Mukeshbhai Vithalbhai Javia Vs ACIT/DCIT (ITAT Rajkot)
Buyer’s On-Money Addition Cut to 10%: Relief with a Question Mark
The Controversy
In an unusual decision concerning alleged on-money paid by a property purchaser, the Rajkot Tribunal restricted the additions to 10% of the alleged cash payments and directed taxation at normal rates instead of section 115BBE.
The assessee obtained substantial relief. However, the reasoning raises an important distinction: the allegation concerned unexplained investment by a buyer, whereas the precedents applied concerned income embedded in receipts or suppressed sales.
The decision therefore deserves attention both for its operative relief and for the limits of the reasoning supporting it.
Search on the Builder Led to Reassessment
The assessee, an individual, had declared total income of ₹3,47,020 for Assessment Year 2019-20.
A search under section 132, described as “Operation Blue Diamond”, was conducted on 24 August 2021 on real estate builders in Rajkot, including the RK Group. According to the Department, seized material revealed receipt of cash on-money on sales and bookings of units.
The assessee was identified as a purchaser of premises in the “RK Empire” project who had allegedly paid consideration outside the registered documents.
For Assessment Year 2019-20, the case was reopened through a section 148 notice dated 31 March 2023. The Assessing Officer ultimately added ₹75,000 under section 69 read with section 115BBE.
A similar addition of ₹4,25,000 was made for Assessment Year 2020-21.
CIT(A) Accepted the Department’s Evidence
The CIT(A) sustained the additions, finding a linkage between the registered transaction, seized electronic records and statements of persons associated with the builder.
The appellate order referred to a registered agreement or sale deed recording consideration of ₹10.30 lakh, while a seized “Miracle” ledger bearing the description “EMP 1210” allegedly recorded total consideration of ₹26,85,706, including year-wise cash receipts.
Statements of the group accountant and promoter were treated as corroborating the Department’s interpretation of the electronic records.
The CIT(A) held that the assessee’s denial did not rebut the decoding of the seized material or explain the alleged cash component. It also rejected the natural justice objection on the ground that the adverse material had been confronted to the assessee.
The Assessee Denied Paying On-Money
Before the Tribunal, the assessee maintained that only the cheque consideration recorded in the registered documents had been paid.
He argued that there was no live link between the seized material and any cash payment by him. He also objected that an opportunity to cross-examine Shri Girish Vanjani, whose statement was relied upon, had not been provided.
The grounds additionally challenged reopening, transfer of jurisdiction, the absence of a valid DIN in the section 151 approval, non-supply of relevant material and issuance of the reopening notice outside the faceless procedure.
The Tribunal’s operative reasoning, however, focused on the quantum and tax treatment of the additions. These jurisdictional and procedural objections were not separately adjudicated in its discussion.
Tribunal Declined Complete Deletion
The Tribunal noted that the assessee had not furnished all the documents and evidence sought during assessment. It also described some of the material furnished as self-serving, and therefore declined to grant complete relief.
Accepting that the seized records indicated cash payments in addition to cheque consideration, the Tribunal held that the alleged on-money could not simply be denied.
Nevertheless, it proceeded to conclude that only the profit element should be taxed in the assessee’s hands.
This was the decisive step in reducing the additions.
Precedents on Receipts and Suppressed Sales Applied
The Tribunal referred to CIT v. Williamson Financial Services, [2007] 165 Taxman 638 (SC) for the principle that income-tax is levied on income computed under the Act, rather than gross receipts.
It also relied on CIT v. President Industries, [2002] 124 Taxman 654 (Guj.), concerning suppressed sales. The principle discussed was that sales represent consideration for goods whose acquisition or production involves cost; consequently, the profit embedded in undisclosed sales may constitute income, rather than the entire sales proceeds.
Applying this reasoning, the Tribunal estimated the taxable component at 10% of the alleged on-money.
The Relief Granted
For Assessment Year 2019-20, the addition was reduced from ₹75,000 to ₹7,500.
For Assessment Year 2020-21, it was reduced from ₹4,25,000 to ₹42,500.
The Tribunal expressly directed that these amounts be taxed at normal income-tax rates, and not under section 115BBE. Both appeals were partly allowed.
Author’s Comments
The relief is clear, but its reasoning requires careful examination. A purchaser’s alleged unexplained investment and a seller’s suppressed sales are different categories of addition.
President Industries concerns the profit embedded in sales receipts. Here, the assessee was the purchaser, and the Department alleged an unexplained cash outlay. The order does not explain how that payment contained a taxable profit component belonging to the buyer.
