Income Tax Appellate Tribunal - Rajkot
Aaryaland Enterprise,Rajkot vs Dcit, Cc-1,Rajkot, 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.583 to 586 & 905 /RJT/2024
िनधारण वष /Assessment Year: (2012-2013 to 2014-2015 & 2017-2018 & 2018-2019)
M/s. Aaryaland Enterprise बनाम The Deputy Commissioner of Income
305-Ashish Commercial Centre, Vs. Tax, CC -1
Sardar Nagar Main Road, Aayakar Bhawan, Amruta Estate
Rajkot - 360001 Building, MG Road, Rajkot - 360001,
Gujarat
थायीलेखास/ं .जीआइआरसं/.PAN NO. : AASFA2590B
(अपीलाथ /Appellant) .. ( यथ /Respondent)
आयकर अपील सं/.ITA No.582 /RJT/2024
िनधारण वष /Assessment Year: (2012-2013 )
The Deputy Commissioner of Income बनाम M/s. Aaryaland Enterprise
Tax, CC -1 Vs. 305-Ashish Commercial Centre,
Aayakar Bhawan, Amruta Estate Sardar Nagar Main Road,
Building, MG Road Rajkot - 360001, Gujrat
Rajkot - 360001, Gujarat
थायीलेखास/ं .जीआइआरसं/.PAN NO. : AASFA2590B
(अपीलाथ /Appellant) .. ( यथ /Respondent)
िनधा रतीक ओरसे/Assessee by : Shri Mehul Ranpura, Ld. AR
राज वक ओरसे/Revenue by : Shri Anandi Dixit, Ld. Sr. DR
सनु वाईक तारीख / Date of Hearing : 05/01/2026
घोषणाक तारीख/Date of Pronouncement : 16/03/2026
आदे श/ORDER
Per, Bench:
Captioned appeals filed by the Assessee and Revenue, pertaining to Assessment Years 2012-2013 to 2014-2015 & 2017-2018 & 2018-2019, are ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise directed against 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.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.
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. 584/RJT/2024 for AY 2013-14, This is Assessee's ground No. 2 in ITA No. 585/RJT/2024 for AY 2014-15, This is Assessee's ground No. 2 in ITA No. 905/RJT/2024 for AY 2017-18, This is Assessee's ground No. 2 in ITA No. 586/RJT/2024 for AY 2018-19
(ii). The ld. CIT(A)erred on facts as also in law in retaining addition of Rs. 1,31,53,770/- by estimating profit at 16% of so called on money receipt. 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 higher side and therefore the same may kindly be directed to be reduced and oblige.
Page 2 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise (This is Assessee's ground No. 3 & 4 in ITA No. 584/RJT/2024 for AY 2013-14, This is Assessee's ground No. 3 & 4 in ITA No. 585/RJT/2024 for AY 2014-15, This is Assessee's ground No. 3 & 4 in ITA No. 905/RJT/2024 for AY 2017-18, This is Assessee's ground No. 3 & 4 in ITA No.586/RJT/2024 for AY 2018-19)
4. First, we shall take assessee's appeal in ITA No. 583/RJT/ 2024, for assessment 2012-13 and revenue's appeal in ITA No. 582/RJT/ 2024 for assessment 2012-
13. These cross appeals are beyond the period of 10 years, hence reassessment proceedings cannot be initiated against the assessee. We have heard both the parties and noted that the issue is squarely covered in favour of the assessee by the judgement of this Co-ordinate Bench in ITA No. 809 to 819/RJT/2024 for AY 2012-13 to 2022-23, in the case of Sarvanand Sadhuram Sonwani v. DCIT, wherein it was held as follows:
"38. Summarized and Concise ground No.1 is reproduced below for ready reference:
"(i) The ld. Commissioner of Income-tax(Appeals)-11, Ahmedabad erred on facts as also in law in dismissing ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, the proceedings-initiated u/s 147 of the Act is invalid and assessment finalized on such invalid initiation deserves to be quashed and may kindly be quashed."
( This ground is raised by the assessee in ITA No. 809/RJT/2024 for AY 2012-13 and Revenue's cross appeal is in ITA No.791/RJT/2024 for AY 2012-13)
39. Learned Counsel for the assessee, at the outset submitted that in the assessee's case, (R.K. Group case), search and seizure proceedings were conducted on 24.08.2021, which falls in the previous year 2021-22 ( 01.04.2021 to 31.03.2022) and relevant assessment year is 2022-23 ( 01.04.2022 to 31.03.2023). Therefore, assessment year 2022-23 became first assessment year and assessment year 2013-14 became 10th assessment year, therefore, notice under section 148 of the Act, issued by assessing officer for reopening assessment for assessment year 2012-13 is barred by limitation, as per section 149 of the Act. Therefore, reassessment proceedings initiated under section 147/148 of the Act, by the assessing officer against the assessee for assessment year 2012-13 should be quashed.
40. On the other hand, learned DR for the revenue fairly agreed that assessment 2012-13, falls beyond the period of 10 year, hence reassessment proceedings cannot be initiated. However, on merit, learned DR relied on the findings of the assessing officer.
41. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We find merit Page 3 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise in the submissions of learned Counsel for the assessee, to the effect that where search was conducted in Financial Year 2021-22, assessment year 2022-23 became first assessment year and assessment year 2013-14 became tenth assessment year, therefore, notice under section 148 issued for reopening assessment for assessment year 2012-13, is barred by limitation as per section 149 of the Act, which is produced below:
"149. Time limit for notice (1) No notice under section 148 shall be issued for the relevant assessment year,-
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of-
(i)an asset;
(ii)expenditure in respect of a transaction or in relation to an event or occasion or
(iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:
Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021.
Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March 2021"
42. Considering the above factual position and position in law, the assessment cannot be reopened beyond the period of 10 years, for this reliance is placed on the judgement of jurisdictional High Court of Gujarat in the case of Jayantibhai Karamshibhai Maniya, [2026] 182 taxmann.com 493 (Gujarat), wherein it was held that where search was conducted in FY 2024-25, assessment year 2025-26 became first assessment year and assessment year 2016-17, became tenth assessment year, so notice under section 148 issued for reopening assessment for Page 4 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise year 2015-16 was barred by limitation as per section 149 read with sections 153A and 153C of the Act. The detailed findings of the Hon'ble Court is reproduced below:
"ANALYSIS AND OPINION:
7. We have heard the learned advocates at length. We have also perused the case laws cited above and have considered the provisions threadbare.
8. The facts which are established from the pleadings are that a search action under Section 153A of the Act against the searched person was undertaken on 09.05.2024, which indubitably falls in the Financial Year 2024-25. The revenue found some incriminating material against the present petitioner and accordingly issued the impugned notices for reopening the assessment for the year 2015-16. The notice has been issued under Section 148 of the Act. With reference to the date of search, it is necessary to refer to the provisions of Section 152(3) of the Act, which read as under:
"Section 152(3) "Where a search has been initiated under section 132 or requisition is made under section 132A or a survey is conducted under section 133A [other than under sub-section (2A)] on or after the 1st day of April, 2021 but before the 1st day of September, 2024, the provisions of section 147 to 151 shall apply as they stood immediately before the commencement of the Finance (No. 2) Act, 2024."
Thus, since the date of search falls within the period from the 1st day of April, 2021 to the 1st day of September, 2024, the provisions of Sections 147 to 151, as they stood prior to the Finance Act (No. 2), 2024, shall apply.
9. Section 149 (Old regime) of the Act reads thus:
"Time limit for notice.
149. (1) No notice under section 148 shall be issued for the relevant assessment year,
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of-
(i) an asset,
(ii) expenditure in respect of a transaction or in relation to an event or occasion, or
(iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:] Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of Page 5 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021:
Provided further that the provisions of this sub-section shall not apply in a case, where a notice under Section 153-A, or Section 153-C read with Section 153-A, is required to be issued in relation to a search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132-A, on or before the 31st day of March, 2021."
9.1 Section 149(1)(b) of the Act refers to the limitation period of ten years, which has elapsed from the end of the "relevant assessment year". The relevant assessment year in the present case is 2015-16, which is prior to the cut-off date of 1st April, 2021, as specified in the first proviso. The link between Section 149 and Sections 153A and 153C of the Act is found in the first proviso to Section 149(1) of the Act. The expression "relevant assessment year" is explained under Explanation 1 to the fourth proviso to Section 153A(1). The first proviso to Section 149(1) of the Act bars the issuance of notice under Section 148 of the Act for the relevant assessment year beginning on or before 01st April, 2021, if a notice under Section 148 or Section 153A or Section 153C of the Act could not have been issued at that time on account of it being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of Section 149 of the Act or Section 153A or Section 153C of the Act. In the present case, the notice under Section 148 of the Act emanates from the search proceedings undertaken under Sections 132/132A of the Act, and hence the provisions of Sections 153A and 153C of the Act would get attracted, and the reassessment of the petitioner has to be examined by keeping in mind the limitation provided under Section 153C of the Act, which is pari materia to Section 153A of the Act.
At this stage, we may refer to the provisions of Section 153A(1)(b) and Explanation (1) to Section 153A of the Act, on which the learned advocates have premised their submissions. Section 153A(1)(b) and Explanation (1) to Section 153A of the Act read as under:
"SECTION 153A Assessment in case of search or requisition.
153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall-
(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years:
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years):Page 6 of 32
ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate, Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso, specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years Provided also that no notice for assessment reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless-
(a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years,
(b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years, and
(c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017 Explanation 1 For the purposes of this sub-section, the expression "relevant assessment year shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made."
