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2025 (3) TMI 620 - AT - Income TaxAddition in respect of on-money receipt - estimation of profit margin - separate addition in respect of unaccounted receipts as well as unaccounted expenses - as submitted that the assessee is engaged in the real estate business and the seized material in question contained noting in respect of unaccounted receipts and unaccounted expenses Whether addition was not based on any incriminating material found during the search? - HELD THAT - No merit in this ground. The Assessing Officer had referred to seized materials found during the search on the basis which the on-money receipts as well as cash expenses have been worked out. The details of seized material based on which the on money receipts was quantified in the Assessment Order is duly found mentioned in Assessment Order number of the seized documents is also mentioned. Thus it is found that the addition in respect of on money receipts as well as cash expenses were based on the seized material found during the search. AO had made addition for the entire on-money receipts as well as the unaccounted expenses as per the seized documents in the two years to which it pertained - The assessee in the written submission before the CIT(A) had given detailed working of extrapolation of on-money receipt by taking into account the area and the agreement value. The extrapolated on-money was worked out @ Rs. 1575/- per square feet which was about 50% of the agreement value and the real income of extrapolated on-money amount was estimated by applying profit rate of 6%. The fact that the assessee had received on money receipts which had crystallized during the A.Ys. 2020-21 to 2023-24 has not been denied. Therefore we do not find any merit in the ground no.3 as taken by the assessee and the same is dismissed. While upholding the deletion of addition in respect of on-money receipts in the A.Y. 2018-19 and 2019-20 by the ld. CIT(A) we direct the AO to tax the on-money receipts crystallized in the A.Ys. 2020-21 to 2023-24 as per own admission of the assessee by applying the profit rate as decided in this appeal. Estimation of profit margin @ 14% in respect of on money - receipts - According to the assessee profit was estimated at the rate of 12.5% in other group cases of the assessee. We find that no universal rate of 12.5% was applied in other group cases. In the case of Sankalp in decided 2024 (9) TMI 1707 - ITAT AHMEDABAD profit rate of 13% was upheld in respect of on-money receipts. Accordingly we find it reasonable to apply the profit rate of 13% in this case also. Accordingly the ground taken by the assessee in this regard is partly allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Incriminating Material and Additions The legal framework involves the assessment of income under Section 153A of the Income Tax Act, which allows for reassessment based on seized materials during a search. The Court found that the AO had relied on seized materials, such as hand-written diaries and loose papers, to justify the additions. The Tribunal dismissed the assessee's contention that the additions were not based on incriminating material, as the details of on-money receipts and cash expenses were clearly documented in the seized materials. 2. Estimation of Profit Margin The CIT(A) estimated a profit margin of 14% on the on-money receipts, which the assessee argued was excessive. The Tribunal considered precedents where only the profit element, not the entire unaccounted receipts, is added to the income. The Tribunal found that while the CIT(A) applied a 14% profit rate, a 13% rate was more reasonable based on similar cases within the assessee's group. Thus, the Tribunal partially allowed the assessee's appeal by adjusting the profit rate to 13%. 3. Direction for Future Additions The CIT(A) directed the AO to confirm additions for the years 2020-21 to 2023-24 based on the extrapolation of on-money receipts. The Tribunal upheld this direction, noting that the assessee had itself provided a working of the extrapolated on-money receipts. The Tribunal found no merit in the assessee's challenge, as the addition for these years was based on the assessee's own admissions and calculations. 4. Disallowance of Interest Expenses The AO had disallowed interest expenses on the grounds that interest-bearing funds were diverted to interest-free loans. The CIT(A) deleted this addition, finding no evidence of such diversion. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to establish a nexus between the borrowed funds and the interest-free advances. The Tribunal found that the assessee had sufficient own funds to cover the interest-free loans. 5. Unexplained Expenses The AO added unexplained expenses of Rs. 28,62,500/- to the income, which the CIT(A) deleted. The Tribunal agreed with the CIT(A), allowing the telescoping effect of on-money receipts to cover these expenses. The Tribunal found that the cash expenditure was justified by the unaccounted cash receipts, thus dismissing the Revenue's appeal on this ground. SIGNIFICANT HOLDINGS The Tribunal's significant holdings include:
In conclusion, the Tribunal partially allowed the assessee's appeals for the assessment years 2018-19 and 2019-20, adjusting the profit rate on on-money receipts, while dismissing the Revenue's appeal for the assessment year 2019-20.
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