Case Law Details
DCIT Vs Horizon Projects Private Limited (ITAT Mumbai)
In a detailed and landmark ruling, the ITAT Mumbai dealt with multiple additions arising from a search in a real estate group, including on-money receipts, cash expenditure (Section 69C), and subcontracting expenses.
On the issue of on-money receipts, the Tribunal held that entire gross receipts cannot be taxed. Following settled jurisprudence, it ruled that only the profit element embedded in such receipts is taxable, considering that such receipts are business in nature and involve corresponding outflows. While the CIT(A) had estimated profit at 15%, the Tribunal found it excessive and reduced it to 8%, aligning with industry realities and judicial precedents.
Regarding alleged unaccounted cash expenditure u/s 69C, the Tribunal upheld the principle of telescoping, holding that once on-money receipts are taxed (even on estimated basis), separate addition of related expenditure would lead to double taxation and is not permissible.
On the issue of subcontracting expenses (Senghani Creators Pvt. Ltd.), the Tribunal gave strong relief to the assessee:
- Held that no disallowance can be made merely on third-party search findings
- Noted that assessee had furnished complete documentary evidence (invoices, work orders, bank payments, measurement sheets, etc.)
- Observed that no direct defect or bogusness was established by AO
Accordingly, even the ad-hoc 5% disallowance by CIT(A) was deleted in full.
The Tribunal also extended the same logic to scrap sale receipts, holding that only profit element (8%) is taxable, not the gross receipts.
Final Outcome:
- On-money receipts taxed @ 8% (not 15% / 100%)
- Section 69C additions- absorbed via telescoping
- Subcontracting disallowance – fully deleted
- Scrap receipts – taxed @ 8%
This ruling is a powerful precedent reinforcing that:
Real estate “on-money” ≠ full income; only profit is taxable
No double addition (receipts + expenditure)
Third-party suspicion cannot override documented evidence
A very balanced judgment blending commercial reality + legal principles + fairness in estimation.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals, being ITA No. 7876/Mum/2025, 7877/Mum/2025, 7878/Mum/2025 and 7879/Mum/2025 filed by the assessee, and ITA No. 7786/Mum/2025, 7787/Mum/2025 and 7788/Mum/2025 filed by the Revenue, arise out of the respective orders passed in relation to assessments framed under section 143(3) read with section 147 of the Income Tax Act, 1961, for Assessment Years 202122 to 2024-25, as affirmed or modified by the learned Commissioner of Income Tax (Appeals), NFAC / CIT(A)-52, Mumbai. Since the issues involved in these appeals are overlapping, the facts are broadly common, the arguments advanced by both sides substantially traverse the same terrain, and the impugned additions arise out of a common search action and post-search inquiries, all these appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience, consistency and judicial economy. For the purpose of adjudication, we first take up the appeal for Assessment Year 2024-25, being the year in which the controversy relating to on-money receipts, alleged unaccounted cash expenditure and subcontracting disallowance has arisen in its most elaborate form.
2. The grounds of appeal raised by the assessee in ITA No. 7879/Mum/2025 for Assessment Year 2024-25 read as under:
“1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition made by the Learned Assessing Officer to the extent of Rs. 37,47,450/- being 15 percent of Rs. 2,49,83,000/- as profit earned on alleged on money received on sale of flat, without considering the facts and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in not appreciating the fact that the appellant has not taken on money on sale of flats and simply made the addition by relying on the statement recorded of Smt. Hemangini Bharti without appreciating that the same were retracted.
3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition made by the Learned Assessing Officer to the extent of Rs. 83,850/- being 15 percent of Rs. 5,59,000/- as profit earned on alleged cash receipts received on sale of flats, without considering the facts and circumstances of the case.
4. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in not appreciating the fact that the appellant has not taken cash receipts on sale of flats and simply made the addition by relying on the statement recorded of Shri Deepak Lohia, without appreciating that the same were retracted.
5. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition made by the Learned Assessing Officer to the extent of Rs. 5,34,900/- being 15 percent of Rs. 35,66,000/- as profit earned on alleged cash receipts received on sale of shops, without considering the facts and circumstances of the case.
6. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in not appreciating the fact that the appellant has not taken cash receipts on sale of shops and simply made the addition by relying on the statement recorded of Shri Deepak Lohia, without appreciating that the same were retracted.
7. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in reducing the amount to the extent of Rs. 75,85,049/- being 5 percent of Rs. 15,17,80,975/- from Work-in-Progress of the appellant by treating genuine sub-contracting expenses incurred on Senghani Creators Pvt. Ltd. as alleged bogus expenses, without considering the facts and circumstances of the case.
8. On the facts and circumstances of the case as well as in law, the Learned CIT(A) and the Learned Assessing Officer erred in making additions on the basis of uncorroborated statements which were later retracted, without considering the facts and circumstances of the case and position of law.
9. The appellant craves leave to add, amend, alter or delete the said ground of appeal.”
3. The Revenue, being aggrieved by the partial relief granted by the learned CIT(A), has also filed its cross appeal in relation to Assessment Year 2024-25 and has raised the following grounds:
“1. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in restricting the addition u/s 28 of the Income Tax Act to 15% of the on-money receipts, ignoring the fact that once the existence of on-money transactions is established through corroborative evidences such as digital records, seized diary and statements recorded u/s 132(4), the entire amount of on-money represents income from undisclosed sources and not merely the profit element thereon.
2. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the substantive addition made u/s 69C of the Act by holding that the unaccounted expenditure was met out of on-money receipts already taxed, ignoring that the on-money receipts and unaccounted expenditure represent two distinct heads of undisclosed income, and that the assessee failed to furnish any evidence to substantiate the nexus between the alleged on-money receipts and the cash expenditure, thereby rendering the telescopic benefit unsustainable in law.
3. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in restricting the disallowance u/s 37 to 5% of the subcontracting expenses and subsequent adjustment in Work-in-Progress, ignoring the fact that the Assessing Officer‘s findings were based not merely on third-party search material but also on corroborative seized documents, spot verifications, and patterns of non-existent subcontractors which clearly established the sham nature of the expenditure, and further ignoring the settled position of law as laid down by the Hon‘ble Supreme Court in CIT v. N.K. Proteins Ltd. [2017] 250 Taxman 22 (SC) that once transaction is proved to be non-genuine, the entire amount is liable to be disallowed and not merely a portion thereof.
4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing benefit of 85% of notional expenditure out of total on-money received even when the assessee could not provide any evidence that it had incurred 85% of expenditure against the on-money received.
5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing benefit of 85% of notional expenditure out of total on-money received in the circumstance that if at all any expenditure is incurred from on-money, it was incurred in cash and section 40A(3) gets clearly attracted.
6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing benefit of 85% of notional expenditure by relying on the findings of Ekta Housing Pvt. Ltd. even when facts are different and one to one linkage was not established.
7. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing telescoping and granting deduction of notional expenditure at 85% of the on-money receipts despite the fact that only cash expenditure of Rs. 2,78,40,400/- was found and separately added u/s 69C and therefore deduction ought to have been restricted solely to the said cash expenditure.
8. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing notional expenditure of 85% of the on-money after acknowledging systematic collection of on-money on sale of flats and commercial units, without correspondingly bringing to tax notional on-money relating to remaining units sold during the year.
9. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in giving telescoping benefit of Rs. 2,78,40,400/- of cash expenditure from the on-money received, when the CIT(A) had already given benefit of 85% of notional expenditure and thus allowing further benefit would reduce the taxable profit to much lower than 15% of on-money received.”
4. The brief facts, as borne out from the record, are that the assessee is a domestic company engaged in the business of development and construction of residential and commercial real estate projects in Mumbai. For the year under consideration, it filed its return of income under section 139(1) on 08.10.2024 declaring total income of Rs. 16,64,56,550/-. A search and seizure action under section 132 was carried out in the case of the Runwal Group on 06.10.2023, wherein the assessee, being one of the constituent entities of the said group, also came within the sweep of the search proceedings. Consequent to the search and the information said to have emerged therefrom, the return filed by the assessee was selected for complete scrutiny. Notice under section 143(2) was issued on 19.12.2024 and was duly served. Thereafter, notices under section 142(1) along with detailed questionnaires were issued calling for the relevant particulars, explanations and supporting evidence. In response thereto, the assessee furnished details and explanations from time to time.
5. In the course of assessment, the Assessing Officer made various additions on account of alleged on-money receipts, alleged unaccounted cash expenditure and disallowance of sub-contracting expenses claimed through Senghani Creators Pvt. Ltd. The additions on account of on-money receipts were made in relation to sale of certain flats and shops, while separate additions under section 69C were made on the allegation that certain cash expenditure had been incurred outside the books. Further, a part of the sub-contracting expenditure capitalised to Work-in-Progress was also treated as non-genuine and was accordingly reduced from the WIP. The detailed tabulation of such additions as per the assessment order is part of the original record and shall form part of this order at the appropriate place.
5.1. The details of additions made on account of alleged on-money receipts are reproduced hereunder:
5.2. The details of additions made on account of alleged unaccounted cash expenditure under section 69C are reproduced hereunder:
6. In so far as the additions relating to alleged on-money receipts are concerned, the Assessing Officer, on the strength of certain statements recorded during the course of search, loose papers, diary entries, and digital communications including WhatsApp and Signal chats retrieved from mobile devices of certain employees or connected persons, came to the conclusion that the group was following a systematic practice of receiving part of the sale consideration in cash over and above the value disclosed in the registered or proposed sale documentation. On the basis of such material, he treated a sum of Rs. 2,49,83,000/- as on-money receipts in relation to certain flat transactions, a further amount of Rs. 5,59,000/- as alleged cash receipts on sale of a flat, and Rs. 35,66,000/- as alleged cash receipts on sale of a shop. The Assessing Officer proceeded to tax the entire amounts as undisclosed business income of the assessee under section 28 of the Act, holding that once the receipt of on-money stood established from the seized material and statements, the entire gross receipt itself represented taxable income.
7. The assessee carried the matter in appeal and vehemently assailed the additions. Before the learned CIT(A), it was contended that the additions had been made essentially on the basis of statements recorded during search from certain employees and connected persons, but such statements, according to the assessee, had subsequently been retracted by way of sworn affidavits and could not, in law, be treated as conclusive evidence in the absence of independent corroboration. It was further urged that no customer confirmation, no direct cash trail, no bank withdrawal pattern, no seized receipt, no contemporaneous acknowledgement from purchasers, and no documentary material directly linking the assessee with actual receipt of on-money had been brought on record. According to the assessee, the entire exercise of the Assessing Officer rested more on inference and presumption than on legally sustainable material. It was also submitted that no cash whatsoever was found from the assessee during the course of search, which, according to the assessee, weakened the department’s allegation that actual unaccounted sale consideration had been received and retained by it.
8. The learned CIT(A), after examining the assessment order, the statements, the seized material and the submissions of the assessee, did not fully accept the assessee’s plea for total deletion. The appellate authority observed that the statements recorded during the search and the accompanying documents did indicate the existence of a pattern or practice within the group of receiving part of the consideration in cash in some real estate transactions. The learned CIT(A), therefore, held that the possibility of on-money receipts in such transactions could not be brushed aside altogether. At the same time, however, the learned CIT(A) also recorded a finding that even where on-money receipts are presumed or found in a real estate project, the entire gross amount of such receipts cannot ipso facto be assessed as income, for the simple reason that such receipts are business receipts and not pure profit; embedded therein is only the profit element, since corresponding project-related outgoings, cash expenses, approvals, facilitation payments and other unrecorded business expenditures may also have been met from such receipts. Proceeding on that premise, and relying upon judicial precedents rendered in the context of real estate transactions involving unaccounted receipts, the learned CIT(A) directed the Assessing Officer to restrict the addition to 15% of the alleged on-money receipts and to delete the balance. Similar treatment was extended to the addition of Rs. 5,59,000/- and Rs. 35,66,000/- relating to the flat and shop transactions respectively, and only 15% thereof was sustained as taxable income.
9. Thus, while the learned CIT(A) did not accept the assessee’s contention that the additions deserved outright deletion, he substantially modified the assessment by holding that only the estimated profit element embedded in the alleged unaccounted receipts could be brought to tax. This resulted in a substantial reduction of the additions made by the Assessing Officer. The assessee, however, remains aggrieved to the extent even 15% has been sustained, whereas the Revenue is aggrieved by the deletion of the remaining 85% and insists that the gross receipts should have been taxed in full.
10. The next limb of controversy pertains to the additions made on account of alleged unaccounted cash expenditure under section 69C. During the course of assessment, the Assessing Officer alleged that certain cash payments relating to the projects of the assessee, such as liaisoning expenses, brokerage payments and other cash outgoings, had been incurred outside the books of account. This allegation was founded upon certain statements recorded during search, certain screenshots, mobile phone images and entries found in a seized register. On the basis of such material, the Assessing Officer treated the said expenditure as unexplained expenditure within the meaning of section 69C and made separate additions on that score.
11. Before the learned CIT(A), the assessee challenged these additions as well. The principal contention was that the additions had again been made merely on the basis of statements and stray entries, without any supporting material such as vouchers, confirmations, cash books, payment acknowledgements, identifiable recipients or cash flow evidence that would conclusively establish that such expenses had in fact been incurred by the assessee. It was further argued that even assuming, without admitting, that some unaccounted expenditure had been incurred, the source thereof stood embedded in the same on-money receipts which the department itself had alleged and partly taxed. Therefore, according to the assessee, once the alleged on-money receipts were brought to tax as undisclosed business receipts, the corresponding expenditure incurred out of the same stream of funds could not again be taxed separately under section 69C, for that would amount to taxing the same income twice over under different labels. In support, reliance was placed upon the principle against double addition and on the judgments including CIT v. Jawanmal Gemaji Gandhi and CIT v. Golani Brothers.
