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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 ..... lso 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 as cash sales in restaurant and hotel business. Such seized material further indicated that the group has incurred huge unaccounted cash payments in relation to the hotel and restaurant business. Various premises of the assessee group were covered during the search. Statements of various persons were also recorded during the course of search. 2.1. During the course of search action certain incriminating material was found and seized which revealed there were certain "unaccounted receipts" and "unaccounted payments" in relation to hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 levied on "real Income". No taxes can be levied in an arbitrary manner. Neither AO was fully correct in making impugned addition, nor assessee is fully correct in explaining reasons for deletion of such addition. The Assessee has generated unaccounted receipts from business which, in turn, have been utilized for making unaccounted payments in relation to business. Therefore, unaccounted income and unaccounted expenses need to be telescoped in order to determine the real income of the assessee. On perusal of records average profit ratio of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the common appellate orders both the Revenue and Assessee are in appeals before us raising the following Grounds of Appeal, which are inter connected. Since identical grounds are raised by both parties for all the asst. years except change in figures, therefore for the sake of brevity the Grounds of Appeal raised for the Asst. year 2015-16 are as follows: 5.1. The Grounds of Appeal filed by the Revenue in IT(SS)A No. 45/Ahd/2022 reads as under: 1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned 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 addition of Rs. 8,08,300/- by estimating profit margin at the rate of 50% for hospitality/franchisee business. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant. 5. The learned CIT(A) has erred in law and on facts of case in directing to confirm the addition made on account of alleged unaccounted receipts on the basis of seized documents in real estate business for AYs. 2020-21 to 2022-23. He further erred in applying rate of 17% on gross receipts to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration 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 well settled legal proposition that entire unaccounted receipts cannot be added. Rather, only the profit element embedded therein can be added in the hands of the assessee. Reliance is placed on following decisions for the said legal proposition: * Sankalp Recreation P. Ltd. vs. ACIT - IT(SS)A 65/Ahd/2022; * CIT vs. President Industries - (2002) 258 ITR 654 (Guj.); * CIT vs. Balchand Ajit Kumar - (2003) 263 ITR 610 (MP); * CIT v. Gurubachhan Singh - (2008) 302 ITR 63 (Guj); * Man Mohan Sadani vs. CIT - (2008) 304 ITR 52 (MP); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 discovered due to the search and seizure operations. The assessee had not provided any satisfactory explanation for the unaccounted receipts and expenses which led to the invocation of Sections 68 (unexplained credits) and 69C (unexplained expenditure) of the Act. Further the Ld DR stated that there are violations of provisions of the Act and the assessee has not provided the details of expenses which will determine whether they are incurred wholly and exclusively for the purpose of business; whether they are of capital or revenue in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed, such addition could not be sustained. It was observed that in absence of such findings of fact, the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The High Court rejected the appeal holding that no question of law which requires to be referred arises. 11. In the case of Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness 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 following the principle that even upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that be the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation. 16. In view of the legal position that not the entire receipts, but the profit element embedded in such receipts can be brought to tax, in our view, no interference is called for in the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus the Jurisdictional Assessing Officer is directed to adopt 40% profit margin in the place of 50% as directed by the Ld CIT[A]. In the result the Grounds raised by the assessee is partly allowed and the Grounds raised by the Revenue is hereby dismissed. 9. Next issue namely 'Unaccounted receipts' as well as 'unaccounted expenses' in relation to the Real-estate business: The Ld CIT[A] considered this issue and held that assessee received unaccounted on-money from its real estate business and also incurred unaccounted expenses out of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 follows: ".... 14. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respect of unsecured loans (treating the same to be bogus) as well as commission expenses alleged to have been incurred to avail bogus unsecured loans: Asst Years Unsecured loans (A) Commission expenses @ 0.60% of loan (B = A * 0.60%) 2015-16 Rs.1,03,00,000/- Rs.61,800/- 2016-17 Rs. 7,00,000/- Rs. 4,200/- Total Rs.1,10,00,000/- Rs.66,000/- 11.1. Ld CIT [A] deleted the impugned additions after finding that the impugned additions are not based on any incriminating material found during search carried out in the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof. 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 his statement has any bearing or relevance on us. Hence we request not to draw any further negative inference in any case." 12.2. Ld Senior Counsel submitted that it is well settled that assessment u/s.143(3) r.w.s. 153A of the Act is to be framed strictly on the basis of material found during the course of search. Reliance is placed on followings: * PCIT vs. Abhisar Buildwell P. Ltd. - (2023) 454 ITR 212 (SC); * PCIT vs. Saumya Construction - (2017) 387 ITR 529 (Guj) * PCIT vs. Kabul Chawla - (2015) 380 ITR 573 (Del.); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) 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 jurisdiction to assess or reassess the ' total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by t ..... 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