Hyderabad ITAT: Only 16% of ₹40.93 Crore On-Money Receipts Taxable

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.

Cases Discussed

• CIT v. Williamson Financial Services [2008] 297 ITR 17 (SC)
• Principle Commissioner of Income Tax vs. Income Tax Settlement Commission [(2018) 409 ITR 495 Gujarat.
• Harshad Mehta Vs. Custodian and Others, (1998) 231 ITR 871
• Commissioner of Income Tax vs. President Industries [(2002) 258 ITR 0654]
• CIT v. Balchand Ajit Kumar [(2003) 263 ITR 610, 611, 612-13 (MP)]
• CIT v. Samir Synthetic Mill [2010] 326 ITR 410 (Guj)
• Income Tax Officer vs. Seema Khanna [(2016) 50 ITR 149 (DELHI-TRIB)]
• Income Tax Officer v. Gurubachansingh J Juneja (1996) 54 TTJ (Ahd) (TM) 1
• Abhishek Corpn. v. Dy. CIT (1999) 63 TTJ (Ahd) 651
• CIT v. S.M. Omer (1993) 201 ITR 608 (Cal)
• K.A.Guptha vs. Asst.Commissioner of Income Tax (2004) 90 TTJ 555
• Commissioner of Income tax Vs Shri Hariram Bhambhani (Income Tax Appel No.313 of 2013) (Boni.)
• Shashi Devi Gulati vs Income Tax officer [(2019) 69 ITR 76 dated 18.01.2019 (SA NO 11 TO 13/2018
• Sri Sri Gruhanirman India Pvt ltd vs. Assistant Commissioner of Income Tax the jurisdictional ITAT Hyderabad [(2018) 67 ITR 178 (HYDERABAD) (ITA NO 2237 TO 2241 AND 2273 TO 2275/HYD/2017)]
• Narendar Reddy Maddi, R.R.District Vs ITO, Ward -9(1), Hyderabad (ITA No.871/Hyd/2016 dated: 25.04.2018) (Hyderabad — )
• Sri Sri Estates vs. ACIT, Central Circle — 2(3), Hyderabad (ITA No.2242 TO 2245 & 228 to 230 of Hyd/2018 dated 25.07.2018) (Hyderabad — )
• Sampada Homes vs. ACIT (ITA No.95-97/11/2018, 236 to 238 /H/2018 dated 07.09.2018 (Hyderabad — )

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals) – 11. Hyderabad, dated 29.04.2019, pertaining to the assessment year 2016-17.

2. The grounds raised by the assessee Revenue read as under :

“(i) The Ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee.

(ii) The Ld.CIT(A) erred in not appreciating the fact that the Managing Partner of the assessee firm himself admitted an amount of Rs.40,27,00,000/- as additional income during the course of search proceedings on account of discrepancies found as per the seized annexures.

(iii) The Ld.CIT(A) erred in not appreciating the fact that the AO has made disallowance on account of unaccounted sales basing on the evidence available in the seized material gathered during the course of search.

(iv) The Ld.CIT(A) ought not to have estimated the income at 16% of the undisclosed income when the Managing partner of the assessee firm himself admitted additional income of Rs.40,27,00,000/-.

(v) The Ld.CIT(A) erred in estimating the income at 16% of the undisclosed income without any basis when the addition was made on the basis of incriminating material found during the search which was the basis of admission by the Managing Partner during the search…

(vi) The Ld.CIT(A) failed to appreciate the fact that the receipts as evidenced by the seized material have been offered to tax in the individual hands of the partner as unexplained investment/capital and not the unaccounted sales.

(vii) The Ld.CIT(A) ought to have appreciated that the principle estople is applicable to the fact of the case as the assessee firm prevented the department from causing further investigation by giving voluntary admission at the time of search.

(viii) The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary.

3. The brief facts of the case are that the assessee filed its return of income for A.Y. 2016-17 on 17.10.2016, declaring a total income of Rs. 8,32,78,470/-. A search and seizure operation under Section 132 of the Income-tax Act, 1961 was conducted in the case of M/s. Western Constructions and associated entities, including the residential premises of the partners, on 02.11.2016. During the course of search proceedings under Section 132 of the Act, the department found and seized a black pen drive, in which, certain Excel sheets showed the consideration received from the customers over and above the registered sale value, the details of which are tabulated by the A.O. as under:

4. The above additional consideration received was worked out after verification of the seized material found in the pen drive seized during the course of search. The seized material found during the course of search was confronted to the Managing Partner of the assessee firm. In response, Sri R. Sudarshan Reddy, in his statement recorded under Section 132(4) of the Act on 31.12.2016, admitted additional income of Rs. 50 crores, over and above the regular income of the firm. During the course of post-search inquiries, the department issued notices to various buyers referred to in the incriminating material found during the course of search. In response to the inquiry, many of them stated that they had not paid any excess amount to the assessee firm towards the sale of the commercial units. Considering the above discrepancy, retractions from the related customers/buyers, covering the reconcilable/matching details flagged with the registered documents, the issue was put to the assessee firm’s partners, Sri G. Sivaramaraju and its Managing Partner, Sri R. Sudarshan Reddy, during the post-search inquiries conducted by the DDIT (Investigation), and a statement was recorded on 29.12.2016. In response to the specific questions, Sri R. Sudarshan Reddy admitted additional income of Rs. 41 crores, spread over two assessment years, i.e., A.Y. 2015-16 for Rs. 73 lakhs and A.Y. 2016-17 for Rs. 40.27 crores, to cover up various discrepancies.

