S B Patel Infrastructure Private Limited Vs ITO Ward–2(1)(3) (ITAT Ahmedabad)
Rejection of books of account under section 145 is not justified merely because a real estate developer follows the completed contract or project completion method, or because different flats are sold at different documented rates. In the absence of specific defects in the books or cogent evidence of actual receipt of on money, addition for alleged undisclosed consideration based merely on an assumed common base price and estimation cannot be sustained.
Summary: The assessee was engaged in real estate development and was developing a project named Eshanya Floreza. It consistently followed the completed contract/project completion method for recognition of revenue. For AY 2014-15, the assessee returned a loss of Rs. 41,60,727. The Assessing Officer noticed that approximately 90% of the sale consideration had been received in respect of 26 flats, whereas revenue had been recognized only in respect of four flats on the basis of sale deeds executed during the year. The AO also noticed variations in the rates mentioned in construction agreements for flats having similar specifications. On these grounds, the AO rejected the books under section 145 and estimated profit at 8% of the receipts of Rs. 7,09,86,589, resulting in an addition of Rs. 56,78,927. The AO further adopted Rs. 16.75 lakh as a common base price for the flats and made an addition of Rs. 1,94,04,869 towards alleged undisclosed receipts. The CIT(A) partly allowed the appeal but upheld the rejection of books. The Tribunal held that the completed contract/project completion method was a recognised method of accounting and had been consistently followed by the assessee. Merely because the AO considered that revenue should have been recognised earlier owing to substantial receipt of sale consideration could not establish that the books were incorrect or incomplete. The Tribunal further noted that the AO, after rejecting the books, applied an 8% profit rate to receipts already recorded in the books and did not independently determine income under the percentage completion method. No specific defect such as unrecorded sales, suppression of receipts, incorrect valuation of work-in-progress or other accounting infirmity was established. Variation in agreement rates for different flats, by itself, also could not establish receipt of undisclosed consideration. The addition of Rs. 1,94,04,869 was principally based on adoption of Rs. 16.75 lakh as a common base price for all flats, without evidence that such amount represented the actual agreed consideration or was actually received from each purchaser. The Tribunal also found that payments referred to in purchaser inquiries related to extra work undertaken by Jay Ambay Construction under separate agreements and did not establish receipt by the assessee-company. The fact that Shri S. B. Patel was also a director of the assessee-company was insufficient to attribute receipts of the separate proprietorship concern to the company. None of the purchasers admitted payment of on-money to the assessee-company. Relying upon PCIT v. Shri Pushkar Construction Co., DCIT v. Era Realtors (P.) Ltd. and Prashant Arjunrao Kolhe v. DCIT, the Tribunal held that the alleged undisclosed consideration could not be sustained on suspicion, assumption or estimation without cogent evidence connecting the alleged receipt with the assessee. The rejection of books under section 145 was therefore held unsustainable and the addition of Rs. 1,94,04,869 was deleted. The decision for AY 2014-15 was applied mutatis mutandis to AY 2015-16. Both appeals were allowed. Section 145 governs the method of accounting and the circumstances in which the books may be rejected; the Tribunal found that the statutory threshold was not met on the facts of the present case.
Facts. The assessee was engaged in real estate development and was developing a project named Eshanya Floreza. It consistently followed the completed contract/project completion method for recognition of revenue. For AY 2014-15, the assessee returned a loss of Rs. 41,60,727. The Assessing Officer noticed that approximately 90% of the sale consideration had been received in respect of 26 flats, whereas revenue had been recognized only in respect of four flats on the basis of sale deeds executed during the year. The AO also noticed variations in the rates mentioned in construction agreements for flats having similar specifications. On these grounds, the AO rejected the books under section 145 and estimated profit at 8% of the receipts of Rs. 7,09,86,589, resulting in an addition of Rs. 56,78,927. The AO further adopted Rs. 16.75 lakh as a common base price for the flats and made an addition of Rs. 1,94,04,869 towards alleged undisclosed receipts.