12. The learned CIT(A), upon examining this aspect, held that section 69C would indeed be attracted where expenditure is found to have been incurred and the assessee fails to satisfactorily explain the source thereof. He accordingly did not accept the broad contention that the addition under section 69C was wholly untenable. However, he accepted, in principle, the assessee’s argument that where both alleged on-money receipts and alleged cash outgoings arise from the same unaccounted business stream, then to the extent the unaccounted expenditure can reasonably be said to have been met out of such receipts, separate taxation thereof would result in duplication. The learned CIT(A), therefore, allowed telescoping / adjustment of the unaccounted expenditure against the on-money receipts already brought to tax, and thereby deleted or restricted the independent addition under section 69C to avoid double taxation of the same underlying fund flow. In other words, while the existence of certain cash expenditure was not fully discarded, the appellate authority accepted that such expenditure could not be taxed de hors the alleged receipts from which it was sourced.
13. Thus, before us, the controversy in Ground Nos. 1 to 6 of the assessee’s appeal and Ground Nos. 1, 2 and 4 to 9 of the Revenue’s appeal revolves around the true nature, taxability and quantification of the alleged on-money receipts and the consequential treatment of alleged unaccounted cash expenditure. Since these issues are intricately interwoven and arise out of a common factual foundation, they are taken up together for adjudication.
14. The learned counsel for the assessee, reiterating the submissions advanced before the lower authorities, assailed the sustenance of even 15% of the alleged receipts. He submitted that no direct and clinching evidence had been brought on record to show that the assessee had in fact received on-money from any identified customer. According to him, there was neither any customer confirmation nor any cash trail nor any bank withdrawal evidence nor any seized receipt directly evidencing receipt by the assessee. He further submitted that the statements of certain persons on which reliance had been placed stood retracted, and in any event, no addition could be founded solely on such statements absent independent corroboration. He also emphasised that no unaccounted cash was found from the assessee during search. Without prejudice, he submitted that even if an estimate were to be made, the rate of 15% adopted by the learned CIT(A) was on the higher side, particularly having regard to the nature of the assessee’s project, namely a mid-segment housing project at Dombivli catering to middle-class purchasers and not a high-end premium development with large margins. He therefore submitted that, at the highest, a lower estimation in the vicinity of 5% or 8% ought to be adopted.
15. Per contra, the learned CIT-DR strongly supported the assessment order and submitted that once the existence of on-money transactions is evidenced by seized documents, digital records and statements recorded under section 132(4), the entire gross receipt becomes liable to tax, and the learned CIT(A) erred in reducing the addition merely to the profit element. He submitted that there was no material brought by the assessee to show that 85% of such receipts had in fact been expended for project purposes. According to him, the assessee cannot seek a notional deduction of expenditure without demonstrating actual incurrence thereof. He further submitted that if, according to the assessee, such expenditure had been incurred in cash, then the same would itself attract the rigour of section 40A(3), and in any event no deduction could be granted on pure assumption. On the issue of telescoping, it was his contention that on-money receipts and unaccounted expenditure constitute separate heads of undisclosed income, and unless clear nexus is established, the benefit of set-off cannot be allowed. He also submitted that the decisions relied upon by the learned CIT(A), including Ekta Housing Pvt. Ltd., were distinguishable on facts and could not mechanically be applied.
16. We have heard the rival submissions and perused the material placed on record. The concept of “on-money” in the real estate sector is not unknown to tax jurisprudence. It generally refers to an unaccounted component of sale consideration received in cash over and above the recorded agreement value. Such matters ordinarily surface during search and survey actions through diaries, loose sheets, parallel records, digital chats and statements of persons managing the affairs of the builder or project. But even where the existence of such receipts is inferred or established, an equally important question arises as to what, in law, is taxable: whether the entire receipt or only the income element embedded therein. That issue is no longer res integra. The consistent thread running through judicial pronouncements is that such on-money represents unaccounted business receipts or suppressed sale consideration and not income per se in its entirety. Embedded in such receipts is a margin, and against such receipts there may stand corresponding unaccounted business outgoings. Therefore, unless the case is such where the whole receipt can be demonstrably shown to be pure income without any outgoing component, the normal rule is that only the profit element should be brought to tax on some rational and reasonable basis.
17. We may first advert to the reasoning extracted in the order itself from the decision of the Ahmedabad Bench in JCIT v. Narayan Land Estate, wherein the Tribunal lucidly explained that when seized or impounded documents disclose not merely receipt of on-money but also indicate the reality of unaccounted project-related expenditure, then a holistic approach is warranted, and the gross on-money cannot be taxed in entirety. The Tribunal further recognised, taking judicial notice of ground realities of the real estate sector, that cash is often collected and cash is also deployed for various approval-related and project-related purposes. Therefore, a reasonable profit estimate on such receipts, rather than taxation of the gross amount, is what accords with both commercial realism and tax jurisprudence. The relevant observation, as noted in the draft, is reproduced hereunder:
“8.5 The decisions of the jurisdictional ITAT and High Court are binding on the Commissioner (Appeals). However, the appellant in its submission has not given the working of profit on such on-money and has not given the justification as to how the profit of 15% (as mentioned in the submission during the appeal proceedings) is adequate and fair. No doubt, one approach is that where the seized/impounded document bear the testimony of on-maney being charged and collected and the same pages or similar group pages also contain entries related to unaccounted expenses on in relation to the projects undertaken and in such a case, such expenses are to be necessary allowed for the holistic interpretation of the documents seized/impounded. The other approach is to take cognizance of the market/realty sector that while it is the practice of the real estate market that whereas cash (over and above the consideration in cheque) are collected from the customers, the developers have to incur various unaccounted expenses also in relation to procurement of land and approval of the projects by various authorities & etc and therefore, there is rational/ justification in charging/bringing to tax only an estimated profit on on-money/premium amount collected from the customers instead of adding the gross amount of on-money/premium to the total income.„
18. The above principle is also fortified by the long line of authorities beginning with CIT v. President Industries (258 ITR 654) (Guj.), wherein it was held that the entire undisclosed sale proceeds cannot be regarded as income. Similar principle has found favour in decisions of the Hon’ble Bombay High Court and various benches of the Tribunal in the context of real estate transactions. In Guruprerna Enterprises, following the ratio of Abhishek Corporation v. DCIT, it was held that even where seized documents establish receipt of on-money or premium, the entire receipts cannot be assessed as undisclosed income; only net profit rate can be applied on the unaccounted receipts. The legal position that thus emerges is that on-money receipts are in the nature of suppressed business receipts or sale price, and what is chargeable to tax is only the profit component embedded therein and not the whole receipt as such.
19. Equally instructive is the decision in ITO v. Anand Builders, where the Tribunal held that only 8% of the unaccounted on-money receipts could be brought to tax, and not the entire gross receipts, for the reason that against such unaccounted receipts there would ordinarily be corresponding unaccounted payments and only the residual income that remains in the hands of the assessee can be taxed. The said view, as noted in the draft order, ultimately found affirmation when the challenge by the department did not succeed. Likewise, in Hema Haresh Mehta v. DCIT, Mumbai Tribunal held that a reasonable profit embedded in total unaccounted gross receipts deserves to be brought to tax and 8% was considered an appropriate estimate in the facts of that case, with the clear observation that once profit is estimated, all associated expenditure stands deemed to have been allowed.
