ACIT Vs Western Constructions (ITAT Hyderabad)
Hyderabad ITAT: Entire ₹40.93 Crore On-Money Receipts Cannot Be Taxed as Income – Only 16% Profit Element Taxable; Seized Material Must Be Read as a Whole
The Hyderabad ITAT in ACIT, Central Circle-3(2) v. Western Constructions, ITA No.1320/Hyd/2019, AY 2016-17 dismissed the Revenue’s appeal concerning alleged unaccounted/on-money receipts of ₹40.93 crore from sale of commercial units. During search, a pen drive containing Excel sheets reflecting consideration received over and above registered values was seized, and the Managing Partner had made a disclosure under Section 132(4).
The assessee contended that the ₹40.93 crore represented gross unaccounted business receipts and not net income. Crucially, the same seized pen drive which recorded the unaccounted receipts also contained details of cash expenditure of ₹35.38 crore incurred on the project. After considering such expenditure, the actual surplus worked out to approximately 13.56%, and the assessee had voluntarily offered 15% of the unaccounted receipts as profit.
The ITAT endorsed an important evidentiary principle: Revenue cannot selectively rely upon one part of seized material showing unaccounted receipts while ignoring another part of the very same material showing corresponding unaccounted expenditure. The seized material has to be considered as a whole. Since the claim of expenditure was supported by the seized material itself, the AO ought to have taken it into account while determining the taxable income.
The Tribunal also noticed a striking instance of double taxation. Against total unaccounted cash receipts of ₹41 crore, the Department had effectively assessed ₹82 crore—₹41 crore in the hands of Managing Partner R. Sudarshan Reddy, who had offered and paid tax on it, and again sought to tax the receipts in the hands of the partnership firm. The ITAT held that, on the facts, this amounted to assessment of the same income twice.
The Tribunal further emphasised that an income has to be taxed “in the hands of the right person for the right assessment year.” A partner’s admission by itself cannot justify taxing in his hands income which legally belongs elsewhere; Article 265 requires tax to be collected only with authority of law.
On the quantum of taxable profit, the CIT(A) had increased the assessee’s estimate from 15% to 16%, considering the possibility of overlap between expenditure recorded in the regular books and unaccounted expenditure reflected in the seized material. The ITAT found the 16% estimate fair and reasonable, reiterating that where suppressed receipts are business receipts, only the profit embedded therein can be brought to tax and not the entire gross receipts.
e seized material showed expenditure of ₹35.38 crore, giving an actual profit differential of around 13.56%. Hence, the Tribunal upheld the CIT(A)’s more conservative estimation of 16% profit on the unaccounted receipts of ₹40.93 crore and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