5. Consequent to the search, notice under Section 153A of the Act was issued, and in response, the assessee filed its return of income on 15.03.2017, declaring a total income of Rs. 14,35,76,830/-, as against the income of Rs. 8,32,78,470/-declared in the original return of income filed under Section 139(1) of the Act. During the course of assessment proceedings, the A.O., after considering the relevant seized material found during the course of search and the statement recorded from Sri R. Sudarshan Reddy, issued a show-cause notice and called upon the assessee to file the relevant details in support of the return of income filed, and also explain as to why the addition should not be made in respect of the undisclosed income offered during the course of search in respect of on-money received for sale of commercial units. In response, the assessee, by letters dated 24.12.2018 and 26.12.2018, submitted the relevant details and claimed that the admission of additional income of Rs. 40.27 crores is on account of gross receipts received for sale of property, but not the net income. The assessee further contended that during the post-search investigation, it had filed a letter before the A.O. along with the details of various expenditure incurred in cash out of the on-money received for sale of flats and claimed that, as per the seized material, the assessee firm had incurred various expenditure in cash of Rs. 35,38,05,997/-. If we consider the additional consideration received towards sales and the corresponding expenditure incurred in cash, the difference works out to Rs. 5,54,83,073/-, which works out to 13.56% profit on the gross receipts. Therefore, the assessee estimated 15% profit on the gross receipts of Rs. 40,92,89,070/- admitted during the course of search, filed return in response to the notice under Section 153A of the Act, and also paid the relevant taxes. The assessee further submitted that Sri R. Sudarshan Reddy, Managing Partner of the assessee firm, had also admitted additional income of Rs. 41 crores, spread over two assessment years, and also paid taxes in his individual capacity in toto. Therefore, further making addition towards the gross receipts in the hands of the assessee amounts to double taxation.

6. The A.O., after considering the submissions of the assessee and also taking note of the relevant material found during the course of search, coupled with the statement recorded from the Managing Partner, Sri R. Sudarshan Reddy, during the search and post-search investigation, observed that the initial admission made during the course of search towards unexplained on-money received for sale of flats is based on verifiable evidence found during the course of search, which clearly shows the details of sale of property, extent of property, and rate received per square foot. If we consider the relevant details, the assessee has received a sum of Rs. 40.92 crores as on-money towards sale of property, and the same has not been disclosed in the regular books of account. Further, Sri R. Sudarshan Reddy, Managing Partner of the assessee firm, had also admitted additional income of Rs. 41 crores in the statement recorded under Section 132(4) of the Act, which is evident from the relevant questions and answers, where he has clearly admitted the additional income to cover various discrepancies. From the above, it is very clear that whatever was admitted during the course of search is not on account of gross receipts, but on account of income that has been possibly earned from the unaccounted receipts. Therefore, the subsequent claim of the assessee, in light of the retraction of a few buyers and the so-called expenditure details available in the pen drive, to declare 15% profit on the gross receipts is only an afterthought and is not backed by relevant evidence. The A.O. further observed that although the assessee referred to the seized material showing the expenditure details of Rs. 35,38,05,997/-, the fact remains that the above claim is neither reconcilable nor verifiable with any reference to the seized material. The assessee could not furnish any clear details to establish that the expenditure appearing in the seized material is reconcilable to the unaccounted cash expenditure incurred for earning this unaccounted gross income of Rs. 40.92 crores quantified during the course of search. If this could have been the possible relatable expenditure, the assessee never reconciled the same during the search and post-search proceedings, as contended now, which could have truly reconciled the comprehensive gross unaccounted receipts vis-à-vis gross unaccounted expenditure, if any, if not accounted in the regular books of account. Therefore, the assessee’s plea, on this analysis, that the expenditure involves unaccounted expenditure which is claimable against this income by virtue of its admission is neither reasonable nor acceptable, keeping in view the fact that no prudent businessman will debit lesser expenditure than that truly incurred so as to pay more tax than due. Therefore, the A.O. observed that, even assuming for a moment that the so-called expenditure of Rs. 35,38,05,997/- is part of the seized material, the fact remains that the same cannot be verified at this stage in the absence of proper reconciliation between the expenditure and the receipts, and thus rejected the explanation of the assessee and held that the assessee had admitted additional income of Rs. 41 crores, spread over two assessment years, and in particular admitted a sum of Rs. 40.27 crores for the year under consideration, whereas it declared only 15% profit on the said gross receipts while filing the return of income under Section 153A of the Act. Therefore, the difference amount of Rs. 34,22,95,000/-(Rs. 40,25,93,360/- – Rs. 6,02,98,360/-) has been added to the total income. The relevant findings of the Ld. A.O. are as under:

“12.0 After careful consideration of assessee’s detailed/repeated submissions on similar lines and contentions and keeping in view the facts of case and circumstances of additional income as admitted during search and consequent failure to truly disclose total additional income as admitted during search, assessee’s plea to consider additional income admitted as gross receipts only is neither reasonable nor acceptable in view of the following detailed reasoning and analytical deductions as per the facts on hand read with circumstantial evidences leading to admission of additional income.

