On-Money Taxed at 8% Profit; Unrebutted Subcontracting Allowed; Section 43CA Triggered Upon Revenue Recognition

By | November 13, 2026
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On-Money Taxed at 8% Profit; Unrebutted Subcontracting Allowed; Section 43CA Triggered Upon Revenue Recognition

Issue

  1. Unaccounted On-Money Receipts: Whether entire unrecorded cash receipts can be taxed or extrapolated across unsold/other units, and whether separate additions under Section 40A(3) or for unrecorded expenses are permissible once profit is estimated on gross unaccounted turnover.
  2. Sub-Contracting Expenditure: Whether sub-contracting charges capitalized to Work-in-Progress (WIP) can be disallowed wholly or on an ad hoc basis (5%) based on third-party search irregularities when the assessee’s primary project execution evidence remains unrebutted.
  3. Applicability of Section 43CA: Whether notional stamp-duty valuation additions under Section 43CA can be made in years prior to revenue recognition under the regularly followed Project Completion Method.

Facts

  • Search & Seizure (On-Money): The assessee, a real estate developer, underwent a search covering AYs 2021-22 to 2024-25. Seized diaries, digital chats, and statements revealed cash (“on-money”) collected over recorded sale values in specific identified transactions. The Assessing Officer (AO) taxed 100% of these receipts and sought to extrapolate the cash component to all other units, while the CIT(A) restricted the addition to a 15% profit estimation.
  • Sub-Contracting Charges: For AYs 2023-24 and 2024-25, the assessee capitalized sub-contracting charges paid to SCPL (Senghani) into WIP. Following a separate search on SCPL and spot checks showing non-traceable downstream contractors, the AO disallowed the entire expense as non-genuine. The CIT(A) deleted the primary addition but sustained a 5% ad hoc reduction from WIP, despite the assessee submitting complete work orders, measurement sheets, payment certificates, and banking records without any discrepancy or evidence of cash kickbacks.
  • Stamp Duty Valuation (Section 43CA): For AYs 2022-23 and 2023-24, the AO invoked Section 43CA on under-construction residential units to tax the difference between stamp-duty value (using an incorrect figure in AY 2023-24) and agreement consideration, even though the assessee followed the Project Completion Method and had not yet recognized revenue for those units.

Decision

  • 8% Profit on Identified On-Money Only: Only the embedded profit element in identified unaccounted cash receipts can be taxed, reasonably estimated at 8% (modifying CIT(A)’s 15%). Revenue’s plea to extrapolate on-money to remaining flats/commercial units without transaction-specific evidence was rejected.
  • No Separate Disallowance After Profit Estimation: Once profit is estimated on gross unrecorded turnover, corresponding business outgoings stand subsumed. Section 40A(3) cannot be invoked to disallow embedded expenditure, nor can separate additions be made for unrecorded expenses unless proven to originate from an independent source outside the unrecorded business cycle.
  • Full Allowance of Sub-Contracting Expenses: Both the AO’s total disallowance and the CIT(A)’s 5% ad hoc reduction from WIP were deleted. Because the assessee’s primary evidence (work orders, measurement records, bank payments) remained unrebutted and actual site construction was undisputed, third-party irregularities alone cannot justify disallowance.
  • Section 43CA Linked to Revenue Recognition: Additions under Section 43CA were deleted for the years under appeal. Section 43CA cannot be applied in abstraction to tax a notional differential in a year where the underlying consideration has not entered business income computation under the accepted Project Completion Method. However, the AO retains liberty to examine Section 43CA (with accurate figures and tolerance limits) in the year revenue is actually recognized.

Key Takeaways

  • No Extrapolation Without Evidence: Unaccounted cash receipts discovered for specific real estate units cannot be automatically extrapolated to other sold units without independent, transaction-specific corroboration.
  • Telescoping & Estimation Shield: Estimating net profit (e.g., 8%) on suppressed turnover absorbs underlying business expenses, insulating the assessee from separate Section 40A(3) cash-payment disallowances or unrecorded expenditure additions.
  • Burden of Proof in Sub-Contracting: When actual physical work is executed and supported by unimpeached measurement sheets and banking trails, tax authorities cannot make ad hoc WIP reductions merely due to downstream vendor irregularities.
  • Timing of Section 43CA: Under the Project Completion Method, Section 43CA adjustments must align with the assessment year in which project revenue is recognized, rather than the year of interim booking or agreement execution.
IN THE ITAT MUMBAI BENCH ‘F’
Susneh Infrapark (P.) Ltd.
v.
Assistant Commissioner of Income-tax
Amit Shukla, Judicial Member
and ARUN KHODPIA, Accountant Member
IT Appeal Nos. 8541 to 8544 AND 9260 to 9262 (Mum) of 2025
[Assessment years 2021-22 to 2024-25]
SEPTEMBER  24, 2026
Rakesh Joshi, CA for the Appellant. Bal Krishna Yadav, SR DR for the Respondent.
ORDER
Amit Shukla, Judicial Member.- The captioned appeals comprise four appeals preferred by the assessee, being ITA Nos. 8541 to 8544/Mum/2025 for Assessment Years 2021-22 to 2024-25, and three corresponding appeals preferred by the Revenue, being ITA Nos. 9260 to 9262/Mum/2025 for the relevant assessment years. The appeals arise from separate orders passed by the learned Commissioner of Income Tax (Appeals)-52, Mumbai, in relation to assessments framed under section 147 of the Income-tax Act, 1961 for Assessment Years 2021-22 and 2022-23 and under section 143(3) of the Act for Assessment Years 2023-24 and 2024-25. Since the additions impugned in these appeals emanate from a common search action carried out in the Runwal Group; the evidentiary material relied upon by the Assessing Officer is substantially common; and the issues relating to alleged receipt of on-money, unaccounted expenditure, subcontracting charges and the applicability of section 43CA recur in different years, all these appeals were heard together and are being disposed of by this consolidated order.
2. For a proper appreciation of the issues arising in the respective appeals, their broad particulars may be set out at the threshold in the following table:
Assessment year Assessee’s appeal Revenue’s appeal Nature of assessment Principal issues
2021-22 ITA No. 8541/Mum/2025 — Section 147 Reopening and alleged on-money of Rs. 65,00,000
2022-23 ITA No. 8542/Mum/2025 ITA No. 9260/Mum/2025 Section 147 Additional ground, alleged on-money of Rs. 22,18,91,000 and section 43CA
2023-24 ITA No. 8543/Mum/2025 ITA No. 9261/Mum/2025 Section 143(3) Additional ground, alleged on-money of Rs. 8,80,00,000, subcontracting expenditure and section 43CA
2024-25 ITA No. 8544/Mum/2025 ITA No. 9262/Mum/2025 Section 143(3) Alleged on-money of Rs. 2,37,29,000 and subcontracting expenditure