AO/CIT(A) Finding. The AO considered the project completion method inappropriate on the ground that substantial sale consideration had already been received but revenue had not been recognized proportionately. The AO also considered the variation in agreement rates for similar flats as an indication of possible undisclosed consideration. He therefore rejected the books under section 145, estimated profit at 8% of the recorded receipts and separately computed alleged undisclosed consideration by adopting a common base price of Rs. 16.75 lakh per flat. The CIT(A) partly allowed the appeal but upheld the rejection of books. The assessee challenged the rejection of books and the addition for alleged undisclosed receipts before the Tribunal.
ITAT Finding on Rejection of Books. The Tribunal held that the completed contract/project completion method was a recognised method of accounting and had been consistently followed by the assessee. Merely because the AO considered that revenue should have been recognised earlier, owing to receipt of substantial sale consideration, could not establish that the books were incorrect or incomplete. The preference of the AO for another method of revenue recognition was not sufficient to invoke section 145.
The Tribunal further noted that, after rejecting the books, the AO himself applied the 8% profit rate to receipts already recorded in the books of account. The AO did not demonstrate that the recorded receipts were incorrect or incomplete, nor did he independently compute the project profit under the percentage completion method. No specific defect such as unrecorded sales, suppression of receipts, incorrect valuation of work in progress or other accounting infirmity was established.
The Tribunal also held that variation in agreement rates for different flats, by itself, could not establish receipt of undisclosed consideration. Differences could arise because of timing of booking, payment terms, location of flats, specifications, material, negotiations and other commercial factors. In the absence of cogent evidence showing actual receipt of additional consideration, the books could not be rejected merely on the basis of variation in rates. Accordingly, rejection of books under section 145 was held to be unsustainable and deleted.
ITAT Finding on Alleged Undisclosed Receipts. The addition of Rs. 1,94,04,869 was based principally on adoption of Rs. 16.75 lakh as a common base price for all flats and computation of alleged undisclosed consideration with reference to the percentage of sale consideration received. The Tribunal held that there was no evidence establishing that Rs. 16.75 lakh was the actual agreed consideration for every flat or that the assessee had actually received such amount from each purchaser.
The Tribunal emphasized that variation in documented sale consideration cannot, by itself, establish receipt of on money. The Revenue was required to produce positive and cogent material demonstrating that the assessee had actually received consideration over and above the amount recorded in its books.
Extra Work Payments. The AO had relied upon inquiries from purchasers concerning payments towards extra work. The Tribunal found that such payments related to Jay Ambay Construction, under separate agreements for extra work, and not to the assessee-company. The corresponding receipts were stated to have been accounted for in the hands of its proprietor, Shri S. B. Patel. The mere fact that Shri S. B. Patel was also a director of the assessee-company could not justify attribution of receipts of the separate proprietorship concern to the assessee-company.
The Tribunal also noted that none of the purchasers admitted payment of on money to the assessee-company for purchase of the flats. The material relied upon by the Revenue related to extra work and did not establish that the payments were actually received by the assessee-company as undisclosed sale consideration.
Cases Relied Upon. The Tribunal relied upon PCIT v. Shri Pushkar Construction Co., 2023 (5) TMI 1113 – Gujarat High Court, in support of the principle that alleged undisclosed consideration cannot be added merely on suspicion or estimated differential consideration without cogent material establishing actual receipt.
Reliance was also placed on DCIT v. Era Realtors Pvt. Ltd., 2025 (6) TMI 1990 – ITAT Mumbai, and Prashant Arjunrao Kolhe v. DCIT, 2016 (11) TMI 1055 – ITAT Mumbai, supporting the principle that an addition for alleged unaccounted consideration cannot be sustained merely on assumptions or estimation without evidence connecting the alleged receipt to the assessee.
