Rough Estimation done by Partner as ‘On Money’ cannot be considered under Unexplained Cash Credit: ITAT [Read Order]

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The Income Tax Appellate Tribunal (ITAT), Surat has held that rough estimation about charts of business booking by the partner as “on money” cannot be considered as unexplained cash u/s 68 and are not taxable u/s 115BBE of Income Tax Act.

Impounded materials showing receipt of ‘on-money’ on the selling of residential units were found by a survey conducted upon the appellant assessee on 21.02.2018 under section 133A of the Income Tax Act. The assessing officer made an addition of Rs.2,57,76,000/- under section 68 of the Act for which the assessee stated that the ‘on-money’ receipts were based on the rough estimation on the chart of bookings prepared by the partner. CIT(A) directed to tax the on-money receipt as regular business income and held no tax liability u/s 115BBE of the Act. Further, restricted the addition @ 20% as net profit of the total gross receipts as income of the assessee.

The appellant revenue argued that the addition worked out by the assessing officer should be sustained and stated that CIT(A) was not justified to restrict the addition @ 20% of the total gross receipts as income of the assessee. It was stated by the appellant assessee that the addition made by the assessing officer is based on some impounded materials and WhatsApp chat which doesn’t contain the message proving the allegation. The assessee pleaded that @ 20% of gross receipts is the very higher side where the net profit of the assessee ranges between 4% to 6% and contended that only the profit element out of the gross receipts is chargeable to tax. The Assessing Officer stated that the receipt of ‘on-money’ is business receipts, and therefore these receipts are taxable as per the profit declared by the assessee in audited books of account.

The Tribunal observed that 20% net profit is very higher side as compared to the net profit rate of the assessee which ranges between 4% to 6%. The net profit and net income have to be added since indirect expenses are also incurred in the business and further observed that the CIT was right in observing the “on money” as a business receipt as it is a rough estimation made by the partner which not amounts to unexplained cash u/s 68 of the Act.

The Coram consists of Shri Pawan Singh, Judicial Member and DR. A. L. Saini, Accountant Member held that net profit is taxable income and directed the assessing officer to compute the net profit @ 8% of the gross receipts. The appeal of the Revenue is dismissed whereas an appeal filed by the assessee is partly allowed. Shri Hardik Vora appeared on behalf of the assessee and Shri Sita Ram Meena appeared on behalf of the revenue.

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M/s. Poonam Developers vs ACIT

Counsel for Appellant:   Shri Hardik Vora

Counsel for Respondent:   Shri Sita Ram Meena


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