 

3. The grounds raised by the parties, though differently worded for the respective years, bring forth certain common grievances. The assessee has challenged the sustenance of 15% of the alleged on-money receipts as its taxable profit; the reliance placed by the Assessing Officer upon the bluecoloured diary seized from the cabin of Smt. Lucy Roychoudhury; the statements recorded during the course of search which, according to the assessee, were subsequently retracted; and the absence of any independent material establishing actual receipt of cash from the purchasers. For Assessment Years 2023-24 and 2024-25, the assessee has also challenged the 5% disallowance out of the subcontracting expenditure incurred through M/s Senghani Creators Pvt. Ltd. and the corresponding reduction from Work-in-Progress. The Revenue, in its cross-appeals, has questioned the restriction of the on-money additions to 15% by the learned CIT(A), contending that the entire unaccounted receipts ought to have been assessed as income. It has also challenged the relief granted in respect of subcontracting expenditure and section 43CA and has disputed the allowance of the balance component of the alleged receipts on the premise that no corresponding expenditure was established by the assessee.
4. In Assessment Years 2021-22 and 2022-23, the assessee had also challenged the validity of the proceedings initiated under section 147. However, at the time of hearing, learned counsel for the assessee stated that the grounds challenging the reopening of assessment were not being pressed. Those grounds are accordingly dismissed as not pressed. The assessee has further raised additional legal grounds in Assessment Years 2022-23 and 2023-24, contending, in substance, that the assessments were framed without complying with the mandatory requirements of section 148 read with Explanation 2(iv) thereto. Since these grounds raise a pure question of law and the relevant facts are available on record, they are admitted. However, having regard to the manner in which the substantive issues on merits are being adjudicated in the succeeding paragraphs, we do not consider it necessary to render any concluded finding on the said additional grounds. The questions raised therein are therefore left open and are treated as academic for the purposes of the present appeals.
5. The assessee is a domestic company engaged in the business of development and construction of residential and commercial real-estate projects. A search and seizure action under section 132 was carried out in the Runwal Group on 06.10.2023, in the course of which the assessee, being one of the constituent entities of the group, was also covered. In the course of the search, the Department found, inter alia, a bluecoloured diary from the office cabin of Smt. Lucy Roychoudhury and retrieved certain digital communications, including WhatsApp and Signal chats, from the mobile devices of some employees and persons connected with the group. Statements of certain employees and functionaries were also recorded under section 132(4). According to the Assessing Officer, the cumulative effect of this material revealed a systematic practice of receiving a part of the consideration for sale of flats and commercial units in cash, over and above the consideration recorded in the agreements or the regular books of account.
6. Insofar as Assessment Year 2023-24 is concerned, the assessee had filed its return of income under section 139(1) on 27.10.2023 declaring a loss of ₹7,76,49,867. The return was selected for complete scrutiny; notice under section 143(2) was issued on 09.03.2024; and notices under section 142(1), accompanied by questionnaires, were thereafter issued from time to time. The assessee furnished the particulars and explanations called for. Similar proceedings were undertaken for the other assessment years, either under section 147 or under section 143(3), as the case may be. The Assessing Officer, relying upon the diary, digital communications, statements and other search material, treated the amounts allegedly received outside the books as undisclosed business receipts and proceeded to assess the entire amount under section 28 of the Act.
7. The year-wise position of the principal disputed additions, as emerging from the orders of the authorities below, may be summarised thus:
Assessment year Alleged on-money receipts Amount sustained at 15% Subcontracting expenditure under dispute Section 43CA addition
2021-22 Rs. 65,00,000 Rs. 9,75,000 — —
2022-23 Rs. 22,18,91,00 0 Rs. 3,32,83,65 0 — As arising from the relevant assessmen t order
2023-24 Rs. 8,80,00,00 0Rs. 1,32,00,0 0Rs. 87,52,585; 5 %Rs. 58,91,93
0 sustained
2024-25 Rs. 2,37,29,00 0Rs. 35,59,350 Rs. 4,01,73,318; 5% sustained —

 