Outcome. The ITAT held that the rejection of books of account under section 145 was not sustainable. The addition of Rs. 1,94,04,869 for alleged undisclosed receipts was also deleted as it was based on inference and estimation rather than cogent evidence of actual receipt of on money. The decision for AY 2014-15 was applied mutatis mutandis to AY 2015-16. Both appeals were allowed.
Ratio. A consistently followed project completion method cannot be rejected merely because the Assessing Officer prefers percentage completion or because substantial sale consideration has been received. Further, variation in documented flat prices or payments towards extra work cannot justify an addition for on money unless there is cogent evidence establishing actual undisclosed consideration received by the assessee.
Cases Discussed
- PCIT v. Shri Pushkar Construction Co., 2023 (5) TMI 1113 – Gujarat High Court — relied upon for the principle that alleged undisclosed consideration cannot be sustained merely on suspicion or estimated differential consideration without cogent material establishing actual receipt.
- DCIT v. Era Realtors (P.) Ltd., 2025 (6) TMI 1990 – ITAT Mumbai — relied upon in support of the principle that the burden regarding alleged unaccounted consideration cannot be discharged merely through an assumption.
- Prashant Arjunrao Kolhe v. DCIT, 2016 (11) TMI 1055 – ITAT Mumbai — relied upon in support of the principle concerning alleged unaccounted consideration
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These two appeals are filed by the Assessee against separate orders of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] both dated 12.12.2022 for the Assessment Years (A.Y.) 2014-15 and 2015-16 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”]. As the issues involved and the grounds taken by the assessee in the two appeals were identical, both the matters were heard together and are being disposed of vide this common order for the sake of convenience. We will take the appeal in ITA No. 78/Ahd/2023 for the A.Y. 2014-15 as the lead case.
ITA No. 78/Ahd/2023: A.Y. 2014-15
2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2014-15 on 12.09.2014 declaring loss of Rs. 41,60,727/-. The case was selected for scrutiny and a notice u/s. 143(2) of the Act was issued on 01.09.2015. The assessee is engaged in realty business and developing a project names Eshanya Floreza. The assessee was following the completed contract method of accounting which, according to the AO, did not reflect the correct profit. The AO noticed that the assessee had received 90% of sale price in respect of 26 flats, whereas revenue was recognized in respect of 4 flats only, on the basis of sale deeds executed during the year. The AO also noticed that though the specification of flats was identical, the construction agreement was entered into with the buyers at different rates. The AO, therefore, rejected the books of accounts of the assessee and worked out the profit at the rate of 8% of the receipt of Rs 7,09,86,589/- as disclosed in the books of accounts and accordingly made addition of Rs. 56,78,927/-. The AO also rejected the explanation of the assessee regarding difference in the booking rate of different flats and he took the base price of all the flats at Rs 16.75 lakhs. Taking into account the percentage receipt of the sale consideration, the AO worked out the proportionate undisclosed income on the basis of the common base price as adopted and accordingly made addition of Rs. 1,94,04,869/-. The assessment was completed u/s. 143(3) of the Act on 29.12.2016 at total income of Rs. 2,50,83,796/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed.
4. Now, the assessee in second appeal before us. The following grounds have been taken in this appeal:
1) The Ld. CIT(A) erred in law and on facts has confirmed the rejection of Books of Accounts under section 145 of the IT Act but on the ground of additions which were made by the Assessing Officer over and above the estimation of Book Profits at the rate of 8% of the Business Receipts.
2) The Ld. CIT(A), therefore, erred in law and on facts and has twisted and modified the entire action of the Assessing Officer and thereby has confirmed both the rejection of Book Results under Section 145 of the Act as well as the further additions of Rs. 1,94,04,869/- made on account of undisclosed receipts.
3) The appellant craves leave to add, to alter, delete or modify the grounds of appeal either before or at the time of hearing of this appeal.
