Income Tax Appellate Tribunal - Rajkot
Dcit, Central Cirlce 1, Rajkot, Rajkot vs Vandana Jagdish Sonvani , Rajkot on 16 March, 2026
आयकर अपील य अ धकरण, राजकोट यायपीठ, राजकोट।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAJKOT BENCH, RAJKOT
BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER
AND
DR. DINESH MOHAN SINHA, JUDICIAL MEMBER
आयकर अपील सं/.ITA No.710 To 714/RJT/2024
िनधारण वष /Assessment Year: (2018-19 To 2022-23)
Hybrid Hearing
Smt. Vandana Jagdish Sonvani बनाम The DCIT, CC-1 Rajkot
C/o. M/s. Jawaharlal & Sons, Danapith, Vs. Aaykar Bhawan "Amruta Estate",
Rajkot-360001 2nd Floor MG Road
Rajkot 360001,
थायीलेखास/ं .जीआइआरस/ं .PAN NO. : AFBPS0004A
(अपीलाथ /Appellant) .. ( यथ /Respondent)
आयकर अपील सं/.ITA No.689 & 690/RJT/2024
िनधारण वष /Assessment Year: (2018-19 & 2019-20)
The DCIT, CC-1 Rajkot बनाम Smt. Vandana Jagdish Sonvani
Aaykar Bhawan "Amruta Estate", 2 nd C/o. M/s. Jawaharlal & Sons,
Vs.
Floor MG Road Danapith,
Rajkot 360001, Rajkot-360001
थायीलेखास/ं .जीआइआरस/ं .PAN NO. : AFBPS0004A
(अपीलाथ /Appellant) .. ( यथ /Respondent)
िनधा रतीक ओरसे/Assessee by : Shri Mehul Ranpura, Ld. AR
राज वक ओरसे/Revenue by : Shri Sanjay Punglia, Ld. CIT( DR)
सुनवाईक तारीख / Date of Hearing : 08/01/2026
घोषणाक तारीख/Date of Pronouncement : 16 /03/2026
आदे श/ORDER
Per, Bench:
Captioned two appeals filed by the Revenue, and five appeals filed by the assessee, pertaining to Assessment Years 2018-19 to 2022-23, are directed against ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani the orders passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals), which in turn arise out of separate assessment orders passed by the Assessing Officer, u/s 143(3) r.ws. 147 of the Income Tax Act, 1961.
2.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.
3. Although, these appeals filed by the assessee and appeals filed by the revenue, contain multiple ground of appeals. 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 Id. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s.
147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.
(This is assessee's ground No. 2 in ITA No. 710/RJT/2024 for AY 2018-19, This is assessee's ground No. 2 in ITA No. 711/RJT/2024 for AY 2019-20, This is assessee's ground No. 2 in ITA No. 712/RJT/2024 for AY 2020-21, This is assessee's ground No. 2 in ITA No. 713/RJT/2024 for AY 2021-22 and, This is assessee's ground No. 2 in ITA No. 714/RJT/2024 for AY 2022-23)
(ii) The Id. CIT(A)erred on facts as also in law in retaining addition of Rs. 1,50,72,214/- by estimating profit at the 12% of so called on money receipt related to R K Industrial Zone-9. 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.
Page 2 of 44ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani (This is assessee's ground No. 3 & 4 in ITA No. 710/RJT/2024 for AY 2018-19, This is assessee's ground no.3, 4 & 5 in ITA No. 711/RJT/2024 for AY 2019-20, This is assessee's ground no.3, 4 & 5 in ITA No.712/RJT/2024 for AY 2020-21, This is assessee's ground no.3, 4 & 5 in ITA No.713/RJT/2024 for AY 2021-22 and This is assessee's ground no.3 & 4 in ITA No.714/RJT/2024 for AY 2022-23) & (This is also in revenue's ground no. 1 in ITA No. 689/RJT/2024 for AY 2018-19 and This is also in revenue's ground no. 1 in ITA No. 690/RJT/2024 for AY 2019-20)
(iii) The Ld CIT(A) has erred in directing the AO to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the on-money has been received, ignoring that the same is not in accordance with Accounting principles as per ICDS-3 applicable to Real Estate Developers and also not appreciating that the income on account of undisclosed on-money receipt was required to be assessed in the year of receipt.
(This is revenue's ground no. 2 in ITA No. 689/RJT/2024 for AY 2018-19 , This is revenue's ground no. 2 in ITA No. 690/Rjt/2024 for AY 2019-20)
(iv) The Id. CIT(A) erred on facts as also in law in confirming action of AO in treating short term capital gain of Rs. 1,57,58,344/- on sale of industrial plots as business income. The action of AO in treating the same as business is totally unjustified and, therefore the AO may kindly be directed to accept the gain on sale of lands as per return of income filed.
(This is assessee's ground No. 6 in ITA No. 711/RJT/2024 for AY 2019-20, This is assessee's ground No. 6 in ITA No.712/RJT/2024 for AY 2020-21, This is assessee's ground no.5 in ITA No.714/RJT/2024 for AY 2022-23)
4.The relevant material facts, as culled out from the material on record, are as follows. The assessee is an Individual. As per the Income-tax Return for AY 2021- 22 filed on 30-12-2021, the total income is declared at NIL. Income from Other sources is reported at Rs. 2,58,550/-, Current year House Property Loss is claimed at Rs. 2,00,000/- and deduction as per chapter VIA of Rs. 58,550/- has been claimed. A Search, Seizure and Survey action was carried out by the office of DDIT (Inv.), Unit-1, Rajkot in the case of leading real estate builders of Rajkot and their key associates on 24.08.2021. Four different groups were covered in the operation. All the four groups are in the business of real estate and are mainly concentrated in and around Rajkot. A total of forty-three (43) premises were Page 3 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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. The R K group is headed and managed by Shri Sarvanand Sadhuram Sonwani and his extended family. The Sonwani family is a joint unit for the purpose of business. RK Group is developing multiple projects in the nature of Commercial, Residential and Industrial plotting projects. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences. In the RK Group the main persons/partners were Sonwani family. Some projects of RK Group were developed with other groups also. The group was mainly involved in taking on- money/unaccounted cash on selling of units in its projects and giving on money on purchasing of the land. The data of on-money/unaccounted cash was being maintained in a very systematic manner in Miracle file. In Miracle files mainly unaccounted transaction has been entered with some banking transaction as well. The main/key person of the group is Shri Sarvanand Sadhuram Sonwani on whose directions and guidance the business activities are carried out. 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 premise of Shri Girish Vanjani was also covered during the search action. It can be seen that Shri Girish Vanjani has categorically stated that he does the work of accounting as per the instructions of Shri Sarvanand Sonwani. Even Shri Sarvanand Sonwani has accepted (in his statements recorded u/s 131 of The Act at the residential premise of Girish Vanjani on 27.08 2021) that Shri Girish Vanjani does the work of accounting as per his instructions. 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.
Page 4 of 44ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani Forensic Mirror Imaging (Digital Data Backup) of these devices was taken and the same were Seized. The backup contained key accounting files (Miracle Files) in which unaccounted transactions and some accounted transactions of the entire group were recorded in a very systematic manner. The accounts of 1) Sale of units
2) Cost of lands 3) Expenses incurred on various projects and other miscellaneous transactions made by RK Group members with various counter parties were maintained in accounting software known as MIRACLE. 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. The details of the three Miracle files as under -
Sr. No. Name of the file
1 DIVYARAJ & CO. (01 08 2009 to 30 06 2016)
2 Divyaraj& Co (01 07 2006 to 31 03 2009)
3 RK World (01 04 2009 to ...)
5. 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 Page 5 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani domains on various government portals like 1) anyror.gujarat.gov.in 2) garvi.gujarat.gov.in and 3) gujrera.gujarat.gov.in. Comparison of the financial transactions entered in the Miracle accounting files seized during the search was also made with those reported on the regular books of various group members and entities. All this comparison and corroboration exercise has revealed following factual aspects about the seized data-
Fact 1 The seized Miracle files recovered during the search operation contain transactions that took place between 1) R K Group members and 2) various other parties (counter parties). They include the accounts of cash as well as bank transactions.