8. The Assessing Officer was of the view that the statements of the persons connected with the sales and administrative functions of the group, when read together with the diary entries and digital communications, established not merely the existence of a practice of collecting cash but also the actual receipt of such amounts in the transactions identified by him. He therefore held that once receipt of the on-money stood established, the whole of such receipt represented undisclosed business income of the assessee. On this premise, the entire amounts of Rs. 65,00,000, Rs. 22,18,91,000, Rs. 8,80,00,000 and Rs. 2,37,29,000 were brought to tax in the respective assessment years without allowing any deduction towards the expenditure allegedly incurred outside the books.
9. Before the learned CIT(A), the assessee assailed both the evidentiary foundation of the additions and the quantification thereof. It was submitted that the statements relied upon by the Assessing Officer had subsequently been retracted through sworn affidavits and, in the absence of independent csourffriocbieonrtatbioans,is sfuorchthestadtedmiteionnts. Tchoeuldassnesosteecoenmsptihtuatseiseda that no confirmation had been obtained from any purchaser admitting payment of cash; no direct trail of cash was found; no corresponding withdrawal from the accounts of the purchasers was identified; no receipt or acknowledgement issued by the assessee was seized; and no unaccounted cash relatable to the alleged collections was found from its premises. It was therefore contended that the additions rested upon an inferential reconstruction of events rather than upon evidence establishing actual receipt by the assessee.
10. Without prejudice to its primary contention for deletion of the additions, the assessee submitted that the entire alleged on-money could not, in any event, be treated as income. According to the assessee, any cash component received in the course of its real-estate business would partake of the character of an unrecorded business receipt and not pure income. It was submitted that the development and execution of real-estate projects necessarily entailed various project-related outgoings, including brokerage, commission, labour charges, facilitation expenses and other costs, some of which were also reflected in the statements and the material relied upon by the Department itself. The assessee accordingly contended that, even if the existence of such receipts were assumed, only the profit element embedded therein could be assessed.
11. The learned CIT(A), upon examining the assessment orders, statements, seized material and submissions of the assessee, did not accept the plea for outright deletion. He observed that the material recovered during the search, considered cumulatively, indicated the existence of a pattern of receiving part of the consideration in cash in certain realestate transactions. He accordingly held that the existence of unaccounted receipts could not be entirely disregarded merely because no cash was found or direct confirmations were not obtained from the purchasers. At the same time, the learned CIT(A) did not approve the action of the Assessing Officer in treating the gross receipts as taxable income. He held that the alleged on-money represented unrecorded business receipts and that only the profit component embedded therein could be subjected to tax. He accordingly restricted the additions to 15% of the alleged receipts in each year and deleted the balance.
12. The assessee remains aggrieved by the sustenance of the additions even to the extent of 15%, whereas the Revenue is aggrieved by the deletion of the remaining amount. The grounds raised by both sides on this issue are interconnected and are therefore adjudicated together. The questions which arise for consideration are, first, whether the material relied upon by the Assessing Officer furnished an adequate basis for drawing an inference regarding receipt of on-money in the identified transactions; secondly, whether the entire amount of such receipts or merely the profit element embedded therein could be brought to tax; thirdly, whether the rate of 15% adopted by the learned CIT(A) was fair and reasonable; and lastly, whether any separate addition could survive in respect of the alleged cash expenditure forming part of the same stream of unaccounted business activity.
13. Before us, learned counsel for the assessee reiterated that the additions were principally founded upon the blue diary, statements of employees and digital communications which, according to him, did not establish actual receipt of money by the assessee. He submitted that the persons whose statements were relied upon were neither purchasers nor the ultimate recipients of the alleged cash and that their statements had subsequently been retracted. No customer had been examined and no purchaser had admitted payment of any amount over and above the recorded consideration. There was no direct cash trail, no seized receipt bearing an acknowledgement by the assessee and no recovery of any unaccounted cash corresponding to the figures adopted by the Assessing Officer. Learned counsel accordingly contended that the addition lacked adequate independent corroboration and that the entries and communications relied upon were insufficient to establish receipt of the entire amount attributed to the assessee.
14. Learned counsel further submitted that the project was situated at Dombivli and catered substantially to middleincome purchasers. It was not a premium or luxury development capable of yielding the high margins assumed by the learned CIT(A). The rate of 15%, according to him, had been adopted without reference to the disclosed financial results of the assessee, the location and character of the project, any comparable case or any other objective commercial parameter. Drawing attention to the statements reproduced by the Assessing Officer, particularly the statements of Smt. Lucy Roychoudhury, Shri Saurabh Shankar Natu and Shri Chetan Chepurwar, learned counsel submitted that the Department’s own material contained references to cash expenditure in the nature of brokerage and commission. The blue diary itself, according to him, reflected not only receipts but also project-related outgoings. He therefore submitted that the gross receipts could not be regarded as income and that, even if an estimation were considered necessary, a substantially lower rate ought to be adopted.
