TaxTMI 
TaxTMI 
2026 (10) TMI 594
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.... in cash which is not recorded in his books of accounts as alleged by the AO. The AO made the impugned addition merely on the basis of assumption, surmises and conjecture without there being supporting documents/ corroborative and cogent material on record; hence on the facts and circumstances of the case and in law, additions made by the AO shall be deleted. (b) The CIT(A) erred in confirming above additions merely on the basis of statement recorded during the course of search action, without appreciating that those statements were recorded under threat, coercion and duress; hence on the facts and circumstance of the case of Appellant and in law, the statements recorded during search action have no evidentiary value and no addition can be made in case of Appellant by relying upon such statements. (c) The CIT(A) erred in confirming above additions by merely relying upon the alleged WhatsApp chats, digital data etc found during the course of search and seizure action, which have no evidentiary value. 2. The CIT(A) erred in confirming the action of AO, in the Computation Sheet appended to assessment order, in not allowing set off of brought forward Long-Ter....
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....ssee. The assessment under section 143(3) was completed on 04/02/2025 assessing total income at Rs. 4,97,79,849/- after making (i) addition under section 69A of Rs. 3,06,36,135/-; (ii) addition for undisclosed interest income of Rs. 93,56,912/-, and (iii) addition under section 56(2)(x)(b) of Rs. 70,70,252/-. 6. On further appeal, the learned CIT(A) allowed part relief to the assessee. Aggrieved, both the assessee and the Revenue are in appeal before the Tribunal by way of raising grounds as reproduced above. 7. Three issues arise: (i) additions on account of alleged "builder financing" - cash of Rs. 3,06,36,135/- said to have been returned by builders, and interest of Rs. 93,56,912/- said to have been earned in cash; (ii) addition of Rs. 70,70,252/- under Section 56(2)(x)(b) of the Act on two property purchases; and (iii) denial of set-off of brought-forward long-term capital loss of Rs. 67,89,133/- against the current year's long-term capital gain. 8. Before us, the learned counsel for the assessee filed a paper book in two volumes containing pages 1 to 408 and 1 to 458. Issue I - Builder Financing: Cash of Rs. 3,06,36,135/- and Interest of Rs. 93,56,912/- 8.1 ....
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....der returns the differential amount (i.e. market value of property - alleged agreed loan) to the Appellant in cash. Further, the Appellant receives interest in cash on the alleged loan component. Scenario 2: where market value of property is lesser than alleged agreed loan: If the market value of the property is lesser than the alleged agreed loan, then the Appellant pays the differential amount (i.e. loan agreed - market value of property) to the builder in cash. On such alleged loan, the Appellant receives interest in cash." 8.4 A search was also conducted at the residential premises of Varsha Chavan, Director of M/s Arun Gupta Advisors Private Limited. In the statement recorded during the search, Varsha Chavan stated that Arun Gupta Advisors Private Limited was intermediary between the builders and Shri Ravi Agarwal including the assessee in builder financing activities. Certain digital chats and documents including Excel working sheets were unearthed during the course of search on Varsha Chavan and statement of Varsha Chavan was recorded in respect of the same. 8.5 The Assessing Officer further noted that an excel sheet was found in the desktop of comput....
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.... 8.6 The ld AO confronted the assessee with the material found from the premises of Smt. Varsha Chavan and the Excel sheet recovered from a workstation at the group's office. The Excel sheet and other digital material allegedly contained details of the builder-financing transactions, including the name of the buyer, market rate, seller, property address, purchase price, finance amount, rate of interest and interest payable. The AO also relied upon the statement of Shri Navin Agarwal recorded during search proceedings and, in particular, the statement concerning a WhatsApp communication relating to a property at 706, Avadh Neelkanth Kingdom, Vidyavihar. In that statement, Shri Navin Agarwal explained that he prepared such workings on the instructions of Smt. Monica Khemuka. He further stated that the workings recorded the agreement value, market value, interest receivable, financing amount and total amount receivable from the builder and stated, inter-alia, that the interest component was normally received in cash. He also explained that that the modus operandi involved purchasing property from a builder unable to secure bank finance, with the builder later returning the differe....
