On-Money Taxation for Builders: Whole Receipt or Only Profit?

When a search finds unaccounted on-money received by a builder, is the whole receipt taxable or only its profit element? A balanced guide to the law.

A Scenario To Begin With

Imagine a builder who sells a flat for a registered price of Rs 60 lakh. During a search of the builder’s office, the tax officers seize a diary in which the same flat is noted against a further Rs 15 lakh, marked “cash received”. The registered price has been recorded in the books and offered to tax; the Rs 15 lakh has not. Everyone, including the builder, may accept that the second payment was made. The only question is how much of it is income. Is the entire Rs 15 lakh added to the builder’s total income, so that tax is levied as if the builder had pocketed the cash without incurring a rupee of cost?Or is only the margin earned on that part of the sale, perhaps a few lakh rupees, brought to tax? This is the central question in the on-money taxation of builders.

The question matters because the difference is enormous in practice. “Unaccounted receipts of this kind are commonly called ‘on-money’, that is, an amount paid over and above the documented price, usually in cash. The taxation of on-money received by builders and real-estate developers raises an important question: whether the entire unaccounted receipt constitutes taxable income or only the profit embedded in it. Where the whole receipt is added, the tax liability can exceed the true economic profit of the project several times over. Where only the profit element is taxed, the liability tracks economic reality, but the Revenue may fairly say that an assessee who hid the receipt should not be rewarded with an estimate. This article sets out how the courts have approached the problem, the limits of the “profit element” principle, and what the Income-tax Act, 2025 has and has not changed.

What The Act Actually Charges

The charge in the Income-tax Act, 1961 is on “income”, and the statute does not equate income with gross receipts. A sale price is the consideration for goods or property whose cost the seller has already borne. In the words of the Gujarat High Court in CIT v. President Industries [2002] 258 ITR 654 (Guj), the sale price represents “the price received by the seller of the goods for the acquisition of which it has already incurred the cost”, and it is only the realisation in excess of cost that forms profit. A related and older principle, accepted by the Supreme Court in CIT v. Godhra Electricity Co. Ltd. [1997] 225 ITR 746 (SC), is that only real income, and not a hypothetical or notional sum, is taxable; the Gujarat High Court has applied the same idea in CIT v. S.R. Koshti [2005] 276 ITR 165 (Guj).

Against this stand the deeming provisions of Chapter IV-F of the 1961 Act, which allow an officer to treat unexplained items as income without enquiring into their nature. Section 69 (unexplained investments) treats an investment not recorded in the books, for which the assessee offers no satisfactory explanation, as income of that year. Section 69A deals with unexplained money, bullion and similar assets, section 69B with an investment found to exceed the amount recorded, and section 69C with unexplained expenditure. Section 68 reaches unexplained credits in the books and is dealt with in our pillar article on that provision. The central point for present purposes is that these sections charge the asset or the outlay that the assessee cannot explain. They do not, on their face, say that every unexplained inflow of sale proceeds is itself taxable in full.

The deeming sections also carry a heavy rate. Under section 115BBE of the 1961 Act, income deemed under sections 68 to 69D is taxed at a special flat rate, at 60 per cent plus surcharge and cess for the years following the 2016 amendment, without deduction of any expenditure, and with a separate penalty regime under section 271AAC. A characterisation battle between “business profit” and “deemed income” is therefore also a battle between the normal slab or corporate rate on a margin and a punitive flat rate on a gross sum.

The Profit Element on On-Money: The President Industries Principle

The leading Gujarat authority is President Industries, a decision of a Division Bench (Anil R. Dave and Rajesh Balia, JJ.) on an application under the old section 256(2) for a reference. Sales of Rs 29 lakh, inferred from excise records during a survey, had been omitted from the books. The Assessing Officer added the whole amount. The Tribunal held that only the profit embedded in those sales could be taxed, and noted that there was no material showing that the assessee had made any undisclosed investment in acquiring the goods. The High Court agreed, observing that unless there is a finding that the cost of acquisition was itself invested outside the books, the proposition that the entire undisclosed sale proceeds are income “answers by itself in negative”. The decision is short, and it is a decision refusing to refer a question rather than a considered treatise, but it has been followed ever since.

The same principle was applied in a search context in CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj), also reported at 215 CTR 509. A search under section 132 had revealed sales not recorded in the books; the Assessing Officer added the whole value under section 69. The Tribunal confined the addition to the profit on those sales, and the High Court, answering the reference against the Revenue, held that where no material showed an unexplained investment behind the unaccounted sales, taxing the gross profit on them required no interference. The reasoning therefore rests on a factual premise, namely the absence of any evidence of an undisclosed investment, and it is the premise, not merely the conclusion, that later cases examine.