15. Learned counsel also relied upon the decisions in CIT v. President Industries  258 ITR 654 (Gujarat), Guruprerna Enterprises, Abhishek Corporation v. DCIT, ITO v. Anand Builders, Hema Haresh Mehta v. DCIT, Kishor Mohanlal Telwala and JCIT v. Narayan Land Estate to contend that suppressed sale proceeds or on-money received in the course of business cannot be equated with income in their entirety and that only the profit component can be assessed. Reliance was also placed upon the orders passed by the coordinate Benches in the cases of the assessee’s sister concerns, namely, M/s Horizon Projects Pvt. Ltd. for Assessment Years 2022-23 to 2024-25, M/s Runwal Enterprises Ltd. for Assessment Years 2020-21 to 2024-25 and Evie Real Estate Pvt. Ltd. for Assessment Years 2020-21 to 2024-25. It was submitted that the search material, the nature of the allegations and the business model considered in those cases were substantially similar and that a consistent approach ought to be followed.
16. The learned CIT DR, on the other hand, strongly relied upon the assessment orders. He submitted that the additions did not rest upon an isolated statement or a stray loose paper but upon a combination of diary entries, digital communications and statements recorded during the course of search. According to him, the material revealed a systematic mechanism for receiving part of the sale consideration in cash, and once the existence of the mechanism and the transactions recorded therein stood established, there was no justification for excluding any part of the receipts from taxation. He contended that the learned CIT(A) had erred in notionally assuming that 85% of the receipts represented expenditure despite the assessee having failed to produce any evidence of the actual incurrence or quantum of such expenditure.
17. The learned CIT DR further submitted that if the assessee’s case were that the alleged expenditure had been incurred in cash, the same would attract section 40A(3), and no deduction could be allowed in respect thereof. He argued that the decision in Ekta Housing Pvt. Ltd., relied upon by the learned CIT(A), was distinguishable because, in that case, the assessee had established a direct linkage between the unaccounted receipts and the corresponding cash expenditure, whereas no such one-to-one nexus had been demonstrated in the present case. He further contended that, once a systematic practice of collecting on-money was found to exist, a corresponding inference ought to be drawn in respect of the remaining flats and commercial units sold during the relevant years and the addition should not be confined only to the transactions specifically appearing in the seized material. He also opposed any telescoping of expenditure against the receipts in the absence of an established nexus.
18. We have given our thoughtful consideration to the rival submissions and have carefully examined the assessment orders, the orders passed by the learned CIT(A), the statements and extracts referred to therein and the material forming the basis of the additions. The evidentiary material cannot be examined in isolated compartments. A diary entry, a digital conversation or a statement, when viewed independently, may admit of more than one inference; however, where different strands of material relate to the same project, contain corresponding references to units or transactions and are supported by statements of persons associated with the relevant functions, their cumulative evidentiary effect cannot be ignored. In the present case, the diary, digital communications and statements, as appreciated by both the authorities below, reveal a discernible pattern of collection outside the recorded consideration in certain identified transactions. The subsequent retraction of the statements is a relevant circumstance, but a retraction by itself does not efface the contemporaneous documentary and digital material or render the original statements nonexistent. Its effect must be evaluated in conjunction with the circumstances in which the statement was originally made, the promptness and reasons for the retraction and the corroborative material otherwise available.
19. At the same time, the material must be confined to what it reasonably establishes. The absence of purchaser confirmations, a direct cash trail or recovery of corresponding cash may not, by itself, nullify the inference arising from the cumulative search material, but it assumes significance when the Revenue seeks either to tax the entire receipt as pure income or to extend the inference to transactions not specifically reflected in any seized record. The evidence relied upon establishes, at the highest, unrecorded business receipts connected with the identified transactions. It does not establish that the whole amount represented net income unaccompanied by any project-related cost, nor does it furnish a legitimate basis for presuming an identical cash component in every other unit sold by the assessee. An addition cannot travel beyond the transactions to which the material bears a rational and discernible nexus merely because a particular modus was noticed in some cases. The Revenue’s plea for extrapolating on-money to the remaining flats and commercial units, in the absence of transactionspecific or otherwise reliable supporting material, therefore cannot be accepted.
20. The further contention of the Revenue that the entire gross receipts should be taxed as income also does not commend acceptance. The assessee is engaged in the business of development and sale of real estate, and any amount received over and above the recorded sale consideration retains the character of a business receipt. A receipt arising in the course of business cannot be equated, without anything further, with the income embedded therein. The distinction between turnover and profit is fundamental. The material relied upon by the Department itself contains references to cash expenditure in the nature of brokerage, commission and other project-related outgoings. It would therefore be incongruous to rely upon one part of the same evidentiary material for bringing the receipts to tax while altogether disregarding the indications of corresponding expenditure contained therein. The absence of a precise one-to-one correlation may justify estimation of the income component, but it cannot convert a gross business receipt into net taxable profit.