20. Reference may also be made to Kishor Mohanlal Telwala, where the Tribunal regarded 8% as a fair and reasonable figure by drawing guidance from section 44AD, albeit not directly applying the provision. True it is, the present assessee’s turnover may be far beyond the threshold of presumptive taxation and section 44AD may not directly apply. Yet, such statutory benchmarks can often provide a broad indicator for arriving at a fair estimate where direct quantification is impossible and only an approximation on rational basis is called for. What is important is that estimation must rest neither on conjecture nor on punitive instinct, but on a fair appreciation of the nature of trade, scale of activity, and margins ordinarily available.
21.Tested on the aforesaid principles, we are unable to persuade ourselves to accept the Revenue’s contention that the entire gross on-money receipts deserve to be taxed as income. That approach ignores the basic distinction between receipt and income. At the same time, we are also not inclined to accept the assessee’s plea for complete deletion, because the seized material and statements, as concurrently appreciated by the authorities below, do point towards existence of unaccounted receipts in some transactions, and the learned CIT(A) was justified in not effacing the addition in toto. The only real question then is the appropriate rate at which the income embedded in such receipts should be estimated. On an overall consideration of the nature of the assessee’s business, the location and character of the project, the judicial precedents placed before us, and the broad commercial realities of the real estate sector, we are of the considered view that estimation at 15% as sustained by the learned CIT(A) is on the higher side and does not appear to rest on any specific comparative or empirical basis. A more reasonable estimate, in our view, would be 8% of the alleged on-money receipts. We accordingly direct that the additions on account of on-money receipts in respect of sale of flats and shops be restricted to 8% of the amounts considered by the Assessing Officer.
22. Once we hold that only the profit element at 8% is liable to be taxed on the alleged on-money receipts, the Revenue’s grievance against the telescoping / set-off allowed by the learned CIT(A) in respect of alleged unaccounted cash expenditure loses much of its force. In matters of this nature, where both the alleged receipts and alleged expenditure form part of the same undisclosed business circuit, separate taxation of gross receipts and again of the corresponding cash outgoings would indeed result in duplication, unless the department is able to establish that the expenditure arose from an altogether independent source. No such separate source has been demonstrated before us. On the contrary, the very case of the department is that the assessee was generating cash through on-money and utilising the same in project-linked unaccounted dealings. In such a factual setting, telescoping is not a concession but a necessary corollary of coherent taxation. Therefore, we see no infirmity in the principle adopted by the learned CIT(A) in allowing adjustment of such expenditure against the on-money stream. Once profit on the gross receipts is estimated, separate addition of the corresponding expenditure cannot ordinarily survive.
23. Consequently, the grounds raised by the assessee challenging sustenance of 15% addition on alleged on-money receipts are partly allowed to the extent indicated above, and the corresponding grounds of the Revenue seeking full taxation of such receipts are dismissed. We hold that the additions on account of alleged on-money receipts in A.Y. 2024-25 shall stand restricted to 8% of the respective amounts considered by the Assessing Officer, and no separate addition on account of alleged unexplained cash expenditure shall survive beyond what is embedded in such estimated profit.
24. We now take up Ground Nos. 7 and 8 of the assessee’s appeal and Ground No. 3 of the Revenue’s appeal, which relate to the disallowance of sub-contracting expenditure claimed through Senghani Creators Pvt. Ltd. and the corresponding reduction from Work-in-Progress. The assessee’s grievance is that the learned CIT(A) erred in sustaining 5% disallowance, whereas the Revenue’s grievance is that once the transaction stood tainted by search findings, the entire expenditure ought to have been disallowed.
25. The facts in this regard are that during the search action, material was found in relation to M/s Senghani Creators Pvt. Ltd. and statements of certain key persons of that concern were recorded. It emerged from such statements that invoices were allegedly prepared on the basis of rough workings received from sub-contractors, the same were then printed on letterheads, and the rough worksheets were thereafter destroyed. It was also noticed that in spot verification of some entities connected with the said concern, certain parties were not found to be existing at the addresses mentioned. Based on these findings arising from the search in the case of Senghani Creators Pvt. Ltd., the Assessing Officer formed an opinion that the sub-contracting expenditure booked by the assessee through the said party was bogus or at least not fully verifiable, and therefore liable to be disallowed.
26. In appeal, the assessee’s stand was that the entire disallowance rested on third-party search findings and no direct evidence had been brought on record to establish that the transactions between the assessee and Senghani Creators Pvt. Ltd. were sham or bogus. It was specifically pointed out that the assessee had placed on record extensive documentary evidence in support of the work executed and payments made, including work orders, invoices, quantity summaries, measurement sheets, reconciliation statements, challans, quality certificates, labour compliance certificates, ledger accounts, payment certificates and bank statements showing that payments were made through normal banking channels. It was submitted that preparation of final invoices based on rough workings is not an unusual commercial practice and the absence or destruction of rough workings by itself cannot render the final bills fictitious. It was also urged that irregularities, if any, in the affairs of a contractor or some of its downstream sub-contractors cannot automatically justify an adverse inference against the assessee unless there is direct material connecting the assessee’s own payments with bogus billing or accommodation entries.
27. The learned CIT(A), while noticing that the Assessing Officer had not brought direct material to conclusively establish that the assessee’s expenditure through Senghani Creators Pvt. Ltd. was wholly non-genuine, nevertheless observed that certain irregularities in the affairs of that concern could not be ignored altogether. Proceeding on that basis, and by drawing support from a decision of the Mumbai Tribunal in another case, he adopted what he considered to be a balanced course and restricted the disallowance to 5% of the sub-contracting expenditure, directing corresponding reduction in Work-in-Progress to that extent.
28. Before us, the learned counsel for the assessee elaborated that the payments made to Senghani Creators Pvt. Ltd. were not even claimed as revenue expenditure in the Profit and Loss Account, but had been capitalised to Work-in-Progress as part of project cost, to be recognised in later years depending upon the method of accounting. He explained that Senghani Creators Pvt. Ltd. was a contractor undertaking construction works for builders and the actual execution of works stood substantiated by technical and documentary material. The assessee, according to him, had discharged its burden fully by furnishing all relevant project and payment documents. It was further submitted that section 132(4A), or any presumption akin thereto, is confined to the searched person from whose possession incriminating material is found, and such presumption cannot automatically be extended to the assessee, which is a separate entity, especially when no incriminating material was found in the course of search from the possession or control of the assessee qua these transactions.
29. On the other hand, the learned Departmental Representative submitted that the search findings in the case of Senghani Creators Pvt. Ltd., the statements recorded, and the spot verification clearly showed that the sub-contracting chain was dubious and included non-existent entities. According to him, the assessee had not fully discharged the onus of establishing the genuineness of the expenditure merely by producing invoices and bank statements, because the very substratum of the transaction was under serious cloud. He accordingly supported the reasoning of the Assessing Officer and submitted that the learned CIT(A) erred in restricting the disallowance to 5%.
30. We shall consider this issue in detail in the next segment, while continuing from this point onward in the same style and structure, so that no part of the original order is left out and the entire reasoning flows seamlessly.