9.2 The provisions of Sections 153A/153C of the Act find place in the proviso to Section 149 of the Act and, hence, the limitation as provided in Sections 153A/153C of the Act gets triggered upon the initiation of assessment proceedings emanating from a search under Sections 132/132A of the Act. We may, at this stage, mention that the Delhi High Court as well as the Madras High Court has already considered the implications of Explanation (1) to Section 153A of the Act to the limitation and the expression "relevant assessment year" used therein in Explanation (1) to Section 153A of the Act. The Delhi High Court, in the case of Ojjus Medicare (P.) Ltd. (supra), after considering an array of judgments of other High Courts as well as of the Supreme Court and upon a threadbare consideration and analysis of the statutory provisions of Sections 153A, 148 and 149 of the Act, has held thus:
"88 Section 153A replicates the basis on which the six AYs' are to be identified and computed with the solitary distinction being that in the case of the searched person, the six AYs' are liable to be computed from the AY pertaining to the FY in which the search Page 7 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise was conducted. The starting point for the purpose of identifying the six AYs' in the case of section 153A would thus turn upon the year of search as opposed to the handover of material which is spoken of in the First Proviso to section 153C. If one were to therefore assume that a search took place on a person between 01 April 2021 to 31 March 2022, the pertinent AY would become AY 2022-23 and the corresponding six AYs' would by as follows:
Computation of the six-year block period as provided under section No of years 153C of the Act AY 2021-22 1 AY 2020-21 2 AY 2019-20 3 AY 2018-19 4 AY 2017-18 5 AY 2016-17 6
89. That takes us then to the issue of identifying the "relevant assessment year" for the purposes of computing the ten-year block. Explanation 1 to section 153A specifies the manner in which the entire ten AY period is to be computed. While the computation of six AYs follows the position as enunciated and identified above, Explanation I prescribes that the ten AYs' would have to be computed from the end of the AY relevant to the FY in which the search was conducted or requisition made. The ten AY period consequently is to be reckoned from the end of the AY pertaining to the previous year in which the search was conducted as distinct from the preceding year which is spoken of in the case of the six relevant AYs.
90. Viewed in that light, and while keeping the period of 01 April 2021 to 31 March 2022 as the constant, the relevant AY would be AY 2022-23. The ten AYs would have to be computed from 31 March 2023 with the said date indubitably constituting the end of the AY relevant to the previous year of search. Viewed in light of the above, the block period of 10 AYs would be as follows.-
Computation of the six-year block period as provided under section No of years 153C read with Section 153A AY 2022-23 1 AY 2021-22 2 AY 2020-21 3 AY 2019-20 4 AY 2018-19 5 AY 2017-18 6 AY 2016-17 7 AY 2015-16 8 AY 2014-15 9 AY 2013-14 10
91. Tested on the aforesaid precepts, it would be manifest that AY 2022-23 would form the first year of the block of ten AYs' terminating in AY 2013-14. We, in this regard also bear in consideration the following instructive passages as appearing in the decision handed down by a learned Judge of the Madras High Court in A.R.Safiullah. We deem it appropriate to extract the following paragraphs from that decision: -
Page 8 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise "9 Explanation-I is clear as to the manner of computation of the ten assessment years.
It clearly and firmly fixes the starting point. It is the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. There cannot be any doubt that since search was made in this case on 10.04.2018, the assessment year is 2019-20. The end of the assessment year 2019-20 is 31.03.2020. The computation of ten years has to run backwards from the said date i.e. 31.03.2020. The first year will of course be the search assessment year itself. In that event, the ten assessment years will be as follows:
1st Year 2019-20
nd
2 Year 2018-19
3rd Year 2017-18
4th Year 2016-17
5th Year 2015-16
6th Year 2014-15
7th Year 2013-14
8th Year 2012-13
th
9 Year 2011-12
10th Year 2010-11
The case on hand pertains to AY 2009-10. It is obviously beyond the ten year outer ceiling limit prescribed by the statute. The terminal point is the tenth year calculated from the end of the assessment year relevant to the previous year in which search is conducted. The long arm of the law can go up to this terminal point and not one day beyond. When the statute is clear and admits of no ambiguity, it has to be strictly construed and there is no scope for looking to the explanatory notes appended to statute or circular issued by the department.
10. In the case on hand, the statute has prescribed one mode of computing the six years and another mode for computing the ten years. Section 153A(1)(b) states that the assessing officer shall assess or reassess the total income of six years immediately preceding the assessment year relevant to the previous year in which search is conducted. Applying this yardstick, the six years would go up to 2013-14. The search assessment year, namely, 2019-20 has to be excluded. This is because, the statute talks of the six years preceding the search assessment year. But, while computing the ten assessment years, the starting point has to be the end of the search assessment year. In other words, search assessment year has to be including in the latter case. It is not for me to fathom the wisdom of the parliament. I cannot assume that the amendment introduced by the Finance Act, 2017 intended to bring in four more years over and above the six years already provided within the scope of the provision. When the law has prescribed a particular length, it is not for the court to stretch it. Plasticity is the new mantra in neuroscience, thanks to the teachings of Norman Doidge. It implies that contrary to settled wisdom, even brain structure can be changed. But not so when it comes to a provision in a taxing statute that is free of ambiguity, Such a provision cannot be elastically construed.
