The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled that the receipt of ‘on-money’ from the sale of flats cannot be taxed, leading to the deletion of the addition.
A search operation under Section 132 of the Income Tax Act was conducted on October 25, 2017, at the business and residential premises of Mangesh D. Gaikar and the Umesh Tanna group, including the Kalyan Development Corporation (KDC). Mangesh D. Gaikar, a key figure in the group, is a partner in both KDC and Mangeshi Enterprises (ME). The search yielded various incriminating documents revealing Gaikar’s involvement in unaccounted receipts and payments across his proprietorship and partnership firms.
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During the investigation, Gaikar admitted to additional income totaling ₹7,72,93,087 for the assessment years 2012-13 to 2018-19. Additional income was also acknowledged for partnership firms: Mangeshi Enterprises (₹1,59,45,634) and Kalyan Development Corporation (₹4,64,71,835). This income was declared on an estimated basis, quantified as 5% of total sales declared for each assessment year.
Furthermore, an addition of ₹1,99,46,568 was made on account of “on money” received from flat purchasers in various projects. The assessing officer noted, based on seized documents and the statement recorded under Section 132(4), that Gaikar had accepted the receipt of “on money” in cash. Despite the explanations provided by the assessee, the assessing officer initially added ₹4,84,88,379 to the assessment. This amount was later reduced to ₹2,45,90,095 through an order under Section 154, rectifying apparent mistakes and accepting the assessee’s claims. Upon appeal, the CIT(A) further reduced the addition to ₹1,99,46,568, granting relief of ₹46,43,587.
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An additional issue involved a reduction of ₹5,30,280 related to “on money” received in cash from customers purchasing flats in the Mangeshi Sanskar project. Initially, the assessing officer had identified unaccounted “on money” from seized computer data, leading to an addition of ₹4,56,77,925. However, an order under Section 154 dated March 5, 2020, reduced this amount to ₹31,48,018 to address double taxation concerns for amounts already included in previous assessment years. The CIT(A) further reduced the addition to ₹5,30,280, which was broken down into ₹1,66,738, ₹550, and ₹3,62,992, and did not accept the assessee’s argument regarding amounts not received.
Since the addition pertains to the “receipt of money” from the sale of flats by the assessee and these amounts do not represent the actual receipts in the hands of the assessee, they cannot be subjected to tax. Consequently, the two-member bench of the tribunal, consisting of Sunil Kumar Singh (Judicial Member) and Girish Agrawal (Accountant Member), deleted the addition, and the assessee’s appeal was allowed.
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