal directed to tax profit on undisclosed sales as business income at normal rate of tax including in case of DCIT Vs. Ram Narayan Birla ACIT Vs Sanjay Bairathi Gems Ltd. ITA No. 157/JP/2017, Fashion World Vs ACIT ITA No. 1634/Ahd/2016 and Dagina Jewellers in ITA No. 30/Srt/2022.

On the other hand, the ld CIT-DR for the revenue submits that during the search action, sufficient incriminating evidence substantiating the fact that assessee group was indulged in receiving on-money in its project. Such fact was duly corroborated by the statement of key person of assessee group. The Assessing Officer worked out the quantum of on-money in the project developed by the assessee. The Assessing Officer bifurcated the component of on-money as per share of joint venture between the assessee and Kuberji Associates. The IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates Assessing Officer as per the decision of Jurisdictional High Court and various Benches of the Tribunal estimated only 30% of component of on-money as income of assessee. However, the ld. CIT(A) allowed 15% reduction in on-money on the ground of negotiation and term of payment. The ld. CIT(A) after reduction of 15% further reduced the profit from 30% to 13% only. The ld. CIT(A) reduced the profit without any comparable instances or on the basis of any scientific method. The assessee was undertaken commercial project. The profit in commercial project is always on higher side. The Tribunal in S.P. Enterprises estimated net profit @ 20% and in Shreenath Corporation @ 15%. On the taxability of addition under Section 115BBE of the Act, the ld. CIT-DR submits that once the addition is made under Section 69, the taxing of addition under the amended provision is automatic.

We have considered the submissions of both the parties on merit and carefully perused. We have also deliberated on various case laws relied by Ld. AR for the assessee before the lower authorities as well as before us. As recorded above, the Assessing Officer worked out the figure of on-money in respect of all the units of assessee despite the fact that incriminating material indicates on-money in respect of certain units. Further Satakat was found only in respect of shop No. 3001 and 3002. The Assessing Officer has not considered the location of floor or frontage or entrance position. In commercial project, uniform rate is not possible irrespective of floors. Further no interpolation is permissible when there is no evidence in respect of 100% units. Further there is always difference in the rate so far as IT(SS)A No.28-31, 34-35/SRT/2023 & ITA 155/SRT/2023 (A.Ys 19-20 & 20-21) Shree Kuberji Leisure & Infraspace LLP & Shree Kuberji Associates payment period is concerned. We find that the ld. CIT(A) on considering the various submissions of assessee accepted the contention of assessee that on the basis of incriminating material certain discount was allowed and prices were subjected to negotiation. On the basis of different factors affecting the rate on various floors, the ld. CIT(A) reduced 15% on the gross money in entire estimation. The ld. CIT(A) on considering the decision of various Tribunals and High Courts was of the view that profit rates of on-money in various cases ranges from 8% to 17% on the project situated in the city area. Since project of assessee was in the outskirts of city and that the assessee has already declared 7.4% profit and reasonable good amount in IDS 2016, the ld. CIT(A) restricted the addition to the extent of 13% thereby allowed partial/substantial relief.

Being a search case, we have independently examined the facts of the case. On examination of facts, we find that incriminating material is not found relating to each and every unit. The Assessing Officer extrapolated the rate in respect of all 384 units. No independent investigation of facts was carried out by Assessing Officer during assessment proceedings. There is no refinance in the assessment order that the search party while preparing appraisal report suggested collection of on money in respect of all the units. There is no allegation of Assessing Officer that units were sold below the Jantri rate. No other independent evidence or material to substantiate the on-money in respect of 100% of unit is brought on record.