Page 9 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise
11. One other contention urged by the standing counsel has to be dealt with. It is pointed out that the petitioner has invoked the writ jurisdiction at the notice stage. Since the petitioner has demonstrated that the subject assessment year lies beyond the ambit of the provision, the respondent has no jurisdiction to issue the impugned notice. Once lack of jurisdiction has been established, the maintainability of the writ petition cannot be in doubt."
In our considered opinion, the decision in A.R Safiullah correctly expounds the legal position and the interpretation liable to be accorded to the identification of the ten AYs which are spoken of in sections 153A and 153C."
9.3 Thus, it is precisely held hereinabove that the statute prescribes different modes of computation for six years and ten years. We reiterate that the provisions of Section 153A(1) (b) of the Act stipulate that the Assessing Officer shall assess or reassess the total income of six years immediately preceding the assessment year relevant to the previous year in which the search is conducted. However, the ten assessment year period, consequently, is to be reckoned from the end of the assessment year pertaining to the previous year in which the search was conducted, as distinct from the preceding year which is spoken of in the case of the six relevant assessment years. Thus, the contention with regard to the computation of six years as well as ten years under the provisions of Section 153A of the Act has already been gone into by the Delhi High Court as well as the Madras High Court, and we have no convincing reason to take a divergent view from the view expressed hereinabove. Applying the aforesaid computation to the facts of the present case, taking the date of the search as 09.05.2024 during the Financial Year 2024-25, the Assessment Year 2025-26 will become the first assessment year and, in the same manner, the Assessment Year 2016-17 will become the tenth assessment year. Thus, the year under consideration, namely, Assessment Year 201516, for which the impugned notice has been issued under Section 148 of the Act, would fall beyond the period of ten years prescribed under the statute as it stood immediately before the commencement of the Finance Act, 2021, and hence, on this count, the impugned notice can be said to be barred by limitation. 9.4 However, since an additional submission has been advanced by learned Senior Standing Counsel Mr. Yajnik to the extent that the expression used in the proviso to Section 149(1) of the Act, to the extent that "if a notice under Section 148 or Section 153A or Section 153C could not have been issued at that time on account of being beyond the time limit specified", would mean that the Assessing Officer is competent to issue notice under Section 148 of the Act, since he would only gain knowledge of incriminating material against the third person after the search, and the limitation prescribed under the provisions of Sections 153A or 153C of the Act cannot restrict his power, and such limitation will start running from the day of search. We fail to grasp the said submission and the impact of such submission on the limitation prescribed in the first proviso, which relates to Sections 153A or 153C of the Act. Hence, it is not dealt.
10. For the foregoing reasons, the impugned notice dated 31.03.2025 issued under Section 148 of the Income-tax Act, 1961 by the respondent - Department seeking to reopen the income-tax assessment of the petitioner for the respective assessment year is hereby quashed and set aside. The petitions are allowed accordingly. RULE is made absolute accordingly, with no order as to costs."
Page 10 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise
43. From the above judgement of the jurisdictional High Court of Gujarat, in the case of Jayantibhai Karamshibhai Maniya(supra). It is vivid that when the law has prescribed a particular length, it is not for the court to stretch it. The terminal point is the tenth year calculated from the end of the assessment year relevant to the previous year in which search is conducted. The long arm of the law can go up to this terminal point and not one day beyond. When the statute is clear and admits of no ambiguity, it has to be strictly construed and there is no scope for looking to the explanatory notes appended to statute or circular issued by the Department. Considering these facts and circumstances of the case, we quash the reassessment order framed by the assessing officer under section 147 read with section 143 of the Income tax Act 1961, dated 21.04.2023, for assessment year 2012-13. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
44. In the result, appeal filed by the assessee in ITA No. 809/RJT/2024 for AY 2012- 13, is allowed, whereas Revenue's cross appeal in ITA No.791/RJT/2024 for AY 2012- 13, is dismissed."
5. In the result, appeal filed by the assessee in ITA No.583/RJT/2024, for assessment year 2012-13 is allowed, whereas, appeal filed by the revenue, in ITA No.582/RJT/2024 for assessment year 2012-13, is dismissed.
6.The relevant material facts, as culled out from the material on record, are as follows. The assessee is a firm engaged in the business of construction of commercial/residential buildings. Income tax return for the year under consideration i.e. AY 2013-14 filed on 24.09.2013 declaring therein total income of Rs.37,15,378/-. A Search, Seizure and Survey action was carried out by the office of DDIT (Inv.), Unit-1, Rajkot in the case of leading real estate builders of Rajkot and their key associates on 24.08.2021. Four different groups were covered in the operation including RK Group. All the four groups are in the business of real estate and are mainly concentrated in and around Rajkot A total of forty-three (43) premises were covered out of which 32 premises were covered under section 132 of the Income Tax Act 1961 and the other 11 premises were covered u/s 133A of the Income Tax Art 1961. The premises covered were a mix of residential and business premises of their related entities, their family members, key associates and employees. RK Group is developing multiple Page 11 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise projects in the nature of Commercial Residential and Industrial plotting projects, The Group is headed by Shri Sarvanand Sadhuram Sonwani and he is supported by his family members in the management of the business. The Sonwani family is a joint unit for the purpose of business. Important family members, offices, key associates and employees were also covered in the search and survey operation to get hold of important incriminating evidences. The premise of Shri Girish Vanjani was also covered during the search action. Shri Girish Vanjani was maintaining the accounts of the R K Group (including parallel unaccounted cash transactions) at the instruction of Shri Sarvanand Sonwani. 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 accounting work of R K Group as per his instructions.
