Facts of the Case
The assessee, SKZ Developers LLP, engaged
in real-estate development, filed its returns of income for Assessment Years
2021-22 and 2022-23. A search and seizure action under Section 132 was
conducted on 28.09.2021 in the B-Safal and City Estate Group, during which
certain loose papers, excel files and digital data were found indicating alleged
unaccounted cash transactions relating to sale of units in the projects
“Privilon” and “Paarijat Eclate”.
Based on the seized material, the Assessing
Officer concluded that the assessee had sold units at rates higher than those
recorded in registered sale deeds and had received “on-money” in cash. The AO
estimated the project cost based on seized excel files, applied assumed sale
rates, and made additions of ₹20.24 crore for Privilon and ₹33.12 crore for
Paarijat Eclate by treating the entire difference as unaccounted income. The AO
also made additions towards deemed rent under Section 23(5) in respect of
unsold units.
On appeal, the CIT(A) rejected the AO’s
methodology of taxing the entire alleged on-money, estimated a flat fair market
sale rate of ₹6,500 per sq. ft., restricted taxation to profit element @17%,
and reduced deemed rent to 3% of fair market value. Both the assessee and the
Revenue filed cross-appeals before the Tribunal.
Issues Involved
Whether alleged on-money receipts on sale
of real-estate units could be sustained solely on the basis of loose sheets,
excel files and WhatsApp chats without corroborative evidence, whether
estimation of uniform sale rate and profit element was justified, and whether
deemed rental income on unsold flats was taxable under Section 23(5).
Petitioner’s Arguments
The assessee contended that the additions
were based entirely on dumb documents such as unsigned loose sheets, internal
excel workings and third-party digital data which did not mention buyers’
names, dates of cash receipt, confirmation of transactions or any evidence of
actual cash flow. It was argued that these documents merely reflected offer
rates or negotiation proposals and not actual sale consideration. The assessee
further submitted that no purchaser was examined, no cash trail or unexplained
investment was found, and affidavits from buyers denying any cash payment were
ignored. It was also contended that applying a uniform sale rate and estimating
profit at 17% was arbitrary.
Respondent’s Arguments
The Revenue relied on the seized material,
cost workings and broker data to contend that sale prices shown in registered
deeds were below construction cost and that the assessee must have received
cash consideration. The Revenue challenged the partial relief granted by the
CIT(A) and sought restoration of the AO’s additions. It also argued that deemed
rent under Section 23(5) should have been computed at a higher rate.
Court Order / Findings
The ITAT Ahmedabad held that the additions
for alleged on-money receipts were unsustainable. The Tribunal observed that
the seized documents relied upon by the AO were merely indicative quotations or
internal workings and did not constitute proof of actual receipt of cash. No
corroborative evidence such as confirmation from buyers, cash flow trail,
unexplained investment or utilisation of alleged on-money was found. The
Tribunal reiterated that suspicion, however strong, cannot replace evidence,
and reliance was placed on judicial precedents including Maulikkumar K. Shah
and Fort Projects (P) Ltd.
The Tribunal further held that even the
estimation of uniform sale rate at ₹6,500 per sq. ft. by the CIT(A) was based
on assumptions and could not be sustained in absence of concrete evidence.
Accordingly, the entire additions relating to alleged on-money for both
projects were deleted for both assessment years.
On the issue of deemed rent, the Tribunal
upheld the applicability of Section 23(5) and confirmed estimation of deemed
rental income at 3% of fair market value as reasonable, rejecting the Revenue’s
plea for higher rate.
Important Clarification
The Tribunal clarified that in real-estate
cases, additions for on-money receipts cannot be made merely on the basis of
loose sheets, internal excel files or indicative rates unless supported by
independent, corroborative evidence such as buyer confirmations or cash flow.
It was also clarified that Section 23(5) applies to unsold flats once the
statutory period from obtaining completion certificate expires, irrespective of
when construction commenced.
Final Outcome
The appeals filed by the assessee for
Assessment Years 2021-22 and 2022-23 were allowed in respect of deletion of
on-money additions, while the addition towards deemed rent under Section
23(5) at 3% was upheld. The appeals filed by the Revenue for both years
were dismissed in entirety.
Link to download order
Disclaimer
This
content is shared strictly for general information and knowledge purposes only.
Readers should independently verify the information from reliable sources. It
is not intended to provide legal, professional, or advisory guidance. The
author and the organisation disclaim all liability arising from the use of this
content. The material has been prepared with the assistance of AI tools.
0 Comments
Leave a Comment