TaxTMI 
TaxTMI 
2026 (1) TMI 881
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....elay, the assessee has filed an affidavit explaining the cause for the delay. Having gone through the contents of the same, we find that cause for delay was reasonable, so we excuse the same and proceed to hear the assessee's appeal. 3. The Ld. DR has brought to our notice that their appeal in ITA No.1274/Chny/2025 for AY 2017-18 has also been filed belatedly by 'one day', to which, the Ld. Counsel for the assessee did not raise any objection and therefore, we proceed to hear this appeal on merits as well. 4. We take up the Appeal for AY 2016-17. With the consent of both the parties, we first take up the Revenue's appeal in ITA No.1561/Chny/2025. The grounds raised by the Revenue are as under: 1. The Order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts and in law. 2. The Ld CIT(A) erred in deleting the impugned addition of Rs. 1,00,00,000/- as unaccounted additional income & failed to note that this was the Cash received over and above the agreement value for the sale of commercial space in Mall & it can by no means or methodology or Standards of accounting mandated, be an inclusive component of the Work-in-progress nor has the Ld.....
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....ash of Rs. 11.20 crores to the assessee in consideration for purchase of part of commercial building in the BSR mall, out of which Rs. 1 crore was found to have been paid during FY 2015-16 relevant to AY 2016-17. As a sequel, a search action was also conducted on the assessee on 06.07.2015 wherein one folder containing signed receipts issued by the builder to the doctor brothers were found. Further, Shri. D. Raghavendra Reddy, Managing Partner of the assessee firm in the sworn statement recorded, also admitted that on-monies amounting to Rs. 11.20 crores had been received from both doctor brothers across FYs 2012-13 to 2015-16. The AO on the basis of the findings of the search initiated assessment proceedings by issuing a notice u/s 143(2) of the Act on 25.09.2017. The AO, in the course of assessment, is found to have show caused the assessee as to why the amount of Rs. 1,00,00,000/- received in cash during the FY 2015-16 should not be added as unaccounted income for the AY 2016-17. The assessee firm, in response, submitted that, the impugned cash received was purely advance for proposed sale of a portion of built-up area for the BSR Mall and that it would be offered to tax in the ....
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....gned has carefully considered the issue under consideration. On examination of the submission of the appellant it can be seen that the appellant firm submits that it has been consistently following the "Project Completion Method" of accounting. Since the OMR Road Project was not completed during the AY 2016-17, the receipts for the sale of space in the BSR Mall should be treated as advances. As per the established method, income can only be recognized upon the completion of the project. 6.3.9 The appellant cited several case laws in support of its contentions, including Dhanvarsha Builders & Developers Pvt. Ltd. vs. DCIT (2006), Fort Projects Pvt. Ltd. vs. DCIT (2012), wherein it was held that income from onmoney can only be recognized in the year of completion of the project, in line with the method of accounting adopted by the taxpayer.The appellant further claimed that the cash receipt of Rs. 1,00,00,000/- was already reflected as part of the work-in-progress and the profits arising from the project were being offered for taxation in AY 2019-20. Therefore, no addition of this amount should be made in the present assessment year. 6.3.10 Now the key issue before ....
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....gnized as income until the project is completed. In the present case, the OMR Road Project was ongoing during the period in question. Thus, the appellant's treatment of the Rs. 1,00,00,000/- received as part of the Rs. 11.20 crores cash payment as an advance was in accordance with the method of accounting followed by the appellant firm. 6.3.14 The appellant cited judicial precedents in support of its position, including decisions in rendered by the Hon'ble Pune tribunal in the case of Dhanvarsha Builders & Developers Pvt. Ltd. v. DCIT (2006) and by the Hon'ble Kolkata tribunal in the case of Fort Projects Pvt. Ltd. v. DCIT (2012), wherein both the tribunal(s) emphasized that income from on-money or advance payments should be recognized in accordance with the method of accounting followed by the taxpayer, and in this case, only upon completion of the project. These decisions confirm that the receipt of cash or on-money in earlier years should not be considered income until the project is completed, and no immediate recognition of the income is warranted. 6.3.15 The appellant submitted that the cash receipt of Rs. 1,00,00,000/- had already been accounted for as part....
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....Method," and no income from this receipt can be recognized in the assessment year under consideration. Moreover, as the amount is already accounted for in the work-in-progress, any income arising from the project will be recognized in the future assessment years when the project is completed. Therefore, the ground raised by the appellant upon this issue are here by treated as allowed and the AO is directed to delete the addition of Rs. 1,00,00,000/- made by the AO as unaccounted additional income for the AY 2016-17." 8. The Ld. DR was unable to controvert the above findings of the Ld. CIT(A) or point out any specific infirmity therein. We thus see no reason to interfere with the same. Hence, we give our imprimatur to the reasoned action of Ld CIT(A), and accordingly dismiss this ground of the Revenue. 9. Ground No. 3 taken by the Revenue relates to the deletion of addition of Rs. 4,84,59,475/- made by way of unaccounted payment by Dr. Murugu Sundaram and Dr. Raja Sundaram for purchase of property. It is observed that, the impugned issue stems from the statement recorded from Dr. Murugu Sundaram recorded on 06.07.2015. The AO in the course of assessment, observed that, Dr. Mur....