21. The invocation of section 40A(3) by the Revenue does not alter this conclusion. What is being allowed in such a case is not a deduction of an identified item of cash expenditure from the income computed under the regular provisions; rather, the taxable income itself is being determined by estimating the profit embedded in the suppressed business receipts. Once the income is estimated on the gross unrecorded turnover, the corresponding business outgoings stand subsumed in the process of estimation. Section 40A(3) cannot be employed to first treat the whole of the suppressed turnover as income and thereafter deny the expenditure notionally embedded therein, for that would obliterate the distinction between a receipt and the income component contained in it. Equally, once the profit is estimated on the entire unaccounted receipt, no separate addition can ordinarily be made for expenditure forming part of the same unrecorded business cycle, unless the Revenue establishes that such expenditure was incurred from an independent source or represented a separate application not absorbed in the estimation. No such independent source has been demonstrated in the present case.
22. The remaining question is the rate at which the profit embedded in the alleged receipts should be estimated. The learned CIT(A) adopted 15%, but the appellate order does not disclose any comparable instance, project-specific margin or empirical basis supporting that rate. Having regard to the location and nature of the projects, the character of the transactions, the indications of corresponding project-related expenditure in the material itself, the judicial guidance available in comparable real-estate cases and the treatment accorded by the coordinate Benches in the cases of the sister concerns arising from the same group search, we are of the considered opinion that estimation of profit at 8% of the identified on-money receipts would be fair and reasonable. We accordingly direct the Assessing Officer to restrict the additions to Rs. 5,20,000 for Assessment Year 2021-22, Rs. 1,77,51,280 for Assessment Year 2022-23, Rs. 70,40,000 for Assessment Year 2023-24 and Rs. 18,98,320 for Assessment Year 2024-25. The grounds of the assessee challenging the rate of 15% are thus partly allowed, whereas the corresponding grounds of the Revenue seeking taxation of the gross receipts, denial of the embedded expenditure, application of section 40A(3) and extrapolation to the remaining units are dismissed. The grounds concerning reliance upon the statements and their subsequent retraction stand disposed of as part of the foregoing composite findings.
23. We shall now take up the grounds relating to the subcontracting expenditure incurred through M/s Senghani Creators Pvt. Ltd. and the corresponding adjustment made to the Work-in-Progress. This issue arises in the assessee’s appeal as well as the Revenue’s cross-appeal for Assessment Years 2023-24 and 2024-25. For Assessment Year 2023-24, the expenditure under consideration amounted to Rs. 87,52,585, out of which the learned CIT(A) sustained a disallowance of 5%, resulting in reduction of Rs. 4,37,629 from the Work-in-Progress. For Assessment Year 2024-25, the corresponding expenditure amounted to Rs. 4,01,73,318 and the learned CIT(A) sustained a reduction of Rs. 20,08,666, being 5% thereof. The assessee seeks deletion of the amounts so sustained, whereas the Revenue contends that, once the transactions were found to be non-genuine, the entire expenditure ought to have been excluded from the project cost.
24. The genesis of the disallowance lies in a search action conducted in the case of M/s Senghani Creators Pvt. Ltd. and the material and statements gathered in the course thereof. The said concern was engaged in undertaking construction and civil works for various builders and developers, including entities belonging to the Runwal Group. During the search, statements of certain persons associated with Senghani Creators Pvt. Ltd. were recorded, from which the Assessing Officer inferred that invoices were prepared on the basis of rough workings received from certain subcontractors; such workings were thereafter transcribed or printed on the letterheads of the respective concerns; and the rough worksheets were subsequently destroyed. The Department also carried out spot verification in the case of some downstream subcontractors, where certain parties were either not found at the stated addresses or were otherwise not available for verification. Based upon these circumstances, the Assessing Officer formed the view that the subcontracting chain was not genuine and that the expenditure booked by the assessee through Senghani Creators Pvt. Ltd. represented inflated or non-genuine project cost.
25. The assessee, both during the assessment proceedings and before the learned CIT(A), disputed the inference so drawn and furnished extensive documentation in support of the work awarded, its actual execution and the payments made. The evidentiary material placed on record may broadly be summarised as under:
Nature of record Documents furnished Relevance
Contractual records Work orders and copies of invoices Nature, scope and value of the work entrusted
Technical records Measurement sheets, quantity summaries and abstract sheets Quantification and certification of work executed
Material records Challans and reconciliation statements of materials issued Movement and consumption of construction material
Project compliance Quality certificates, health and safety certificates and labourcompliance records Actual deployment and execution at the project site
Accounting records Ledger accounts and payment certificates Recording and certification of the liability in the regular books
Banking records Bank statements evidencing payments Discharge of liability through regular banking channels

