Income Tax Appellate Tribunal - Rajkot
Dcit, Central Circle 1, Rajkot, Rajkot vs Shri Harishkumar Jayantilal Lakhani, ... on 19 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. 756 to 759/RJT/2024
Assessment Year: (2017-18 to 2019-20 & 2022-23)
(Physical Hearing)
DCIT, Central Circle-1, Shri Harishkumar Jayantilal Lakhani,
nd
Amruta Estate, 2 Floor, MG Road, बनाम/ "Vrundavan", 1, Tapovan Society,
Rajkot - 360001 Vs. Nr. Amin Marg, Rajkot - 360002,
Gujrat.
थायीलेखास.ं /जीआइआरसं./PAN/GIR No.: AAQPL3256P
(Appellant) (/Respondent)
आयकर अपील सं./ITA No. 747 to 749 /RJT/2024
Assessment Year: (2020-21 to 2022-23)
Shri Harishkumar Jayantilal Lakhani, DCIT, Central Circle-1,
"Vrundavan", 1, Tapovan Society, बनाम/ Amruta Estate, 2nd Floor, MG Road,
Nr. Amin Marg, Rajkot - 360002, Vs. Rajkot - 360001
Gujrat.
थायीलेखास.ं /जीआइआरसं./PAN/GIR No.: AAQPL3256P
(Appellant) (/Respondent)
िनधा रती की ओर से /Appellant by : Shri Mehul Ranpura, Ld. AR &
राज की ओर से/Respondent by : Shri Abhimanyu Singh Yadav, Ld. Sr. DR
सुनवाई की तारीख/Date of Hearing : 16/01/2026
घोषणा की तारीख/Date of Pronouncement : 19/03/2026
आदे श /ORDER
Per Dr. Arjun Lal Saini, AM:
Captioned three appeals filed by the assessee and three appeals filed by the revenue, pertaining to assessment years (AYs) 2020-21 to 2021-22, are ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) directed against the orders passed by the Commissioner of Income Tax (Appeals), which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) r.w.s. 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. For the sake of convenience, the facts narrated in ITA No. 758/RJT/2024, for assessment Year 2019-20, have been taken into consideration for deciding the above appeals en masse.
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 Ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-
initiated u/s. 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.
(This is assessee's ground No. 2 in ITA No. 747/RJT/2024 for AY 2020-21)
(ii) The Id. CIT(A)erred on facts as also in law in retaining addition of Rs.34,68,000/-by estimating profit at 12% of so called on money receipt in respect of project Sagar Industrial Park. The addition made 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 other side and therefore the same may kindly be directed to be reduced and oblige.
Page 2 of 27ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) (This is assessee's ground No. 3 & 4 in ITA No. 747/RJT/2024 for AY 2020-21, This is assessee's ground No. 2 & 3 in ITA No. 748/RJT/2024 for AY 2021-22 and, This is assessee's ground No.2 & 3 in ITA No. 749/RJT/2024 for AY 2022-23) & (This is also in revenue's ground no. 1 in ITA No. 759/RJT/2024 for AY 2022-23)
(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. 759/RJT/2024 for AY 2022-23)
(iv) On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the protective addition of Rs 5,51,90,637/- made on account of unaccounted expenses u/s.69C r.w.s 115BBE of the Income-tax Act."
(This is revenue's ground no. 1 & 2 in ITA No. 756/RJT/2024 for AY 2017-18 and, This is revenue's ground no. 1 & 2 in ITA No. 757/RJT/2024 for AY 2018-19, This is revenue's ground no. 2 in ITA No.758/RJT/2024 for AY 2019-20)
4. Brief facts qua the issue are that The assessee is an individual and partner in various firms. The assessee has also derived house property income, capital gain, income on sale of securities and income from other sources i.e. interest and dividend income. As per the Income-tax Return for AY 2019- 20 filed on 30-09-2019, showing total income of Rs. 66,50,480/- On 02-04- 2019, the business premise of M/s Six Twenty Reality Pvt Ltd was covered in an Income-tax survey action u/s 133A of the Act. The assessee is a director and major share holder of M/s Six Twenty Reality Pvt Ltd. During the survey proceedings various incriminating documents and digital data highlighting involvement of the assessee have been found and impounded. Later, on 24.08.2021, 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. Four different groups were covered in the operation including RK Group and associates. All the four groups are in the business of real estate and are mainly concentrated in and Page 3 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) around Rajkot. 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.
