Munir Usmanbhai Ghanchi Vs ITO (ITAT Ahmedabad)
Entire Land Deal Receipts Cannot Be Taxed as Income: ITAT Restricts Addition to Estimated Profit Element
The Ahmedabad ITAT granted major relief to an assessee engaged in purchase and sale of land plots by holding that entire business receipts, advances and property transaction amounts cannot automatically be treated as unexplained cash credits under Section 68. The Tribunal observed that only the profit element embedded in disputed receipts could be brought to tax.
The reassessment was reopened based on RMS information relating to high-value property transactions, cash deposits and non-filing of return. The Assessing Officer ultimately made additions exceeding ₹6.72 crore, including ₹6 crore under Section 68 towards current liabilities, addition towards opening capital, disallowance under Section 80C and addition for alleged undisclosed business receipts.
Before the Tribunal, the assessee furnished detailed reconciliation of liabilities, advances, property dealings and turnover. It was explained that the amounts largely represented advances received against land transactions, temporary financial accommodation from relatives and business receipts connected with real-estate dealings. The assessee also pointed out that many receipts had already been offered as business turnover and certain transactions related to properties handled as power-of-attorney holder for family members.
The ITAT found that the AO had mechanically treated entire closing liabilities as unexplained cash credits without appreciating the business nature of transactions. The Tribunal specifically observed that in such cases, the entire receipts cannot be taxed and only the embedded profit element can be assessed. Considering the facts, incomplete verification and nature of land business, the ITAT estimated taxable income at 15% of disputed turnover of ₹1.87 crore and restricted the addition to ₹28.16 lakh instead of ₹6 crore.
The Tribunal further deleted addition relating to opening capital after accepting that the same was supported by Income Declaration Scheme (IDS) declarations. Deduction under Section 80C towards LIC premium was also allowed based on supporting evidence. Addition towards undisclosed business receipts was deleted after the Tribunal accepted that the amounts were already part of declared turnover and related family property transactions.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