7. 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 GirishVanjani, Pen Drives and Hard Discs were recovered. Forensic Mirror Imaging (Digital Data Backup) of these devices was taken and the same were Seized. The backup contained key accounting files of the entire group in a very systematic manner. The accounts of 1) Sale of units 2) Cost of lands3) Expenses incurred on transactions made by R K Group members with various counter parties were various projects and other miscellaneous 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 GirishVanjani. 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 Page 12 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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 ...) Apart from the above, various documents in the form of loose-papers, excel sheets etc. have also been recovered and seized during the search operation from the premises of the group members highlighting various kind of financial transactions accounted as well as unaccounted. All the data collected and seized during the search and survey operation has been perused and co-related with the actual transactions made by the group persons and entities. The financial transactions pertaining to sale and purchase of various kinds of properties as seized in the form of Digital Data and in the form of Hard Data were also compared and corroborated with the documentary evidences and responses received from the Sub-registrar office and with the data available in public domains on various entities 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 Page 13 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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.
8. The assessee, M/s Aaryaland Enterprise is a partnership firm where the R K Group members (Sonwani Family) are among the partners. Complete partnership structure of the firm is as under-
Name of the Partner Share
Sarvanand S. Sonwani 25%
Ramdas J Sonwani 25%
Chandrakant R Dedania 10%
Hasmukh L Vadaliya 12.5%
Ishwarlal M Gehi (HUF) 12.5%
Jairajsinh P Jadeja 4%
Jyotirajsinh P Jadeja 4.5%
Mohanlal N Manwar (HUF) 2.5%
Ushaben P Jadeja 4%
It can be seen that the RK Group family i.e. Sonwani Family has substantial stake in the firm, it is the reasons that the transactions relating to the project developed by the assessee firm are found recorded on seized miracle files. The assessee firm has develop a residential project named "Aaryaland". Details of following unaccounted transactions pertaining to these projects have been recovered from the material seized during the search operation -
Page 14 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise i. Unaccounted receipts of Rs 19,61,82,890/-against sale of units of the project as culled out from the seized Miracle data.
Selection for scrutiny
9. 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 reopened u/s 147 of the Act after following the due procedure laid down in Income Tax Act and after obtaining necessary approval from competent authority specified u/s 151 of the Act. Notice under section 148 of the Act has been issued on 23.02.2023. In response to the notice issued under section 148, the assessee has filed its Income tax return on 28.02.2023 declaring therein net income of Rs.37,15,378/- (Same as original Return). Subsequently, notice u/s 143(2) of the Income-tax Act has been issued and served on 11.03.2023 on the e-filing portal of the Assessee. Subsequent 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 satisfactions drawn for the re-opening of the assessment along with 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/show cause notice from time to time. During the assessment proceedings the assessee firm has raised certain objections against the reopening of the assessment, which has been disposed off in writing and communicated to the assessee vide show notice.
Issues Involved
10. The seized material pertaining to the assessee-firm contained details of unaccounted receipts on sale of the units / flats for the residential project developed by the assessee. The same are discussed hereunder.
Page 15 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise
11. Unaccounted Receipts On Sale Of Units At Project "Aryaland" The project "Aaryaland" is a residential project having many flats and tenements. This project has been developed by the assessee firm. The assessee is a partnership firm where sonwani family members (RK Group) are partners. Details in the form of financial transactions recorded in Miracle accounting software have been seized during the search proceedings from possession of the accountant of R K Group (Sonwani Family). These miracle files contains accounted as well as unaccounted data relating to various Real Estate Projects undertaken by the R K Group members and the business concerns run by them/ or where members of the sonwani family are partners. The name of every project has been recorded/ written in coded form in the Miracle files. The project "Aaryaland" is mentioned/coded as "AL" and "ALF" in the Miracle file. Whenever any unit/plot of the project was booked of sale, the relevant entry is made in miracle software with the amount agreed upon for sale of that unit. There is a catena of ledgers which reflects the project name in coded form. From the above, it can be seen that separate ledgers for each and every unit that has been booked are also recorded very systematically in the seized Miracle file. For better understanding of the ledgers related to project "Aaryaland" and to establish that the ledgers started with "AL" and "ALF" are related to project 'Aaryaland' and that the transactions recorded in these seized ledgers are correct and genuine data, one such ledger from miracle.