5. 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 RK 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 R K 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 Page 4 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) recovered. Forensic Mirror Imaging (Digital Data Backup) of these devices was taken and the same were Seized. The backup contained key accounting files (unaccounted transactions and some accounted transactions) of the entire group in a very systematic manner. The accounts of 1) Sale of units
2) Cost of lands 3) Expenses incurred on various projects and other miscellaneous transactions made by R K 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...)
6. 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 Page 5 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) and in the form of Hard Data were also compared and corroborated with the documentary evidences and responses received from the Sub-registrar office and with the data available in public domains on various government portals like - 1) anyror.gujarat.gov.in 2) garvi.gujarat.gov.in and 3) gujrera.gujarat.gov.in. Comparison of the financial transactions entered in the Miracle accounting files seized during the search was also made with those reported on the regular books of various group members and entities. 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.
7. Details of Unaccounted expense / investment of Rs. 24,88,50,000/- made in the purchase of land for the project "The City Centre" developed by M/s Page 6 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) Titanium Buildcon LLP have been recovered from the material seized during the search operation. The members of Sonvani family (R K Group) holds 30% stake in M/s Titanium Buildcon LLP. The assessee (Shri Harish Lakhani) is also a partner in the firm holding 15% share. As details regarding unaccounted part of the aforementioned transactions pertaining to the assessee have been gathered from the seized material during the search operation, a notice under section 148 of the Act has been issued on 16-11-2022 to the assessee after following due procedure as per the Act and with prior approval of the specified authority as per section 151 of the Act. In response to the notice issued under section 148, the assessee has filed an Income tax return on 20-12-2022. Subsequently, a notice u/s 143(2) of the Income-tax Act has been issued and served on 27-12-2022 on the e-filing portal of the Assessee. Subsequently, notices uls 142(1) have been issued from time to time seeking primary as well as further details from the assessee for carrying out the assessment. In view of natural justice, the objections raised by the assessee against initiation of proceedings u/s 148 of the Act have been disposed of and the 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.
8. A survey u/s 133A of the I.T. Act was carried out on 02.04.2019 in the case of M/s. Six Twenty Reality Pvt. Ltd. Sh. Atul S. Ganatra and Sh. Harish J. Lakhani (the assessee) are directors of the company. Shri Ashutosh Ganatra is nephew of Shri Atul Ganatra, director of the company. During the course of survey, shri Ashutosh Ganatra stated that he is supervising the day-to-day sales and receipt of payment from sale of flats through employees of the company i.e. Shri Paresh Gor (Cashier of the company), Shri Mihir Joshi (Sales Manager of the company) and Shri Yagnesh Jogi (Accountant). During the course of survey, one folder Page 7 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) containing various excel sheets was found from the email of Sri Yagnesh Jogi, Accountant of Mis Six Twenty Reality Pvt. Ltd. at B/h. Aalap Green City, Raiya Road, Rajkot. The print out of excel sheets found from the e- mail of Shri Yagnesh Jogi, Accountant were taken and impounded as per Annexure A/5. The excel sheets impounded at page 43 to 55 in Annexure A/5 have details of various financial transactions i.e. Booking details and payment received against the sale of flats of Dream City. The company has received on-money which is over and above the registered value of the flats in cash against sale of flats in various financial years. Further, an image containing details of partner's payout from the project has been recovered from mobile phone of Sh. Pareshbhai Gor, Cashier of the company M/s. Six Twenty Reality Pvt. Ltd.. The image is as under. On perusal of the above, it can be seen that payments of Rs. 12,70,00,000/-have been distributed in cash to four persons. Out of this, Rs. 4,09,50,000/- has been distributed to Shri Harish Lakhani Le. the assessee. Only one payment of Rs. 32,50,000/- dated 29-05-2018 is through cheque rest Rs. 3,77,00,000/- were in cash (Rs. 39,00,000 in FY 2016-17, Rs. 1,62,50,000/- in FY 2017-18 and Rs. 1,75,50,000 in FY 2018-19/-:
9. In response, on 02-03-2023, the assessee has submitted a comprehensive response to the show cause notice clarifying the issues and raising various contentions-
"I have been served with the above-stated notice requiring me to show cause as to why the sum of Rs. 2,57,75,000/- alleged to be received in cash should not be treated as my unexplained income. In this connection, I submit as under:
1. At the outset, it is submitted that I have not received any unaccounted cash as alleged in show-cause notice and hence, allegation raised in impugned notice is devoid of merits It is seen that the allegation of alleged unexplained income is made on the basis of an Excel Sheet/Loose Paper / WhatsApp image etc. stated to have been impounded from the possession of third party / employee during the course of survey at the business premises of Six Twenty Realty Pvt. Ltd. In this connection, it is submitted that I don't know anything about noting in such loose paper / excel / image and I Page 8 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) don't aware about who has made such irrelevant entries and purpose behind such entries.