31. We have carefully considered the rival submissions, perused the assessment order, the appellate order and the entire material brought on record. In so far as the issue relating to sub-contracting expenditure booked through M/s Senghani Creators Pvt. Ltd. is concerned, what emerges on a close scrutiny of the record is that the Assessing Officer has proceeded substantially on the basis of search findings in the case of the said third party, coupled with certain statements of persons connected with that concern and the spot verification of some of its alleged downstream subcontractors. It is true that such material may legitimately give rise to a degree of suspicion about the internal affairs of Senghani Creators Pvt. Ltd. and the manner in which it sourced or documented a part of its subcontracting chain. However, suspicion, howsoever strong, cannot be permitted to substitute legal proof, particularly when the disallowance is sought to be made in the hands of a different assessee which has placed on record extensive primary evidence in support of the transaction. The law does not countenance a mechanical transference of adverse inference from the case of a searched third party to the case of the assessee without an independent nexus being established between the two at the level of the impugned claim.
32. What is important, and what in our opinion strikes at the very root of the addition, is that the assessee before the Assessing Officer as well as before the learned CIT(A), and again before us, has placed on record a detailed set of documentary evidences to substantiate the genuineness of the work executed and the payments made. These include quality certificates, health and safety compliance certificates, labour compliance certificates, abstract sheets certifying quantity and amount, copies of bills and invoices, work orders, challans, reconciliation statements of materials issued to the contractor, quantity summary sheets, payment breakup sheets, measurement sheets showing percentage of work done, ledger accounts of Senghani Creators Pvt. Ltd. in the assessee’s books, copies of bank statements reflecting the payments, and payment certificates. These are not stray or superficial documents. They are documents that ordinarily accompany the execution and accounting of real estate construction contracts. Once such documentation is placed on record, the initial burden lying on the assessee stands sufficiently discharged. The burden thereafter shifts to the department to demonstrate, by some cogent material, that these documents are either fabricated, inflated, fictitious, or otherwise do not represent genuine business transactions. That crucial link is conspicuously absent in the present case.
33. The Assessing Officer has not pointed out any specific discrepancy in the invoices, any mismatch in the quantities certified, any falsity in the work orders, any inconsistency in the measurement books, any inflation discernible from the payment records, or any evidence to show that the amounts paid through banking channels had returned to the assessee in cash or by any circuitous means. There is equally no finding that the work said to have been executed was in fact not executed, or that the project progress, civil work and construction activities did not correspond with the expenditure capitalised by the assessee. The entire edifice of the addition rests on generalized findings in the case of Senghani Creators Pvt. Ltd. and on the assumption that because some of its alleged sub-contractors were found to be non-existent, therefore every transaction routed through it must necessarily be bogus. Such a broad-brush approach, in our considered view, cannot be sustained in tax adjudication where each addition must rest on a clear factual foundation and a legally tenable inference.
34. The learned CIT(A), while partly accepting the assessee’s case, nevertheless chose to sustain a disallowance of 5% by observing that certain irregularities in the affairs of Senghani Creators Pvt. Ltd. could not be ignored altogether and by placing reliance on a decision of the Mumbai Tribunal in the case of Middle Earth Enterprises. However, as rightly pointed out before us, the learned CIT(A) has not undertaken any meaningful comparison of the facts of the present case with the facts of the case relied upon. He has not demonstrated as to how the nature of evidence, the degree of infirmity, the type of contract, the supporting documentation, or the surrounding circumstances were so similar as to justify an ad hoc estimate on parity. More importantly, even as per his own narration, the decision referred to by him had sustained a different percentage. Therefore, the adoption of 5% in the present case appears to be more of an approximation in terrorem than an estimate founded upon any discernible factual or legal yardstick. A quasi-judicial estimate cannot be a matter of impressionistic compromise; it must proceed from some rational basis emerging from the record.
35. We are also persuaded by the submission advanced on behalf of the assessee that the presumption available under section 132(4A), or the corresponding principle underlying search presumptions, is essentially confined to the person from whose possession or control the books, documents or assets are found. Such a presumption cannot, without more, be extended against a third party assessee whose own records are otherwise maintained in the regular course and whose claim is supported by primary evidentiary material. Here, no incriminating document was found from the possession of the assessee to show that the payments made to Senghani Creators Pvt. Ltd. were accommodation entries or fictitious charges. In such circumstances, the attempt to draw an automatic adverse inference against the assessee on the strength of third-party search material alone is clearly misplaced, unless supported by some additional corroborative evidence directly connecting the assessee with the alleged bogus arrangement. No such direct evidence has been shown to us.
36. Another significant feature that cannot be overlooked is that all the impugned payments were made through normal banking channels. It is, of course, true that mere banking payments do not conclusively establish genuineness if the surrounding circumstances show the transaction to be sham. But equally, where banking payments are supported by work orders, invoices, quantity records, measurement sheets and project documentation, and where no defect is pointed out in such material, then the fact that payment was made through banking channels assumes considerable evidentiary significance. In the present case, there is no allegation that the assessee had received back the money in cash or that the banking trail was part of any accommodation-entry racket directly involving the assessee. In the absence of such material, to penalize the assessee for possible irregularities in the conduct of a contractor or its own sub-vendors would be wholly unjustified.
37. We may also note that the assessee’s case throughout has been that the expenditure in question was not even debited off to the Profit and Loss Account as a revenue item in the year under consideration, but had been capitalised as part of Work-in-Progress in respect of the project. Thus, strictly speaking, what the Assessing Officer has done is to reduce a part of the project cost on the assumption that the underlying contract expenditure lacked genuineness. Such a conclusion, when it leads to a distortion of the project cost itself, demands even greater care and a stronger evidentiary basis, because the effect of reducing Work-in-Progress is not confined merely to the current year but has the potential to ripple through later years in the eventual recognition of project income. Any such adjustment, therefore, cannot be sustained on surmise or on collateral suspicion.
38. Looking at the matter from any angle, we are unable to find any cogent justification for sustaining even the ad hoc disallowance of 5%. The assessee has, in our considered opinion, satisfactorily discharged the onus cast upon it by law. The department, on the other hand, has not rebutted the assessee’s evidence by establishing any specific falsity, inflation, non-execution of work, or accommodation entry mechanism qua the assessee. It would therefore be wholly unfair to visit the assessee with adverse tax consequences merely because the contractor, or some persons in its chain, may have maintained their affairs in an irregular or questionable manner. The law certainly permits the Revenue to proceed against the erring contractor or the actual beneficiaries of such irregularities, but it does not permit disallowance in the hands of a bona fide contracting party unless its own claim is shown to be false or non-genuine.
39. Accordingly, we set aside the order of the learned CIT(A) on this issue and direct the Assessing Officer to delete the entire disallowance made in respect of sub-contracting expenditure booked through M/s Senghani Creators Pvt. Ltd. Consequently, Ground Nos. 7 and 8 raised by the assessee for Assessment Year 2024-25 are allowed, and Ground No. 3 raised by the Revenue stands dismissed.
40. In the result, the appeal of the assessee for Assessment Year 2024-25 is partly allowed in the manner indicated above, whereas the appeal of the Revenue for the said year is dismissed.