• • Assessee contended that the admission was given’ under confusion between income and receipts, without distinguishing related expenditure as claimed in above submissions is neither reasonable nor acceptable. It is a clear fact on record that the assessee has sold a total Sft of about 1,29,915 as tabulated above by assessee himself, involves clear unaccounted income of Rs. 40.92 Crores which is exclusive of balance Sft of 71,009 Sft sold in similar fashion involving additional receipts. Considering these discrepancies of non accounting of all additional receipts attributable to total sale of 2,00,924 Sft, assessee has voluntarily admitted whatever found during search at Rs. 40.92 Crores as applicable full income. Hence, assessee has given this admission with full knowledge and faith on the total income earned by his firm on account of additional receipts on such sales and involving total sold Sft till date of search. Hence, assessee plea on this analogy that it involves only gross receipts, not income and unaccounted expenditure needs to adjusted against this admission is not acceptable.
  • Admission made by the assessee that too, based on the verifiable evidences like in this case is conclusive and is to be considered as attained finality in the strict sense, why because, it is assessee who has put an end to further investigation to unravel the truth/total actual unaccounted receipts earned also in selling the balance Sft to the extent of 71,009 Sft which is not forming part of above tabulation. If the same would have been done further, it is well known to assessee that it will bring some more gross receipts involving unaccounted receipts which are to be clubbed with this Rs 40.92 crores gross income, thereby, adding more tax liability on assessee firm. On this simple analogy, gross income would have further increased atleast by Rs. 22.37 crores by simple working of pro rata basis as per the ratio of 71,009 Sft to, 1,29,915 Sft for which seized material references are reconciled involving Rs 40.92 Crores income. Hence, assessee’s convenient analogy to reduce the tax burden is understandable in empathic sense but not in fiscal sense or in prevalent accounting sense as it would be tantamount to avoiding genuine tax payments on actual admitted income in the guise of gross receipts for consequent netting off with unaccounted expenses claim etc. Hence, assessee’s reliance on various citation as per the submissions extracted supra, are neither comparable to the facts on hand, nor the ratios of the adjudications relied by assessee are equitable to the facts and circumstances on hand. Hence, assessee’s plea on the above analogy that the admission is not reliable on the premise that the same seized material has references on expenditure, if any, if not reconciled while giving such admission by assessee etc. is totally unacceptable and not supported by law and evidences. Hence, assessee’s admission as made during search on comprehensive facts involving restricted taking of unaccounted additional sale consideration and accordingly, same is equitable to gross income but not gross receipts as contended by assessee. Hence, if the gross receipts analogy to be considered, same should be taken in real sense gross involving entire sale proceeds of 2,00,924 Sft on pro rata basis with evidentiary support as found during search. In such circumstances, netting is possible vis-à-vis gross unaccounted receipts and gross unaccounted expenditure. In real life, no such situation is possible wherein complete evidences for entire gross unaccounted receipts is possible to be found in a search with comparable/found as unaccounted expenditure. Hence, in practical sense, it is the discretion of assessee and holistic wisdom of thyself, which makes him to give an admission as he is the best judge of his own facts of actual earning of unaccounted income as known to him involving such possible true netting off of gross unaccounted receipts vis-à-vis gross unaccounted expenditure for the entire project. In this analogy, whatever, admitted by Managing Partner as on date of search must be fair truth or atleast close to truth, thereby it is correct in admitting entire unaccounted receipts at Rs. 40.92 crores as income of firm as rightly admitted by managing partner. Any subsequent deviation from this admission is purely an afterthought to further reduce tax burden. Accordingly, assessee plea is not acceptable on this analogy.
  • Assessee’s reference to seized material showing the expenditure details of Western Pearl at Rs. 35,38,05,997/- is neither reconcilable nor verifiable with any search reference as per the seized material. Assessee could not give any clear details of this expenditure as appearing in seized material and as reconcilable to unaccounted cash expenses which involve in earning this unaccounted gross income at Rs. 40.92 crores quantified during search. If this could have been the possible relatable expenditure, assessee never reconciled the same during search and post search proceedings, as contended now, which could have truly unearthed the comprehensive picture of gross unaccounted receipts vis-à-vis gross unaccounted expenditure, if any, if not booked or accounted in regular books of accounts. It is but for normal in most of the cases and most of business concerns involving cash expenditure and cash receipts, substantial portion of such cash expenditure is normally routed through books leaving unaccounted receipts in full outside books, thus by reducing the taxable profits. Considering this normal scenario of any business concern, assessee would have already booked all his unaccounted expenditure in various years as work in progress/construction expenses etc. Accordingly, assessee’s pleas on this analogy that expenditure involves unaccounted expenditure which is claimable against this income by virtue of its admission is neither reasonable nor acceptable, keeping in view the fact, that no prudent business will debit lesser expenditure than truly incurred to pay more tax than the due. Hence, assessee’s plea that entire expenditure is not booked earlier and there exist some unaccounted expenditure neither has the basis of proof nor has the support of accounting and law and accordingly, not acceptable and entire receipts unaccounted at Rs. 40.92 Crores is fully taxable as income of firm as admitted during search.
  • With reference to claim of unaccounted expenditure at Rs. 35.38 Crores, assessee could any supporting proofs. of ledger extracts/vouchers/bills/cash vouchers/debit voucher, as the case may be, to facilitate the assessing officer to examine the genuineness of incurring of such expenditure with third party who claimed to have received this expenditure amount from the assessee. In the absence of same, assessee’s mere claim to the tune of Rs. 35.38 Crores is to be treated as non-genuine and it is only on premise of ought to have/would have incurred etc. and would not warrant for consideration as allowable expense as per law, more so against an admitted income during search.
  • Hence, in view of above, contradicting and non-convincing claims of assessee without any verifiable proofs on the mere premise of possible percentage profit in the real estate business is not acceptable as it becomes skewed representation of unrelated facts on one side without taking gross-unaccounted receipts attributable to total sales, on the other side visualizing existence of unaccounted expenditure when the entire expenditure is already/normally routed through books in all fairness as it beneficial to any assessee more so an assessee in the real estate business. Hence, assessee’s skewed logic and presentation of facts in this way are neither palatable nor fit into the principle of theory of parity of reasoning. Equitable facts render equitable justice at equitable circumstances only. Hence, assessee’s plea that netting off of gross receipts is done at 15% while filing the Return of income u/s 153A and is acceptable, is far from truth and prudent accounting of unaccounted receipts and income. Accordingly, assessee’s plea on this analogy is totally illogical and not acceptable.
  • Further, on perusal of assessee’s claim that out of book expenditure Rs. 35,38,05,997/-, it is noticed that assessee has computed the same as per total cost incurred till 31.12.2015 vis-à-vis as at 31.03.2016 cost incurred as per books of accounts as per the seized references claims. This being further computed to arrive at possible out of book expenses of Rs. 35.38 crores after considering total cost of the project at 134.27 crores. Considering the time difference of the same by one year, this working of the assessee is not acceptable even if it forms part of seized material here and there without relevant and context of same, partially or otherwise, and as the comparison date itself is at variance same is totally unacceptable. Accordingly, assessee plea for claim of unaccounted expenditure against this additional income admitted during search is not acceptable and entire gross income as admitted during search in the hands of the firm at Rs. 41 Crores for both assessment years 2015-16 and 2016-17 put together is to be brought to tax as per I.T. Act.

