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TMI Blog2025 (2) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... 16% respectively. We deem it to estimate 40% as profit margin will be found reasonable considering the facts and figures in the present case. Thus the Jurisdictional Assessing Officer is directed to adopt 40% profit margin in the place of 50% as directed by the Ld CIT[A]. 'Unaccounted receipts' as well as 'unaccounted expenses' in relation to the Real-estate business - It is well settled principle of law laid down in case of Navjivan Oil Mills [2001 (7) TMI 81 - GUJARAT HIGH COURT] that seized material has to be read and accepted as a whole and it is not permissible to Pick and Choose theory or make further estimates therefrom unless and until there is cogent material in support of undertaking such an exercise. As in the case of Godhra Electricity Co. Ltd. [1997 (4) TMI 4 - SUPREME COURT] held that only real income has to be taxed in the hands of the assessee. No income can be brought to tax as of now for the simple reason that the amounts received by the assessee are only advances, which does not fall under the category of income accrued or due and no agreements have been executed till date. It is undisputed fact that till the date of search and seizure action, no formal agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner of Income Tax (Appeals)-11, Ahmedabad [hereinafter referred to as "CIT(A)"] arising out of the separate assessment orders passed under sections 143(3) r.w.s. 153A and 143[3] of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relating to the Assessment Years 2015-16 to 2019-20. Since the issues involved herein are common and facts are identical, for the sake of brevity and convenience they are decided together by this common order. 2. Assessee is a Partnership firm engaged in the real estate business and also earns income in the form of franchisee fees from various restaurants run on franchisee basis in the name and style of Sankalp, Sams Pizza and Saffron. A Search and Seizure action under section 132 of the Act was carried out in "Sankalp Group" on 30.10.2018 and on subsequent dates inter-alia covering "Kailash Goenka Group" and "Robin Goenka Group". During the course of the search, certain incriminating material in the form of handwritten diaries, loose papers, printed forms/bills etc. were found and seized. Perusal of such seized material revealed that the group was involved in charging huge on-money on sale of flats and commercial units as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt payments by cheque. Thus, even from the noting in the seized material, it is clear that such expenses have been incurred for the purpose of business. Therefore the entire receipts and entire payments cannot be subject to additions. Rather, only "profit element" (approx. 8 to 10%) may be applied to the receipts. Only the "real income" can be taxed in the hands of any assessee by the Income-tax department. 3.1. However the Ld AO, was not convinced with the reply furnished by the assessee. Accordingly, "entire unaccounted receipts" and "entire unaccounted payments", appearing in the seized material, were added as income of the respective assessment years and demanded taxes thereon. 4. Aggrieved against the assessment orders assessee filed appeals before the Commissioner of Income Tax [Appeals] who has decided the two issues for all the assessment years as below. 4.1. First Issue namely 'Unaccounted receipts' as well as 'unaccounted expenses' in relation to the 'franchisee/ hospitality business': Assessee received unaccounted receipts from hospitality/franchisee business and has also incurred unaccounted expenditure from such income. It is well settled that "taxes" must be levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of 'income accrued or due' in the years in which additions have been made by AO. Thus the amount pertaining to the said project (i.e. Rs. 37,70,56,000/-) will be taxable as per the accrual system of accounting followed by assessee and in the years when corresponding sales have been offered for tax in the regular books of accounts. c. As regards 'Project SS-IV': No income can be brought to tax as of now for the simple reason that the amounts received by the assessee are only advances which does not fall under the category of income accrued or due. Further, no agreements have been executed till date. It is a fact that till the date of search and seizure action, no formal agreement for purchase of land has been entered into or any approvals for construction activities have been received. Thus looking to the nature of various businesses, various discrepancies found during search, various judicial pronouncements as well as keeping in mind the fact that in case of unrecorded sales, profit margin remains higher as compared to recorded sales, net income of the assessee in relation to the real estate business is taken at 17% which works out to Rs. 12,56,53,980/=. 5. Aggrieved against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of unexplained commission expenses of Rs. 61,800/- even though Sh. Jigar Trivedi, has filed affidavit of having paid commission @ of 0.60% on the unsecured loan of Rs. 1,03,00,000/- 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 9. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 5.2. The Grounds of Appeal filed by the Assessee in IT(SS)A No. 70/Ahd/2022 reads as under: 1. The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases. 2. The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search. 