It is seen in most of the ledgers from the seized Miracle file that they contain some Bank transactions which are found recorded on the regular books and some Cash transactions which are normally not recorded on the regular books of the respective Group member. This manner of recording the transactions highlights a fact that one part (mostly in Bank) of every deal was being reported on the regular books and the other part (mostly in cash) of the deal was not being reported on the regular books.
Thus, some transactions from the Miracle files were accounted for whereas some were not accounted for in the regular books of the respective group member who owns the transaction.
Fact 2 The data entered in the Miracle software is in coded form -
1) the entries have been backdated by 10 years i.e. 01-04-2019 is entered as 01-04- 2009, and
2) the amounts have been divided by 100 i.e. Rs. 2,50,000/- is entered as 2500.00/- Fact 3 The names of the ledgers of different projects, persons have been written in coded form. It is seen that mostly the names of the projects for which any particular transaction is recorded on the seized file were mentioned with the initials.
For example-1) R K Residency is mentioned as RKR, 2) R K Prime is mentioned as RKP, 3) The City Centre is mentioned as TCC, 4) R K Supreme is mentioned as SPM etc. All the above factual aspects are discussed with example in the later part of this order.
RK Industrial Zone 12- is an industrial plotting project. This project has been developed on plots that are owned by the assessee Smt. Vandana Jagdish Sonwani The project has been marketed under the brand name of RK Group. Details of Page 6 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani following unaccounted transactions pertaining to the project have been recovered from the material seized during the search operation -
-Unaccounted receipts of project and repayments of Rs. 3,02,97,260/- on account of cancellation or excess receipts as culled out from the seized Miracle data. 20,85,26,760/- against sale of units of the
-Unaccounted expense / investment of Rs 13,41,86,730/- made in the purchase of land for the project as culled out from the seized Miracle data.
-Unaccounted expenses of Rs 1,09 38,820/- incurred for the project as culled out from the seized Miracle data.
6. As details regarding unaccounted part of the aforementioned transactions pertaining to the assessee have been gathered from the seized material during the search operation, the case of the assessee has been selected for scrutiny as per the criteria laid down by the ITA-II division of the Central Board of Direct Taxes (CBDT) in this regard vide letters dated 11-05-2022 & 03-06-2022 bearing F. No. 225/81/2022/ITA-II. Notice u/s 143(2) of the Income-tax Act has been issued and served on 30-06-2022 on the e-filing portal of the Assessee. Subsequently, notices u/s 142(1) have been issued from time to time seeking primary as well as further details from the assessee for carrying out the assessment. In view of natural justice, the images of original seized material pertaining to the assessee have been supplied and discussed in the notices issued u/s 142(1) of the Act from time to time.
7. The assessing officer noted that main issue involved is the on-money receipt from RK Industrial Zone 12. The seized material pertaining to the assessee contained details of various kinds of unaccounted transactions. These transactions were not confined only to the year under consideration but were scattered in various financial years. The name of every project developed by the Group is in coded form in the seized Miracle files. The project "Industrial Zone 12" is mentioned as "IJ12" in the seized Miracle file. As discussed above actual data of Page 7 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani receipt of on money related to project " Industrial Zone 12" is maintained in Miracle Software in the Miracle files. The assessee has received cash/ on money against the sale consideration of the units. These cash receipts were not accounted for in the regular books of account of the assessee. The name of every project developed by the Group is in coded form in the Miracle files. It is observed from the above snap shot of Miracle file that it contains separate ledgers for each plot by the number of that plot these ledgers contain entries of receipts whether in the form of banking transaction or cash against sales of office/plots. There are also ledgers for the various expenses incurred in R K Industrial Zone-12 and transactions of land purchase for R K Industrial Zone-12. To establish that 'IJ12' is the project 'R K Industrial Zone-12' and entries contained in the ledger names starting with "IJ12" contain genuine and absolutely correct data of transactions of the project R K Industrial Zone-12, a snap shot of Ledger account of "IJ12 02/1"
from the Miracle file is pasted and discussed hereunder to explain the correctness of data in the Miracle files and to calculate the actual receipt of on-money in cash. The above ledger "IJ12 02/1" contain the details of payment received for the sale of sub plot 1 of plot 2 at RK Industrial Zone-12 Here 'IJ12' refer the "Industrial Zone-12 and 02/1refer the plot no. 02 sub plot 1. It can be seen that assessee has booked the sub plot 1 of Plot No. 02 at industrial Zone-12 for sale on 19/04/2019 for total consideration of Rs. 22,91,380/-(in coded form, it is shown as Rs.22913.80) and out of which Rs. 3,50,000/-(1,75,000 + 1,75,000) has been received through bank (marked inside a box) and remaining amount has been received in cash in different F.Ys. The amount received through bank is the amount that is mentioned in respective conveyance deed and same the sale consideration shown by the assessee. In view of the above discussion it is established beyond doubt that the entries contained in the ledger "IJ12" are genuine and absolutely correct data and are related to R K Industrial Zone-12 the industrial project that is developed by the assessee and the received through banking channel are recorded in regular books of the assessee. However, the Page 8 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani amount received in cash has not been recorded by the assessee. From the above discussion the following things are established:
First and foremost, it is established beyond doubt that the ledgers starting with "IJ12"
in, the miracle company database file are related to the Project R K Industrial Zone-12.
Smt Vandana Sonvani has not accounted the cash receipts in the regular books of account and thus need to be taxed accordingly.
The amount mentioned in miracle file is in coded form where the exact amount is calculated by multiplying the recorded entry by 100. For eg. the amount of 10000 is written as 100.00.
The dates have been purposely back dated by exactly 10 years.
Similarly, data of on-money receipts in cash for the other units of RK Industrial Zone-12 have also been found in the Miracle files. On the basis of the details available in the Miracle files related to project R K Industrial Zone-12 and its re- conciliation with other seized documents during the search action, the quantum of year wise on-money in cash has been derived which is tabulated by the AO in the assessment order. Therefore, AO issued a show-cause notice to the assessee to explain on-money.
8. In response, on 26-12-2022, the assessee has submitted a comprehensive response to the show cause notice clarifying the issues and raising various contentions, before the assessing officer.
"I have been served with the above stated notice requiring me to show-cause as to why following addition should not be made to the returned income.
1. Addition of Rs 77,87,290/- in respect of on-money received in respect of sale of plots in the project R K Industrial Zone-12.
1. Addition of Rs 62,27,520/- in respect of cancellation of plots in the project R K Industrial Zone -12.Page 9 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
1. Addition of Rs 22,80,000/- in respect of sale proceeds received on sale of units for the project R K Industrial Zone-12.
1. Addition of Rs 93,000 in respect of unaccounted expenses incurred for the project "R K Industrial Zone-12"
In connection with the above, submit as under
1. Assessment proceeding for the year under consideration was initiated by issuing notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred as "Act") dated 30.06.2022 Subsequently, notice u/s. 142(1) of the Act was issued on 29.07.2022 requisitioning various details and documents, in response to which I had furnished all the required details/documents vide letter dated 28.11.2022 Then after, notice u/s 142(1) of the Act dated 22.10.2022 was issued, wherein, my explanation was sought on the issue of alleged cash receipts of Rs. 24,72,31,430/- from sale/booking of units under the project "R K Industrial Zone-9 (Phase-1)", alleged on-money received of Rs 16,62,91,650/- from sale/booking of units under the project "R K Industrial Zone-9 (Phase-2)", alleged cash receipts of Rs 20,85,26,760/-from sale/booking of units under the project "RK Industrial Zone-12", alleged cash receipts of Rs 3,90,87,290/- from sale/booking of units under the project "R K Industrial Park-3", alleged unaccounted investment in respect of land purchased for R K Industrial Zone-12, alleged cash expense incurred for the project RK Industrial Zone-12.