Ground No.-1: Rejection of books of acoounts
5. The First Ground taken by the assessee is against the rejection of books of accounts. Shri Mehul K. Patel, the Ld. AR of the assessee explained that the AO had rejected the books of accounts for the reason that the project completion method as adopted by the assessee did not reflect the correct profit. He submitted that the AO did not apply the alternate percentage completion method to work out the profit, while rejecting the books of accounts of the assessee. Rather, the AO had applied only profit rate of 8% on the receipts as disclosed by the assessee in its books of accounts. Thus, the AO had relied on the books of accounts for working out the income and, therefore, the action of the AO in rejecting the books of accounts was not correct. The Ld. AR submitted that the project completion method was a recognized method of accounting which was regularly followed by the assessee and the AO was not correct in rejecting the same. The Ld. AR further submitted that the finding of the Ld. CIT(A) while upholding the rejection of books of accounts was self-contradictory. He explained that since the Ld. CIT(A) had deleted the estimation of profit at the rate of 8% of the receipts, he was not correct in upholding the rejection of books of accounts.
6. Per contra, Shri Amit Pratap Singh, the Ld. SR-DR submitted that the AO had rejected the books of accounts not only for the method of accounting as adopted by the assessee but also for the reason that there was a wide variation in the rate of agreement with different buyers for identical flats. He explained that though a nominal variation in the rate of booking might be acceptable, the variation in the case of the assessee was much wider, which was not explained by the assessee. The Ld. SRDR further submitted that the AO had made inquiry with some of the buyers which reflected that assessee had received certain amount over and above the documented price. He, therefore, strongly supported the order of the AO in rejecting the books of accounts and estimating the income at the rate of 8% of the receipts.
7. We have considered the rival submissions and perused the material available on record. The assessee is engaged in the business of real estate development and it is an admitted position that the assessee was following the completed contract/project completion method for recognition of revenue. The AO, however, was of the view that the said method did not reflect the correct profit of the year. He noticed that in respect of 26 flats, the assessee had received approximately 90% of the sale consideration, whereas revenue was recognized only in respect of four flats on the basis of the sale deeds executed during the year. On this basis, as well as on account of variation in the rates mentioned in the construction agreements for flats having identical specifications, the AO rejected the books of account u/s 145 of the Act. The AO thereafter estimated profit at 8% of the receipts of Rs. 7,09,86,589/- disclosed in the books and made an addition of Rs. 56,78,927/-. He further adopted Rs. 16.75 lakh as the base price for all the flats and, by taking into consideration the percentage of sale consideration received, worked out a further addition of Rs. 1,94,04,869/- on account of alleged undisclosed income.
8. Section 145 of the Act permits the Assessing Officer to disregard the accounts and make an assessment in the manner provided u/s 144 of the Act, where he is not satisfied about the correctness or completeness of the accounts, or where the prescribed conditions relating to the method of accounting are not fulfilled. However, the power to reject the books is not an unfettered power. There has to be a reasonable and cogent basis for arriving at the satisfaction that the income cannot properly be deduced from the accounts maintained by the assessee. In the present case, the first objection of the AO is essentially directed against the completed contract/project completion method followed by the assessee. The mere fact that, according to the AO, income should have been recognized earlier because substantial consideration had been received cannot, by itself, establish that the books of account were incorrect or incomplete. The project completion method has been judicially recognized as an accepted method of accounting in the context of real estate development, particularly where such method is regularly and consistently followed. It is not the case of the Revenue that the project completion method is not a recognized method of accounting. Therefore, the method as adopted by the assessee wherein the revenue was recognized on the basis of sales effected during the year cannot be faulted. The mere preference of the AO for another method of revenue recognition cannot constitute a sufficient ground for rejection of the books of accounts.