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....y. The builder is supposed to return back the difference between registry amount and the finance amount. We also negotiate with the builder about how much interest is going to be charged on this loan (finance amount). The understanding is that we are supposed to receive back principal and the interest in certain period or the builder is expected to buy back the property from us for this amount(Principal + Interest). The interest component is normally received in cash. However, I do not maintain the books of accounts of Monica Khemuka, so I don't know which transaction is recorded in her books of account. 8.7 The assessee, however, maintained that the properties had actually been purchased from distressed builders at discounted prices, that the purchase consideration had been paid through banking channels and duly accounted for, and that there was no cash interest income outside the books. The explanation was not accepted by the AO. Subsequently, a show cause notice was issued on 14th January 2025, proposing an addition of Rs. 3,06,36,135 as cash treated by the assessee. The Assessing Officer further proposed an addition of Rs. 93,56,912/- as interest received by the assessee....
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....builder. As the financier is taking higher risk by giving loans to those builders who were denied by SCBs/NBFCS such financier would need guarantee from the builder for payment of regular interest and repayment of principal loan amount and therefore the financier registers in the form of purchase, the built-up space in his/her name but in reality, as a collateral. lt is to be reiterated that the purchase of flat is only the form but the substance of the transaction is builder financing with the built-up space taken as collateral against loan given to the builder. The persons against whom search proceedings were simultaneously conducted at various premises confirmed to this fact. The builder financing activity was not the activity declared as per the returns of income of the persons related to Shri Ravi Agarwal Group; however, the facts relating to builder financing were unearthed, unfolded and unraveled only during the search proceedings, post search enquiries and assessment proceedings. Though the appellant and Shri Ravi Agarwal accepted during search that they were into builder financing business but subsequent to conclusion of search, the appellant Ravi Agarwal Group denied and ....
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.... form of cash to the appellant. The AO himself was of the view that the amount paid in excess of the finance value was returned by the builders to the appellant, and then such excess cash amount whether disclosed or not in the books of account does not become unexplained because the sources of cash received back from the builders were from the amount paid by the appellant through banking channels. When AR was asked as to why the cash returned was not accounted, he replied that the assessee's stand was that the cash was not returned and without prejudice he also stated that even if it was accepted that cash was returned, it was not accounted because no expense was claimed and moreover the cash returned was sourced out of the accounted transfer only. Therefore, he pleaded that the no addition u/s.69A can be made because there was no evidence of cash returned and without prejudice to this, the cash returned was sourced out of the accounted payment made through banking channels. Thus, it is a case where the appellant's own money came back to the appellant. The source of money/ cash returned by the builder was reflected in the books of account, though the cash returned was not r....
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.... builder. Out of Rs. Rs. 15,97,27,000/- Rs.2,78,82,000/- was returned by the builder in cash to the appellant. Thus, this is a case where the appellant's own money came back to the appellant. The source of money returned by the builder was amount reflected in the books of account. Once it is a case that the appellant's own money has come to the appellant, no addition u/s.69A is to be made, because the source of money remains explained. Accordingly, the addition of Rs .2,78,82,000/- is deleted." As the facts of the case of the appellant are similar to the case of Shri Ravi Omprakash Agarwal, respectfully following the decision of my predecessor, the addition made by the AO of Rs.3,06,36,135/- is deleted. Hence, the grounds of appeal nos.2(a) & 2(b) in respect of addition u/s.59A of Rs.3,06,36,135/- are allowed. 6.3.5 The appellant raised ground of appeal against addition on account of interest charged & receivable/received from finance amount of Rs.8,55,53,0001, amounting to Rs. 93,56,912/-. In view of the elaborate discussion made about modus operandi of builder financing business where the return from investment/lending comes from interest which ....