1. In response to the above, I had vide letter dated 10.11.2022 requested your good self to provide authenticated copies of seized documents/data as well as statements recorded from related persons so as to appraise / understand the allegation first and to furnish reply. In response to that, following data are provided vide notice u/s. 142(1) of the Act dated 25.11.2022.
1. Extract of question no. 13 and it's reply from the statement of Shri Girish Vanjani,
1. Extract of question no. 4 & 5 and it's reply from the statement of Shri Sarvanand Sonwani;
1. Snapshots of account statement with name "IJ9 Project for the period 01/04/1999 to 31/03/2099 from the books of account of "Divyaraj& Co (01 07 2006 to 31 03 2009).
1. Snapshots of account statements with name "IJ9 RANPUR 44p", "IJ9 RANPUR 42/43" for the period 01/04/1999 to 31/03/2099 1 Snapshots of account statement with name "Sanosara 143/2 Makanbhai 58.25", "Sanosara 143/2/28/12A 738/" for the period 01/04/1999 to 31/03/2099 from the books of account of "Divyaraj& Co (01.07 2006 to 31 03 2009)
1. Extracts of loose papers without any explanation
1. Subsequently, the show-cause notice dated 07.12.2022 was issued, wherein, it is alleged as under Page 10 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
1. Transaction pertaining to unaccounted receipts and payments for real estate project "R K Industrial Zone-12 developed by the assessee have been recovered/extracted from the seized Miracle files during the course of search at the premises of the accountant of R K Group.
1. Miracle files contain details of every project developed by RK Group in coded form, wherein, the project "R K Industrial Zone-12" is mentioned/coded as "IJ12"
1 Various ledger accounts in the Miracle files reflects actual booking price of the unit along with date of booking of unit in the project.
1. Transactions in the ledger accounts are recorded in coded form by dividing into 100 and the date of transaction is backdated by 10 years.
1. During the FYs 2018-19 to 2021-22, the assessee has received total unaccounted/cash receipts on sale or booking of units in project "R K Industrial Zone- 12" of Rs. 20,85,26,760/-, out of which, sum of Rs. 77,87,290/- is received in FY 2020-
21.
1. During the FYs 2018-19 to 2021-22, the assessee has returned back total amount in cash on cancellation of booking in project "R K Industrial Zone-12" of Rs. 3,02,97,260/-
, out of which, sum of Rs. 62,27,520/- is returned back in FY 2020-21.
1. During the year under consideration ie., FY 2020-21, the assessee has incurred unaccounted cash expenses of Rs. 22,80,000/- for development of project "R K Industrial Zone-12
1. In the books of account, the assessee has not offered the income from the project
1. In connection with the above, at the outset, it is clarified that I have not received any cash/on-money/ unaccounted receipts against sale or booking of units in project R K Industrial Zone-9, Industrial Zone 12, Industrial Park-3 or made any unaccounted payment / expenses for such project. Therefore, allegation of unaccounted receipts/expenses is devoid of any facts and merits. Therefore, it is requested not to take any adverse inference in my case and oblige.
1. It is also submitted that the payment made for purchase of land and consideration received on sale of plots have been received through banking channel and the value of such payment/consideration is at par or more than the value prescribed the state government for stamp duty valuation. Therefore, there is no scope of alleged unaccounted cash receipt or payment as alleged. Therefore, allegations framed in the notice are devoid of merits, which is on the basis of documents recovered from the third party and merely on the conjectures & surmises
1. Without prejudice to the above, it is submitted that search action u/s. 132 of the Act was conducted at the residential and business premises of R K Group and during the search, it is stated that certain incriminating documents/data (MIRACLE Software File) has been seized. In this connection, it is submitted that the data/materials etc. found from the third parties are not binding to me in absence of any corroborative evidence. Further, on perusal of the abstract/snapshot appended in the notice dated 25.11.2022, Page 11 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani it is seen that nowhere either Girish Vanjani or Sarvanand Sonwani stated that I have entered into any cash transactions as alleged. Thus, whatever found from the third party is not binding to me in absence of any corroborative evidence on record. Further, any statement recorded behind my back is not binding to me. Therefore, cognizance being taken on the basis of so-called documents/data recovered from third party and statement recorded from third party is legally invalid and hence, strongly objected.
1. It is also submitted that the statements recorded from Shri Girish Vanjani and Shri Sarvanand Sonwani may be applied in their personal case as the averments made by them has to be restricted to their case only. The department cannot stretch the same and apply in the case of third party. Nonetheless, it is also given to understand that both the deponents i.e., Shri Girish Vanjani and Shri Sarvanand Sonvani has also executed their duly sworn affidavits clarifying that the content of the seized data/documents are not correct and complete and as such, no cognizance should have been taken on the basis of such data.
1. In view of the above, as the deponent of statement himself is not sure about the correctness and completeness of the seized data cognizance proposed to be taken on such disputed data in the hands of the assessee is vehemently objected.
1. Without prejudice to the above and without admitting anything in any manner, on perusal of the notices issued, it is seen that the proposal for addition has been made to tax alleged gross receipts of Rs. 20,85,26,760/- (out of which receipt of Rs 77,87,290/ in AY 2021-22), which is totally against the settled principle of law and in violation to provisions of the Income tax Act Hon'ble Supreme court of India has in plethora of cases held that gross receipt cannot be subjected to tax. Thus, the show cause notice issued a bad in low, against the settled principles and totally unjustified.
1. in the notices issued from time to time, references were made about the receipt of so called on money at Rs. 20,85,26,760/-, alleged cash payment for purchase of land, refund of cash on cancellation of booking and alleged cash expenses Thus, in the notices itself, references were made for purported credits and debits both in same set of disputed data. However, in the SCN issued, all the debits are omitted/ignored and proposal for taxation is made on gross basis, which is not in accordance with law and therefore above stated notice itself is bad in law and totally unjustified. The addition is proposed without considering commercial, accounting principles and settled judicial precedent is not required to be acted upon as it is bad in law and needs to be quashed. Hon'ble Supreme Court in the case of National Co-Operative Development Corporation vs. CIT (2020) 427 ITR 288 (SC) held that:
38. We may record here that income has to be determined on the principles of commercial accountancy. There is, thus, a distinction between 'real profits ascertained on principles of commercial accountancy in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC) this Court has held that income tax is on the real income. In the case of a business, the profits must be arrived at on ordinary commercial principles. The scheme of the IT Act requires the determination of 'real income' on the basis of ordinary commercial principles of accountancy. To determine the 'real income', permissible expenses are required to be set off in this behalf, we may also usefully refer to the Page 12 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani judgment in CIT v. S.C Kothai [1971] 82 ITR 794 (SC) where the following principle was laid down:
"6........ The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business"
1. In view of the above, without even commenting on the evidentiary value of the seized data and other side on merits, it appears that the addition proposed in the impugned notice is to make high-pitched assessment, which is complete departure from the theory of real income propounded by various High Courts and Supreme Court. Hence, we vehemently object the addition proposed in the show-cause notice as the same leads to high-pitched assessment.
