2025 (3) TMI 451 - AT - Income Tax

Addition on account of unaccounted income - notings of on-money receipt in cash in the documents seized from the premises of the assessee - HELD THAT - Only because of registration of the impugned property subsequently in the name of some other persons the receipt of cash by assessee from the original/initial buyer cannot be ignored. There is no evidence that the cash was returned by assessee to Dr. Laxmichand and Shri Trilokchand Kamdar. Therefore the request of the ld. AR to reduce the aforesaid amounts from the receipt of on-money in cash cannot be accepted. We do not find any infirmity in the finding of the CIT(A) in rejecting similar claim during the appellate proceedings before him. Regarding request of the ld. AR to reduce Rs. 10, 00, 000/- from the addition of Rs. 24, 42, 10, 934/- on account of receipt of on-money in cash the CIT(A) has given a categorical finding that the terms of payments were subsequently changed and Mrs Maya Garg has paid Rs. 10 lakhs more in cheque and reduced the cash component by same amount. As the total amount paid by Mrs Maya Garg has remained the same and only the cash component has been reduced due to increase of equivalent amount in cheque the finding of the CIT(A) cannot be faulted with. Accordingly the ground of revenue is dismissed. Whether the entire receipt in cash should be taxed as income of the assessee? - Conclusion of the AO that there is no evidence of unaccounted cash expenses is factually incorrect. Having found that there are evidences indicating expenses in cash it would be proper to estimate the net income embedded in the gross cash receipt. The CIT(A) has estimated the same at 50% of the gross cash receipt. This is over and above net profit of 55.43% shown by assessee in the return of income filed u/s 139. The assessee has offered additional income of Rs. 10, 79, 13, 346/- which comes to 44.37% of the gross cash receipts. The estimation of net profit is basically a factual issue and the rate of profit would vary from case to case depending upon the facts involved in each case. In the present case appellant has himself declared profit at 45.83% on gross receipt. However the CIT(A) has taken the gross receipt at Rs. 24, 32, 10, 934/- and estimated net profit @50%. In our considered view it would be just and reasonable if the profit is taken at 45% of the gross receipt. The ground is partly allowed. Addition on account of profit element of on-money receipt in cash instead of profit declared in the return of income filed u/s 148 - As 47% of the on-money received in cash would be the net income of the assessee for the subject year in addition to the income filed by the assessee u/s 143(3) of the Act. Following the reasons supra the AO is directed to add 45% of the on-money and delete the remaining amount. The ground is partly allowed. Validity of issue of notice u/s 148 without providing at least 7 days to reply the notice u/s 148A(b) and the order of CIT(A) confirming that case of the assessee falls under clause (c) of provision 148A - Present case is not a normal re-assessment proceedings but a case where search and seizure operation u/s 132 of the Act had been undertaken after 01.04.2021. Search cases are covered under proviso to section 148A of the Act which clearly provides that provisions of section 148A of the Act shall not apply. Hence the case of the appellant is covered under the instances provided in the proviso to section 148A of the Act whereas the case of Sudman Consultants LLP 2024 (3) TMI 1419 - GUJARAT HIGH COURT is covered under the main provisions of section 148A. Hence reliance of the ld. AR on these two decisions would not further the cause of the appellant. In view of the clear statutory provisions and facts discussed above we do not find any infirmity in the order of the CIT(A). Accordingly the ground raised by the appellant is dismissed. Addition based on noting - Though the period of payment received was as on 31.03.2021 there is a handwritten date of 10.02.2018 against the impugned amount. The assessee claimed that it was a receipt of FY.2020-21 and the same was added by AO in AY.2021-22. CIT(A) has deleted the addition because it would amount to separate addition of the same amount in another assessment year. We do not find any infirmity in the order of CIT(A) because double addition of the same amount is not permissible. This ground No.3 raised by revenue is accordingly dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the CIT(A) erred in restricting the addition of unaccounted income based on seized documents and the estimation of profit from on-money receipts.
• The validity of the reassessment proceedings initiated under sections 148 and 148A of the Income-tax Act, 1961, particularly concerning the procedural requirements under section 148A(b).
• Whether the entire on-money receipt should be taxed or only the profit element embedded within it.
• The treatment of specific transactions and the admissibility of evidence related to unaccounted cash receipts and expenses.
• Jurisdictional issues regarding the validity of reassessment proceedings and the procedural compliance by the Assessing Officer (AO).

ISSUE-WISE DETAILED ANALYSIS

1. Estimation of Profit from On-Money Receipts

• Relevant Legal Framework and Precedents: The court considered precedents such as CIT vs. President Industries and CIT vs. Gurbachhan Singh Juneja, which establish that only the profit element of unaccounted sales should be taxed, not the entire receipt.
• Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that only the profit embedded in the on-money receipts should be taxed. The CIT(A) had estimated this profit at 50% of the gross cash receipt, considering the evidence of unaccounted expenses.
• Key Evidence and Findings: Seized documents indicated cash receipts and expenses. The CIT(A) found that the assessee had shown a net profit of 55.43% in the return filed and offered additional income during assessment proceedings.
• Application of Law to Facts: The Tribunal found that estimating the profit at 45% of the gross receipt was just and reasonable, considering the evidence of expenses and the profit rates in similar cases.
• Treatment of Competing Arguments: The revenue argued for taxing the entire on-money receipt, while the assessee contended for only taxing the profit element. The Tribunal sided with the assessee, reducing the addition to 45% of the gross receipt.
• Conclusions: The Tribunal directed the AO to restrict the addition to 45% of the gross receipt, aligning with the principle that only the profit element should be taxed.

2. Validity of Reassessment Proceedings

• Relevant Legal Framework and Precedents: Sections 148 and 148A of the Income-tax Act, 1961, govern the reassessment proceedings. The Tribunal examined whether procedural requirements under section 148A(b) were met.
• Court's Interpretation and Reasoning: The Tribunal held that in cases of search and seizure, the provisions of section 148A do not apply, as per the proviso to section 148A.
• Key Evidence and Findings: The Tribunal noted the search and seizure operations conducted and the documents seized, which provided the AO with information suggesting escaped income.
• Application of Law to Facts: The Tribunal found that the AO had sufficient information to issue the notice under section 148 without following the procedures of section 148A due to the search and seizure context.
• Treatment of Competing Arguments: The assessee argued that the reassessment was invalid due to procedural non-compliance, while the revenue maintained that the search context justified the AO's actions. The Tribunal supported the revenue's position.
• Conclusions: The Tribunal upheld the validity of the reassessment proceedings, dismissing the assessee's jurisdictional challenges.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reiterated that only the profit element of unaccounted receipts should be taxed, not the entire receipt. It also clarified the applicability of section 148A in search and seizure cases.
• Final Determinations on Each Issue:
  • The addition based on on-money receipts was restricted to 45% of the gross receipt.
  • The reassessment proceedings were deemed valid, dismissing the procedural challenges raised by the assessee.
  • The Tribunal found no merit in the revenue's argument for taxing the entire on-money receipt.