It is also submitted that the impugned noting in impounded document/data has not been prepared by me or at my instance/direction, but the same is appeared to have been prepared by some other person, for the reason best known to him. Therefore, merely because of irrelevant and unrelated entries found in some document/data impounded from the possession of employees, allegation framed against me in respect of unexplained money is totally unjustified.
Further, it is also submitted that impugned noting has not been signed or authenticated by myself or any promoters of Six Twenty Realty Pvt. Ltd. Also, share in company against my abbreviated name (HL) mentioned in the impounded data is incorrect, which itself shows that noting in the impounded document/data is unreal & imaginary.
It is also submitted that apart from these random entries in the impounded document/data, there is no any other corroborative or supporting evidence found which suggests the actual receipt of cash by me. Therefore, merely on the basis of some random noting in loose paper/ WhatsApp image, high-pitched addition proposed is strongly objected. Reliance placed on the decision of Hon'ble Supreme Court in the case of K. P. Varghese v. ITO(1981) 131 ITR 597 (SC), wherein, it is held that the fictional receipt cannot be deemed to be a receipt in the absence of any cogent material to support the factum of actual receipt.
Reliance also placed on the following judicial pronouncements Hon'ble High Court of Delhi in case of CIT V. D.K. 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. 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 nothings on slips of paper or loose sheets of paper cannot fall in this category. Nothings 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 nothings 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 Page 9 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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 held 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 (TD 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:
"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 Page 10 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) chargeable to fax. 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 (TAT 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.
Reference is also drawn to the Gujarat High Court decision in the case of Dy CIT Vis Prarthana Construction Pvt. Limited Tax Appeal No 79 of 2000 where it has been held that the Revenue would not be justified in resting its case on the loose papers and documents found from the residence of third party even if such documents contain narration of transaction with the assessee 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 loose paper/WhatsApp image impounded from possession of employees of Six Twenty Realty Pvt. Ltd.
Furthermore, it is also submitted that during the course of assessment proceeding in the case of Mis. Six Twenty Realty Pvt. Ltd. I have furnished my affidavit declaring that various excel sheets and records found during the course of survey in the case of company was managed/fabricated by Shri Ashutosh Ganatra so as to show rosy picture of the company to some outsider investors. Therefore, I have nothing to do with such artificial noting/entries made by Shri Ashutosh Ganatra and addition proposed on the basis of such data is strongly objected.
So far as reliance placed on the statement recorded from Shri Ashutosh Ganatra, it is submitted that averments made in this statement is behind my back, which is not binding to me. Further, in order to clarify the correct facts, I have already deposed my averments in duly sworn affidavit, which is on records. Therefore, in absence of any cross-examination of deponent of statement, the affidavit furnished by me has to be considered in my assessment proceeding.
Without prejudice to the above and without admitting anything in any manner, it is also submitted that during the course of assessment proceeding in the case of M/s Six Twenty Realty Pvt. Ltd, your good self has treated the noting/entries on the impugned loose paper as movement of unaccounted business receipts/on-money of the company and accordingly. income of the company has been estimated.
Page 11 of 27ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) Therefore, on this ground, it is submitted that when the alleged noting appearing on the so-called impounded paper has already been taken care in the hands of company, further addition proposed in my case would amount to multiple addition of same transaction.
Furthermore, it is well settled law that merely because of some entries or references or even name of the assessee found in any documents 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. 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 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.
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 low 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 201 ...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 Page 12 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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] Considering the above reply, addition proposed in the show-cause notice is strongly objected I have furnished the details as above and hope that same will satisfy your requirement. However kindly grant me an opportunity of furnishing further details in case required before taking any adverse decision in the matter and oblige."