Tribunals in Gujarat have continued to apply the profit-element principle to on-money received by builders and real-estate developers. In ACIT v. Sankalp (ITAT Ahmedabad, C Bench, order of 31 January 2025, IT(SS)A Nos. 45-48/Ahd/2022 and connected appeals), a search had disclosed on-money receipts and cash payments of a real-estate partnership; the Tribunal followed President Industries and Gurubachhan Singh J. Juneja, reduced the first appellate authority’s estimated margin on the real-estate activity from 17 per cent to 13 per cent by reference to the assessee’s own book profit ratio, and also allowed the set-off of unaccounted expenses against unaccounted receipts, holding that such payments would ordinarily have been made out of those receipts. A separate order of the same Bench in Robin Ramavtar Goenka v. ACIT (order of 30 May 2025, AYs 2018-19 and 2019-20) is reported to have reached a similar result with a 13 per cent margin. Tribunal orders of this kind are fact-bound and the margin varies from case to case, so they illustrate method rather than lay down any fixed rate.

When Unaccounted On-Money Receipts Can Be Taxed in Full

The profit-element principle is not a rule that on-money is never taxable in full. Its own premise sets its limit. President Industries and Juneja both speak of the absence of a finding of undisclosed investment. Where the Revenue can show, on material rather than suspicion, that the cost of constructing or acquiring the asset was itself met from unrecorded funds, the case moves towards section 69 or 69B, and the unexplained outlay, not merely the margin, becomes the subject of the charge. The Revenue also points out, with some force, that an assessee who conceals a receipt should not be allowed to claim a notional cost that has never been proved, and that an estimate of profit rewards the very concealment that the deeming provisions exist to deter.

A second distinction in on-money taxation concerns the respective positions of the seller and the purchaser. The profit-element reasoning concerns the person who received the on-money and sold something for it, for whom the receipt is the price of a thing with a cost. For the person who paid on-money to acquire a property, the cash outflow is an investment that is not recorded in the books, and sections 69 and 69B, or section 69C if the payment is treated as expenditure, apply to the payment itself. Courts therefore do not transpose the seller’s “profit only” approach to the purchaser, whose own source of funds must be explained. A builder may be on both sides of the table, being a seller of flats and a purchaser of land, and the two limbs need to be examined separately.

A third strand concerns proof. The Supreme Court has accepted that questions of unexplained receipts are to be decided on the preponderance of probabilities as a reasonable person would see them, and that an assessee’s explanation need not be taken at face value if it is inherently improbable: Sumati Dayal v. CIT [1995] 214 ITR 801 (SC). Equally, the Revenue’s evidence must itself be sound. In CIT v. Smt. Sunita Dhadda [2018] 100 taxmann.com 525 (Rajasthan), an addition of on-money on a sale of land to a builder group rested on the statement of the builder’s director, and the assessee was not allowed to cross-examine him; the High Court upheld the deletion of the addition for breach of natural justice, and the Supreme Court dismissed the Revenue’s special leave petition ([2018] 100 taxmann.com 526 (SC)), though a dismissal of that kind does not by itself lay down a rule of law. Finally, in a search assessment under section 153A the addition must ordinarily rest on incriminating material found in the search, as the Supreme Court held in PCIT v. Abhisar Buildwell (P.) Ltd. [2023] 454 ITR 212 (SC), a point developed in our article on search assessments. A diary page or loose paper found in a search is such material, but its evidentiary weight, the correlation of its entries with actual flats, and its authorship are all open to testing.

A related but distinct line of authority, K.P. Varghese v. ITO [1981] 131 ITR 597 (SC), is sometimes invoked in on-money disputes. It dealt with the former section 52 and held that the Revenue must prove that the consideration actually received exceeded the declared price; the mere gap between market value and declared value does not prove understatement. The decision reads down a provision on sale consideration and is not a decision on the quantum of an on-money addition, but it is often cited for the broader proposition that the burden of proving suppressed consideration lies on the Revenue.

Position By Period: The 2025 Act And The Rate

Because the law has been re-legislated, it is useful to state the position by period. The table below is intended as a map, not as a substitute for reading the statute for the year in question.

On the substantive tests, the 2025 Act has largely carried the old language forward. Section 103 of the 2025 Act, for example, deems an investment made in a tax year and not recorded in the books, or exceeding the amount recorded, to be income of that year where the assessee offers no explanation, or an explanation that does not satisfy the Assessing Officer. Nothing in the text of that section purports to replace the case law described above, and there is no reason in principle why the reasoning in President Industries and Juneja should not continue to guide the quantum of an addition where the charge is, in substance, one on unrecorded sale receipts rather than on an unexplained outlay. The reported reduction of the special rate, together with a wider penalty for misreported income, changes the economics of a characterisation dispute but not its logic. Matters for earlier years continue to be governed by the 1961 Act.