1. CBDT vide Instruction No. 225/101/1021-ITA-II dated 23.04.2022 had modified the earlier instructions in the case of high-pitched scrutiny assessment where CBDT has acknowledged the fact of such high-pitched assessment and for that purpose, constituting of local committee to deal with such assessment Further, CBDT in its Office Memorandum No 279/MISC/52/2014-(ITJ) dated 07.11. 2014 has laid down various guidelines so as to bring non-adversarial tax regime, which contains-
However, the process of scrutiny involving long and non-specific questionnaires, the nature of additions made and the high-pitched assessments without proper basis continue to attract adverse attention. Instruction No. 6/2009 entrusted a responsibility on each Range Head to ensure improvement in quality of assessments by issuing directions under section 144A of the Act. There is a need to follow the said Instruction in letter and spirit and accordingly, the Range Heads are required to ensure that frivolous additions or high-pitched assessments without proper basis are not made The Principal Commissioners of Income-tax/ Commissioners of Income-tax are required to supervise the work of their subordinates to ensure due discharge of these functions.
1. In view of the above, addition proposed in the impugned show-cause notice is complete departure from the instructions and office memorandum issued by the apex body from time to time and hence, addition so proposed is strongly objected.
1. Without admitting the allegation in the show-cause notice, but for the academic argument purpose, it is also submitted that the Income-tax Act requires determination of "Real Income on the basis of ordinary commercial principles of accountancy. To determine the "Real Income", expenses which are wholly and exclusive incurred for the purpose of business is required to be set-off and resultant income has to be derived on mathematical as well as scientific basis. Hon'ble Supreme Court in the landmark case of CIT vs. Shoorji Vallabhdas and Co. 46 ITR 144 (SC) held that-
"Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialize. Where income has, in fact, been received and is subsequently given Page 13 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account."
1. Hon'ble Supreme Court in the case of Badridas Daga v. CIT (1958) 34 ITR 10 (SC) had allowed loss on embezzlement, though not an expenditure, as a deduction on the principle of real income theory. This theory is propounded more particularly when there is no assistance in the form of law, so that tax was levied on mal income and not on hypothetical income, either on the basis of the entries in the books of account or otherwise.
1. In view of the above, it is a trite law that the tax to be collected from the assessee should be on the "Real Income" and not on hypothetical or gross receipts, which has never been enjoyed or exploited by the assessee. Charging provision of Section 4 of the Income-tax Act, 1961 also empowers the government to collect tax on the "Income", which is subject matter of various calculations, workings and estimates. Therefore, while conducting the assessment of "income", the assessing officer cannot bypass such workings/estimates and directly tax the entire receipts. Even in the case of best judgement assessment u/s 144 of the Act, it is settled proposition of law that the assessing officer must not act dishonestly, vindictively or capriciously because he must exercise judgment in that matter. The assessing officer must make an honest estimate of the proper figure of the assessment for which he may use may apply any lawful method applicable. Even though it may be guesswork in the matter it must be an honest guesswork. Hon'ble Supreme Court in the case of Kachwala Gems vs. CIT (2007) 288 ITR 10 (SC) has held that authorities concerned should try to make an honest and fair estimate of income even in a best judgment assessment and should not act totally arbitrarily.
1. Furthermore, it is well settled law that merely because of some entries or references or even name of the assessee found in any documents/data seized from the possession of third party. the same are not sufficient to prove that the assessee indulged in the transactions mentioned in such documents/data. Reliance is placed on the following decisions Hon'ble Supreme Court in the case of CBI Vs. V.C. Shukla &Ors. (1998) 3 SCC 410 Hon'ble Supreme Court in the case of Vinod Solanki Vs. Uol & Anr (SC-Civil Appeal No.7407 of 2008) Hon'ble High Court of Bombay in the case of Addl. CIT vs. Miss Lata Mangeshkar (1974) 97 ITR 696 (Bombay), wherein, it held that-
entries in the day-book or the ledger would be a corroborative piece of evidence and once the direct evidence of the person who was said to have made payments Page 14 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani in 'black' to the assessee was disbelieved no value could be attached to entries in the ledger or to the entries in the day-book even if one had been produced.
1. Reliance is placed on the decision of Hon'ble Supreme Court of India in the Writ Petition filed by Common Cause (A Registered Society) against Union of India. [(2017) 245 Taxman 214 (SC)] The fact of the case is that the raids were conducted by the CBI and Income-tax Department at various premises of Aditya Birla group and Sahara group. During the raid, it is alleged that several incriminating documents and soft copies/e-mails were recovered, wherein, reference of payment made to some important public figures/politicians were found. The authorized officers of such companies have denied to have made any payment to the mentioned politicians and such companies have filed their application before Hon'ble Income-tax Settlement Commission ("ITSC"). Hon'ble ITSC allowed the application of Sahara as full and true and also granted immunity from penalty and prosecution. It was the case of petitioner that the order passed by the ITSC cannot be said to be in accordance with law and is self- contradictory and has been passed in haste. The petitioner also requested the Hon'ble Supreme Court to direct investigation into the material collected in the raids of two business groups. After careful consideration of entire facts and arguments from the both the sides, Hon'ble Supreme Court had held as under.
Loose sheets of papers are wholly irrelevant as evidence being not admissible under section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court [Para 20] There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co-relations with the random entries. In case all these are not insisted, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. [Para 21]
1. Having regards to the fact that there is no any reference of alleged unaccounted receipt/payment or even of my name in the seized data, any action on the basis of such data found from the domain of third party would be based on the assumption, surmises and conjectures, for which I rely on the following decisions:
Hon'ble Supreme Court of India in the case of UOI vs. Playworld Electronics Pvt. Ltd.
&Ors 1990 AIR 202, wherein, it is observed that "...Even a great deal of suspicion, not possible to hold otherwise without an evidence"Page 15 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani Hon'ble Supreme Court of India in the case of Raj Kumar Singh vs. State of Rajasthan in the Criminal Appeal No. 931-932 of 2009 observed:
"Suspicion, however grave it may be, cannot take the place of proof, and there is a large difference between something that may be proved and will be proved. In a criminal, suspicion no matter how strong, cannot and must not be permitted to take place of proof. This is for the reason, that the mental distance between may be and must be' is quite large and divides vague conjectures from sure conclusions. The large distance between 'may be true and must be' true, must be covered by way of clear, cogent and unimpeachable evidence produced by the prosecution, before an accused is condemned as a convict, and the basic and golden rule must be applied. In such cases, while keeping in mind the distance between may be true and 'must be true, the court must maintain the vital distance between conjectures and sure conclusions to be arrived at, on the touchstone of dispassionate judicial scrutiny based upon a complete and comprehensive appreciation of all features of the case, as well as the quality and credibility of the evidence brought on record The court must ensure, that miscarriage of justice is avoided and if the facts and circumstances of a case so demand, then the benefit of doubt must be given to the accused, keeping in mind that a reasonable doubt is not an imaginary, trivial or a merely probable doubt, but a fair doubt that is based upon reason and common sense"
1. Thus, I again reiterate that I have not received any unaccounted receipts on account of plots sold at R K Industrial Zone 12 project. Similarly, I have not made any unaccounted payment/expense. Hence, adverse inference taken against me is strongly objected.
1. Furthermore, it is also a settled proposition of law that impugned digital data seized from the possession of third party cannot be admissible as evidence under the provisions of Section 658 of the Indian Evidence Act, 1872 Therefore, cognizance taken on such data is completely misplaced.