In view of the aforementioned facts and findings, the cash receipt of Rs. 1,62,50,000/- is treated as unexplained money within the meaning of section 69A of the Income-tax Act added to the assessee's total returned income for the year under consideration on PROTECTIVE basis.
10. Aggrieved by the various additions made by the assessing officer, the assessee carried the matter in appeal before the learned CIT(A) The learned CIT(A) dismissed the technical grounds raised by the assessee, challenging reopening of assessment under section 147/148 of the Act. On merit, learned CIT(A), estimated the profit element on the "on money", at the rate of 8%, 12%, 16% etc, in a different assessment years. Therefore, assessee, as well as, revenue, both are in appeal before us. The main contention of the revenue in these appeals are that the addition made by the assessing officer should be confirmed. Whereas, main contention in the assessee's appeals is that the profit estimation on "on -money", is on higher side, therefore, it should be reduced to a reasonable extent, by following the 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.Page 13 of 27
ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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.
11. Now, we shall adjudicate, the summarised and concise grounds of appeal, one by one, as follows:
12. Summarized and Concise ground No.(i) is reproduced below for ready reference:
(i) The Ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-
initiated u/s. 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed.
(This is assessee's ground No. 2 in ITA No. 747/RJT/2024 for AY 2020-21)
13. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We have carefully considered the submission of the Learned Counsel for the assessee and ld DR for the Revenue and evidences on record. We note that issue under consideration is squarely covered against the assessee in the assessee's own group cases, M/s R.K. Group, in 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:
Page 14 of 27ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) "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)."
14. 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. 747/RJT/2024 for AY 2020-21
15. 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.34,68,000/-by estimating profit at 12% of so called on money receipt in respect of project Sagar Industrial Park. The addition made 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 other 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. 747/RJT/2024 for AY 2020-21, This is assessee's ground No. 2 & 3 in ITA No. 748/RJT/2024 for AY 2021-22 and, This is assessee's ground No.2 & 3 in ITA No. 749/RJT/2024 for AY 2022-23) & (This is also in revenue's ground no. 1 in ITA No. 759/RJT/2024 for AY 2022-23)
16. 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 Page 15 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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.
17. We note that "On-money" receipts are undisclosed receipts, and only the profit element embedded in such receipts can be taxed, not the entire "on-money" amount. However, the rate of profit is always a matter of estimation and must depend on following factors, such as, nature of project, location, type of construction, cost structure, evidence of expenses and past profit margins. We note that in R.K. Group cases, expenses and cost in every project is higher side, due to locational disadvantage, and the profit element is below 10%, as per the past audited profit and loss accounts and evidences available in search and seizure proceedings. It is settled position of law and we also note that Courts and Tribunals have emphasized that the profit rate must have a reasonable basis in each case, and cannot be arbitrarily fixed. Since "on-money" receipts represent undisclosed sales, only the profit element embedded therein can be taxed; however, the rate of profit estimation depends on the facts of each case. We have examined the seized material and past records and noted that in RK group cases, under consideration, the past profit margin as per audited books of accounts and as per seized material is 7% (average) only, this is because, due to location of the 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 Page 16 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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.
18. 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:
(i). 2020 (4) TMI 844ITAT AHMEDABAD GREENFIELD REALITY P. LTD.
VERSUS ACIT, CENT. CIR. 1 (2) AHMEDABAD AND DOIT, CENT. CIR. 1 (2) AHMEDABAD, VERSUS GREENFIELD REALITY P. LTD.
"Estimation of Income on-money received by the assessee on booking of flats and shops in "VesuProject"Income offered by the assessee at 8% of the alleged gross receipts source of payment of cash for purchase of the land-HELD THAT:-
On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on-money.After going through the well-reasoned order of the Id.CIT(A), and in the light of judgment of Hon'ble jurisdictiona' Page 17 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) High Court in the case of Panna Corporation [2014 (11) TMI 797 GUJARAT HIGH COURTI as well as Koshor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-AI we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.Element of income involved in this on-money assessee is showing income at 8%, AND CIT(A) is estimating it at 20% HELD THAT:- CIT(A) has also not mentioned any attending circumstances for harbouring a belief that 20% could have been earned from this activity. Thus after taking guidance from the judgment of Kishor Mohanlal Telwala [1998 (9) TMI 106-ITAT AHMEDABAD-Al we deem it proper that the assessee has rightly disclosed the profit element embedded in the gross profit at 8%. Accordingly, we allow the ground of appeal raised by the assessee, and hold that profit which has been directed to be adopted by the Ld.CIT(A) at 20% of the alleged turnover should be taken at 8%.