Likewise, the direction to apply normal rates follows the Tribunal’s profit estimation, but the order does not elaborate on the resulting statutory character of the sustained amounts.
Practitioners may cite the decision for its specific relief, while recognising this distinction. The addition was reduced to one-tenth; the bridge between unexplained investment and estimated profit remains unexplained.
Cases Discussed
- CIT Vs Williamson Financial Services, [2007] 165 Taxman 638 (Supreme Court) — relied upon by the Tribunal for the proposition that the levy under the Income-tax Act is on income computed in accordance with the Act and not merely on gross receipts.
- CIT Vs President Industries, [2002] 124 Taxman 654 (Gujarat High Court) — relied upon for the principle that in a case of suppressed sales the entire undisclosed sales receipts do not necessarily constitute income and the profit component embedded in such sales may be assessed.
- Chuharmal Vs CIT, (1988) 172 ITR 250 (Supreme Court) — relied upon by the CIT(A) while considering natural justice and use of material collected by the tax authorities, subject to an opportunity to the assessee to make submissions on adverse material.
- CIT Vs Anjum M.H. Ghaswala, 171 CTR 001 (Supreme Court) — relied upon by the CIT(A) for the proposition that charging of statutory interest is mandatory.
- South Coast Spices Exports (P.) Ltd. Vs PCIT (Kerala High Court) — relied upon by the CIT(A) while rejecting the objection concerning absence of DIN on the satisfaction/approval document supplied to the assessee.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned two appeals filed by the assessee, pertaining to assessment years (AY) 2019-20 & 2020-21, are directed against the separate orders passed under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 27.02.2026 by the National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income Tax (Appeals) [in short ‘Ld.CIT(A)’] which in turn arises out of separate assessment orders passed by the Assessing Officer u/s 147 of the Act.
2. Since, the issue involved in both these two appeals are common and identical therefore these two appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The facts as well as the grounds of appeal narrated in ITA No.648/Rjt/2026 for assessment year 2019-20 have been taken into consideration for deciding these appeals en masse.
3. The grounds of appeal raised by the assessee in ITA No. 648/RJT/2026 (lead case), are as follows:
(1). That the learned CIT(A) has grievously erred in law and on facts in upholding the action of the learned A.O. in assuming jurisdiction and initiating income escaping assessment proceedings u/s 147 of the Act by way of issuing notice u/s 148 of the Act.
(2). That the transfer of jurisdiction from the Income Tax Officer, Ward 3(1)(1), Rajkot to ACIT/DCIT, Circle 1(1), Rajkot is bad in law and void ab initio as the same has been effected in violation of the mandatory provisions of Sections 124 and 127 of the Income-tax Act, 1961.
(3). That the learned CIT(A) has grievously erred in law and on facts in upholding the action of the learned A.O. in assuming jurisdiction under section 147 of the Income tax Act, 1961 as the approval under section 151 of the Act is issued without generation of a valid Document Identification Number (DIN) in contravention of the mandatory instructions contained in CBDT Circular No. 19/2019 dated 14.08.2019.
(4). That the learned A.O. has grievously erred in law and on facts in not furnishing the requisite material which ought to have been supplied along with entire copy of statement recorded of the search person, satisfaction note, appraisal report and other relevant material based upon which reliance is placed by the revenue as per the mandate of provisions of section 144B of the Act
(5). That the Show Cause Notice issued in the reassessment proceedings is illegal, invalid and without jurisdiction, as it does not disclose the specific charging OR deeming provision of the Income tax Act, 1961 under which the proposed addition is contemplated.
(6). That the impugned notice issued under Section 148 of the Income tax Act, 1961 by the Assessing Officer is bad in law and void ab initio as the same has not been issued by Faceless Assessing Officer which is in violation of the prescribed procedure for initiating reassessment proceedings in a faceless manner.
(7). That the learned Assessing Officer has erred in law and on facts in making the impugned addition merely on the basis of suspicion, conjectures and surmises because, nowhere in the seized ledger the name of the assessee is appearing, rather the title of the ledger is Account statement for EMP 1210.
(8). That the learned CIT(A) has grievously erred in law and on facts in upholding the action of the learned A.O. in confirming the addition to the extent of Rs. 75,000/- on account of unexplained vestment u/s. 69 r.w.s. 115BBE of the Act.
(9). That the learned Assessing Officer has grievously erred in law and on facts in passing the assessment order without providing opportunity of cross examination.
