INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - On-money/premium received in respect of booking of residential units - Whether only profit embedded in on-money receipts would be taxed and not entire receipts

Assessee-company was engaged in business of construction and development of residential units in project named 'G' and the said project consisted 432 units. During post-search-survey proceedings, summons under section 131 were issued and served upon 22 persons, who booked the houses in the said project. Out of 22 members, 17 of them accepted payment of on-money. Further, the summons under section 131 was also issued to Managing Director of the assessee, who stated that all 432 bungalows were booked and he made disclosure of an amount of Rs. 12 crores received on that account. Accordingly, the AO made calculation based on statement of 17 members and worked out on-money of Rs. 17,97,63,776, against which the assessee already disclosed Rs. 12,00,00,000 and as such the balance of Rs. 5,97,63,776 was treated as assessee's undisclosed income. Held: AO recorded statement under section 131 from 17 persons and arrived at conclusion that ratio of on-money came to 21.66% of total sale consideration of the project in respect of 432 units. Thus, the statement of 4% was utilized for making extrapolation to 96% units. However, it had been consistently held by this court and some other courts that even upon detection of on-money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. Therefore, in instant case, only profit embedded in such receipts of Rs. 17,97,63,776 being on-money could be taxed. Further, even if profit @ 15% of Rs. 17,97,63,776 would be considered for taxation, then also the same would come to Rs. 2,68,64,566, however, the assessee disclosed the income of Rs. 12,00,00,000 for taxation, which was much more than the said net profit of Rs. 2,68,64,566. Hence, the addition of Rs. 5,97,63,776 made by the AO on account of undisclosed money would not be sustainable.

Distinguished:Amal Kumar Chakraborty v. CIT (1994) 78 Taxman 302 (Cal.) : 1994 TaxPub(DT) 0169 (Cal-HC)

REFERRED : Dy. CIT (Asstt.) v. Panna Corporation [Tax Appeal No. 323 & 325 of 200, dt. 16-6-2012]: (2012) 74 DTR 89 (Guj): 2012 TaxPub(DT) 3269 (Guj-HC) CIT v. President Industries (2002) 258 ITR 654 (Guj): 2002 TaxPub(DT) 0056 (Guj-HC) CIT v. Motilal C. Patel & Co. (1988) 173 ITR 666 (Guj): 1988 TaxPub(DT) 1127 (Guj-HC) CIT v. Ashaland Corporation (1982) 133 ITR 55 (Guj): 1982 TaxPub(DT) 0625 (Guj-HC) Abhishek Corporation v. Dy. CIT (1999) 63 TTJ (Ahd.) 651: 1999 TaxPub(DT) 0751 (Ahd-Trib)

FAVOUR : In assessee's favour

A.Y. : 2011-12

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