41. We shall now take up the assessee’s appeal for Assessment Year 2023-24 in ITA No. 7878/Mum/2025. The grounds raised by the assessee for that year read as under:
“1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition made by the Learned Assessing Officer to the extent of Rs. 58,06,050/- being 15 percent of Rs. 3,87,07,000/- as profit earned on alleged on money received on sale of flat, without considering the facts and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in not appreciating the fact that the appellant has not taken on money on sale of flats and simply made the addition without any independent corroborating evidence to support these entries.
3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the disallowance made by the Learned Assessing Officer to the extent of Rs. 7,07,668/- being 5% of Rs. 1,41,53,368/- u/s 37 by treating genuine sub-contracting expenses incurred on Senghani Creators Pvt. Ltd. as alleged bogus expenses, without considering the facts and circumstances of the case.
4. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in reducing the amount to the extent of Rs. 81,61,313/- being 5% of Rs. 16,32,26,268/-from WIP by treating genuine sub-contracting expenses incurred on Senghani Creators Pvt. Ltd. as alleged bogus expenses, without considering the facts and circumstances of the case.
5. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition made by the Learned Assessing Officer to the extent of Rs. 28,13,756/- being 15% of Rs. 1,87,58,370/- u/s 69A on account of alleged cash receipt on sale of scrap by relying on the statement of Shri Vijay Bhaskar Madne, without considering the facts and circumstances of the case.
6. On the facts and circumstances of the case as well as in law, the Learned CIT(A) and the Learned Assessing Officer erred in making additions on the basis of uncorroborated statements which were later retracted, without considering the facts and circumstances of the case and position of law.
7. The appellant craves leave to add, amend, alter or delete the said ground of appeal.”
42. Ground Nos. 1 and 2 of the assessee’s appeal for Assessment Year 2023-24 pertain to addition on account of alleged on-money receipts. Since this issue is materially identical to the one considered by us while adjudicating Ground Nos. 1 to 6 of the assessee’s appeal and the corresponding grounds of the Revenue for Assessment Year 2024-25, and since the factual basis, nature of material, and controversy regarding taxation of the gross receipt versus the profit element remain the same, our reasoning and conclusion recorded therein shall apply mutatis mutandis to this year also. Accordingly, following our decision for Assessment Year 2024-25, we hold that not the entire alleged on-money receipt, but only the profit element embedded therein can be brought to tax, and such profit is directed to be estimated at 8% of the alleged receipt instead of 15% as sustained by the learned CIT(A). Thus, Ground Nos. 1 and 2 of the assessee’s appeal for Assessment Year 2023-24 are partly allowed in the same terms.
43. Ground Nos. 3 and 4 of the assessee’s appeal for Assessment Year 2023-24 relate to the disallowance in respect of transactions with Senghani Creators Pvt. Ltd. and corresponding reduction from Work-in-Progress. Since this issue is squarely covered by our findings recorded while adjudicating Ground Nos. 7 and 8 of the assessee’s appeal for Assessment Year 2024-25, where we have held that the entire disallowance is unsustainable on facts as well as in law, the same view shall govern the present year as well. Consequently, these grounds of the assessee are allowed, and the Assessing Officer is directed to delete the disallowance and restore the corresponding amount in Work-in-Progress.
44. We now come to Ground No. 5 of the assessee’s appeal for Assessment Year 2023-24, which pertains to addition of Rs. 1,87,58,370/- on account of alleged cash receipts from sale of scrap, which the learned CIT(A) has restricted to 15% of the said amount. The Assessing Officer had made the addition under section 69A on the footing that for the period 07.12.2022 to 05.10.2023 the assessee had received cash of Rs. 1,87,58,370/- on account of sale of scrap to Alpha Enterprises, as allegedly stated by Shri Vijay Bhaskar Madne in answer to Question No. 26 of his statement recorded under section 132(4), and that such cash receipt had not been offered in the return of income for the relevant year.
45. Before the learned CIT(A), the assessee contended that the addition under section 69A was misconceived because the amount, assuming it represented scrap sale receipts, was in the nature of business receipts and could not be treated as unexplained money under section 69A. It was further submitted that even otherwise the chart found in possession of the employee did not clearly demarcate the amount attributable to the relevant assessment year, and that as per the policy of the group, scrap income was accounted for at the time of raising final bills or project accounting, and therefore no income had accrued in the year in the manner assumed by the Assessing Officer.
46. The learned CIT(A), while accepting the broad contention that the amount could not be brought to tax under section 69A because of its evident business character, nevertheless held that the receipt was relatable to the business of the assessee and therefore some income element should be brought to tax. Taking note of the fact that the period reflected in the seized material stretched from 01.12.2022 to 05.10.2023 and that the project itself was still ongoing, the learned CIT(A) restricted the addition to 15% of the total amount.
47. Before us, the learned counsel for the assessee reiterated that the entire addition deserved deletion, firstly because it rested merely on the statement of an employee and not on any clear incriminating material directly establishing accrual of taxable income in the year, and secondly because even the chart found did not specify how much of the amount pertained to the relevant year. The learned Departmental Representative, on the other hand, supported the order of the Assessing Officer and submitted that once the employee had categorically admitted that the receipts were not recorded in the books, the entire amount deserved to be taxed.
48. We have considered the rival contentions. In our view, the learned CIT(A) was right in holding that the impugned receipt, assuming it represents unaccounted scrap sale proceeds, could not be brought to tax under section 69A, for the plain reason that the nature of the receipt itself shows it to be connected with the business operations of the assessee. Once the nature and source of the receipt are identifiable as business-related, the deeming fiction of section 69A, which applies to unexplained money not satisfactorily explained, loses its force. However, that does not ipso facto mean that the whole amount must either be taxed in full or deleted in entirety. The question then becomes one of proper quantification and year-wise attribution. The material on record, as noted by the authorities below, shows that the receipt pertains to a period spreading across more than one point in time and also to a project still under execution. In such a factual setting, the learned CIT(A) adopted an estimation approach and sustained 15% of the amount.
49. However, having regard to our reasoning already recorded in respect of on-money and other allied unaccounted business receipts, and particularly the principle that what is to be taxed is the income component embedded in such unaccounted business receipts and not the gross receipt as such, we are of the considered view that the same approach ought to be consistently applied here as well. Since the receipt is a business receipt in character, and not unexplained money in the abstract, only the profit element embedded therein can be taxed. Following the same line of reasoning adopted by us in the context of on-money receipts, and in the absence of any distinguishing factual basis warranting a higher estimate, we hold that the addition on account of scrap sale receipts should also be restricted to 8% of Rs. 1,87,58,370/-. To that extent, the assessee gets partial relief over and above what has been granted by the learned CIT(A).
50. Thus, Ground No. 5 of the assessee’s appeal for Assessment Year 2023-24 is partly allowed in the aforesaid terms. Ground No. 6, being general and argumentative in nature, stands disposed of accordingly.
51. In the result, the assessee’s appeal for Assessment Year 2023-24 is partly allowed.
52. We now take up the Revenue’s cross appeal in ITA No. 7787/Mum/2025 for Assessment Year 2023-24. The Revenue has challenged the relief granted by the learned CIT(A) on multiple counts, namely restriction of on-money addition to 15%, restriction of disallowance in respect of subcontracting expenditure, deletion of separate addition under section 69C, deletion of addition under section 43CA, restriction of addition relating to unaccounted scrap sale receipts, and the telescoping / allowance of notional expenditure out of on-money receipts.