(10). That the assessee craves leave to add, amend, alter, vary and/or withdraw above ground of Appeal.
4. Succinctly, the factual panorama of the case is that assessee before us is an Individual. The assessee, filed return of income for AY 2019-20, declaring total income at Rs.3,47,020/-. Search and Seizure action u/s 132 of the Act named “operation blue diamond was carried out on 24.08.2021 in the case of real estate builders of Rajkot. Mainly four groups including R K Group were covered in search action. Seized documents revealed that the RK Group was involved in taking on money in cash on sale/booking of units of their projects. The assessee was found as one of the purchasers who paid cash on-money for the purchase of units/offices in project “RK EMPIRE”. On the basis of the information, case was reopened u/s 147 of the Act and notice u/s 148 was issued on 31.03.2023. Statutory notices were issued to assessee calling for details and information. The assessee responded during the assessment proceedings. After examining facts of the case and taking on record response of the assessee, AO completed the assessment u/s 147 of the Act, after making addition of Rs. 75,000/- to the returned income of the assessee, under section 69, read with section 115 BBE of the Act.
5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer, observing as follows:
As far as the violation of the principles of the natural justice is concerned, the Hon’ble Supreme Court in the case of Chuharmal v. CIT (1988) 172 ITR 250 (SC), in this context held that – What is meant by saying that the Evidence Act does not apply to proceedings under the Income-tax Act is that the rigor of the rules of evidence contained in the Evidence Act are not applicable, but that does not mean that when the taxing authorities are desirous of invoking the principles of the Act in proceedings before them, they are prevented from doing so. All that is required is that if they want to use any material collected by them, which is adverse to the assessee, then the assessee must be given a chance to make his submissions thereon. The principles of natural justice are violated only, if an adverse order is made on an assessee on the basis of the material not brought to his notice.
7.4 It is pertinent to note that natural justice is mistress and not the master of justice. It can never be used to defeat the cause of justice and it is used to support the cause of justice. In the present case at hand, I have noted that the entire material which was in the possession of the AO had been confronted to the Assessee and the assessment order had been passed by the AO, after duly considering the submissions of the Assessee. Hence, there is no violation of the principles of natural justice.
Keeping in view the facts and judicial precedents, I am of the opinion that the AO’s inference and action is legally valid as the AO is able to establish the fact that – there is a clear one-to-one linkage between: (a) registered agreement/sale deed for Rs. 10.30.000, (b) seized Miracle ledger “EMP 1210 showing total consideration of fle 26.85,706 and year-wise cash receipts, and (c) statements of group accountant and promoter accepting that Miracle files record real unaccounted cash dealing together they form a complete chain of evidence proving that the assessee paid on-money The assessee’s bald denial without any rebuttal of decoding, and without producing books or bank statements to contradict the seized material, fails to discharge the burden; hence the facts established by the AO that seized Miracle entries are true and relate to the assessee’s remains intact. On many occasions Courts have held that were seized documents and statements constitute strong corroborative evidence of on-money in real-estate transactions, vague denials are insufficient, and additions under sections 69/698/69C are justified when the assessee cannot explain the differential consideration or source of cash component. Despite specific opportunities through notices under section 142(1) and show-cause dated 11.02.2024, the assessee has neither disputed the factual decoding of Miracle data nor produced any evidence to explain the source of the above cash payments, and has confined himself to a bare denial that no transaction has taken place with RK Group, which stands falsified by the registered agreement and stamp duty documents obtained from the Sub-Registrar. In view of these clinching and corroborated evidences and judicial decisions discussed in the foregoing paras, the action of the Assessing Officer calls for full affirmation by upholding the addition, hence the grounds 1 to 12 along with additional grounds raised by the assessee are hereby Dismissed.
8. Ground No.13 I have noted that this is a general Ground of Appeal raised by the Assessee, which doesn’t require any adjudication. As far as charging of interest is concerned, it is consequential in nature. Further, the Hon’ble Supreme Court has in the case of CIT Vs. Anjum M.H. Ghaswala 171 CTR 001(SC) held that charging of interest is mandatory in nature. Hence, the issue of charging of interest by the AO doesn’t require any interference. Accordingly, this ground of the present appeal raised by the assessee company is dismissed.
9. Ground No.14 This Ground of Appeal is regarding initiation of penalty proceedings u/s 274 r.w.s. 271AAC(1) of the Act and is premature in nature. At present, no prejudice is caused to the assessee by just initiation of the penalty proceedings and hence the mere initiation of the penalty proceedings by the AO, doesn’t call for any interference.