 

26. The assessee contended that the invoices were supported by work orders, measurement records, quantity certifications and material reconciliations and, therefore, could not be discarded merely because the contractor might have prepared its final invoices from rough worksheets. According to the assessee, preparation of a final invoice after consolidating quantities from preliminary or rough workings is a normal feature of construction activity and destruction or nonpreservation of such preliminary workings by the contractor does not render the final invoice fictitious. It was further submitted that no defect was found in the work executed at the assessee’s project; the quantities certified by the project and technical teams were not disputed; the payments were made through banking channels; and no evidence was found to show that any part of the payment had returned to the assessee in cash or through any circuitous arrangement.
27. The learned CIT(A), while noticing that the Assessing Officer had not brought any direct material to establish that the transaction between the assessee and Senghani Creators Pvt. Ltd. was entirely fictitious, nevertheless held that the irregularities noticed during the search in the case of the contractor and its downstream subcontractors could not be ignored altogether. By placing reliance upon the decision of the Mumbai Bench of the Tribunal in the case of Middle Earth Enterprises, he considered it appropriate to sustain 5% of the expenditure as non-genuine and directed a corresponding reduction from Work-in-Progress. Thus, the learned CIT(A) did not approve the disallowance of the entire expenditure but retained an estimated adjustment as a measure against the perceived deficiencies in the subcontracting chain.
28. Before us, learned counsel for the assessee submitted that the entire adjustment rested upon material recovered from the premises of a third party and statements of persons connected with that concern. No incriminating material was found from the possession or control of the assessee demonstrating that the work orders, invoices or measurement records were fabricated or that the payments made to Senghani Creators Pvt. Ltd. represented accommodation entries. It was emphasised that the expenditure had not been debited to the Profit and Loss Account as a revenue deduction in the years under consideration but had been capitalised as part of the project cost in Work-in-Progress. The reduction directed by the Assessing Officer, therefore, not only distorted the project cost of the relevant years but was also liable to affect the computation of income in the years in which revenue from the project would ultimately be recognised.
29. Learned counsel further submitted that the presumption available under section 132(4A), as also the corresponding statutory presumption relating to books and documents found during search, operates principally against the person from whose possession or control such material is found. Such presumption could not automatically be extended to the assessee, a distinct taxable entity, without independent evidence connecting it with the alleged irregularity. He submitted that the assessee had discharged the burden resting upon it by producing primary records evidencing the award and execution of work and payment of the contractual consideration. Once such evidence was furnished, the onus shifted to the Revenue to identify some falsity, inflation or inconsistency therein. The Assessing Officer, however, had not examined or disproved any of those records and had proceeded only on the basis of a general inference drawn from the internal affairs of the contractor.
30. The learned CIT DR supported the assessment orders and submitted that the material found in the case of Senghani Creators Pvt. Ltd., statements of its key persons and the results of spot verification could not be regarded as extraneous to the assessee’s claim. According to him, the findings indicated that the subcontracting chain consisted of entities which were either non-existent or incapable of executing the work attributed to them and that the documentary records produced by the assessee, including invoices and banking payments, were insufficient to establish the underlying genuineness of the expenditure. He further relied upon the decision of the Hon’ble Supreme Court in CIT v. N.K. Proteins Ltd. and submitted that, once the transaction itself was found to be non-genuine, the entire amount was liable to be disallowed and there was no justification for restricting the adjustment to 5%.
31. We have considered the rival submissions and examined the material referred to by both sides. The findings emerging from the search in the case of Senghani Creators Pvt. Ltd. could undoubtedly constitute relevant information and furnish a legitimate basis for examining the transactions entered into by the assessee with that concern. However, relevance of the information at the stage of inquiry is distinct from its sufficiency for making an addition in the hands of a separate assessee. An adverse conclusion against the assessee must ultimately rest upon material demonstrating that the expenditure recorded by it was fictitious, inflated or did not correspond with work actually executed. Irregularities in the contractor’s internal documentation or infirmities in the affairs of some downstream subcontractors cannot, without an evidentiary link, lead to the inexorable conclusion that the principal contract between the assessee and Senghani Creators Pvt. Ltd. was itself a sham.
32. The assessee has produced the work orders, invoices, measurement and quantity records, material reconciliation statements, payment certificates, compliance documents, ledger accounts and bank statements. The Assessing Officer has not identified any discrepancy in the scope of work mentioned in the work orders; any falsity or duplication in the invoices; any mismatch in the quantity of work certified; any inconsistency in the measurement sheets; or any variation between the contractual liability, the ledger account and the payment made. There is no finding that the civil or construction work for which the expenditure was recorded had not actually been executed at the project site. Nor has any material been brought on record to show that the payment made through banking channels was returned to the assessee, directly or indirectly. The primary evidence furnished by the assessee, therefore, remains unrebutted by any transaction-specific investigation or positive material.
33. The circumstance that some of the entities engaged by Senghani Creators Pvt. Ltd. were not found at their stated addresses may warrant proceedings in the hands of the contractor or such downstream entities and may justify examination of the recipients of the payments. It does not, by itself, establish that the assessee did not receive the contracted work from Senghani Creators Pvt. Ltd. The assessee cannot be expected to establish the manner in which an independent contractor organised every segment of its labour, material and subcontracting resources, once the assessee has demonstrated the work entrusted, the work executed, its measurement and certification and the consideration paid. An adverse inference against the assessee required some material showing its participation in, or knowledge of, the alleged accommodation arrangement. No such material has been referred to by the Assessing Officer.