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....ja Sundaram were not furnished to the appellant. The appellant relied on the judgment of the Hon'ble Supreme Court in Andaman Timber Industries vs. CCE (62 taxmann.com 3), which held that in the absence of providing the statements recorded during the investigation, the addition based solely on such statements cannot be sustained. The appellant further pointed out that the additions made in the case of Dr. Murugu Sundaram and Dr. Raja Sundaram, based on the same facts, were deleted by the Commissioner of Income Tax (Appeals)-18, as per the order in ITA Nos. 152 & 153/2017-18 dated 19.07.2018. The appellant also apprised that the revenue had appealed against these orders before the Hon'ble ITAT, Chennai Bench, and the Hon'ble ITAT, vide its order in ITA Nos. 3085 & 3086/Chny/2018dated 02.11.2022, upheld the CIT(A)'s decision to delete the additions. The appellant submitted a copy of the ITAT's order in support of its claim. 6.4.4 As evident in the assessment, the addition was made on the basis of the statements recorded from Dr. Murugu Sundaram and Dr. Raja Sundaram only rather than unearthing of any corroborative evidences during the course of search. The AO....
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....ellate Authority deleting the addition as made by AO in the hands of the doctors as unexplained payments aggregating to Rs. 4,84,59,475/- [Refer Tribunal order in ITA Nos.3085-3086/Chny/2018 dated 02.11.2022]. The relevant findings of Tribunal in the hands of Doctors taken note of by us, is as under:- "5. From the facts, it emerges that the assessee and his brother Dr. Murugu Sundaram were subjected to search action u/s 132 on 06.07.2015 and statement u/s 132(4) was recorded from both of them. One of the seized documents includes an agreement entered into by the assessee jointly with his brother with M/s BSR Builders for purchase of 25% share in the proposed mall in OMR, Thoraipakkam. As per the agreement, the assessee has his brother agreed to pay on-money of Rs. 11.20 Crores to the builders. This was apart from payment in Cheque to builders. Accepting the same, the assessee and his brother offered unaccounted income of Rs. 5.60 Crores each and declared this income in the returns of income for various years. It could thus be seen that whatever on-money was mentioned in the agreement, the same was admitted as well as honored by the assessee and his brother and due taxes we....
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....ty for a sum of Rs. 459.55 Lacs by way of cheque. Apart from Cheque payment, cash payment of Rs. 11.20 Crores was paid. The payment made by Dr. Murugu Sundaram has been clarified by him in reply to question no.5 in subsequent statement recorded from him on 27.12.2017 as under: - Ans. I submit that apart from cash component of Rs. 5.60 Crores paid to BSR, the balance amount was paid only way of cheques. I shall furnish details of cheque payments...... The same has further been clarified in statement dated 28.12.2017 as under: - Q.No.4 Kindly tell how much payment you are supposed to make to M/s BSR builders for the purchase of part of the portion in the BSR OMR mall? In the F.Y.2015-16 and 14-15 how much payment you have made through cheque. Also how much you have paid in cheque till date. Ans. The agreed portion of the total payment to BSR for the purchase of our share of the property in BSR OMR mall is Rs. 8,17,33,509/- (for both). In the F.Y.2014-15 the payment made by cheque by each of us is Rs. 1,32,57,500/- in F.Y. 2015-16 relevant to A.Y.16-17, no payment was made. Total payment till date by Cheque is Rs. 3,47,27,500/- for myself and Rs. 3,....
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....n account of unexplained payments has been deleted in the hands of the purchasers, then the consequential corresponding addition made by the AO in the hands of the assessee-seller had no legs to stand on. Moreover, it is noted that AO relied on the statements of Doctors to saddle the addition in the hands of assessee, without giving a copy of the same to assessee, which omission was found by Ld CIT(A) to have vitiated the impugned addition by relying on judicial precedent that such an action would violate Natural Justice [Refer Mari Gold Papers (P) Ltd vs CCE 1995 (79) ELT 241]. We find that in the grounds of appeal, the Revenue has not assailed such a finding of Ld CIT(A), hence such a finding of First Appellate Authority crystallizes and the observation made in the impugned order that in the absence of providing the statements recorded during the investigation, the addition based solely on such statements cannot be sustained, cannot be faulted and we give our imprimatur to it. We thus see no reason to interfere with the order of Ld. CIT(A) deleting the impugned addition and thus dismiss this ground of the Revenue. 13. Ground No. 4 taken by the Revenue relates to the disallowan....