9. It is also material that the AO did not proceed to determine the income under the percentage completion method after rejecting the project completion method. Instead, he applied an estimated profit rate of 8% to the receipts of Rs. 7,09,86,589/- already disclosed by the assessee in its books. Thus, the AO has not demonstrated how the accounts maintained by the assessee were incapable of yielding the correct profit. Further, the receipts recorded in the books, which were relied upon for estimating the profit, were not shown to be incorrect or incomplete. The second reason cited by the AO relates to variation in the rates of construction agreements for different flats. It is certainly open to the AO to examine substantial variation in the consideration of ostensibly identical units. However, variation in the agreement rate, by itself, does not establish receipt of undisclosed consideration. There may be several commercial factors affecting the price of individual units, including the stage of booking, timing of booking, location within the project, terms of payment, negotiations with individual purchasers and other commercial considerations. Unless the AO brings on record cogent material demonstrating that the difference between the documented consideration and the alleged actual consideration was in fact received by the assessee, the mere variation in agreement rates cannot constitute a sufficient basis for rejecting the books of accounts. The AO has also relied upon inquiries made from certain purchasers. However, from the facts as brought on record, no specific quantified amount of unaccounted consideration received from any particular purchaser has been brought out so as to establish a direct correlation between the alleged receipt and the addition made by the AO. An estimation based upon general inference cannot substitute specific evidence of undisclosed consideration.
10. In the present case, the AO had essentially substituted his perception of the appropriate method of revenue recognition, for the method of accounting consistently followed by the assessee. No specific defect in the books, such as unrecorded sales, unexplained expenditure, incorrect valuation of work-in-progress, suppression of receipts or any other accounting infirmity having a direct bearing on the computation of profit, has been brought on record. We also find considerable force in the alternative submission of the assessee that, after rejecting the books, the AO did not undertake an independent computation of the project profit on the basis of the percentage completion method. Instead, the AO applied profit rate of 8% to the receipts already recorded in the books. The estimation of profit at 8% is also not shown to have been supported by any comparable case, past history of the assessee, project-specific profitability or any other cogent basis. It is also pertinent that the learned CIT(A), while upholding the rejection of books, has deleted the addition made by the AO by applying 8% profit rate. Though the deletion of the estimated addition by itself may not automatically invalidate a rejection u/s 145 of the Act, in the facts of the present case the same reinforces the absence of a sustainable basis for the estimation adopted by the AO. Once the specific method of estimation adopted by the AO has not been found sustainable, the Revenue is required to demonstrate independently that the accounts were so defective or unreliable that the true income could not be deduced therefrom. We do not find such demonstration in the materials available on record.
11. Considering the totality of the facts and circumstances, we are of the view that the AO was not justified in rejecting the books of account merely on the ground that the assessee had followed the completed contract/project completion method or merely on account of variation in the rates of different flats, without bringing sufficient material on record to establish suppression of sale consideration or any other specific defect which rendered the accounts unreliable for determination of the true profit. The Ld. CIT(A) too had held that accounting of income using project completion method instead of percentage completion method, cannot be a sufficient reason for rejection of books of accounts. If so, he was not correct in upholding the rejection of books of accounts by the AO, particularly when the AO had also made a separate addition for variation in the agreement value for sale of flats. The rejection of the books of account u/s 145 of the Act by the AO, is not found sustainable. Therefore, the ground taken by the assessee against the rejection of books of accounts, is allowed.
