2021 (7) TMI 1134 - AT - Income Tax

Unexplained income - receipt of on-money i.e. money in cash, over and above booking amount was found - AO was of the view that the gross amount calculated on the basis of such evidence is to be treated as unexplained income of the assessee whereas on appeal, CIT(A) has recorded a finding that only element of profit embedded in such cash receipts is to be treated as income of the assessee - assessee has accounted for 8% of such receipts as its income, whereas the ld.CIT(A) has estimated the profit element on such receipt at 20% - HELD THAT - As relying on assessee's own case 2020 (4) TMI 844 - ITAT AHMEDABAD direct the AO to assess the income of the assessee by adopting 8% of the profit out of the alleged unaccounted on-money receipts - the income declared by the assessee at the rate of 8% is to be accepted instead of 20% directed by the ld.CIT(A). To make it more specific, this appeal of the assessee is partly allowed in the same term as the appeals of the Asstt.Years 2012-13 to 2015-16, which have been allowed by the Tribunal, whereas the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Treatment of on-money receipts as unexplained income.
2. Determination of the profit percentage to be applied to on-money receipts.

Issue-Wise Detailed Analysis:

1. Treatment of on-money receipts as unexplained income:

During a search at the assessee's premises, evidence of on-money receipts (cash received over the booking amount) was found. The Assessing Officer (AO) treated the gross amount of these receipts as unexplained income. However, on appeal, the CIT(A) determined that only the profit element embedded in such cash receipts should be treated as the assessee's income. The CIT(A) estimated this profit element at 20% of the gross receipts, resulting in an income calculation of ?4,48,63,600/- from on-money receipts for the assessment year 2016-17, significantly lower than the AO's addition of ?22,43,18,000/-. The Revenue challenged the CIT(A)'s decision, arguing that the entire gross amount should be treated as unexplained income, while the assessee contended that only 8% of the receipts should be considered as income.

2. Determination of the profit percentage to be applied to on-money receipts:

The Tribunal had previously addressed a similar issue for the assessment years 2012-13 to 2015-16, where the profit element embedded in on-money receipts was debated. The Tribunal concluded that the profit percentage should be 8%, as declared by the assessee, rather than 20% as determined by the CIT(A) or the gross amount as assessed by the AO. This decision was based on the principle that the gross on-money receipts included certain unrecorded expenditures, and thus, only the profit element should be considered as income.

The Tribunal emphasized that the AO must exercise discretion in estimating income, ensuring that the estimate is fair and based on reasonable judgment. The Tribunal found that the CIT(A) had not provided sufficient reasoning for estimating the profit at 20%, while the assessee's estimation of 8% was supported by precedent and considered reasonable.

Conclusion:

The Tribunal, following its earlier decision, held that the profit element embedded in the on-money receipts for the assessment year 2016-17 should be computed at 8%, as declared by the assessee. Consequently, the appeal of the assessee was partly allowed, and the AO was directed to assess the income by adopting an 8% profit rate on the unaccounted on-money receipts. The Revenue's appeal was dismissed, and other grounds raised by the assessee were rejected as they were consequential to the main issue. The judgment was pronounced in the Open Court on 27th July 2021.