(ii)Tax appeal No.267 of 2022 dated 07.07.2022 M/S. JAY KESAR BHAVANI DEVELOPERS PVT. LTD.( Guj-HC) "Rejection of books of accounts u/s 145(3) On money receipt estimation of income addition on account of entire construction receipts as alleged unrecorded receipts -
HELD THAT: CIT (A) was not justified in confirming the addition of entire on- money receipts amounting to 4,72,02,368. Therefore, only estimated net profit is required to be taxed. We find that the assessee has shown net profit at 4.55.% for the assessment year under consideration and 4.59% for A.Y. 2010-11. Further, the Hon'ble High Court in the case of CIT V. Abhishek Corporation [1998 (8) TIMI 110 ITAT AHMEDABAD-C) has upheld the net profit at 1.31% as declared by the assessee in that case. The net profit rate disclosed at 4,55% during the assessment year under consideration by the assessee in books of accounts and considering the facts that the project undertaken by the assessee comes under deduction of section 801B(10) hence, there may not be any intention to disclose the lower rate of profit. Considering these facts, and taking into account net profit in construction business, it would be reasonable to estimate 6% of net profit on total on-money.
(iii)The Commissioner of Income Tax vs. Shri Hariram Bhambhani INCOME TAX APPEAL NO.313 OF 2013 (BOM)(HC):
"In any view of the matter, the CIT(A) and Tribunal have come to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and a possible view. Thus, no substantial question of law arises for our consideration."
(iv) The ACIT Central Circle - 3, Jaipur Vs Shri Nawal Kishore Soni : 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 Page 18 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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 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 Page 19 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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 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.Page 20 of 27
ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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."
19. 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. 747/RJT/2024 for AY 2020-21
(ii) Ground No. 2 & 3 in ITA No. 748/RJT/2024 for AY 2021-22
(iii) Ground No. 2 & 3 in ITA No. 749/RJT/2024 for AY 2022-23 Whereas following appeals of the revenue are dismissed:
(i) Ground no. 1 in ITA No. 759/RJT/2024 for AY 2022-23
20. Summarized and Concise ground No.(iii) is reproduced below for ready reference:
(iii) Ground No. 2- 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. 759/RJT/2024 for AY 2022-23)
21. 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.
Page 21 of 27ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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, 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.Page 22 of 27
ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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 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 Page 23 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) 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 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."
22. 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. 759/RJT/2024 for AY 2022-23
23. The summarised and concise ground No.(iv) is reproduced below for reference:
Page 24 of 27ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case)
(iv) On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the protective addition of Rs 5,51,90,637/- made on account of unaccounted expenses u/s.69C r.w.s 115BBE of the Income-tax Act."
(This is revenue's ground no. 1 & 2 in ITA No. 756/RJT/2024 for AY 2017-18 and, This is revenue's ground no. 1 & 2 in ITA No. 757/RJT/2024 for AY 2018-19,This is revenue's ground no. 2 in ITA No.758/RJT/2024 for AY 2019-20)
24. We note that issue under consideration is squarely covered in favour of the assessee in the assessee's own group cases, Sarvanand Sadhuram Sonwani, in ITA No. 809 to 819/RJT/2024 & others in the case of Sarvanand Sadhuram Sonwani, by the decision of Coordinate Bench of ITAT Rajkot. The findings of the Co-ordinate Bench of ITAT Rajkot is reproduced below:
71. 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 note that protective assessment is an assessment which is made ex abundanti cautela where the department has a "doubt as to the person who is or will be deemed to be in receipt of the income". A departmental practice, which has gained judicial recognition, has emerged where it appears to the Assessing Officer that income has been received during the relevant Assessment Year, but where it is not clear or unambiguous as to who has received the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether particularly in cases where the Revenue has to be protected against the bar of limitation. But equally while a protective assessment is permissible a protective recovery is not allowed.
