Palm View Developers Vs ITO (ITAT Ahmedabad)
Ahmedabad ITAT Taxes Only 20% Profit Element on Unaccounted Cash Receipts of Builder
The Ahmedabad ITAT partly allowed the assessee’s appeal by holding that only the profit element embedded in unaccounted business receipts could be brought to tax and not the entire cash receipts. During a survey, a slip containing details of ₹1 crore of unaccounted cash receipts was found, and one of the partners admitted the receipts and stated that the amount would be offered to tax. Since the assessee failed to honour the disclosure in its return, the Assessing Officer treated the entire ₹1 crore as unaccounted income, which was confirmed by the CIT(A).
The Tribunal first condoned the 596-day delay in filing the appeal, subject to the assessee depositing ₹10,000 in the Prime Minister’s National Relief Fund. On merits, it accepted the assessee’s contention that the amount represented business receipts and not the entire income. It observed that although the assessee was engaged in the business of building and construction, where profit margins are relatively higher, taxing the entire receipts as income would not be justified.
Considering the nature of the business and the overall facts of the case, the Tribunal estimated the profit element at 20% of the unaccounted receipts and sustained the addition only to that extent, deleting the balance 80%. The appeal was partly allowed, subject to verification of compliance with the direction regarding deposit of costs.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad [hereinafter referred to as ‘Ld. CIT(A)’] dated 26/04/2023 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2014-15.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income.
2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income only on the basis of disclosure made by Smt. Parul J. Shah, one of the partners of the assessee firm, having 25% share in the firm, during the course of survey proceedings.
3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income without considering that the disclosure was made without consulting and informing the other partners of the assessee firm having profit sharing ratio of 75%.
4. On the facts and circumstances of the case as well as law on the subject, the learned C1T(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income without considering that remaining three partners of firm had furnished an affidavit before assessing officer denying the cash receipts and that they were not aware about the disclosure made during survey.
5. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income without considering that there is no evidentiary value of survey statement.
6. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income without considering that no addition can be made merely on the basis of loose sheets where only amount and dates are mentioned and no other details are mentioned.
7. Alternatively and without prejudice to the above grounds, on the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,00,000/- as unaccounted income without considering that only profit element out of the net receipts can be chargeable to tax.
8. It is therefore prayed that the above addition/disallowance made by the assessing officer may please be deleted.
9. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
3. The assessee in this appeal is aggrieved by the action of the Ld. CIT(A) in confirming the addition made by the Assessing Officer (in short “the AO”) of Rs. 1 crore on account of failure of the assessee to honour his commitment made before the survey party by the partner of the assessee firm on 24.03.2014, that it will offer the said amount for taxation.
3.1 The appeal of the assessee is time barred by 596 days. A separate application for condonation of delay has been filed, wherein, it has been pleaded that there was an internal dispute among the partners of the firm and even one of the partner had been in imprisonment in a criminal case for almost 9 months. That because of the aforesaid reasons, the delay in filing the present appeal has occurred.
4. Considering the averments made in the application, in our view, the interests of justice will be well-served if the delay in filing the present appeal is condoned subject to deposit of reasonable costs by the assessee. We, therefore, condoned the delay in filing the present appeal subject to deposit of Rs. 10,000/- by the assessee in Prime Minister’s National Relief Fund within 15 days from today.
Now coming to the merits of the case
5. The sole issue in this appeal is relating to the addition made by the AO of Rs. 1 crore on account of alleged unaccounted receipts by the assessee. During the course of survey action, a slip containing the details of the cash/unaccounted receipts was found. When the partner of the assessee namely Ms. Parulbein Shah was confronted with the said slip, she admitted of having received the amount mentioned in the slip in cash, which was not accounted for in the books of account of the assessee. She made a statement before the survey party that the said receipt would be offered for taxation in the Income Tax Return.
However, subsequently, the assessee did not offer the said amount for taxation. The Assessing Officer (hereinafter referred to as “the AO”) under the circumstances, made the addition of the said amount of Rs. 1 crore as mentioned in the slip, as unaccounted receipts of the assessee. The Ld. CIT(A) confirmed the additions so made by the AO.
6. We have heard the rival contentions and gone through the records.
7. The only contention made by the Ld. AR of the assessee is that the amount mentioned in the slip was the ‘receipts’ of business and not the income of the assessee. He has submitted that only profit element embedded in such receipts should be taxed and not the entire receipts.
8. The Ld. DR, on the other hand, has submitted that the assessee is a builder and it is highly probable that the entire cash receipts is the income of the assessee as the assessee might have booked all the expenditure incurred by it and not accounted the cash receipts.
9. We have considered the rival submissions and gone through the record. The assessee is engaged in the activity of building and construction. The profit element in such activity is higher than other businesses. However, taking into consideration the overall facts and circumstances of the case, in our view, the addition of the entire cash receipts would not be justified. We after considering the overall facts and circumstances of the case, assess the profit element on such receipts at a higher side i.e. @ 20% and confirm the addition to that extent. The remaining addition to the extent of 80% of the receipt stands deleted. The AO will give effect to the order passed by this Tribunal, subject to the verification that the assessee has deposited the cost imposed in the Prime Minister’s National Relief Fund as order.
10. With the above observations, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 31/07/2026.