12. As per the above ledger, flat no. B-302 of the project "Aaryaland" has been booked /sold for Rs.38,00,000/- (in coded form it is written as 38000.00). Out of this amount of Rs 3,00,000/- has been received through bank on 13.09.2013 and the remaining amount has been received in cash. Further, perusal of the balance sheet of the assessee firm for FY 2014-15, it is seen that the amount of Rs.3,00,000/- received for flat no. B-302 has been shown as advance from Page 16 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise customers. This corroboration of the banking entries appearing on miracle ledger with transactions recorded on regular books proves the correctness and genuineness of the transactions recorded on these ledger. Further, it is that as per the ledger the above flat has been booked for Rs.38,00,000/- out of which Rs 3,00,000/- has been received through bank and remaining amount of Rs. 35,00,000/-has been received in cash on different dates, however, on perusal of the regulars books revealed that the amount which was received through bank is only recognized as sale /advance from customers and the amount received in cash has not been recorded therein, which proves that the cash transactions appearing on these ledger are nothing but the unaccounted on-money received on sale of the units of the project. For better clarity one more ledger named for unit A-303 (ledger name "SS ALF A 303 (Ok)"). It can be seen that for the sale of unit A-303 total amount of Rs.42,50,000/-(in coded form it is written as 42500.00) has been received. Out of this amount of Rs. 12,50,000/-(Rs.25,000/- on 28.02.2014 and Rs. 12,25,000/- on 18.04.2012) has been received through bank and the remaining amount has been received in cash. Further, perusal of the books of account of the assessee it is seen from the sale register that sale value for above unit i.e. A-303 has been taken at Rs.12,50,000/-only. The amount appearing on the sale register is match exactly with banking entries those recorded on seized miracle files. Further, in narration of the transation in seized ledger name "Dr. Mukhi" is mentioned which matches with name of the actual borrower i.e. Aman N. Mukhi as per sale register. This corroboration of the banking transactions appearing on the seized miracle ledgers with actual transactions and with those recorded on regular books of accounts of the assessee prove the genuineness and correctness of these seized miracle files. Simultaneously, establish that the cash transactions appearing on the same seized miracle ledgers are nothing but the cash on-money received on the sale of respective units, however, the same has not been recorded on regular books of assessee.
Page 17 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise
13. It can be seen that the above unit no C-202 has been sold by the assessee for Rs 38,11,000/- Out of total consideration amount of Rs 16,00,000/- (Rs. 50000/- on 22.05.2014 and Rs 1550000/- on 11.06.2014) has been received through banking channel and remaining amount has been received in cash. The banking entries appearing on the seized ledger are duly reflected on bank book of the assessee. The amount so received through bank during FY 2014-15 has been recognized by the assessee as advance from customers and the same is reflected in the balance sheet as on 31.03.2015 and 31.03.2016. During the FY 2016-17 sale deed for the above unit has been executed in the favour of Vishal S. Popat at Rs. 16,00,000/-i.e. equal to the amount received through bank. This corroboration of the banking entries appearing on the seized miracle ledger with actual event and with those recorded on respective conveyance deed and regular books of the assessee prove beyond doubts the transactions appearing on seized miracle ledger are genuine and absolutely correct data. Simultaneously that the cash transactions appearing on same ledger are nothing but the cash on-money receipts of the assessee and these cash receipts have not been recorded on regular books of the assessee. From the above analysis / discussion following are established:
First and foremost, it is established beyond doubt that the data recorded on miracle files are correct and genuine data.
The ledgers starting with "AL" and "ALF" in the miracle files are related to the Project "Aaryaland" which is developed by the assessee.
The banking transactions appearing on the seized miracle ledgers are the amount that are recorded on respective conveyance deed and recorded on regular books of the account, however, the amount received in cash has not been recorded in regular books of the assessee firm and hence, remained untaxed.
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 Rs. 10000 is written as Rs. 100.00.Page 18 of 32
ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise Similar type transactions have been recorded for other units/flats also. The summary of year wise (FY wise) cash unaccounted receipts for the units owned and developed by the assessee in project .
Conclusion
14. After considering all the objections of the assessee in its reply to the show cause notice and taking into consideration the facts and material available on records. following conclusion has been drawn Rejection of books
15. 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. 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 ie type of business, modus operandi of the Page 19 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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. Recently, in the case of PCIT v. Ms. Jay KesarBhavani Developers Pvt. Ltd. in Tax Appeal no. 267 of 2022, the Hon'bleGuj. 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, Page 20 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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)].