1. Without prejudice to the above, on verification of the above stated data and relevant extract from the statements, it is not understood as to how the figure of alleged unaccounted receipts of Rs. 20,85,26,760/- for sale/booking of units of R K Industrial Zone 12 in project has been derived/decoded. The given data nowhere contains the noting or reference of alleged figure of unaccounted receipts by me. Further, period of noting in the impugned seized data/documents is also not reconciled with the period under consideration. The decoding of date and figures in the impugned data belonging to third party is not at all acceptable to me and the same cannot be made binding on me unless opportunity of cross-examination is allowed. Therefore, allegation made in the notice dated 25.11 2022 and 07 12.2022 is not backed by any documentary evidence and hence, ipso facto, it is unwarranted
1. Further, on verification of relevant abstract from the statements of one Shri Girish Vanjani and Sarvanand Sonwani provided vide letter dated 25.11.2022, it is seen that averments made by the deponents in their statements are limited to their own action and transaction. Nowhere in the statement, my name or transaction carried out by me or with me has been spelled out Further, statement of the witnesses is limited and no complete set of statement has been provided. No statement can be relied upon it cited Page 16 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani partially without full content thereof and hence part of a statement cannot be used against me. It is also reiterated that no any cogent corroborative evidence supporting the allegation is found and therefore, in absence of any such corroborative evidence, statement recorded from third party cannot be made binding on me Therefore, reliance placed on generic statement against me is totally unacceptable and uncalled for.
1. So far as various ledger statements with the name "IJ12 Sales account, IJ12 02/1, IJ12Exp" in the seized MIRACLE data containing entries related to cash and bank transactions, it is reiterated that I have not received any cash as per the entries made in such data. It is also reiterated that I have not made or directed to make any such entries in MIRACLE data and therefore, it is not known who, how and for what purpose such irrelevant entries made in the software. The project of industrial plotting scheme was earmed out by me in my independent capacity and sale consideration realized on sale of units as per registered conveyance deed is credited in my bank account. Therefore, RK Group or its members/partners/employee have no role in the sale proceeds received by me from sale of industrial units. Hence, merely because of random entries made by unknown person in the digital data maintained by him, no adverse inference can be drawn in my case in light of the undisputed fact that no such data has been recovered from my possession and no cogent corroborative evidences found in support of such data. Hon'ble ITAT in the case of Subhash Khattar vs. ACIT in ITA No. 902/Del/2015 (which is affirmed by Hon'ble Delhi High Court in ITA No. 60/2017) has held that-
merely because name of the assessee is appearing in the said hard disk cannot be a basis for arriving at a definite conclusion in absence of a corroborative evidence in support that the assessee has also paid amount of Rs. 3,21,00,000 in cash.
Huge addition of Rs. 3,21,00,000 cannot be made in a casual manner.
In the case of CIT vs. Alpha Impact Pvt. Ltd., Hon'ble Bombay High Court has been pleased to hold that addition to assessee's income in respect of additional sales consideration received in sale of land merely on the basis of Email recovered during the course of search action at the premises of another person and there being no independent material available supporting such addition, was not justified.
1. In view of the above, high-pitched addition proposed merely on the basis of such standalone data recovered from the possession of third party is strongly objected especially where the author/possessor/owner of such data also dispute the authenticity and correctness of data.
1. Reliance is also placed on the following decisions, which is more or less similar to the facts of the instant case:
Hon'ble High Court of Delhi in case of CIT V. DK. Gupta [2008) 174 Taxman 476 (Delhi), wherein, Hon'ble High Court had upheld the order of the lower court (ITAT), wherein, it was held that Ad-Hoc/Dumb Documents without any corroborative evidence/finding that the alleged documents have materialized into transactions cannot be deemed to be the income of the assessee.Page 17 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani Hon'ble ITAT Mumbai in case of Amarjit Singh Bakshi (HUF) v. ACIT [2003] 86 ITD 13 (Delhi) (TM) held that any noting in the loose sheet is no evidence by itself. An entry in the books of account maintained in the regular course of business is relevant for purposes of considering the nature and impact of a transaction, but notings on slips of paper or loose sheets of paper cannot fall in this category. Notings on loose sheets of paper are required to be supported/corroborated by other evidence which may include the statement of a person, who admittedly is a party to the notings.
Hon'ble Hyderabad bench of ITAT in case of Nagarjuna Construction Co. Ltd. v. DCIT (2012) 23 taxmann.com 239 held as under-
".......The basis for addition is only note book/loose slips. These note books/loose slips are unsigned documents. The Assessing Officer has not established nexus between the note book loose slips with accrual actual/receipt of interest. The note book/loose slips seized found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material If there is circumstantial evidence in the form of promissory notes, loan agreement and bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips regarding accrual of interest. It is hold no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Nothing on the note book/diary/loose sheets are required to be supported/corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties in the instant case, undoubtedly no statement from the parties whose names found in the note book/loose slips has been brought to the notice and as such entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible."
Hon'ble Calcutta Bench of ITAT in case of T S. Venkatesan v. ACIT [2000] 74 ITD 298 (Cal.) held that in the absence of corroborative evidence, addition of undisclosed income could not be made simply on the basis of entries on loose papers recovered from the residence of a third party and certain general statements of said party.
Hon'ble Punjab and Haryana High Court in case of CIT v. Atam Valves (P.) Ltd [2009] 184 Taxman 6 (Punj. & Har) dismissed the Revenue's Appeal and held that no substantial question of law arose out of the Order of the Tribunal. In this case, a survey was conducted u/s. 133A and certain incriminating documents were found including a 'Slip Pad" containing payment of wages to various persons. The slips were written by Manoj Jain, an employee of the assessee, who was confronted with the slips, apart from questioning of the Director. It was held by the Tribunal that even though explanation of the assessee that the loose papers did not relate to payment of wages during the year in question may not be accepted, in absence of any other material, the loose sheets by itself were not enough to make addition as per estimate of the A.O. It was observed by the Tribunal as under:
Page 18 of 44ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani "Now the question is regarding estimating the income on the basis of these loose slips. In our opinion, the Assessing Officer is not justified in estimating the sales on the basis of loose slips without substantiating that the assessee has actually made the sales to that extent of estimation made by the Assessing Officer and having no iota of evidence in the form of sale bills or bank account or movable and immovable property which represent earning of unaccounted income by the assessee. As such, the Id. CIT (A) to that extent is justified in holding that estimation of sales on the basis of loose slips represented payment of wages is not possible."
Hon'ble ITAT, Bangalore Bench in case of T. Mudduveerappa Sons [1993] 45 ITD 12 (Bang.) held that in absence of any external evidence, addition cannot be resorted to only on the basis of loose papers. The department had not brought on record any evidence to prove conclusively that the seized documents contained details of secreted profits which were chargeable to tax. No doubt, the seized papers contained statement in figures of what appeared to be the financial results of certain unnamed transactions but there was nothing either in law or in logic to warrant the conclusion that the figures denoted secreted profits which were chargeable to tax. The details of distribution contained in the seized papers did not by themselves present a preponderance of probabilities so as to support department's case that what was distributed was taxable income.
Hon'ble ITAT, Patna Bench, Patna in the case of ITO vs. Chandamama (2015) 61 taxmann.com 77 (Patna-Trib.), wherein, it is held that no addition could be made under section 69 on basis of loose sheets found during survey when revenue failed to show that said documents represented information from which a reasonable inference as to their representing transactions' could be drawn.
Hon'ble ITAT Mumbai Bench 'G' in the case of ACIT vs. Ms. Katrina Rosemary Turcotte (2017) 190 TTJ 681 (Mum), wherein, it is held that where on basis of documents seized in course of search carried out in case of employee of assessee's managing agent company, certain addition was made on ground that assessee had received cash payments, for different shows which was shared managing agent company, in view of fact that an affidavit was filed on behalf of managing agent stating that no cash payment was made to assessee, impugned addition could not be made solely on basis of seized document in case of third party.
1. Considering the above judicial pronouncements which are squarely applicable to the facts of the case under consideration, your good self is humbly requested not to make any addition on the basis of alleged data/digital impounded from possession of third party.
1. In view of the above, without even commenting on the evidentiary value of the seized data and other side on merits, it appears that the addition proposed in the impugned notice is to make high-pitched assessment, which is completely departure from the theory of real income propounded by various High Courts and Supreme Court. Hence, we vehemently object the addition proposed in the show-cause notice as the same leads to high-pitched assessment.