13. 0 Hence, in view of the above facts of case and keeping in view of the circumstances of assessee’s non explainable claims under the guise of out of book expenditure is not acceptable as it has no basis involving no supporting proofs as discussed in detail supra on all possible counts. Accordingly, additional income as admitted in the hands of the firm at Rs. 73 lakhs and Rs. 40.27 Crores is to be assessed in A.Y. 2015-16 and A.Y. 2016-17 respectively. After considering assessee firm’s admission out of this additional income admitted, the short reflected additional income of Rs. 62,05,000/-and Rs.34,22,95,000/- as applicable for A.Y. 2015-16 and 2016-17 respectively is brought to tax as per the provisions of 1.T. Act along with short reflected income in the hands of assessee firm managing partner Sri R Sudershan Reddy of Rs. 7,10,910/- of A.Y. 2016-17 as per his admission in his individual hands during the search. Accordingly, total additional income of Rs. 41 Crores each as admitted by assessee firm and its managing partner is restored back as additional income as admitted to tax in relevant Assessment years 2015-16 and 2016-17 of firm and its managing partner.”

7. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee had filed written submissions, which were reproduced in para 5 on pages 9 to 22 of the order of the Ld. CIT(A). The sum and substance of the arguments of the assessee before the Ld. CIT(A) are that the admission of additional consideration of Rs. 40.27 crores is on account of unaccounted gross receipts received towards on-money for sale of property, but not the net income as claimed by the A.O. The assessee further submitted that the assessee had admitted additional income of Rs. 41 crores to cover up various discrepancies and also considered additional receipts of Rs. 40,92,89,070/-, and estimated 15% profit after considering the relevant expenditure incurred in cash out of the on-money received for sale of property, and the same has been claimed before the Investigation Wing by filing a letter along with the corresponding incriminating material found during the course of search, which clearly shows the details of various expenditure. The assessee further submitted that even before the A.O., the assessee had filed the details of expenditure. However, the A.O. ignored and rejected the explanation of the assessee only on the ground that although this expenditure forms part of the seized material, the same cannot be verified at this point of time. Going by the observations of the A.O., there is no dispute with regard to the fact that the very same seized material considered by the A.O. for the purpose of assessment of on-money received for sale of property also contains the details of unaccounted expenditure in cash, and therefore, the A.O. ought to have accepted the profit declared by the assessee on the gross receipts. The assessee further submitted that Sri R. Sudarshan Reddy, Managing Partner of the assessee firm, had also admitted additional income of Rs. 41 crores, spread over two assessment years in his individual capacity, to cover up various discrepancies. From the above, it is very clear that the department has taxed the on-money receipts of Rs. 41 crores twice, i.e., once in the hands of the individual partner and again in the hands of the partnership firm, ignoring the fact that it amounts to double taxation, which is not permissible under the law.

8. The Ld. CIT(A), after considering the relevant facts and also the arguments of the assessee, deleted the addition made by the A.O. towards the additional income offered during the course of search by holding that the evidence for the additional receipts and the expenditure forms part of the same seized material. There is no dispute as to the details of quantification of receipts as contained in the seized material and the expenditure. When a part of the seized material is relied upon for bringing to tax the additional income, then the other part of the seized material cannot be ignored, and the seized material has to be considered as a whole. Since the seized material contains the details of unaccounted receipts and expenditure, only the income element in the receipts should be taxed, but not the gross receipts. The Ld. CIT(A) further noted that the additional income as evidenced by the seized material has been offered to tax and assessed in the case of Mr. R. Sudarshan Reddy, Managing Partner of the assessee firm, and therefore, once again taxing the same receipts amounts to double taxation. Therefore, the Ld. CIT(A) observed that the assessee has rightly estimated only the profit element as against the receipts received, and not on account of the books of account, by considering the relevant expenditure. Therefore, the Ld. CIT(A), after considering the relevant facts, directed the A.O. to estimate 16% profit on the unaccounted receipts found during the course of search.

9. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

10. The Ld. CIT-DR for the Revenue, Shri Waseem UR Rehman, submitted that the Ld. CIT(A) erred in not appreciating the fact that the Managing Partner of the assessee firm himself admitted an amount of Rs. 40.27 crores as additional income during the course of search proceedings on account of discrepancies found as per the seized annexure, and the same is based on the seized material gathered during the course of search. The Ld. Senior DR further submitted that the assessee firm admitted unaccounted income of Rs. 50 crores after considering the relevant seized material found during the course of search, and this fact has been reiterated during the course of post-search investigation. The admission of Rs. 41 crores was clear, specific and corroborated, but not vague or coercive statement, which is evident from the relevant statement recorded under Section 132(4). Since the addition has been made on the basis of admission in the statement recorded under Section 132(4), which is further supported by the corroborative evidence found during the course of search, the presumption contained under Section 132(4A) read with Section 292C is applicable, and unless the assessee rebutted the presumption with cogent evidence, the Ld. CIT(A) ought not to have accepted the profit estimated on unaccounted receipts found during the course of search. The Ld. CIT-DR further submitted that although the Ld. CIT(A) took support of the retraction statements of two customers, Shri Tarun Kumar Goel and Shri Arun Kumar Goel, but fact remains that the retraction of the above customers does not detract from the firm’s own admission, because the addition in the present case is not founded upon the buyers’ statements, but it is founded on the unconditional and twice reiterated admission of the assessee firm itself. The plea of confusion between receipts and income is an afterthought and is unsubstantiated by the record, going by the relevant statements recorded under Section 132(4) on 03.11.2016 and 31.12.2016, where the Managing Partner has clearly admitted additional income of Rs. 41 crores to cover up various discrepancies. From the wording of the statement, it is very clear that the admission is on account of income, but not on account of receipts. The subsequent claim of unaccounted expenditure of Rs. 35,38,05,997/- surfaces for the first time only in the course of post-search assessment proceedings by letters dated 26.12.2018 and 24.12.2018, nearly two years after the search and after the specific show-cause notice. Therefore, the subsequent claim of unaccounted expenditure is only an afterthought and therefore cannot be accepted. Further, the claim of unaccounted expenditure is also not backed by any verifiable evidence, which is evident from the relevant observation of the A.O. in the assessment order, where the A.O. has clearly rejected the arguments of the assessee by noticing the fact that, even if it forms part of the seized material, but the same cannot be verified in the absence of a nexus between the expenditure and the unaccounted receipts. Therefore, the arguments of the assessee are incorrect.

11. The Ld. CIT-DR further submitted that there is no merit in the arguments of the assessee on the principle of double taxation because the admission made by Sri R. Sudarshan Reddy in his individual hands was expressly and specifically restricted to the source of on-money paid by the buyers to buy peace and to give a quietus to the litigation and to protect the buyers from harassment. Since the buyers themselves denied paying any on-money, this is conceptually and legally an entirely distinct taxable event from the firm’s own unaccounted income/turnover arising from receipt of that on-money as consideration for sale of its commercial spaces. In any event, it is a fundamental undisputed principle that the source of funds and the receipt of sale consideration by the seller firm are two different concepts addressing two different limbs of the same transaction, and assessment of one does not preclude assessment of the other. Therefore, he submitted that the arguments of the assessee on this principle also fail and cannot be accepted.

12. The Ld. CIT-DR further, referring to the estimation of profit, submitted that although the Ld. CIT(A) has relied on various judicial precedents, but fact remains that the above judicial precedents are in light of the provisions of Section 44AD of the Act and estimation of profit, and in those cases where the Revenue itself estimated profit on inferred/extrapolated unrecorded sales in the absence of any specific admission by the assessee of the income component. None of them deals with a case where the assessee’s own authorized representative has voluntarily, specifically and repeatedly quantified the income figure under oath and has subsequently sought to resile from a part of that figure without any corroborating evidence. The principle that only the profit embedded in unaccounted sales, not the entire sales, can be taxed, presupposes the absence of a specific admission as to the income component. It cannot override a clear, corroborated and unretracted admission of income as such. Since the assessee firm has admitted unaccounted income of Rs. 41 crores, the subsequent theory brought in light of the so-called incriminating material for various expenditure to support estimation of profit is without any basis and cannot be accepted. Therefore, he submitted that the Ld. CIT(A), without considering the relevant facts, simply upheld the estimation of profit on unaccounted receipts, and hence the order of the Ld. CIT(A) should be set aside and the addition made by the A.O. should be restored.

13. The learned counsel for the assessee, Shri C. Maheshwar Reddy, C.A., on the other hand, referring to various evidences, including details of incriminating material found during the course of search, statement recorded from Sri R. Sudershan Reddy under Section 132(4) of the Act, and more particularly question No. 16 of the statement dated 31.12.2016, submitted that what was admitted during the course of search is not unaccounted income, but suppression of receipts for sale of property, which is evident from the relevant question and answer, where the Managing Partner has clearly admitted suppression of receipts towards sale of property to various persons as computed by the department. The learned counsel for the assessee further submitted that during the post-search investigation, the assessee submitted a letter dated 20.02.2017 before the DDIT (Investigation) explaining about the substantial expenditure incurred for the projects and also mentioned unexplained expenditure should be set off against the undisclosed receipts to arrive at the correct income. Although the department is aware of various expenditure incurred outside the books of account, out of unaccounted on-money receipts from sale of property, and this fact has been reiterated by Sri R. Sudershan Reddy in his statement recorded during the course of search and post-search investigation, but the A.O. solely relied upon the final statement recorded from the assessee and observed that the assessee has admitted undisclosed income of Rs. 41 crores, but, estimated 15% profit on unaccounted receipts without any basis. But fact remains that the very same seized material, which was the basis for making addition of unexplained cash receipts, contains details of various expenditure, and the same is filed before the A.O. The assessee, after considering the relevant details of unaccounted receipts with corresponding expenditure, which is tabulated in a letter filed to the DDIT (Investigation), the net surplus works out to 13.56% of gross unaccounted receipts, and thus, considering the above fact, has estimated 15% profit on unaccounted gross receipts and paid relevant taxes in the return of income filed in response to the notice issued under Section 153A of the Act.