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....free funds unless the AO proves otherwise. 6.5.7 In the case of CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. (2014) 361 ITR 192 (Gujarat HC) the Hon'ble High Court held that disallowance of interest is unwarranted when the assessee has demonstrated sufficient interest-free funds available to cover advances given to third parties. 6.5.8 In the case of Hero Cycles (P) Ltd. vs. CIT (2015) 379 ITR 347 (SC) the Hon'ble Supreme Court held that in the absence of any nexus between borrowed funds and advances made, the disallowance of interest expenditure is unjustified. 6.5.9 Therefore, the claim that the appellant firm has advanced loans were out of its partner's capital amounting Rs. 9,89,24,909/-is acceptable. Thus,it is clear that the disallowance of Rs. 7,84,110/- made by the AO on the grounds of diversion of interest-bearing funds is not justified. The appellant has demonstrated that there was no nexus between the borrowed funds and the advances made, and further, the appellant had sufficient non-interest-bearing funds to make these advances. Accordingly all the grounds raised by the appellant upon this issue are hereby treated as allowed and the AO ....
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....s 22 of the Act 3. Assessment of notional rent as income not being applicable for the A.Y.2016-17, the CIT(A) ought to have deleted the addition in full 4 In any case, the properties being occupied by the appellant in course of its business, house property income does not arise from the same and thus the CIT(A) erred in confirming the addition. 5 The CIT(A) erred in upholding the addition without considering the appellant's submissions and cases relied on 6 The CIT(A) erred in upholding the interest levied by the AO u/s. 234B of the Act 7 Any other ground raised at the time of hearing. 18. Ground Nos. 1 is general in nature and is therefore not being separately adjudicated upon. 19. Ground Nos. 2 to 5 relates to the addition of Rs. 8,73,315/- made by way of deemed rental income on the unsold units lying in closing stock of the assessee. It is seen that, the AO relying on the decision of Hon'ble High Court of Delhi in the case of Ansal Properties Infrastructure Ltd vs DCIT [354] ITR 180 (Del) held that Annual Letting Value (ALV) of the unsold flats is to be taxed. The AO is found to have estimated the notional rent at Rs. 8,....
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....reme Court, finally observed as held in under: "In the present case, the assessee is engaged in building activities. It argues that flats are held as part of its inventory of stock-intrade, and are not let out. The further argument is that unlike in the other instances, where such builders let out flats, here there is no letting out and that deemed income which is the basis for assessment under the ALV method, should not be attributed. This Court is of the opinion that the argument, though attractive cannot be accepted. As repeatedly held, in East India, Housing & Land Development Trust's case (supra) Sultan Bros's case (supra) and Karan Pura Development Co. Ltd.'s case (supra) the levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership. The incidence of charge is because of the fact of ownership. Undoubtedly, the decision in Vikram Cotton Mills Ltd. case (supra) indicates that in every case, the Court has to discern the intention of the assessee; in this case the intention of the assessee was to hold the properties till they were sold. The capacity of being an o....
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....nce Leasing Company Ltd (Supra) should not be followed. Thus, in our opinion this Tribunal in the case of Dimple Enterprises vs. DCIT (Supra) as cited and relied upon by the Ld. DR has correctly appreciated this distinction. 18. One very important development took place post these judgments, that an amendment has been brought in the statute in section 23(5) which is applicable from AY 2018-2019 which reads as under, "Where the property consisting of any building or land appurtenant there to is held as stock-in trade and the property of any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year form the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil." It is trite that the said amendment has to be given effect prospectively from 01.04.2018 as mentioned in the Explanatory Notes to the provisions of the Finance Act, 2017. It is a cardinal principle of the interpretation that the normal presumption which respect to an amendment is that is applicabl....
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....nter alia repetition of the grounds raised separately in the appeal filed in ITA No.1311/Chny/2025 for AY 2016-17 and included grounds in support of Ld. CIT(A)'s finding deleting the disallowance(s) impugned by the Revenue in their appeal in ITA No.1561/Chny/2025. Since we have disposed of the appeals of the assessee and revenue on merits, the cross-objections filed by the assessee have been rendered academic and is therefore dismissed as infructuous. 25. We now take up AY 2017-18. The grounds of appeal raised by the assessee in their appeal in ITA No.1312/Chny/2025 for AY 2017-18 are as under: "1. The order of the CIT(A) is bad in law to the extent it dismisses the grounds raised by the appellant. 2. Re-opening of assessment: 2.1. The assessment having been reopened by the AO in the absence of any escapement of taxable income, the CIT(A) erred in upholding the same. 2.2. The assessment having been reopened by the AO on the basis of borrowed satisfaction, the CIT(A) erred in failing to quash the reopening. 2.3. The AO having reopened the assessment on the basis of material already on record, without any fresh tangible material, amount....