1. It is a trite law that the tax to be collected from the assessee should be on the "Real Income" and not on hypothetical or gross receipts, which has never been enjoyed or Page 19 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani exploited by the assessee Charging provision of Section 4 of the Income-tax Act, 1961 also empowers the government to collect tax on the "Income", which is subject matter of various calculations, workings and estimates. Therefore, while conducting the assessment of "income", the assessing officer cannot bypass such workings/estimates and directly tax the entire receipts Even in the case of best judgement assessment u/s. 144 of the Act, it is settled proposition of law that the assessing officer must not act dishonestly, vindictively or capriciously because he must exercise judgment in that matter. The assessing officer must make an honest estimate of the proper figure of the assessment for which he may use may apply any lawful method applicable. Even though it may be guesswork in the matter it must be an honest guesswork Hon'ble Supreme Court in the case of Kachwala Gems vs. CIT (2007) 288 ITR 10 (SC) has held that authorities concerned should try to make an honest and fair estimate of income even in a best judgment assessment and should not act totally arbitrarily.
1. In context to the above, it is further submitted that on perusal of the impugned data and various ledger accounts provided, it is seen that there is no systematic noting in any data or documents. Therefore, chances of duplications/overlapping/ mistakes/ errors of omission and commission could not be ruled out. 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 suspicion, without having any corroborative evidence on record Therefore, working out the correct and real income attributable to the project on the basis of impugned data / loose papers is impossible especially where Shn SarvanandSonvani in his reply also raised various probabilities/possibilities about the entries in seized data. Further, if there be any unaccounted profit, it would pertain to Shri Sarvanand Sonvani only as he has appeared to have maintained such incorrect and erroneous data.
1. Without prejudice to the above, I am not admitting the unaccounted transactions as per impugned data, however, it can academically/theoretically be argued that expression "profits or gains" is to be understood in its commercial sense, which could not be derived until the expenditure, necessary for earning receipts is deducted. Therefore, where the Department proposes to make addition of unaccounted business receipts (though, not at all accepted). corresponding refund/payment for earning such business receipts (though, not at all accepted) cannot be ignored. Hon'ble Gujarat High Court has in the case of PCIT 1 Vs M/s. Jay Kesar Bhavani Developers Pvt. Ltd. in R/Tax Appeal No. 267 of 2022 has held that "Tribunal was justified in upholding the contention of the assessee that considering the fact that entire money receipts cannot be taxed in entirety and only the profit embedded therein and such receipts is to be considered for arriving at correct, true and real income to be taxed under the provisions of the Act, 1961. In this case Hon'ble ITAT has estimated 6% of net profit on "on money"
receipt. Finding of the hon'ble ITAT in this regard is as under:
"13. In the light of above discussion, and respectfully following the judgements of Hon'ble Jurisdictional High Court as discussed above and also of Tribunal, we are of the considered opinion that Ld. 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 (supra)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 Page 20 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani accounts and considering the facts that the project undertaken by the assessee comes under deduction of Section 801B(10) of the Act, 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 receipts of Rs 4,72,02,368 Accordingly, the AO is directed to tax net profit @ 6% on total on-money receipts of Rs.4.72.02,368, In view of these facts and circumstances, the Ground No.4 to 6 of appeal are partly allowed."
1. In view of the above, considering the realities of the situation as well as well accepted practices and judicial rulings, it is submitted that entire receipts/inflows as well as expenditures/payments cannot be the income and accordingly what could be subject matter for fax is only the income embedded in the gross receipts. The said view is supported by the following decisions:
Hon'ble High Court of Gujarat in the case of Jay Builder v. ACIT (2013) 215 Taxman 50 (Gujarat), wherein, Hon'ble High Court had endorsed the view taken by lower court (ITAT) for determination of income by estimating the percentage of profit on gross on-
money receipts Hon'ble High Court of Gujarat in the case of CIT vs. President Industries-258 ITR 654 (Guj) Hon'ble High Court of Gujarat in the case of CIT vs. Gurubachhan Singh J. Juneja-
302 ITR 63 Hon'ble High Court of Gujarat in the case of DCIT vs. Panna Corporation (2012) 74 DTR 89 (Guj) Hon'ble High Court of Madhya Pradesh in the case of CIT vs. BalchandAjit Kumar (2003) 263 ITR 610 (Madhya Pradesh). In this case, the Commissioner (Appeals) came to the conclusion that the entire credit sales could not have been included in the total income of the assessee and accordingly followed the method of addition net profit rate of five percent on these sales and accordingly, Rs 40,960 was included on that score. The Tribunal held that the Commissioner (Appeals) had recourse to a reasonable method by adopting the net profit rate of five per cent. In as much as the entire sale could not have been regarded as the profit of the assessee. However, the Tribunal did not reduce the rate, which was added by the Commissioner (Appeals). On appeal by revenue, Hon'ble High Court held that total sale could not be regarded as the profit of the assessee and the net profit rate had to be adopted and once it was adopted, it could not be said that there was perversity of approach.
Hon'ble High Court of Madhya Pradesh in the case of Man Mohan Sadani vs. CIT (2010) 188 Taxman 277 (Madhya Pradesh) Hon'ble High Court of Gujarat in the case of Pr. CIT vs. Anupam Organiser in Tax Appeal No. 168 of 2020 Page 21 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
1. In view of the above facts and judicial pronouncements addition proposed in respect of alleged gross unaccounted receipts is completely unjustified and hence, the same is strongly objected.
1. Without prejudice to the above and continuing the emphasis on the fact that the impugned data is totally misleading and not reliable, even kind attention is invited to the fact that 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%, 8%, 12% 15% 20% 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 is not the right spirit of conducting assessment proceeding and the same is against the principle of natural justice. Reliance is 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 ITA No. 320 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.
9. However, the assessing officer has partly accepted the above submission of assessee and concluded the matter as follows.
Rejection of books of accounts by the assessing officer:
After thorough examination of the response to show cause notice and dismissing various contentions raised by the assessee in its reply, it has been made clear 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 requires to be disregarded invoking the provisions of section 145(3) of the Act. Accordingly, provisions of section 145(3) are invoked herewith and the assessment of total income of the assessee is being made after taking into account all relevant material gathered during the search and the assessment proceedings.Page 22 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani As per the material gathered during the search and submissions available on records the assessee is 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. 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 i.e., 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."
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.
Page 23 of 44ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani Recently, in the case of PCIT v. Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, the Hon'ble Guj. High Court has held that only profit element embedded in the gross on-money receipts can be taxed. For this, the Hon'ble court has derived reference from its earlier decision delivered in the case of DCIT Vs. Panna Corporation reported in [2012] 74 DTR 89. Relevant part of the decision is as under -
"it has been consistently held by this court and some other courts have been following the principle that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that were the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation."
Even in those cases where no details regarding unexplained payments /investments are available on records, it has been held by the Hon'ble Guj High Court that while dealing with addition on account of unaccounted sales, in absence of any material on record to show that there was any unexplained investment/expense made by the assessee, there could be a presumption of such expenditure. In such event also it is held that only profit on suppressed sales could be brought to tax [CIT v. Gurubachhan Singh J Juneja [2008] 171 Taxman 406 (Gujarat)]. Hence, in such cases, both the Supreme Court and the Jurisdictional High Court have consistently held that where evidences regarding unaccounted receipts are being assessed it is not reasonable to consider the entire unaccounted receipts for taxation. Rather, only profit element lying therein should be estimated keeping in mind the facts and surrounding circumstances of the case at hand. There for respectfully following the ratio laid down by the Apex Court and the Jurisdictional High Court and in view of the facts of the case it would be fair if reasonable rate of profit is adopted to tax the unaccounted income of the assessee.
Estimation of rate of profit in Industrial Projects by assessing officer.