53. In so far as Ground Nos. 1, 3, 5, 6, 7, 8, 9, 10 and 11 of the Revenue’s appeal are concerned, these relate either directly or incidentally to the taxability of on-money receipts, corresponding unaccounted expenditure, or the treatment of scrap sale receipts as unaccounted business receipts. Since we have already adjudicated these very issues in the assessee’s appeal for the same year and in the appeals for A.Y. 2024-25, and have held that only the profit element at 8% of the gross alleged receipts can be taxed and that separate additions on account of related expenditure cannot survive independently beyond such estimation, these grounds raised by the Revenue must necessarily fail. The Revenue’s grievance proceeds on the same premise which we have already rejected, namely that the gross receipt should itself be taxed as income and that no allowance or telescoping should be granted. For the reasons recorded by us in detail hereinabove, these grounds are dismissed.
54. Ground No. 2 of the Revenue’s appeal pertains to the disallowance of sub-contracting expenditure booked through Senghani Creators Pvt. Ltd. Since this issue also stands squarely covered against the Revenue by our detailed findings recorded while dealing with the assessee’s appeal for A.Y. 2024-25 and by our application of the same reasoning to A.Y. 2023-24, this ground too is devoid of merit and is accordingly dismissed.
55. We now come to Ground No. 4 of the Revenue’s appeal for A.Y. 2023-24, whereby the Revenue has challenged the deletion by the learned CIT(A) of the addition made by the Assessing Officer under section 43CA of the Act. The grievance of the Revenue is that the learned CIT(A) erred in holding that section 43CA was not attracted merely because the project was under construction and no registered sale deed or possession had been completed during the year, despite the fact that agreements to sell had been executed and consideration had been received.
56. The facts relevant for this issue are that during the course of assessment the Assessing Officer noticed that the agreement value in respect of a residential flat sold by the assessee was allegedly lower than the stamp duty value adopted by the registering authority. He therefore invoked section 43CA and substituted the stamp duty value as the deemed sale consideration, leading to an addition of Rs. 12,90,503/-, being the difference between the stamp duty value as adopted by him and the declared agreement value.
57. In appeal, the assessee submitted before the learned CIT(A) that the provisions of section 43CA were not applicable in the facts of the present case because the project was still under construction and no registered conveyance or completed transfer had taken place during the relevant year. It was further submitted that the assessee was following the Project Completion Method of accounting and no revenue in respect of the project had been recognized during the year. It was also specifically pointed out that the Assessing Officer had proceeded on an incorrect factual assumption regarding the stamp duty valuation itself and had taken the valuation at Rs. 47,61,000/-, whereas as per Index II / agreement records, the actual stamp duty valuation was only Rs. 27,73,000/-.
58. The learned CIT(A), after examining the agreement copy, Index II and the factual matrix, found merit in the assessee’s contentions. He held that section 43CA contemplates transfer of land or building or both held as stock-in-trade, and in the present case what existed during the year was only an agreement to sell in the context of an ongoing under-construction project, where the assessee was following Project Completion Method. The learned CIT(A) also specifically noted that the Assessing Officer had inadvertently adopted a wrong stamp duty value and that even on merits the declared consideration was not lower in the manner assumed by the Assessing Officer. The relevant finding of the learned CIT(A), as noted in the draft order, reads as under:
“48. Further, the appellant on merits has submitted that the AO has inadvertently worked out the market value on the basis of stamp duty valuation at Rs 47,61,000/-. On perusal of the agreement copy (Index 2), it is seen that the stamp duty value of the said flat as derived by the municipal authority is Rs 27,73,000/-. The appellant has submitted that the even during the course of assessment proceedings, the said copy of the agreement was provided but the AO has inadvertently taken the stamp duty value at Rs 47,61,000/- The copy of Index 2 is reproduced as below:
49. Therefore, in view of the above, the addition made by the AO is not sustainable on merit and also as per legal proviso of section 43CA in view of the judgement of jurisdictional ITAT. Therefore, the addition of Rs. 12,90,503/- made by the Assessing Officer is hereby deleted. Hence, this ground of appeal stands allowed”
59. Before us, the learned counsel for the assessee reiterated that there was no infirmity in the appellate order and that both on legal principle and on factual computation the addition under section 43CA had rightly been deleted. The learned Departmental Representative, on the other hand, submitted that once rights in property were created through agreements to sell and consideration was received or accrued, section 43CA was attracted and registration or handing over of possession was not decisive.
60. We have given our thoughtful consideration to this issue. The learned CIT(A), in our view, has correctly appreciated both the factual and legal dimensions of the matter. Firstly, there is a factual finding that the Assessing Officer had proceeded on an erroneous stamp duty valuation, and that the actual stamp duty value as emerging from the agreement record was different. Secondly, the assessee’s project was admittedly under construction and the assessee was following Project Completion Method. Thirdly, in the facts of the case, the learned CIT(A) has taken a view, supported by the material before him and by the jurisdictional legal understanding, that no taxable event of the nature envisaged by section 43CA had arisen during the year in the manner assumed by the Assessing Officer. We do not find any perversity or legal infirmity in such finding. Even independently viewed, once the very factual foundation of the Assessing Officer’s computation, namely the adopted stamp duty value, is shown to be erroneous, the addition cannot survive. We therefore uphold the order of the learned CIT(A) deleting the addition of Rs. 12,90,503/-. Ground No. 4 raised by the Revenue is dismissed.
61. In the result, the Revenue’s appeal for Assessment Year 2023-24 is dismissed.
62. We now proceed to the assessee’s appeal for Assessment Year 2022-23 in ITA No. 7877/Mum/2025. The grounds raised by the assessee for that year read as under:
“1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in reopening the assessment proceeding u/s 147 of the Income Tax Act, 1961, without considering the fact and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in reducing the amount to the extent of Rs. 27,37,028/- being 5% of Rs. 5,47,40,569/-from WIP of the appellant by treating genuine sub-contracting expenses incurred on Senghani Creators Pvt. Ltd. as alleged bogus expenses, without considering the facts and circumstances of the case.
3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) and the Learned Assessing Officer erred in making additions on the basis of uncorroborated statements which were later retracted, without considering the facts and circumstances of the case and position of law.
4. The appellant craves leave to add, amend, alter or delete the said ground of appeal.”
63. At the time of hearing, the principal arguments addressed before us in relation to Assessment Year 2022-23 were on Ground Nos. 2 and 3, which relate to the disallowance arising from the transactions with Senghani Creators Pvt. Ltd. The issue involved in these grounds is identical in all material respects to the issue already adjudicated by us while deciding Ground Nos. 7 and 8 of the assessee’s appeal for Assessment Year 2024-25. Since we have, after detailed discussion, held that the disallowance sustained by the learned CIT(A) is unsustainable and that the assessee’s claim stands duly supported by documentary evidence, our said conclusion shall apply mutatis mutandis to the present year as well. Accordingly, Ground Nos. 2 and 3 of the assessee’s appeal for Assessment Year 2022-23 are allowed and the Assessing Officer is directed to delete the disallowance and restore the corresponding adjustment in Work-in-Progress.