34. The reliance placed by the Revenue upon N.K. Proteins Ltd. does not advance its case. In that matter, the conclusion regarding bogus purchases arose from direct and cogent material establishing that the transactions in question were not genuine. The proposition that the entire amount may be disallowed once a transaction is affirmatively proved to be fictitious cannot be extended to a case where the very premise of non-genuineness remains unsupported by material directly pertaining to the assessee. In the present case, the physical execution of work has not been disproved, the project records have not been rejected and no evidence of circulation or return of funds has been found. The factual foundation necessary for applying the principle relied upon by the Revenue is, therefore, absent.
35. We are equally unable to sustain the 5% adjustment retained by the learned CIT(A). An estimate may be resorted to where the existence of expenditure is accepted but its precise quantum is incapable of verification, or where specific deficiencies in the records warrant a reasonable approximation. Here, the learned CIT(A) has not identified any particular defect in the assessee’s records or demonstrated how such a defect translated into a 5% inflation of the project cost. The rate adopted does not emanate from any comparison, defect in quantities, excess pricing or other discernible yardstick. Moreover, the expenditure was capitalised to Work-in-Progress and had not been claimed as a deduction against the income of the relevant years. A reduction from Work-in-Progress, carrying consequences into the years in which project revenue is recognised, could not be sustained merely as an estimated safeguard against irregularities found in the affairs of another entity.
36. We also find that coordinate Benches, while considering materially similar transactions entered into with Senghani Creators Pvt. Ltd. in the cases of the assessee’s sister concerns, namely, M/s Horizon Projects Pvt. Ltd., M/s Runwal Enterprises Ltd. and Evie Real Estate Pvt. Ltd., examined the corresponding records and deleted the disallowances. The factual pattern, nature of the search material and documentary evidence in the present case do not disclose any distinguishing feature warranting a different conclusion. We accordingly set aside the order of the learned CIT(A) on this issue and direct the Assessing Officer to delete the disallowances of Rs. 4,37,629 for Assessment Year 2023-24 and Rs. 20,08,666 for Assessment Year 2024-25 and to restore the corresponding amounts to Work-in-Progress. The relevant grounds raised by the assessee are allowed, whereas the corresponding grounds raised by the Revenue seeking disallowance of the entire expenditure are dismissed.
37. We shall now deal with the grounds raised by the Revenue concerning the deletion of the additions made under section 43CA. The issue arises in Assessment Years 2022-23 and 2023-24. In Assessment Year 2023-24, the Assessing Officer made an addition of Rs. 58,91,934 by adopting the stamp-duty value in place of the agreement consideration in respect of the concerned residential unit. The assessee submitted before the learned CIT(A) that the project was under construction; that the assessee consistently followed the Project Completion Method; that no revenue from the concerned unit had been recognised during the relevant year; and that the Assessing Officer had proceeded on an incorrect figure of stamp-duty valuation. It was therefore contended that no adjustment under section 43CA could be brought to tax in the year under consideration.
38. The learned CIT(A), after examining the transaction documents, found that the stamp-duty value adopted by the Assessing Officer did not correctly reflect the value appearing from the relevant agreement. He further observed that the project remained under construction and the corresponding sale proceeds had not been recognised as revenue in accordance with the method of accounting regularly followed by the assessee. On that basis, the learned CIT(A) deleted the addition for the year under consideration, while observing that the applicability of section 43CA could be examined in the year in which the transfer fructified and the corresponding revenue was recognised. Before us, the learned CIT DR contended that execution of the agreement and receipt or accrual of consideration created enforceable rights in the property and that section 43CA could not be deferred merely because the project was under construction or possession had not been handed over. Learned counsel for the assessee, while supporting the deletion, fairly submitted that the applicability of section 43CA could be examined in the appropriate year when the sale consideration was recognised and offered to tax, subject to the correct stampduty value and the statutory tolerance then applicable.
39. We have considered the rival submissions. Section 43CA substitutes the value adopted or assessable by the stampvaluation authority for the consideration received or accruing as a result of transfer of land or building or both held as stock-in-trade, subject to the statutory conditions and tolerance prescribed therein. The provision cannot be applied in abstraction from the transaction to which the business receipts relate, nor can a notional differential be brought to tax in a year in which the corresponding consideration from the transfer has not entered the computation of business income under the method of accounting regularly followed and accepted. In the present cases, the record shows that the projects were under construction, the corresponding revenue had not been recognised in the years under appeal and the Assessing Officer had also proceeded, at least in Assessment Year 2023-24, upon an incorrect stamp-duty figure. We therefore find no infirmity in the deletion of the additions for the years under consideration. However, the deletion shall not preclude the Assessing Officer from examining the applicability of section 43CA in the year in which revenue from the concerned units is recognised, strictly with reference to the correct agreement consideration, the legally relevant stamp-duty value, the provisos and tolerance limit applicable to the transaction and after affording the assessee an adequate opportunity of being heard. We clarify that this observation does not constitute a concluded finding for any other assessment year. The corresponding grounds raised by the Revenue for Assessment Years 2022-23 and 2023-24 are accordingly dismissed.
40. We shall now apply the foregoing common findings to the individual appeals and dispose of the grounds raised for each assessment year. In doing so, it is clarified that the findings recorded in relation to the alleged on-money receipts, the evidentiary value of the diary, statements and digital material, the taxability of only the profit component, the inapplicability of section 40A(3) in the manner canvassed by the Revenue, the impermissibility of extrapolation to transactions unsupported by identified material, and the treatment of the connected cash expenditure shall form an integral part of the adjudication for all four assessment years. Similarly, our findings concerning the subcontracting expenditure incurred through M/s Senghani Creators Pvt. Ltd. shall govern Assessment Years 2023-24 and 2024-25, while the findings relating to section 43CA shall govern the relevant grounds arising in Assessment Years 2022-23 and 2023-24.
41. We first take up the assessee’s appeal for Assessment Year 2021-22 in ITA No. 8541/Mum/2025. Ground No. 1 challenging the validity of the reassessment proceedings under section 147 was expressly not pressed by learned counsel and is accordingly dismissed as not pressed. Ground Nos. 2 and 3 relate to the alleged on-money receipts of Rs. 65,00,000 and the action of the learned CIT(A) in sustaining Rs. 9,75,000, being 15% thereof. For the reasons recorded in paragraphs 13 to 22 hereinabove, we hold that only the profit component embedded in the identified unaccounted receipts can be brought to tax and that such profit is reasonably estimable at 8%. The Assessing Officer is therefore directed to restrict the addition to Rs. 5,20,000. Ground Nos. 2 and 3 are thus partly allowed. Ground No. 4, concerning reliance upon statements which were subsequently retracted, stands disposed of in terms of our composite findings on the evidentiary material and requires no separate adjudication. Ground No. 5 is general in nature. Consequently, the assessee’s appeal for Assessment Year 2021-22 is partly allowed.