Ground No.-2: Addition for undisclosed receipts
12. The second ground pertains to addition of Rs. 1,94,04,869/- on account of undisclosed receipts. Shri Mehul K Patel, the Ld. AR, explained that this addition was made by the AO primarily for the reason that there was variation in the rate of booking of different flats. He explained that the difference in the amount as mentioned in the construction agreements was due to various factors such as timing of booking, payment terms, location of the flat, different specification of the buyers regarding construction/material, saleability of the projects, etc. Therefore, the AO was not correct in treating the base price of all the flats at Rs. 16.75 lakhs and working out the undisclosed income on that basis. He explained that no evidence for receipt of any extra amount was brought on record by the AO. The Ld. AR submitted that the inquiry made by the AO with two of the buyers had revealed payments of extra consideration by them towards extra work agreement with a third party and not with the assessee. He explained that the extra work agreement was done with Jay Ambay Construction and the amount received towards the extra work was accounted for and disclosed in the hands of the proprietor of the said concern Shri S B Patel. The Ld. AR contended that merely because Sh. S B Patel was also a director of the assessee company, the addition could not have been made in the hands of the assessee. He submitted that the addition made by the AO was based on a mere presumption and without any concrete evidence for receipt of any extra consideration than the amount as disclosed in the books of accounts. None of the buyers had admitted having made any on-money payment to the assessee company for purchase of flats and none of the sale deeds were executed below the jantri rate. The Ld. AR submitted that if any consideration was received by Jay Ambay Construction for undertaking extra work in the flats, the income pertaining to the extra work was required to be considered in the hands of the Jay Ambay Construction and not to the hands of the assessee company. The Ld. AR had also relied upon the following decisions:
i. PCIT Vs. Shri Pushkar Construction Co. [ 154 taxmann.com22 (Gujarat)]
ii. DCIT Vs. Era Realtors (P.) Ltd. [ 175 taxmann.com180 (Mumbai – Trib.)]
iii. Prashant Arjunrao Kolhe v. DCTI [ 75 taxmann.com 156 (Mumbai – Trib.)]
13. Per contra, Shri Amit Pratap Singh, the Ld. SR-DR supported the order of the lower authorities. He submitted that the AO had made inquiries in the course of assessment proceeding which clearly indicated that the assessee was receiving additional amount in the guise of extra work which was undisclosed income of the assessee.
14. We have considered the rival submissions and perused the material available on record. The AO noticed variation in the rates at which different flats were booked and, taking Rs. 16.75 lakh as the base price of all the flats, worked out proportionate undisclosed receipts with reference to the percentage of sale consideration received by the assessee. The resultant addition was quantified at Rs. 1,94,04,869/-. The moot question that requires answer in the present case is whether the AO had brought sufficient evidence on record to establish that the assessee-company had actually received undisclosed amount of Rs. 1,94,04,869/-. In our considered view, the answer to this question has to be in the negative.
15. The AO has proceeded by adopting Rs. 16.75 lakh as a common base price for all the flats. However, no material has been brought on record to establish that Rs. 16.75 lakh represented the actual agreed consideration for each of the flats or that the assessee had in fact received such amount from each purchaser. The adoption of a uniform base price is, therefore, founded upon an assumption rather than upon any direct evidence of actual receipt. Variation in the documented price of different flats cannot, by itself, establish receipt of on-money. In a real estate project, the consideration agreed between a developer and individual purchasers may vary for several commercial reasons. The explanation furnished by the assessee regarding timing of booking, payment terms, location, specifications, material and other negotiated factors cannot be rejected merely on the ground that the flats were broadly identical in their basic specifications. What is required is some positive material demonstrating that the difference between the recorded consideration and the alleged actual consideration was received by the assessee. In this connection, the decision of the Hon’ble Gujarat High Court in PCIT v. Shri Pushkar Construction Co. (supra), relied upon by the assessee, is relevant to the extent that an addition on account of alleged undisclosed consideration cannot be sustained merely on the basis of suspicion or an estimated differential consideration without cogent material establishing actual receipt. Likewise, the decisions relied upon by the learned AR in DCIT v. Era Realtors (P.) Ltd. (supra) and Prashant Arjunrao Kolhe v. DCIT, (supra), support the principle that the burden cannot be discharged merely by making an assumption regarding the existence of unaccounted consideration.