64. In view of the relief granted on merits and having regard to the manner in which the arguments were addressed before us, Ground No. 1 challenging the reopening does not call for separate adjudication in this segment and is left as per record / to be disposed of in the final integrated draft consistently with the proceedings as reflected in the original order.
65. We now take up the Revenue’s cross appeal in ITA No. 7786/Mum/2025 for Assessment Year 2022-23. The Revenue has challenged the order of the learned CIT(A) on the issue of restriction of disallowance of subcontracting expenditure, deletion of substantive addition under section 69C, and telescoping benefit of cash expenditure.
66. In so far as Ground No. 1 of the Revenue’s appeal is concerned, the same pertains to disallowance of subcontracting expenditure and stands squarely covered against the Revenue by our findings recorded in the preceding paragraphs. For the reasons already given in detail, the Revenue’s attempt to sustain the disallowance cannot be accepted and this ground is dismissed.
67. Ground Nos. 2 and 3 of the Revenue’s appeal relate to the deletion of substantive addition under section 69C and the grant of telescoping benefit in respect of cash expenditure. These grounds proceed on the assumption that such additions could survive independently notwithstanding the treatment of the related receipts / project outflows in the overall factual matrix. Since the facts involved are interconnected and since the relief granted in the assessee’s favour on the core issue has already been upheld, we do not find any merit in the Revenue’s challenge on this aspect either. These grounds are also dismissed.
68. In the result, the assessee’s appeal for Assessment Year 2022-23 is allowed, and the Revenue’s appeal for the said year is dismissed.
69. We now take up the assessee’s appeal for Assessment Year 2021-22, being ITA No. 7876/Mum/2025. The grounds raised by the assessee read as under:
“1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in reopening the assessment proceedings u/s 147 of the Income Tax Act, 1961, without considering the facts and circumstances of the case.
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in reducing the amount to the extent of Rs.1,22,458/- (being 5% of Rs.24,49,165/-) from WIP of the appellant by treating genuine sub-contracting expenses incurred on Senghani Creators Pvt. Ltd. as alleged bogus expenses, without considering the facts and circumstances of the case.
3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) and the Learned Assessing Officer erred in making additions on the basis of uncorroborated statements which were later retracted, without considering the facts and circumstances of the case and position of law.
4. The appellant craves leave to add, amend, alter or delete the said ground of appeal.”
70. At the outset, it is noted from the record that the learned Authorised Representative, during the course of hearing, did not press Ground No. 1 relating to the challenge to reopening under section 147. Accordingly, the same is dismissed as not pressed.
71. In so far as Ground Nos. 2 and 3 are concerned, these again relate to the disallowance of sub-contracting expenditure routed through Senghani Creators Pvt. Ltd. and consequential reduction from Work-in-Progress, and the grievance of the assessee that such additions have been made merely on the basis of statements and third-party search findings without any independent corroborative evidence. The issue, in its essence, is identical to the one which we have elaborately examined and adjudicated while dealing with Assessment Years 2024-25 and 2023-24, wherein after a detailed appreciation of facts, evidences and legal principles, we have held that the assessee had duly discharged its onus by furnishing comprehensive documentary evidence and that no adverse inference could be drawn merely on generalized observations arising from search proceedings in the case of a third party.
72. We have already recorded a categorical finding that the Assessing Officer has not pointed out any specific defect in the evidences furnished, nor has he established that the work was not executed or that the payments made through banking channels were fictitious or had returned to the assessee in any form. We have further held that the presumption under section 132(4A) cannot be extended mechanically to the assessee in absence of incriminating material found in its possession, and that an ad hoc disallowance, divorced from any cogent basis, cannot be sustained merely to cover perceived irregularities in the affairs of another entity.
73. Respectfully following the same reasoning and adopting a consistent approach across the years under appeal, we hold that the disallowance sustained by the learned CIT(A) at 5% in the present year also cannot be sustained. Accordingly, Ground Nos. 2 and 3 of the assessee’s appeal for Assessment Year 2021-22 are allowed and the Assessing Officer is directed to delete the addition and restore the corresponding amount in Work-in-Progress.
74. In the result, the assessee’s appeal for Assessment Year 2021-22 is allowed.
75. Before parting, it would be apposite to encapsulate the broad contours of the adjudication across all the years under consideration, as the issues involved emanate from a common search action and revolve around recurring themes of alleged on-money receipts, alleged unaccounted cash expenditure, disallowance of subcontracting expenses, and applicability of deeming provisions.
76. In so far as the issue of on-money receipts is concerned, we have, after an exhaustive analysis of facts and judicial precedents, reiterated the well-settled principle that gross receipts cannot be equated with income, and that in cases of alleged unaccounted receipts in real estate transactions, only the profit element embedded therein is liable to be taxed. Applying this principle, and taking into account the nature of the assessee’s project and judicial guidance available, we have held that estimation at 8% of the alleged on-money receipts would meet the ends of justice, in substitution of the 15% adopted by the learned CIT(A).
77. In respect of the alleged unaccounted cash expenditure, we have upheld the fundamental proposition that where such expenditure is intrinsically linked to the same stream of unaccounted receipts, separate addition thereof would result in impermissible double taxation, and therefore, telescoping or set-off is a logical and necessary consequence of taxing the profit element of such receipts. Once the profit is estimated, all related expenditures are deemed to have been allowed, and no independent addition survives.
78. On the issue of sub-contracting expenses routed through Senghani Creators Pvt. Ltd., we have examined the matter threadbare and have come to a firm conclusion that the assessee has discharged its evidentiary burden by placing on record exhaustive documentary proof, and that no specific defect, falsity or inflation has been demonstrated by the Assessing Officer. We have held that adverse inference based solely on third-party search findings, without direct nexus, is legally unsustainable, and accordingly, the entire disallowance sustained by the learned CIT(A) has been directed to be deleted across all years.
79. On the issue of addition under section 43CA, we have upheld the findings of the learned CIT(A) on both factual and legal grounds, noting that the Assessing Officer proceeded on an incorrect stamp duty valuation and that in the facts of the case, no taxable event warranting invocation of section 43CA had arisen during the year.
80. On the issue of scrap sale receipts, we have held that such receipts are business receipts in nature and cannot be taxed under section 69A, and that only the income component embedded therein is liable to be taxed, which we have consistently estimated at 8%, in line with our findings on on-money receipts.
81. Thus, adopting a consistent, coherent and legally sustainable approach across all the years, we have harmonized the treatment of unaccounted receipts and related expenditures, ensuring that only real income is brought to tax, and that no part of the same stream of income is subjected to multiple taxation under different provisions.
82. In the result:
Assessee’s appeals (ITA No. 7876 to 7879/Mum/2025) are partly allowed (A.Y. 2024-25 & 2023-24) and allowed (A.Y. 2022-23 & 2021-22) in terms indicated above.
Revenue’s appeals (ITA No. 7786 to 7788/Mum/2025) are dismissed.
Order pronounced on 20th April, 2026.
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