16. 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 Profit:
17. Project "Aaryaland" is a Residential project. Details of 9 residential projects undertaken by the searched group members and their partners have been recovered from the seized Miracle File. Some projects were in completion stage whereas some were just started. 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 ie only on-
Page 21 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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 14% to 45%. 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 two projects have been identified as reference -
Sr. No. Name of the project Name of the Developer/Owner 1. R K Exotica Shri Bharat J Sonwani 2. R K Dreamland M/s R K Dreamland
Net receipts of both the 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 41% in the hands of respective developer/owner Sr. No. Name of the project Name of the Developer/Owner % of net surplus
1. R K Exotica Shri Bharat J Sonwani 37%
2. R K Dreamland M/s R K Dreamland 45% Average = (37+45)/2=41 i.e. 41% Page 22 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise
18. Apart from this, it is also necessary 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 41% to 45%. Accordingly, 45% 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. In respect of the project under consideration i.e. Aaryaland the material gathered during search operation indicated unaccounted on-money receipts only. Under these circumstances, it would not be fair if the same benchmark rates adopted for other projects where receipts and payment both kinds of transactions are available are also applied to the project where only on-money receipts are available. At the same time, considering that the assessee is also in the same line of business with the same group of persons, the possibility of having incurred unaccounted expenses cannot be ruled out completely (No data is recovered during search does not necessarily mean no unaccounted expenses incurred). Further, various judgments discussed earlier also endorse the same preposition that only profit embedded in the gross unaccounted receipts should be taxed and not the entire unaccounted receipts. Apart from this, it is also necessary 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 presidents as discussed earlier if all the expenses/payments are disallowed than the ratio laid down by the Hon'ble High Court regarding not taxing all the receipts would remain in papers only. Thus, with a view to strike a proper balance between the factual vis-à-vis the legal Page 23 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise aspects it is decided to further enhance the average net profit rate to 50%. Accordingly, the net unaccounted profit for this particular project is estimated at the rate of 50% and the profit for the year under consideration is computed as under-
Sr. No. Particulars Amount (Rs.) A Unaccounted on money receipts net of repayment 3,31,73,390 B Unaccounted profit estimated (50% of A) 1,65,86,695
19. Thus, addition of Rs. 1,65,86,695/- being unaccounted profit embedded in the gross unaccounted receipts is made over and above the regular business income reported by the assessee in the Income-tax Return filed for the year under consideration. Consequently, total business income for the year under consideration is enhanced by Rs. 1,65,86,695/- 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.
20. 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. In various judgements of jurisdictional ITAT Ahmedabad, (cited by assessee in Page 24 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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.
21. Now, we shall adjudicate, summarised and concise grounds of appeal, one by one, as follows:
22. 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. 584/RJT/2024 for AY 2013-14, This is Assessee's ground No. 2 in ITA No. 585/RJT/2024 for AY 2014-15, This is Assessee's ground No. 2 in ITA No. 905/RJT/2024 for AY 2017-18, This is Assessee's ground No. 2 in ITA No. 586/RJT/2024 for AY 2018-19)
23. 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 25 of 32ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise "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)."
21.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. 584/RJT/2024 for AY 2013-14
(ii) Ground No. 2 in ITA No. 585/RJT/2024 for AY 2014-15
(iii) Ground No. 2 in ITA No. 905/RJT/2024 for AY 2017-18
(iv) Ground No. 2 in ITA No. 586/RJT/2024 for AY 2018-19
22. Summarized and Concise ground No.(ii) is reproduced below for ready reference:
ii. The ld. CIT(A)erred on facts as also in law in retaining addition of Rs. 1,31,53,770/- by estimating profit at 16% of so called on money receipt. 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 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. 584/RJT/2024 for AY 2013-14, This is Assessee's ground No. 3 & 4 in ITA No. 585/RJT/2024 for AY 2014-15, This is Assessee's ground No. 3 & 4 in ITA No. 905/RJT/2024 for AY 2017-18, This is Assessee's ground No. 3 & 4 in ITA No.586/RJT/2024 for AY 2018-19)
23. 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 Page 26 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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.
24. 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 by applying the uniform rate Page 27 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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.
25. 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' 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%, Page 28 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise 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 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 Page 29 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax more so when the assessee has disclosed in PMGKY the said undisclosed income of Rs.45,00,000/-
and paid tax in accordance with scheme and received certificate there for from Pr. Commissioner of Income Tax, hence the same disclosed income cannot be included as income is assessment as per Section 199-l of PMKGY. However Ld. A.O. has allowed credit of amount of disclosed income in PMKGY from total income as so the addition on this account is restricted to Rs.45,00,000/- and balance is deleted. The assessee thus gets relief of Rs.3,02,00,000-45,00,000 = Rs. 2,57,00,000/-."
(v) Greenfield Reality P. Ltd IT(SS) A No. 320,321 and 322/Ahd/2018 & 329/Ahd/2018:
"16. We have duly considered rival submissions and gone through the record carefully. On an analysis of the record, it would reveal that during the course of search not only details of on-money received by the assessee on booking of flats and shops in "Vesu Project" was found, but details of certain expenditure, which are not recorded in the books were also found. This included cash payment for purchase of land. Therefore, the Ld.CIT(A) has rightly observed that the gross on-money noticed on the seized paper cannot be considered as income of the assessee. There are certain expenditures which were not recorded in the books. Those expenditure must have been made from this on- money. Therefore, after going through the well-reasoned order of the Ld.CIT(A), IT(SS)A No.289 Ahd/2018 (7 Others) Greenfield Reality P. Ld. Vs. DCIT and in the light of judgment of Hon'ble jurisdictional High Court in the case of Panna Corporation (supra) as well as Koshor Mohanlal Telwala (supra), we are of the view that only element of income embedded in the on-money received by the assessee for booking of flats/shops in "Vesu Project" is required to be assessed in its hand in all these years.