14. The Ld. Counsel for the assessee, further referring to the order of the Ld. CIT(A), submitted that during the course of appellate proceedings, the assessee has explained in detail about the existence of unexplained expenditure along with the path in which such expenditure is recorded in the seized material, i.e., the seized black pen drive. The Ld. CIT(A), after considering the relevant evidence and also the fact that the department has taxed the gross unaccounted receipts of Rs. 41 crores twice, i.e., once in the hands of Sri R. Sudarshan Reddy, Managing Partner of the assessee firm, and another in the hands of the assessee, has rightly estimated 16% profit on the gross receipts. Therefore, he submitted that since the material considered by the A.O. also contains the details of expenditure, the A.O. erred in making addition of Rs. 34,22,95,000/- on the basis of the statement recorded from the assessee, even though the above statement clearly shows the admission is not on account of income, but on account of gross receipts received for sale of property.

15. The learned counsel for the assessee, further referring to the assessment order passed in the case of Sri R. Sudarshan Reddy, submitted that even though the buyers of the flats denied to have paid any on-money to the assessee firm, but the Managing Partner of the assessee firm came forward to offer additional income on behalf of the customers as his income, and also paid relevant tax by filing the return of income under Section 153A of the Act. The entire unaccounted gross receipts was Rs. 41 crores, and the same has been subjected to tax in toto in the hands of Sri R. Sudarshan Reddy, further, the assessee has also considered the above unaccounted cash receipts as business receipts and estimated 15% profit and thus, making addition towards the entire gross receipts once again in the hands of the assessee amounts to double taxation, which is not permissible under the law. The learned counsel for the assessee further submitted that although Sri R. Sudarshan Reddy claims to have offered additional income of Rs. 41 crores on behalf of the buyers of the property, but fact remains that as per law, nobody can offer income of a third person and pay taxes, and even assuming for a moment, by mistake of law, anybody offered income of a third person, but it is the duty of the A.O. to assess the right income in the right hands, which is mandate of the provisions of Article 265 of the Constitution of India, where it has clearly stated that unless the authority of law, no tax can be collected. Since the entire gross receipts was subject to tax in the hands of Sri R. Sudarshan Reddy, and further, the assessee has paid taxes on the profit element embedded in the said gross receipts after considering the relevant expenditure, the A.O. ought not to have made addition towards the entire cash receipts as income of the assessee.

16. The Ld. Counsel for the assessee, further referring to various judicial precedents, including the decision of the Hon’ble Supreme Court in the case of CIT vs. Williamson Financial Services, reported in (2008) 297 ITR 17 (SC), submitted that the quantification made by the department during the course of search was receipts and not income. In such a scenario, the best method available is estimating the profit on a reasonable basis. The assessee firm, at the time of filing the return of income, has worked out the estimation of income on the basis of unaccounted expenditure forming part of the seized material, which works out to 13.56%. Further, the assessee firm, considering the fact that there may be chances of overlapping of certain expenditure, fairly estimated 15% profit on the unaccounted receipts found during the course of search. The Ld. CIT(A), after considering the relevant facts, has rightly sustained estimation of profit on the gross receipts, though he has slightly enhanced the rate of profit from 15% to 16%, considering the fact that there may be chances of overlapping of certain expenditure in the regular books of account vis-à-vis the unaccounted expenditure based on the seized material. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld. In this regard, he relied upon the following judicial precedents.

(i) CIT v. Williamson Financial Services [2008] 297 ITR 17 (SC)

(ii) Commissioner of Income Tax vs. President Industries [(2002) 258 ITR 0654]

(iii) CIT v. Balchand Ajit Kumar [(2003) 263 ITR 610, 611, 612-13 (MP)]

(iv) CIT v. Samir Synthetic Mill [2010] 326 ITR 410 (Guj)

(v) Income Tax Officer vs. Seema Khanna [(2016) 50 ITR 149 (DELHI-TRIB)]

(vi) Income Tax Officer v. Gurubachansingh J Juneja (1996) 54 TTJ (Ahd) (TM) 1

(vii) Abhishek Corpn. v. Dy. CIT (1999) 63 TTJ (Ahd) 651

(viii) CIT v. S.M. Omer (1993) 201 ITR 608 (Cal)

(ix) C.K.A.Guptha vs. Asst.Commissioner of Income Tax (2004) 90 TTJ 555

(x) Commissioner of Income tax Vs Shri Hariram Bhambhani (Income Tax Appel No.313 of 2013) (Boni.)

(xi) Shashi Devi Gulati vs Income Tax officer [(2019) 69 ITR 76 dated 18.01.2019 (SA NO 11 TO 13/2018

(xii) Sri Sri Gruhanirman India Pvt ltd vs. Assistant Commissioner of Income Tax the jurisdictional ITAT Hyderabad [(2018) 67 ITR 178 (HYDERABAD) (ITA NO 2237 TO 2241 AND 2273 TO 2275/HYD/2017)]

(xiii) Narendar Reddy Maddi, R.R.District Vs ITO, Ward -9(1), Hyderabad (ITA No.871/Hyd/2016 dated: 25.04.2018) (Hyderabad — )

(xiv) Sri Sri Estates vs. ACIT, Central Circle — 2(3), Hyderabad (ITA No.2242 TO 2245 &

(xv) 228 to 230 of Hyd/2018 dated 25.07.2018) (Hyderabad — )

(xvi) Sampada Homes vs. ACIT (ITA No.95-97/11/2018, 236 to 238 /H/2018 dated 07.09.2018 (Hyderabad — )

(xvii)Principle Commissioner of Income Tax vs. Income Tax Settlement Commission [(2018) 409 ITR 495 Gujarat.