72. We find that learned CIT(A) has identified the real owner, and then after the protective additions were deleted in the respective years. In this regard, the findings of the learned CIT(A) are reproduced below:
"In case of Smt. Priyaben Devra and in case of Shri Ramesh Tilara additions of unaccounted business income from the projects have been confirmed on substantive basis. Therefore, once the substantive addition has been confirmed, consequential protective addition in the hands of the appellant is required to be deleted. The courts have held that when the substantive addition is confirmed than the protective addition is liable to be deleted. Reliance in this regard is placed on the decision of:
i. Hon'ble Delhi ITAT "H" Bench in the case of VKS Properties P Ltd vs DCIT (ITA No: 8410/DEL/2019) ii. Hon'ble Delhi ITAT"A" Bench in the case of Anand Kumar Jain vs ACIT (ITA No: 1318/Del/2019) 86.2 In this regard, it is relevant to mention here that the undersigned has adjudicated the appeal in the case of Smt. Priya Devra and have confirmed substantive addition for the Page 25 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case) project R K Industrial Zone 14 in her case and have estimated profit @ 12% on the unaccounted cash receipt on merit vide appeal no CIT(A), Ahmedabad-11/10700/2019-20 dated 18.06.2024.
86.3 Since the undersigned has confirmed the substantive addition in cases of Smt. Priya Devra and have estimated profit @ 12% on the unaccounted cash receipt for the project R K Industrial Zone 14 on merit, therefore, the protective addition for the same addition in the hand of appellant does not survive.
86.4 In view of the above, the AO is directed to delete the protective addition made. Thus, the ground of appeal no 5 is allowed."
73. We note that Indian tax jurisprudence clearly holds that protective additions cannot survive once substantive additions on the same income are finally sustained in the hands of the correct assessee, because the same income cannot be taxed twice. Protective assessment/addition is only a temporary measure adopted by the Assessing Officer when there is doubt about the real person in whose hands income is taxable. Once such doubt is resolved and the income is finally assessed substantively in the hands of one person, the protective addition in the hands of the other person must be deleted. Allowing both ( substantive and protective) to stand, would amount to double taxation of the same income, which is impermissible. Protective assessment is permissible only to safeguard the interest of Revenue. Once it is found as to who is the real assessee, the income can be assessed only in his hands and not in the hands of any other person. In the case of Jaswant Singh v. CIT (1974) 94 ITR 246 (SC), Hon`ble Supreme Court held that the same income cannot be assessed in the hands of two different assessees. The Protective assessment loses its relevance once substantive assessment is made. Therefore, in all the cases, the learned CIT (A) identified the real owner in whose hands substantive additions were made, and hence learned CIT(A) deleted the various protective additions, which is correct in the eye of Law. We also note that ld.CIT(A) has also confirmed the substantive addition in the hands of the real person, hence, protective addition needs to be deleted.
74. In the wake of above delineation, we see no error in the conclusion drawn by the CIT(A) in this regard. The CIT(A), in our view, has rightly deleted the various protective additions. We, thus decline to interfere with the conclusion so drawn by the CIT(A) whose order is under challenge by the revenue. Hence, we dismiss the grounds raised by the revenue.
25. 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. 1 & 2 in ITA No. 756/RJT/2024 for AY 2017-18
(ii) Ground No. 1 & 2 in ITA No. 757/RJT/2024 for AY 2018-19,
(iii) Ground no. 2 in ITA No.758/RJT/2024 for AY 2019-20 Page 26 of 27 ITA No. 747 to 749 & 756 to 759/RJT/2024 Shri Harishkumar Jayantilal Lakhani vs. DCIT(Group Case)
26. In the combined result, appeals filed by the assessee, are partly allowed to the extent indicated above (appeal-wise), whereas all appeals filed by the Revenue, are dismissed.
Order is pronounced in the open court on 19/03/2026.
Sd/- Sd/-
(Dr. Dinesh Mohan Sinha) (Dr. Arjun Lal Saini)
ाियक सद / Judicial Member लेखा सद /Accountant Member
Rajkot
Date: 19/03/2026.
आदे श की ितिलिप अ ेिषत/ Copy of the order forwarded to :
अपीलाथ / The Appellant
थ / The Respondent
आयकर आयु / CIT
आयकर आयु (अपील)/ The CIT(A)
िवभागीय ितिनिध, आयकर अपीलीय आिधकरण, / DR, ITAT, RAJKOT
गाड फाईल/ Guard File
By order,
(True Copy)
Assistant Registrar/Sr.P.S/PS
ITAT, Rajkot
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