10. Details of 25 Industrial projects undertaken by the searched group members and their partners have been recovered from the seized Miracle File Some Page 24 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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 i.e. 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 as reference, by assessing officer:
Page 25 of 44ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani Net receipts of all these 10 projects have been calculated and it is seen that after considering all kind of transactions i.e. Net on-money receipts, Expenses for running the project including the Land purchase there remained average net surplus of 21% the hands of respective developer / owner Page 26 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani Page 27 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
11. Apart from this, it is also important to keep in mind violation of various other provisions of the law which are in place to discourage the practice of indulging in such unaccounted transactions. Having said that and considering the facts of the present case and binding judicial 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. Since this project is an Industrial project, the net unaccounted profit for this particular project is Page 28 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani estimated at the rate of 25%. As far as the profit for the year under consideration i.e. FY 2020-21 is concerned, the same can be computed as under -
12. Thus, addition of Rs. 3,89,943/- 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. Apart from the above, as discussed earlier, it is seen that the sale deeds in the following case have been executed during the year but the same are not recognized as sale while filing ITR for the year under consideration Page 29 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
13. It can be seen that plots of Industrial zone-XII having total documents value of Rs. 22,80,000/- have been sold during the year under consideration (i.e. FY 2020-21), however, perusal of the ITR of the assessee, it is seen that the assessee has filed her return in form ITR-2 and the sale proceeds received on above sale has not been offered for taxation. In view of the above neither the sale mentioned in respective sales proceeds me deed for deeds executed nor cash on money received during the year has been offered for taxation. Therefore, even the deed part also is added to the total income reported during the year being undisclosed income for the year under consideration.
14. 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", Page 30 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani is on higher side, therefore, it should be reduced to a reasonable extent, by following the judgement of Hon'ble Jurisdictional High Court of Gujarat in various cases such as, in the case of Ms. Jay Kesar Bhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, wherein 6% addition on "on money, was upheld. In various judgements of jurisdictional ITAT Ahmedabad, (cited by assessee in legal compilation) held that the addition on "on money" at the rate of 8% is sufficient to plug the leakage of the revenue. Therefore, the solitary grievance of the assessee in assessee's appeals are that reasonable estimation may be made in the hands of the assessee. The findings of the learned CIT(A) would be discussed while adjudicating the relevant issue involved in concise and summarised grounds noted above.
15. Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows:
16. Summarized and Concise ground No.(i) is reproduced below for ready reference:
"(i) The Id. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s.
147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.
(This is assessee's ground No. 2 in ITA No. 710/RJT/2024 for AY 2018-19, This is assessee's ground No. 2 in ITA No. 711/RJT/2024 for AY 2019-20, This is assessee's ground No. 2 in ITA No. 712/RJT/2024 for AY 2020-21, This is assessee's ground No. 2 in ITA No. 713/RJT/2024 for AY 2021-22 and, This is assessee's ground No. 2 in ITA No. 714/RJT/2024 for AY 2022-23)
17. 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 Page 31 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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 ITA No. 528/RJT/2024 & 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)."
18.Respectfully following the above findings in assessee's own case, we dismiss the following grounds in assessee's appeals.
(i) Ground No. 2 in ITA No. 710/RJT/2024 for AY 2018-19
(ii) Ground No. 2 in ITA No. 711/RJT/2024 for AY 2019-20
(iii) Ground No. 2 in ITA No. 712/RJT/2024 for AY 2020-21
(iv) Ground No. 2 in ITA No. 713/RJT/2024 for AY 2021-22
(v) Ground No. 2 in ITA No. 714/RJT/2024 for AY 2022-23
19. Summarized and Concise ground No.(ii) is reproduced below for ready reference:
(ii) The Id. CIT(A)erred on facts as also in law in retaining addition of Rs. 1,50,72,214/-
by estimating profit at the 12% of so called on money receipt related to R K Industrial Zone-9. 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 Page 32 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani is very much on higher side and therefore the same may kindly be directed to be reduced and oblige.
(This is assessee's ground No. 3 & 4 in ITA No. 710/RJT/2024 for AY 2018-19, This is assessee's ground no.3, 4 & 5 in ITA No. 711/RJT/2024 for AY 2019-20, This is assessee's ground no.3, 4 & 5 in ITA No.712/RJT/2024 for AY 2020-21, This is assessee's ground no.3, 4 & 5 in ITA No.713/RJT/2024 for AY 2021-22 and This is assessee's ground no.3 & 4 in ITA No.714/RJT/2024 for AY 2022-23) & (This is also in revenue's ground no. 1 in ITA No. 689/RJT/2024 for AY 2018-19 and This is also in revenue's ground no. 1 in ITA No. 690/RJT/2024 for AY 2019-20)
20. 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. 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 the 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.
21. 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 Page 33 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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 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.
22. 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 ITA No. 528/RJT/2024 & 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:Page 34 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
(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 "Vesu Project"Income offered by the assessee at 8% of the alleged gross receipts source of payment of cash for purchase of the land-HELD THAT:- On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land. CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money. After going through the well- reasoned order of the Id.CIT(A), and in the light of judgment of Hon'ble jurisdictional 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.
Page 35 of 44ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani
(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 : ITA No. 1256, 1257, & 1258/JP/2019 [ITAT] [Jaipur]:
"23.4 It is settled law that not only from the illegal business but also the unaccounted transaction of purchase and sale only profit/ income on sales could be assessed as undisclosed income and could be subjected to tax. Case laws to the point are as under: 1. Dr. T.A. Quereshi (157 taxmann.com 514) (Supreme Court) 2. Piara Singh (124 ITR 40) (Supreme Court) 3. S.C. Kothari (82 ITR 794 (Supreme Court) 23.5 The assessee admitted such profit at Rs. 45,00,000/- and disclosed that on said transactions income in PMGKY, 2016 and paid due tax thereon. The copy of certificate issued by PCIT is placed on record. Thus when that transactions are of unrecorded purchase and sale of gold, which Ld. assessing officer also admits in assessment order, then simply that name & address of purchasers are not provided the entire amount of sale cannot in law be treated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax more so when the assessee has disclosed in PMGKY the said undisclosed income of Rs.45,00,000/- and paid tax in accordance with scheme and received certificate there for from Pr. Commissioner of Income Tax, hence the same disclosed income cannot be included as income is assessment as per Section 199-l of PMKGY. However Ld. A.O. has allowed credit of amount of disclosed income in PMKGY from total income as so the addition on this account is restricted to Rs.45,00,000/- and balance is deleted. The assessee thus gets relief of Rs.3,02,00,000-45,00,000 = Rs. 2,57,00,000/-."
(v) Greenfield Reality P. Ltd IT(SS) A No. 320,321 and 322/Ahd/2018 & 329/Ahd/2018:
"16. We have duly considered rival submissions and gone through the record carefully. On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land. Therefore, the Ld.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money. Therefore, after going through the well-reasoned order of the Ld.CIT(A), IT(SS)A No.289 Ahd/2018 (7 Others) Greenfield Reality P. Ld. Vs. DCIT and in the light of judgment of Hon'ble jurisdictional High Court in the case of Panna Corporation (supra) as well as Koshor Mohanlal Telwala (supra), we are of the Page 36 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.
17. Next question arose, what is the element of income involved in this on- money. On one hand, the assessee is showing income at 8%, on the other hand, the ld. CIT(A) is estimating it at 20%. It is pertinent to observe that section 144 of the Income Tax Act provides discretion in the assessing officer to pass best judgment when an assessee failed to appear before him, and to submit requisite details. In other words, it provides power in the assessing officer to estimate an income of the assessee. We deem it appropriate to take note the relevant part of this section. It reads as under:..