17. We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. We have also carefully considered the relevant statements recorded from the partner of the assessee firm, Sri R. Sudarshan Reddy, during the course of search and post-search investigation, the incriminating material found during the course of search, and the basis for quantification of unaccounted or suppressed receipts for sale of property. There is no dispute with regard to the fact that, during the course of search proceedings under Section 132 of the Act on 02.11.2016, the department found a pen drive in which certain Excel sheets were found showing consideration received from customers over and above the registered value, and the same has been quantified at Rs. 40,92,89,070/- for two assessment years, including the assessment year under consideration. The material found during the course of search was confronted to Sri R. Sudarshan Reddy, Managing Partner of the assessee firm, and a statement under Section 132(4) of the Act on 31.12.2016 was recorded. In response to a specific question, he has explained the contents of the seized material and also quantified the unaccounted receipts for sale of property to different customers, which works out to Rs. 40,92,89,070/-. Further, he has also come forward and admitted additional income of Rs. 41 crores, spread over two assessment years, and claimed that the above admission is to cover up various discrepancies and to put a quietus to the litigation. Further, the assessee, while filing the return of income under Section 153A of the Act, has admitted additional income and estimated profit at the rate of 15% on the gross receipts quantified during the course of search, and also paid taxes. Similarly, Sri R. Sudarshan Reddy has admitted additional income of Rs. 41 crores, spread over two assessment years, in his individual hands, in toto, and paid the relevant taxes. Therefore, it is necessary for us to examine the reasons given by the A.O. to make additions towards the difference amount of gross receipts to the income of the assessee in light of the above facts and the arguments of the Ld. CIT-DR and the counter-arguments of the Ld. Counsel for the assessee.

18. There is no dispute with regard to the fact of quantification of unaccounted receipts of Rs. 40,92,89,070/- towards receipt of on-money for sale of property. In fact, there is no dispute between the assessee and the A.O. regarding quantification of unaccounted receipts of on-money for sale of property. The only dispute is with regard to the nature of admission, i.e., whether it is gross receipts or net income. The assessee claims that what was admitted during the course of search is gross receipts, being suppressed receipts towards on-money received for sale of property, whereas, the A.O. claims that what was admitted during the course of search is income to cover up various discrepancies, but not receipts as contended by the assessee. We have gone through the relevant seized material which is available in the paper book filed by the assessee. The seized material considered by the A.O. for the purpose of quantification of unaccounted income of Rs. 40,92,89,070/- also contains the details of various unaccounted expenditure incurred in cash towards the project. In fact, the assessee has made a submission during the post-search investigation by way of letter dated 20.02.2017 addressed to the DDIT (Investigation), Unit-2, Hyderabad, and claimed that the same material contains rough workings showing substantial expenditure incurred in cash for the project, along with details of expenditure which works out to Rs. 35,38,05,997/-. Based on the above seized material which contains the details of unaccounted receipts and unaccounted expenditure, the assessee has estimated 15% profit on the unaccounted receipts and paid the relevant taxes. The contention of the A.O. was that the subsequent claim of expenditure is an afterthought and based on unverifiable evidence, and, therefore, cannot be accepted, which is evident from the relevant observation of the A.O. on page 32 of the assessment order, where the A.O. has accepted the fact that there is evidence for unaccounted expenditure of Rs. 35,38,05,997/-. But, considering the time difference of the same by one year, the working of the assessee is not accepted, even if it forms part of the seized material. Going by the observations of the A.O. in the assessment order itself, it is an undisputed fact that there exists seized material for unaccounted cash receipts and unaccounted expenditure, and the same has been claimed by the assessee during the course of post-search investigation and during the course of assessment proceedings. This is further fortified by the statement recorded from Sri R. Sudarshan Reddy during the course of search on 03.11.2016, wherein, in response to a specific question, he has clearly admitted the possible expenditure incurred out of the unaccounted cash receipts for the project and also narrated and quantified the amount of unaccounted cash receipts as per the incriminating material found during the course of search. Therefore, in our considered view, going by the evidence considered by the A.O. for the purpose of assessment, there is clear evidence for unaccounted expenditure like the unaccounted receipts considered by the A.O. Therefore, when the assessee has made a claim for set-off of unaccounted expenditure, which is further backed by the very same seized material, the A.O. ought to have considered the expenditure claimed by the assessee for the purpose of assessment. Before the Ld. CIT(A), the assessee has filed the very same details at expenditure along with the path which contains the Excel sheets in the pen drive, which clearly shows the details of expenditure. The Ld. CIT(A), after considering the relevant expenditure, has rightly held that once the seized material contains the details of unaccounted receipts and expenditure, it is not correct on the part of the A.O. to consider only one part of the seized material which suits the Revenue and ignore the other part of the material, so as to make addition to the total cash receipts, ignoring the expenditure claimed by the assessee. Therefore, in our considered view, the reasons given by the Ld. CIT(A) to uphold the estimation of profit on the unaccounted receipts are in accordance with law and backed by the relevant evidence, including the incriminating material found during the course of search, the statement recorded from Sri R. Sudarshan Reddy, Managing Partner of the assessee firm, and the details of workings submitted by the assessee during post search proceedings and assessment proceedings.