It also bears noting that sale-consideration provisions operate alongside, and independently of, the on-money doctrine. Section 50C of the 1961 Act (for capital assets) and section 43CA (for stock-in-trade) deem the stamp-duty value to be the consideration where it exceeds the declared price, subject to a tolerance band, whereas an on-money finding is a finding of actual receipt beyond the registered price. An officer may use the former without any seized material; the latter requires evidence. The 2025 Act re-enacts these provisions under new numbers, which practitioners should check against the relevant tax year.

How The Competing Views Are Best Reconciled

Read together, the authorities support a measured conclusion on the taxation of on-money received by builders and real-estate developers. The deeming sections are charging provisions for what is unexplained, and where the unexplained item is a receipt on sale of something whose cost has not been shown to be unrecorded, the income embedded in that receipt is the margin. This is the reasoning of President Industries and Juneja, and it is consistent with the real-income approach of Godhra Electricity. The Revenue’s contrary position is not frivolous: the margin is an estimate; the assessee has concealed rather than disclosed; and where the underlying cost is itself shown to be unrecorded, the case falls outside the premise of those decisions. Which margin to apply, and whether set-off of unaccounted costs is available, are questions of fact for the fact-finding authorities, answered in the cases above by reference to the assessee’s own book ratios, comparable cases and the seized material. The most important variable in practice is therefore the quality of the evidence on the cost side, and not merely the label placed on the receipt.

Frequently Asked Questions

Is the whole on-money received by a builder always taxable? No. In the Gujarat line of authority, where no undisclosed investment behind the receipt has been shown, only the profit embedded in the receipt is brought to tax (CIT v. President Industries [2002] 258 ITR 654 (Guj); CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj)). The position can differ where the Revenue proves that the cost itself was met from unrecorded funds.

Does the profit-element principle help a buyer who paid on-money? Not in the same way. For the payer, the cash outflow is an unrecorded investment or expenditure that must be explained under the deeming provisions, so the profit-element reasoning for sellers is not simply transposed.

Has the Income-tax Act, 2025 changed this? The substantive deeming provisions have been carried into sections 102 to 106 of the 2025 Act for tax years beginning on or after 1 April 2026, and the special rate is reported to have been reduced; the reasoning of the reported decisions on quantum has not, so far as we can see, been displaced. Earlier years remain governed by the 1961 Act.

Sources & Citations

• CIT v. President Industries [2002] 258 ITR 654 (Guj) (MANU/GJ/0031/1999), decided 20 April 1999.
• CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj) (MANU/GJ/0244/2008); also reported at 215 CTR 509 (Guj) and [2008] 171 Taxman 406 (Guj).
• CIT v. Godhra Electricity Co. Ltd. [1997] 225 ITR 746 (SC).
• CIT v. S.R. Koshti [2005] 276 ITR 165 (Guj).
• Sumati Dayal v. CIT [1995] 214 ITR 801 (SC).
• K.P. Varghese v. ITO [1981] 131 ITR 597 (SC).
• CIT v. Smt. Sunita Dhadda [2018] 100 taxmann.com 525 (Rajasthan); SLP dismissed [2018] 100 taxmann.com 526 (SC).
• PCIT v. Abhisar Buildwell (P.) Ltd. [2023] 454 ITR 212 (SC).
• ACIT v. Sankalp, ITAT Ahmedabad C Bench, 31 January 2025, IT(SS)A Nos. 45-48/Ahd/2022 and connected appeals; Robin Ramavtar Goenka v. ACIT, ITAT Ahmedabad, 30 May 2025 (headnote only).
• Income-tax Act, 1961: sections 68, 69, 69A, 69B, 69C, 69D, 115BBE, 153A, 271AAC, 43CA, 50C.
• Income-tax Act, 2025: sections 102 and 103 (text as published on the Income Tax Department website); sections 104 to 106 and 195 (as mapped in secondary commentary); Finance Act 2026 amendments (as reported in secondary commentary).

Related Reading

• Unexplained Cash Credits under Section 68: Identity, Genuineness and Creditworthiness
• Bogus Purchases and Accommodation Entries: Burden of Proof and Commission-Rate Additions
• Peak Credit and Telescoping: When Arithmetic Limits an Addition under Sections 68 and 69

© Bhatt & Joshi Associates. This article is for general information only and is not legal advice.