42. We next take up the cross-appeals for Assessment Year 2022-23. In ITA No. 8542/Mum/2025, Ground No. 1 raised by the assessee challenging the reopening under section 147 was not pressed and is therefore dismissed. The additional ground raising the issue of compliance with section 148 read with Explanation 2(iv) has been admitted as a legal ground; however, in view of the substantive adjudication on merits, the question raised therein is left open and is treated as academic for the purposes of the present appeal. Ground Nos. 2 and 3 concern the alleged on-money receipts of Rs. 22,18,91,000, on which the learned CIT(A) sustained an addition of Rs. 3,32,83,650 by applying a rate of 15%. Following our common findings, the addition is directed to be restricted to Rs. 1,77,51,280, being 8% of the identified receipts. These grounds are accordingly partly allowed. The ground relating to the statements and their subsequent retraction stands disposed of as part of the composite adjudication of the on- money issue, while the remaining general ground requires no separate adjudication.
43. In the Revenue’s cross-appeal for Assessment Year 202223, Ground Nos. 1 and 3 to 6 seek taxation of the entire alleged on-money receipts, question the exclusion of the balance component, invoke section 40A(3), distinguish the decision relied upon by the learned CIT(A) and seek extrapolation of on-money to the remaining units. All these contentions have been dealt with in detail in Part I of this order. The Revenue has not established that the entire gross receipt represented income, that the project-related expenditure arose from an independent source or that any reliable material existed for estimating on-money in respect of units not identified in the seized records. These grounds are accordingly dismissed. Ground No. 2, challenging the deletion of the addition under section 43CA, is also dismissed in terms of paragraph 39 hereinabove, subject to the clarification that the Assessing Officer may examine the applicability of the provision in the legally appropriate year, upon the corresponding revenue being recognised, with reference to the correct statutory parameters and after granting due opportunity to the assessee. Thus, the assessee’s appeal for Assessment Year 2022-23 is partly allowed, whereas the Revenue’s appeal is dismissed.
44. We shall now take up the cross-appeals for Assessment Year 2023-24, which was adopted as the lead year for adjudication of the recurring issues. The additional ground raised by the assessee challenging the assessment with reference to section 148 read with Explanation 2(iv), having been admitted as a legal ground, is left open and treated as academic in view of our adjudication of the substantive grounds on merits. Ground Nos. 1 and 2 of the assessee’s appeal relate to the alleged on-money receipts of Rs. 8,80,00,000, on which the learned CIT(A) sustained Rs. 1,32,00,000 by estimating the profit at 15%. For the reasons already recorded, we direct the Assessing Officer to restrict the addition to Rs. 70,40,000, being 8% of the identified receipts. These grounds are therefore partly allowed. Ground No. 4, relating to reliance upon statements which were subsequently retracted, stands disposed of as an integral part of the findings recorded on the on-money issue, and Ground No. 5 is general in nature.
45. Ground No. 3 of the assessee’s appeal for Assessment Year 2023-24 concerns the 5% reduction of Rs. 4,37,629 from Work-in-Progress in respect of subcontracting expenditure of Rs. 87,52,585 incurred through M/s Senghani Creators Pvt. Ltd. In view of the findings recorded in paragraphs 23 to 36, the adjustment does not rest upon any identified defect in the assessee’s work orders, invoices, measurement records, quantity certifications, material reconciliations, payment records or banking trail. The adjustment retained by the learned CIT(A) is accordingly deleted and the Assessing Officer is directed to restore Rs. 4,37,629 to the Work-in-Progress. Ground No. 3 of the assessee’s appeal is therefore allowed.
46. In the Revenue’s cross-appeal for Assessment Year 202324, Ground Nos. 1 and 4 to 7 relate to the taxability of the alleged on-money receipts, the claim that the entire amount constituted income, denial of the corresponding expenditure, invocation of section 40A(3), distinction sought to be drawn from Ekta Housing Pvt. Ltd. and the proposed extrapolation to the remaining units. These grounds are dismissed in terms of our findings in Part I. Ground No. 2, seeking disallowance of the entire subcontracting expenditure relating to Senghani Creators Pvt. Ltd., is dismissed in terms of paragraphs 23 to 36. Ground No. 3, challenging the deletion of Rs. 58,91,934 under section 43CA, is also dismissed in terms of paragraph 39, subject to the clarification recorded therein regarding examination of the provision in the legally appropriate year. Consequently, the assessee’s appeal for Assessment Year 2023-24 is partly allowed, while the Revenue’s appeal is dismissed.
47. We finally take up the cross-appeals for Assessment Year 2024-25. Ground Nos. 1 and 2 of the assessee’s appeal relate to the alleged on-money receipts of Rs. 2,37,29,000 and the addition of Rs. 35,59,350 sustained by the learned CIT(A) at 15%. Applying the common findings recorded in Part I, the Assessing Officer is directed to restrict the addition to Rs. 18,98,320, being 8% of the identified receipts. These grounds are accordingly partly allowed. Ground No. 3 relates to the 5% reduction of Rs. 20,08,666 from Work-in-Progress out of the subcontracting expenditure of Rs. 4,01,73,318 incurred through Senghani Creators Pvt. Ltd. In conformity with our findings in Part II, the entire adjustment is deleted and the Assessing Officer is directed to restore Rs. 20,08,666 to Work-in-Progress. Ground No. 3 is therefore allowed. Ground No. 4, relating to the statements and their subsequent retraction, stands disposed of as part of the adjudication of the on-money issue, while Ground No. 5 is general.
48. In the Revenue’s cross-appeal for Assessment Year 202425, Ground Nos. 1 and 3 to 6 assail the restriction of the on-money addition to the profit component and raise substantially the same objections regarding the absence of evidence of expenditure, application of section 40A(3), distinction from the decision in Ekta Housing Pvt. Ltd. and extrapolation of on-money to the remaining units. These grounds are dismissed for the reasons recorded in paragraphs 18 to 22. Ground No. 2, seeking disallowance of the entire subcontracting expenditure relating to Senghani Creators Pvt. Ltd., is dismissed in terms of our findings in paragraphs 31 to 36. Accordingly, the assessee’s appeal for Assessment Year 2024-25 is partly allowed, whereas the Revenue’s appeal is dismissed.
49. The appeal-wise results may be summarised as under:
Appeal number Assessment year Result
ITA No. 8541/Mum/2025 2021-22 Partly allowed
ITA No. 8542/Mum/2025 2022-23 Partly allowed
ITA No. 8543/Mum/2025 2023-24 Partly allowed
ITA No. 8544/Mum/2025 2024-25 Partly allowed
ITA No. 9260/Mum/2025 2022-23 Dismissed
ITA No. 9261/Mum/2025 2023-24 Dismissed
ITA No. 9262/Mum/2025 2024-25 Dismissed

 

50. In the result, all four appeals filed by the assessee are partly allowed in the terms indicated hereinabove, whereas all three appeals filed by the Revenue are dismissed.