3. The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act. 4. The learned CIT(A) has erred in law and on facts of the case in confirming an additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the particulars mentioned against such expenses would make it clear that such expenses have also been incurred in the course of normal business activities. Perusal of seized material would indicate that a part of receipts generated in the normal course of business are kept outside the books of accounts and similarly, certain part of expenses are also being incurred in cash in the normal course of business which are kept outside the books of accounts. Under such facts and circumstances of the present case, question that falls for consideration of this Hon'ble Tribunal is as follows: A. Whether AO was justified in making separate additions in respect of "unaccounted receipts" as well as "unaccounted expenses" in relation to the "business activities" carried on by the assessee ? OR B. Whether CIT(A) was justified in restricting the impugned additions made by AO to the extent of "real income" earned in relation to the unaccounted "business activities" carried on by the assessee by adopting reasonable Gross Profit rate and applying the same to the total unaccounted receipts reflected in the seized material ? 6.2. Ld Senior Counsel Sri. Thusar Hemani thus submitted that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat seized material has to be read in its entirety. Pick and choose theory cannot be adopted while interpreting seized material and reliance is placed on following decisions: * Navjivan Oil Mills vs. CIT - (2002) 252 ITR 417 (Guj); * Glass Line Equipments Co. vs CIT - 253 ITR 454 (Guj); * Mehta Parikh & Co. v. CIT - (1956) 30 ITR 181 (SC); * Kantilal & Bros. vs. ACIT - (1995) 52 ITD 412 (Pune); * Chander Mohan Mehta v ACIT - (1999) ITD 245 (Pune); * Biren V. Savla vs. ACIT - (2006) 155 Taxman 270 (Mum); * Madhav Corpn. vs ACIT- (2017) 85 taxmann.com 238 (Ahd); * DCIT v Kankakia Hospitality P Ltd. - (2019) 179 ITD 1 (Mum); 6.5. In view of the above, it is clear that Ld CIT(A) has taken utmost care while determining the income based on seized material. Consequently, balance additions have been rightly deleted. Hence, revenue's appeals deserve to be dismissed and assessee's appeals be allowed with Franchisee/hospitality business and Real estate business be estimated at some reasonable rate of profits. 7. Per contra Ld CIT-DR Shri A.P.Singh appearing for the Revenue submitted that the assessee was involved in substantial unaccounted cash transactions, which were only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the it was only the income embedded in such receipt which can be subjected to tax. 10. As pointed out by the counsel for the respondent, this Court in the case of Commissioner of Income Tax v. President Industries, reported in (2002) 258 ITR 654 had taken a similar view. In the said case, during the course of survey conducted on the premises of the assessee, from the excise records found, an inference was drawn by the Assessing Officer that sales accounting to Rs. 29 lakhs and odd had not been disclosed in the books of account. The Assessing Officer made addition of the entire sum of the said undisclosed sales as income of the assessee for the assessment year 1994-95. Such addition was confirmed by the Commissioner (Appeals). The Tribunal, however, held that the entire sales could not have been added as income of the assessee, but only to the extent the estimated profits embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales. Such decision was carried in appeal by the revenue before the High Court. The High Court rejected the appeal, observing that unless there is a finding to the effect that investment by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire sale proceeds of the assessee should not be added in his income and that the Tribunal has erred in doing so. 14. We may recall that the Tribunal, in the impugned judgement, relied on its previous judgement in case of Kishor Mohanlal Telwala. The said judgement of the Tribunal was apparently carried in appeal by the revenue. The High Court by a speaking order dated 24.4.2000, dismissed the appeal holding that no question of law was involved. Significantly, in case or Kishor Mohanlal Telwala, the assessee was engaged in the business of construction. In his case, unaccounted receipt of Rs. 1.47 crores was detected. In this background, the Division Bench confirmed the view of the Tribunal and did not accept the contention of the revenue that as no accounts had been maintained to substantiate the expenditure incurred by the assessee, the entire amount received by the respondent should be treated as income. The Court concluded that the Tribunal was justified in considering that the respondent - assessee ought to have spent reasonable amount for the purpose of receiving such gross receipt. 