16. The inquiries conducted by the AO from two purchasers do not establish receipt of the impugned amount by the assessee-company. The AO has taken the base price of the flats at Rs 16.75 on the basis of statement of one Smt. Namita Kothi. As explained by her, the basic cost of Rs. 16.75 lakhs included extra work agreement made with Jay Ambay Construction to whom payment of Rs. 4 lakhs was made by cheque as well as by cash. The AO had concluded that payment for extra work as per agreement with Jay Ambay Construction was part of sale consideration received by the assessee. However, no inquiry was made as to whether the extra work consideration received by Jay Ambay Construction was accounted for the proprietor Shri S B Patel, in his own hands. Since there was a separate agreement for extra work executed with Jay Ambay Construction, the consideration received towards extra work could not have been subjected to tax in the hands of the assessee company. The explanation of the assessee is specific: the additional payments referred to by the purchasers were towards extra work, the agreements for such extra work were with Jay Ambay Construction and the corresponding receipts were accounted for in the hands of its proprietor, Shri S. B. Patel. The Revenue has not brought any material before us to establish that the amounts paid for such extra work were actually received by the assessee-company. The mere fact that Shri S. B. Patel was also a director of the assessee-company cannot, in our view, be sufficient to automatically attribute the receipts of a separate proprietorship concern to the assessee company. A company and a proprietorship concern are distinct taxable entities, and the attribution of a receipt to the assessee-company must be founded upon evidence showing that the receipt actually belonged to the company. In fact, none of the buyers examined by the AO admitted having paid any on-money to the assessee-company for acquisition of the flats. The material relied upon by the Revenue pertains to payments for extra work. There is thus a material distinction between an admission of payment of undisclosed consideration for purchase of a flat and an admission of payment for additional work undertaken by another person.
17. The fact that the sale deeds were not executed below the applicable jantri/stamp-duty value also assumes significance. While this fact by itself would not conclusively establish the correctness of the declared consideration, it does not support the Revenue’s allegation that the documented sale consideration was systematically suppressed. In the absence of any independent evidence of actual excess consideration, the differential worked out merely by applying an assumed common base price, cannot be treated as undisclosed receipt. There is no independent evidence establishing the fact that the assessee had actually received consideration at the assumed rate. It is well settled that an addition cannot be sustained merely because the AO considers the disclosed consideration to be low or considers a different consideration to be commercially more probable. There must be some material connecting the assessee with the alleged undisclosed receipt. In the present case, the Revenue has not demonstrated any such nexus. The working of undisclosed income as done by the AO was based on a mere presumption that all the flats were sold at uniform rate (of Rs. 16.75 lakhs), which can’t be feasible in any project. As explained by the assessee, the rate of agreement varies depending on various factors as already mentioned earlier. There was no evidence for receipt of any on-money by the assessee and none of the buyers had admitted having paid any on-money to the assessee company. In fact, the payment towards extra work consideration was made mostly through cheque and the ultimate destination of such payments was retrievable. The AO had simply considered payments towards extra construction work in the hands of the assessee, without establishing that the payment made towards extra work was accounted for in the books of accounts of the assessee company. In the absence of any evidence for receipt of on-money against the units sold by the assessee, the extrapolation of income as done by the AO was not justified.
18. In view of the facts as discussed above, we find that the addition of Rs. 1,94,04,869/- was made by the AO on mere inference and estimation rather than on cogent evidence of actual undisclosed receipt by the assessee. The variation in the rates of booking, cannot establish receipt of on-money and the material relating to extra work doesn’t establish that the corresponding receipts had accrued to or were received by the assessee-company. Therefore, the addition of Rs. 1,94,04,869/- made on account of alleged undisclosed receipts is not sustainable and the same is directed to be deleted. The ground taken by the assessee is allowed.
19. In the result, the appeal of the assessee is allowed.
ITA No. 79/Ahd/2023: A.Y. 2015-16
20. The facts involved and the grounds taken by the assessee in this appeal are identical to the grounds in ITA No. 78/Ahd/2023 for A.Y. 2014- 15. The decision taken by us in ITA No. 78/Ahd/2023 for A.Y. 2014-15 is, therefore, applicable mutatis mutandis to this appeal as well. Accordingly, the appeal of the assessee is allowed.
21. In the final result, both the appeals of the assessee are allowed.
Order pronounced in the Court on 08/09/2026 at Ahmedabad.
