ITAT Ahmedabad Holds On-Money Receipts from Real Estate Business Taxable as Business Income

The ITAT Ahmedabad ruled in favour of M/s Sudarshan Status Corporation and held that the Income Tax Department could not use rectification proceedings under Section 154 to change the nature of income already accepted during scrutiny assessment.

The case related to Assessment Year 2017-18, where the assessee, a real estate development firm, had disclosed additional income of Rs. 1.25 crore during a survey conducted under Section 133A. The firm explained that the amount represented “on-money” receipts received from its regular business activities and later recorded the same in its books as business income.

During the original assessment under Section 143(3), the Assessing Officer accepted the disclosure as business income. However, later, the department initiated rectification proceedings under Section 154 and treated the amount as unexplained money under Section 69A, making it taxable at a higher rate under Section 115BBE.

The Tribunal observed that deciding whether survey income should be treated as business income or unexplained income is a debatable issue requiring detailed examination of facts. Therefore, such an issue cannot be decided through rectification proceedings meant only for correcting obvious mistakes apparent from the record.

The tribunal cited its earlier ruling in the case (ITA No. 1463/Ahd/2025 dated 17.10.2025) titled M/s 9th Street Architects v. DCIT, and also the decision of the Supreme Court in the case of T.S. Balaram v. Volkart Brothers and held that debatable issues cannot be rectified under Section 154. Accordingly, the Tribunal quashed the rectification order and allowed the appeal of the assessee.