19. Coming back to another aspect of the issue. Admittedly, the total unaccounted cash receipts found on the basis of the seized material found during the course of search was Rs. 41 crores, out of which a sum of Rs. 73 lakhs was for A.Y. 2015-16 and Rs. 40.27 crores was for A.Y. 2016-17. In fact, there is no dispute on this aspect. However, as against the total unaccounted cash receipts of Rs. 41 crores, the department has assessed Rs. 82 crores as income towards the very same unaccounted cash receipts of Rs. 41 crores. The A.O. has assessed Rs. 41 crores as unaccounted income in the case of Sri R. Sudarshan Reddy, though the same has been voluntarily admitted by Sri R. Sudarshan Reddy in his return of income filed in response to the notice under Section 153A of the Act and paid the relevant taxes. The A.O. has also made further addition of Rs. 41 crores in the hands of the assessee by making addition towards the differential amount of Rs. 34,22,95,000/- after excluding the profit element declared by the assessee in the return of income filed under Section 153A of the Act. Although the department claims that the income admitted by Sri R. Sudarshan Reddy and the partnership firm are two separate taxable events, but in our considered view, going by the facts of the present case, it is a case of assessment of income twice, once in the hands of the partnership firm and another in the hands of the partner. No doubt, the assessment of additional income of Rs. 41 crores in the hands of Sri R. Sudarshan Reddy is on the basis of admission by the partner. However, the fact remains that whether, on the basis of admission alone, any income can be taxed, or the A.O. is required to assess the correct income in the hands of the correct assessee, is the question that is required to be decided in the given facts of the present case. The department version is that the additional income offered by Sri R. Sudarshan Reddy is on account of source explained for payment of on-money by the buyers of the flats, whereas the income assessed in the hands of the partnership firm is on account of unaccounted cash receipts of on-money towards the sale of property. In our considered view, the stand taken by the A.O. is fallacious for the simple reason that, going by the findings of the A.O. himself, the A.O. clearly stated that all the buyers of the property have denied having paid any on-money to the assessee for the purchase of the property. In fact, two of the buyers, Shri Tarun Kumar Goel and Shri Arun Kumar Goel, have even filed retraction statements and claimed that, even though they had initially admitted to having paid on-money, they subsequently claimed that the said admission is incorrect. Assuming for a moment the buyers had paid the on-money, but the proper course of action for the A.O. is to ascertain the nature and source for the said on-money by buyers, and in case they are not able to explain the source, then the unexplained portion of on-money by each and every buyer should be taxed separately in their hands. But the same cannot be taxed in the hands of the partner of the firm on his admission alone. This is because the law mandates taxation of a particular income in the hands of the right person for the right assessment year. This is further fortified by the provisions of Article 265 of the Constitution of India, where it clearly states that unless by authority of law, no taxes can be collected from any person. In the present case, the A.O. claims that he has assessed additional income in the hands of Sri R. Sudarshan Reddy on the basis of admission, where he claims to have admitted additional income on behalf of buyers of the property to avoid harassment from the department. Even assuming for a moment, Sri R. Sudarshan Reddy had admitted additional income on the pretext of explaining the source of the individual buyers of the flats, but in our considered view, the A.O. erred in assessing the said income on his admission alone without any authority of law.

20. Be that as it may. But fact remains that the entire unexplained cash receipts of Rs. 41 crores was subject to tax in the hands of Sri R. Sudarshan Reddy. In fact, the assessee firm and the partners have not disputed this fact and paid the relevant taxes applicable on total unexplained income of Rs. 41 crores in the hands of the individual partner. Further, the firm had also admitted Rs. 41 crores receipts as a business receipt and, after considering relevant expenditure which is backed by the seized material found during the course of search, has declared 15% profit and paid relevant taxes. Since the total unaccounted receipts have been taxed twice, that is, one in the hands of the partner and further, on the profit element embedded in the gross receipts in the hands of the assessee, in our considered view, further taxing the entire gross receipts in the hands of the assessee is incorrect going by the facts of the present case and evidence available on record. Since seized material considered by the A.O. containing details of unexplained/ unaccounted expenditure, it is fair and reasonable for the A.O. to consider the seized material in total for the purpose of assessment of income. The Ld. CIT(A), after considering the relevant facts and the seized material and also the expenditure incurred by the assessee out of unaccounted cash receipts, has fairly estimated 16% profit on the total unaccounted cash receipts considered by the assessee in his hands, after considering the fact that there may be chances of overlapping of certain expenditure in the regular books of account vis-à-vis the incriminating material found during the course of search. Therefore, we are of the considered view that there is no error in the reasons given by the Ld. CIT(A) to estimate profit on the total unaccounted gross receipts of Rs. 40,92,89,070/-, because the law mandates taxation of only the profit element embedded in the gross receipts, but not the gross receipts, as held by the Hon’ble Supreme Court in the case of Harshad Mehta Vs. Custodian and Others, reported in (1998) 231 ITR 871, where it has been clearly held that the taxes so assessed are grossly disproportionate to the properties of the assessee in the hands of the Custodian. Applying the Wednesbury principle of proportionality, the said Court may, in these cases, scale down the tax liability to be paid out of the funds in the hands of the Custodian. In other words, it is settled principle of law that only the profit embedded in gross receipts should be taxed, but not gross receipts, if such gross receipts are on account of business receipts, and further, the receipts also applied for incurring various expenditure towards the project.

21. In the present case, there is no dispute with regard to the fact that the seized material considered by the A.O. for the purpose of assessment of unaccounted cash receipts also contains the details of unaccounted expenditure, and the same has been claimed by the assessee firm right from the date of search, including on the date of search, where, in the statement recorded under Section 132(4) of the Act, Sri R. Sudarshan Reddy has clearly indicated the amount of on-money received for sale of property, and possible application of the said on-money towards various expenditure incurred for the project. Further, the assessee had also filed a letter to the DDIT (Investigation) during the post-search investigation, and filed the relevant details of expenditure, and as per the letter submitted by the assessee, there is a clear evidence of expenditure of Rs. 35,38,05,997/-, and further, if we compare the above expenditure to the unaccounted gross receipts, the difference (profit) works out to 13.56%, and the assessee, after considering the above facts, has fairly estimated 15% profit on the unaccounted receipts. The Ld. CIT(A), after considering the fact that there may be chances of overlapping of certain expenditure, has rightly estimated 16% profit on the unaccounted receipts. Thus, we are inclined to uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.

22. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the Open Court on ^7th August, 2026.