17. Next question arose, what is the element of income involved in this on-money. On one hand, the assessee is showing income at 8%, on the other hand, the ld. CIT(A) is estimating it at 20%. It is pertinent to observe that section 144 of the Income Tax Act provides discretion in the assessing officer to pass best judgment when an assessee failed to appear before him, and to submit requisite details. In other words, it provides power in the assessing officer to estimate an income of the assessee. We deem it appropriate to take note the relevant part of this section. It reads as under:.. "24. We have considered rival submissions and gone through the record carefully. There is no dispute that during the course of search certain material/loose papers were found exhibiting the fact that the assessee has received cash, over and above, the amounts stated in the booking register. This cash was not accounted for in the books. It has been treated as on-money for sale of flats/shops. Simultaneously certain loose papers were found disclosing the fact that the expenditure were incurred in cash and accounted in the books. The Ld.CIT(A) made an analysis of this, and then held that the moment assessee's income is being assessed at 8% of the gross on-money, then the remaining amount 92% could take care of unexplained expenditure. It can be explained by a simple, viz. an assessee has received Rs.100/- in cash for sale of flat. Out of that, element of income embedded in this Rs. 100/-has been determined by us at Rs.8/-. Remaining Rs.92/- must have been incurred by the assessee for developing that flat. 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 Page 30 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise DR for the revenue submitted that addition made by the assessing officer may be confirmed. We note that the estimation of income is based on facts and will vary from business to business and year to year, depending on the business conditions. We note that ld.CIT(A) has estimated the profit on the "on-money" at the rate of 16% but the ld.CIT(A) has failed to bring on record any comparable case in support of his estimation that too @ 16% and in some cases 8% and 12% etc. No doubt estimate of the profit can be resorted to in these types of cases but the estimate and that too at a particular percentage or fraction of percentage which ld CIT(A) has adopted has to be based on sound reasoning in comparison with the past results as well as comparable cases. Without this the estimation so made cannot be said to be valid estimation. The jurisdictional Hon'ble High Court of Gujarat, in case of estimation of profit element on, "on- money" has taken the view that estimation of profit in these type of cases of "on-money" had been held between range of 6% to 8%.
16. We note that the average profit of the assessee as per audited books of accounts is 7%, therefore, profit estimation done by the learned CIT(A) at the rate of 16% on the "on-money"
is higher side. Considering the nature of business and voluminous 'on-money' and taking into account, the fact that there is expenditure made by the assessee to develop the project out of the "on-money", therefore, profit margin in this type of business normally is 10% on "on-money".
We proceed to work out the estimation of profit keeping in mind the following facts:
(i)The estimate is not opened up to be framed in an arbitrary manner.
(ii) The estimate by rule of thumb is absolutely infirm.
(iii)The estimation of rate of profit return must necessarily vary with the nature of the business.
(iv)There cannot be any uniform yardstick.
(v)An assessment to be best of judgement can only be based on the material available on record and past records and considering the totality of the facts.
(vi) Only real income and neither notional income nor astronomical income, can be taxed under the I.T. Act, 1961.
Accordingly, we note that estimation the profit element on 'on-money' at the rate of 10%, should be fair, keeping in mind the principle laid down by Hon'ble Supreme Court in the case of H. M. Esufali Abdulali that the method to be adopted must be which is approximately nearer to the truth.
17. Considering the facts and circumstances, narrated above, we find that the estimation done by the assessing officer, and re-estimated addition, sustained by the Ld. CIT(A) @ 16% is very higher side. Therefore, we are of the view that the estimated addition on "on-money"
should be @ 10%, which will take care of inconsistency in the undisclosed income of the assessee. Therefore, the assessing officer, is directed to make the addition in the hands of assessee, at the rate of 10%, on "on-money". Hence, we allow above appeals of these assessee partly and dismiss all the appeals of the revenue."
26. 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:
(ii) Ground No. 3 & 4 in ITA No. 584/RJT/2024 for AY 2013-14 Page 31 of 32 ITA No. 582 to 586 & 905 Ms. Aaryaland Enterprise
(iii) Ground no. 3 & 4 in ITA No. 585/RJT/2024 for AY 2014-15
(iv) Ground no. 3 & 4 in ITA No. 905/RJT/2024 for AY 2017-18
(v) Ground No. 3 & 4 in ITA No.586/RJT/2024 for AY 2018-19
24. In the combined result, appeal filed by the assessee in (ITA No. 583/Rjt/2024 for AY 2012-13), is allowed, appeals filed by the assessee in (ITA No. 584 to 586 & 905/Rjt/2024 for AY 2013-14, 2014-15 & 2017-18 & 2018-19), are partly allowed to the extent indicated above, whereas appeal filed by the Revenue in (ITA 582/Rjt/2024 for AY 2012-13), is 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
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
गाड फाईल/ Guard File
By order/आदे श से,
//True Copy//
सहायक पंजीकार
आयकर अपील य अ धकरण ,राजकोट
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