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....nd No. 3 raised by the assessee is against the Ld. CIT(A)'s action of confirming the disallowance made by the AO for Rs. 11,49,997/- on account of non-deduction of TDS under the provisions of section 194A read with section 40(a)(ia) of the Act. The facts relating to this issue are that, the assessee in the year under consideration has paid interest of Rs. 38,33,324/- to M/s India Infoline Housing Finance Ltd. (IIFL-HFC) but no TDS was deducted thereon under the provisions of section 194A of the Act, due to which the AO disallowed 30% of the expenditure i.e. Rs. 11,49,997/- u/s 40(a)(ia) of the Act. Aggrieved, assessee preferred an appeal to the Ld CIT (A) who confirmed the order of the AO. 29. Heard both the parties. The Ld. AR, relying on the first proviso to Section 201(1) of the Act and second proviso to Section 40(a)(ia) of the Act, has argued that, the payee was a regular income-tax filer who had included the interest income in their income-tax return and paid taxes thereon, and therefore there could be no disallowance u/s. 40(a)(ia) of the Act. Though in principle we agree with the submission of the assessee, but we find that the Ld. AR was unable to furnish any evidence o....
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.... High Court in the case of Ivan Singh v. Asstt. CIT [2020] 116 taxmann.com 499/272 Taxman 36/422 ITR 128 rendered on same set of facts as involved in the present case. In the decided case, the Hon'ble High Court is noted to have deleted the addition made u/s 68 of the Act on account of sums which were credited in earlier years and had been brought forward in balance-sheet in the relevant year. The relevant findings of the Hon'ble High Court are as follows: "3. Insofar as the first substantial question of law is concerned, Dr. Daniel has pointed out that section 68 of the Income-tax Act, 1961 (IT Act), is very clear in providing that where any sum is found to be credited in the books of the assessee for the previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to the income tax as the income of the assessee of that previous year. Relying upon several decisions, Dr Daniel submits that since, it is the case of Revenue that some amounts were found credited in the book of account for the financial year 2006-07....
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....e case of CIT Vs Usha Stud Agricultural Farms Ltd [2009] 183 Taxman 277 (Delhi) wherein also, the addition of credit entries pertaining to earlier years u/s 68 of the Act was held to be unjustified. The relevant excerpts from the judgment are as under:- "7. Here, the CIT(A) has deleted the addition of Rs. 15 lakhs mainly on the ground that this credit balance of Rs. 15 lakhs is being reflected in the accounts of the assessee over the past four to five years or so and hence this was not a fresh credit entry of the previous year under consideration and these credit entries were already made and accounted for in the assessment years 1995-96 and 1997-98 which were introduced in the form of advance against breeding stallions owned by the assessee and thus these credit entries did not relate to the year under consideration for being considered under section 68 of the Act. 8. Since it is a finding of fact recorded by the CIT(A) that this credit balance appearing in the accounts of the assessee, does not pertain to the year under consideration, under these circumstances, the Assessing Officer was not justified in making the impugned addition under section 68 of the Act an....
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....at, as per Section 43CB of the Act, which was applicable in the relevant AY 2017-18, the assessee was statutorily required to disclose income from its projects under the percentage completion method, which it had not done so. In terms of the provisions of Section 43CB, the AO held that, as the assessee had completed more than 25% of the project, the profits from the project was required to be computed and offered under the percentage completion method and, he is noted to have worked out profit of Rs. 4,19,97,354/- relatable to the project for the relevant AY 2017-18 and added the same to the total income. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was please to delete the impugned addition. Now the Revenue is in appeal before us. 37. We have heard the rival contentions and gone through the material placed before us. From the facts available on record, it is not in dispute that the assessee-firm since inception of its business has been consistently and regularly following project completion method of accounting, which has not been rebutted by the Revenue. It is however the Revenue's case that, there was a change in position of law....
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...., it was entirely within the appellant's domain to follow the project completion method, as per the ICDS 2016 guidelines. The AO's decision to adopt the PCM for AY 2017-18, despite the appellant's consistent approach of using the PCM, was not supported by any substantial change in facts. It constitutes a wrongful reversal of the accounting method that had been accepted in prior assessments. This decision fails to appreciate the transitional provisions of the ICDS and does not take into account the appellant's consistent accounting practice...." 39. Our above view is further aided by the admitted fact that the assessee had subsequently offered the entire profits from the project(s) under the completed contract method in the immediately subsequent AY 2018-19 i.e., the year in which the project was completed, and the same was accepted and assessed by the same AO. It is seen that, the same AO also did not adjust the purported income brought to tax in AY 2017-18 by applying percentage completion method in that year. This subsequent action of the AO, according to us, corroborates the assessee's case that, the AO's approach of making addition by following percentage completion meth....