15. It can, thus, be seen that consistently, this Court and some other Courts have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,060 1,13,44,081 77,20,495 97,33,842 1,05,74,124 5,19,65,602 C=B/A*100 Profit Ratio (%) 47.69 % 39.16 % 30.65 % 33.57 % 31.16 % 36.21 % D Higher of C or 50% 50.00 % 50.00 % 50.00 % 50.00 % 50.00 % - E Unaccounted Turnover 16,16,503 1,34,22,571 2,47,13,691 1,49,92,837 82,98,516 6,30,44,118; F = E * D% Taxable Profits (Income) 8,08,252 67,11,286 1,23,56,846 74,96,419 41,49,258 3,15,22,059 G Rounding off to 8,08,300 67,11,300 1,23,56,900 74,96,500 41,49,300 3,15,22,300 8.2. Thus the percentage of profit as per the books of accounts is ranging from 47.69% to 31.16% for the asst. years 2015-16 to 2019-20 and the average of the same is 36.21% whereas the CIT[A] estimated the profit margin at 50% on the unaccounted sales, which in our considered view is a higher figure when the Revenue failed to prove any evidence of undisclosed investments by the assessee in terms of Assets. After the search and seizure action on 30-10-2018 the profit margins as per books are 33.57% and 31.16% respectively. In the above circumstances, we deem it to estimate 40% as profit margin will be found reasonable considering the facts and figures in the present case. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable on record, it is undisputed fact that the seized materials contain noting of both unaccounted receipts and unaccounted payments and they are relating to the business of the assessee. It cannot be denied that such unaccounted expenses would have been incurred out of unaccounted receipts. It is well settled principle of law that seized material has to be read in its entirety. Accordingly, Ld AO was not justified in denying set-off of such unaccounted expenses against unaccounted income. Further the methodology adopted by Ld CIT(A) is not absolutely scientific and leaves room for arbitrariness. 9.3. It is well settled principle of law by the Jurisdictional High Court in the case of Navjivan Oil Mills -Vs- CIT reported in (2002) 252 ITR 417 (Guj) that seized material has to be read and accepted as a whole and it is not permissible to Pick and Choose theory or make further estimates therefrom unless and until there is cogent material in support of undertaking such an exercise. 9.4. The Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. -Vs- CIT reported in [1997] 225 ITR 746 held that only real income has to be taxed in the hands of the assessee by observing as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome arising from on-money receipts for the said project (Pg.94, Para.8.13.1 of CIT(A) Order). The above Returns were filed on 31- 03-2022 and 21-10-2022 respectively which was much after the search action taken place on 30-10-2018. Considering the actual profit ratio as per the books of accounts at 12.98% as well as profit ratio on actual unaccounted transactions at 6.75%. Therefore in the interest of justice, we deem it to estimate 13% as the reasonable profit margin considering the facts and figures in the present case. Thus the Jurisdictional Assessing Officer is directed to adopt 13% profit margin on real estate business in the place of 17% as directed by the Ld CIT[A]. In the result the Ground Nos 1 to 5 raised by the assessee are partly allowed and the Ground Nos. 1 to 5 raised by the Revenue are hereby dismissed. 10. Next Ground Nos. 6 & 7 raised by the Revenue are [relating to the Asst. years 2015-16 & 2016-17 only] that the Ld. CIT(A) erred in deleting the addition of unsecured loan of Rs. 1,03,00,000/ made u/s.68 even though Sh. Jigar Trivedi, has filed affidavit of having paid commission @ of 0.60% on the unsecured loan. 11. The AO made the following additions in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date" for issuing "notice u/s 143(2)" Date of "search" u/s 132 2015-16 25.09.2015 30.09.2016 30.10.2018 2016-17 30.09.2016 30.09.2017 30.10.2018 12.1. Further our attention was drawn to the reply filed by the assessee before the Ld AO as follows: "... Vide para 3 and 3.2 of the show cause notice, we have been required to furnish the copies of confirmation for various unsecured loans taken from time to time. The same are enclosed as Annexure Il. It is humbly requested that no negative inference be accordingly drawn thereof. Further with regards to specific observation of loans taken from Biraj Manimpex Pvt. Ltd, Boaston Tradelink Pvt. Ltd and Vansh Glass Industries Pvt. Ltd in AY 2015-16 and AY 2016-17, it is humbly submitted that we are again enclosing the copy of confirmations. It is also humbly stated that with regards to AÝ 2015-16, the assessment proceedings for AY 2015-16 has been completed vide order u/s 143(3) of the Act vide order dated 4-5-2017 wherein no such negative inference has been drawn. At this juncture we are unaware under what circumstances Mr Jigar Trivedi as mentioned in the notice has given such statement and also to the fact as to whether h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven our thoughtful consideration and perused the materials available on record. It is undisputed fact that the Ld AO made entire addition of addition of Rs. 1,03,00,000/- on the unsecured loan u/s.68 of the Act and Rs. 61,800/- on account of bogus commission payments for the A.Y. 2015-16 and Rs. 7,00,000 as addition u/s.68 and Rs. 42,000/ as bogus commission payments for A.Y. 2016-17, though there is no seized material during the course of search proceedings. 14.1. The Hon'ble Supreme Court in the case of Abhisar Buildwell (supra) has held that no addition can be made in respect of completed assessments in the absence of any incriminating material. The conclusion recorded by the Apex Court in Para 14 of the judgement reads as follows: "14. In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under sect ion 132 or requisition under sect ion 132A, the AO assumes the jurisdiction for block assessment under sect ion 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/ unearthed, even, in case of unabated/completed assessments, the AO would assume the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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