"24. We have considered rival submissions and gone through the record carefully. There is no dispute that during the course of search certain material/loose papers were found exhibiting the fact that the assessee has received cash, over and above, the amounts stated in the booking register. This cash was not accounted for in the books. It has been treated as on-money for sale of flats/shops. Simultaneously certain loose papers were found disclosing the fact that the expenditure were incurred in cash and accounted in the books. The Ld.CIT(A) made an analysis of this, and then held that the moment assessee's income is being assessed at 8% of the gross on-money, then the remaining amount 92% could take care of unexplained expenditure. It can be explained by a simple, viz. an assessee has received Rs.100/- in cash for sale of flat. Out of that, element of income embedded in this Rs. 100/-has been determined by us at Rs.8/-. Remaining Rs.92/- must have been incurred by the assessee for developing that flat. Thus, in other words, the expenditure whose details were found being incurred in cash could be construed as coming out of these Rs.92/-. Thus, there cannot be any separate addition of unexplained expenditure. The Ld.CIT(A) has rightly deleted the addition."
15. We note that the assessee is in appeal before us and praying the Bench that estimated addition is very higher side and it should be reduced, at a reasonable level. However, learned DR for the revenue submitted that addition made by the assessing officer may be confirmed. We note that the estimation of income is based on facts and will vary from business to business and year to year, depending on the business conditions. We note that ld.CIT(A) has estimated the profit on the "on-money" at the rate of 16% but the ld.CIT(A) has failed to bring on record any comparable case in support of his estimation that too @ 16% and in some cases 8% and 12% etc. No doubt estimate of the profit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as comparable cases. Without this the estimation so made cannot be said to be valid estimation. The jurisdictional Hon'ble High Court of Gujarat, in case of estimation of profit element on, "on-money" has taken the view that estimation of profit in these type of cases of "on-money" had been held between range of 6% to 8%.
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 Page 37 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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."
23. Therefore, respectfully following the binding judgement of the Co-ordinate Bench of ITAT Rajkot in assessee's own case (Supra), we direct the assessing officer to tax "on-money" at the rate of 10%, therefore, we partly allow the following appeals of the assessee:
(i) Ground No. 3 & 4 in ITA No. 710/RJT/2024 for AY 2018-19
(ii) Ground No. 3, 4 & 5 in ITA No. 711/RJT/2024 for AY 2019-20
(iii) Ground no. 3, 4 & 5 in ITA No.712/RJT/2024 for AY 2020-21
(iv) Ground no. 3, 4 & 5 in ITA No.713/RJT/2024 for AY 2021-22
(v) Ground No. 3 & 4 in ITA No. 714/RJT/2024 for AY 2022-23
Page 38 of 44
ITA Nos. 710 to 714 & 689 & 690/Rjt/2024
Vandana Jagdish Sonwani
Whereas, the following appeals of the revenue, are dismissed:
(i) Ground no. 1 in ITA No 689/RJT/2024 for AY 2018-19
(ii) Ground no. 1 in ITA No. 690/RJT/2024 for AY 2019-20
24. Summarized and Concise ground No.(iii) is reproduced below for ready reference:
(iii) The Ld CIT(A) has erred in deleting 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. 2 in ITA No. 689/RJT/2024 for AY 2018-19, This is revenue's ground no. 2 in ITA No. 690/RJT/2024 for AY 2019-20)
25. 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 ITA No. 528/RJT/2024 & others in the case of M/s. R K Infralink LLP, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co- ordinate Bench of ITAT Rajkot is reproduced below:
"21. Learned DR for the revenue argued that Ld.CIT(A) ought not to have directed the assessing officer, to tax the unaccounted profit in the year in which sale deed is executed instead of the year in which the "on-money" has been received. The treatment of revenue recognition adopted by the learned CIT(A) is not in accordance with Accounting principles as per ICDS-3, which is applicable to Real Estate Developers. The learned DR, therefore, stated that the income on account of undisclosed "on- money" receipt was required to be assessed in the year of receipt.
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, Page 39 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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.
23. We have considered the submissions of both the parties, and we note that ICDS- 3 refers to Income Computation and Disclosure Standard-III, issued by the Central Board of Direct Taxes under section 145(2) of the Income-tax Act, 1961. It deals with computation of income from construction contracts for tax purposes. It is largely based on the earlier Accounting Standard AS-7 but contains important differences relevant for income tax computation. We note that ICDS-III applies to construction contracts of contractors, however, assessee under consideration is not a contractor, but 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.
24. 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, 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]"
25. 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 ITA no. 2735/Ahd/2010, 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 Page 40 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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]"
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 Page 41 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani 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."
26. Respectfully following the binding judgement of the ITAT Rajkot in the assessee's, own case (Supra), we dismiss the following grounds raised by the revenue.
(i) Ground no. 2 in ITA No. 689/RJT/2024 for AY 2018-19
(ii) Ground no. 2 in ITA No. 690/RJT/2024 for AY 2019-20
27. Summarized and Concise ground No.(iv) is reproduced below for ready reference:
(iv) The Id. CIT(A) erred on facts as also in law in confirming action AO in treating short term capital gain of Rs. 1,57,58,344/- on sale of industrial plots as business income. The action of AO in treating the same as business is totally unjustified and the AO Therefore the AO may kindly be directed to accept the gain on sale of lands as per return of income filed.
(This is assessee's ground No. 6 in ITA No. 711/RJT/2024 for AY 2019-20, This is assessee's ground No. 6 in ITA No.712/RJT/2024 for AY 2020-21, This is assessee's ground no.5 in ITA No.714/RJT/2024 for AY 2022-23)
28. The facts as per assessment order are as follows: This ground pertains to the action of the AO in treating short term capital gain of Rs. 1,57,58,377/- on sale of industrial plots as business income on the ground that the purchasing of agriculture land and converting it into industrial plots are the business activities. On appeal by the assessee, the ld.CIT(A) noticed that the assessee was engaged in the business activity of developing lands into industrial plots and sale them to earn profit. The assessee first purchase the land, develop it and after then sale the same after dividing it into plots. It is also a fact revealed that the appellant had shown the profit or loss arising from the developing, plotting and selling of land as Capital Gain. The ld.CIT(A) therefore, noted that AO has rightly held that Page 42 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani considering the overall nature transactions involved and frequency of the transactions, it is not appropriate to classify this profit as Capital Gain rather such profit should be charged to tax as Business Income. Therefore, ld CIT(A) concurred with the view taken by the AO in treating the income from the business of purchasing, developing and selling the plots of land as Business Income instead of Short Term Capital Gain.
29. We have gone through the above findings of Ld.CIT(A) and did not find any infirmity in the conclusion reached by Ld.CIT(A), hence, we dismiss ground no.
(iv) of the assessee.
31. In the result, following of appeals of the assessee are dismissed.
(i) Ground No. 6 in ITA No. 711/RJT/2024 for AY 2019-20
(ii) Ground No. 6 in ITA No.712/RJT/2024 for AY 2020-21
(iii) Ground No.5 in ITA No.714/RJT/2024 for AY 2022-23
32. 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 pronounced in the open court on 16 -03-2026.
Sd/- Sd/- (Dr. Arjun Lal Saini) (Dr. Dinesh Mohan Sinha) लेखा सद य/Accountant Member याियक सद य/Judicial Member राजकोट /Rajkot True Copy दनांक/Date: 16/03/2026 आदे श क त ल प अ े षत/ Copy of the order forwarded to : अपीलाथ / The Assessee यथ / The Respondent आयकर आयु त/ CIT आयकर आयु त(अपील)/ The CIT(A) वभागीय त न ध, आयकर अपील य आ धकरण, राजकोट/ DR, ITAT, RAJKOT Page 43 of 44 ITA Nos. 710 to 714 & 689 & 690/Rjt/2024 Vandana Jagdish Sonwani गाड फाईल/ Guard File By order/आदेश से, सहायक पजं ीकार आयकर अपीलीय अिधकरण, राजकोट Page 44 of 44