Hence, Ground No. 14 of the present appeal raised by the assessee company is dismissed.
10. Ground No.15 This ground of appeal is found to be general in nature. During the course of the appellate proceedings, the assessee has not added, altered or amended any of the grounds of appeal. Thus, there is no specific issue in this ground of appeal, which requires adjudication. Hence, Ground No. 15 of the present appeal is dismissed.
11. The contention of the assessee regarding the approval order not carrying DIN no is unfounded since the process of seeking and granting approval between the two authorities is purely an internal correspondence within the Department and has no direct bearing on the assessee. Moreover, there is no documentary proof that the communication vide which the copy of approval was provided to the assessee did not bear a DIN. Mere assertion, unsupported by any credible proof cannot be accepted and, therefore, holds no merit. Here reliance is placed on the order of the Hon’ble Kerala High Court in the case of South Coast Spices Exports (AP) Ltd. vs PCIT wherein it was held that:
Where assessee challenged order passed under section 153C on ground that satisfaction notes supplied to assessee did not bear DIN No., since satisfaction note was document prepared by AO which was kept in file and unless demanded was not required to be provided to assessee, furthermore when satisfaction notes were provided to assessee, said communication bore DIN, thus, impugned notice and assessment orders were not without jurisdiction”
The contention of the assessee, for reasons above, is liable to be rejected.
6. Learned Counsel for the assessee vehemently argued that assessee has never paid “on money” to purchase the property in R K Empire and only the money was paid through cheque, which is mentioned in the registered documents. The Ld. Counsel further pointed out that addition was made based on the statement of Mr. Girish Vanjani and there is no live link between the material found during the search proceedings and the payment of “on money”. An opportunity of cross-examination was not provided to the assessee in respect of the statement of Shri Girish Vanjani, hence it is a violation of principle of nature and justice. Since, the assessee has never paid the “on money” therefore addition made by the Assessing Officer may be deleted.
7. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.
8. I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. I note that during the assessment proceedings, assessee did not submit the entire documents and evidences asked by the assessing officer. I also note that some of the documents and evidences submitted by the assessee before the assessing officer, are self-servicing documents and evidences, therefore, full relief should not be given to the assessee. I note that Assessing Officer has made the addition, vide ITA No.648/RJT/2026, to the tune of Rs.75,000/- for assessment year 2019-20 on account of ‘on money’ paid by the assessee in respect of purchase of property in the Project R K Group Empire. Likewise, the Assessing Officer also made the addition in ITA No.649/Rjt/2026 for assessment year 2020-21, on account of payment of “on money” for purchase of property, in the Project R K Empire developed by the R K Group. Considering the facts that seized documents found during the search team, at the third party premises, state that assessee in addition to the payment by cheque, paid the “on money” to purchase the property in R K Group. Therefore, this fact cannot be denied and hence considering these facts and circumstances that the assessee has paid the “on money”, however, only profit element is to be taxed in the hands of the assessee.
9. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below:
“It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts.”
Where suppression of sales receipts is involved, the question is whether the entire sales or only a percentage of profit should be adopted as income. In CIT v. President Industries [2002] 124 Taxman 654 (Gujarat), the Assessing Officer had found evidence of suppression of sales. He adopted the entire receipt (sales) as income but the Hon’ble Jurisdictional High Court has held that the entire undisclosed receipts (sales) cannot constitute income. The sales only represent the price received by the seller of the units for which the seller has already incurred the cost in order to acquire or process the inventory. Therefore, it is the realization of excess consideration over the cost incurred which should be assessed as profit or income. In other words, profit component embedded in the sales could be treated as income.
10. Therefore, considering the above facts and circumstances, I direct the Assessing Officer to make the addition on account of profit element in case of ITA No.648/Rjt/2026 for assessment year 2019-20 @ 10% of Rs.75,000/-, which comes to Rs.7,500/- and in case of ITA No.649/Rjt/2026 for assessment year 2020-21, I also direct the Assessing Officer to make the estimated addition, on account of profit element, in the hands of the assessee @ 10% of Rs.4,25,000/-, which comes to Rs.42,500/-. I also direct the Assessing Officer to sustain these additions in the hands of these respective assessment years by following normal rate of income tax (not under section 115BBE of the Act). Therefore, I allow these two appeals partly in above terms.
11. In the result, these two appeals filed by the assessee in ITA No.648/Rjt/2026 and ITA No.649/Rjt/2026, are partly allowed in above terms.
Order is pronounced in the open court on 30/09/2026.