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....turn through appreciation in the value of properties purchased from distressed builders at substantial discounts, and not to earn interest in cash. According to the assessee, the transactions involved acquisition of properties at a haircut of approximately 30% to 50% of their market value, with the purchase consideration being paid through banking channels. Upon completion of the project, the properties could be sold either to the builder or to third parties, and the return would emerge through appreciation in the value of the property. 8.16 The learned counsel relied upon the statement of Shri Arun Gupta, which, according to him, described the transactions as purchase of unsold inventory of builders requiring funds and contained no reference to interest being charged by the assessee. Reliance was also placed upon the statement of Shri Ravi Omprakash Agarwal, wherein the financing model was explained as purchase of properties at substantially discounted prices, with the builder giving an assurance regarding the return to be earned. According to the learned counsel, references to "interest" in the internal workings or statements were merely a method of calculating the expected....
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....ed upon by the Revenue, both the alleged cash returned by the builders and the alleged interest income. The coordinate Bench held that the alleged amount of Rs.2,78,82,000/- returned by the builders could not, in the circumstances of that case, independently constitute unexplained money under section 69A where, according to the Revenue itself, the amount represented a return of money earlier advanced by the assessee. The Tribunal also found that the seized material did not establish any independent unexplained asset or accretion corresponding to that amount. 8.22 The coordinate Bench further deleted the addition towards alleged interest income, taking into consideration the assessee's investment in properties for capital appreciation and rental income, the rental income actually offered to tax, and the capital gains disclosed on subsequent sale of properties. It held that these facts supported the assessee's contention that the return from the transactions was embedded in the appreciation of the properties rather than being separately received as interest in cash. The relevant finding of the Tribunal(supra) is reproduced as under: "88. We have carefully consider....
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....explained accretion in respect of the alleged returned amount of Rs.2,78,82,000/-. The entries relied upon by the Revenue merely indicate movement of funds relatable to alleged builder financing transactions. No material has been brought on record to show that the assessee acquired ownership of any separate unexplained asset over and above the very amounts alleged to have been advanced earlier. The learned CIT(A), therefore, in our considered opinion, has correctly appreciated the factual and legal position while deleting the addition of Rs.2,78,82,000/-. 91. Insofar as the addition of Rs.48,26,384/- towards alleged cash paid to builders we find force in the argument of assessee that the source of payment of cash of Rs. 48,26,384 is out of the purported cash received by the Assessee from the builders in respect of the 23 other properties under the alleged builder financing and said payment is part of sale consideration of property purchased. In view of the above, provision of section 69C does not apply and assessee deserve relief. To that extent, order of learned CIT(A) is modified. 91.1 Insofar as the addition of Rs.2,31,46,262/- toward interest income is concern....
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....f qua the issue in dispute are that, during the year under consideration, the assessee had purchased one property being flat number 1003, Sai Aaradhya Mangal Murti, for consideration of rupees 2,11,55,330/-, but the stamp duty value of which was at Rs. 2,46,87,582/-. Similarly, the assessee purchased another property being Office No.1001, Balaji Arcade from Shree Developers for a consideration of Rs. 3,06,00,000/-, the stamp duty value of which was at Rs. 3,41,38,000/-. During the course of the assessment proceedings, the Assessing Officer asked the assessee to explain as to why an amount of Rs. 70,70,252/-, being the difference between the stamp duty value and the agreement value of the above two properties, be added back as income of the assessee under Section 56(2)(x)(b) of the Act. In response, the assessee explained that properties purchased were in a building which was under construction on the date of the purchase, but the ld AO rejected the contention of the assessee and made the addition of Rs. 70,70,252/-. 9.2 On further appeal, the learned CIT(A) deleted the said addition by holding that transaction of purchase of the property are in the nature of builder financing an....
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....use the latter carries risks relating to completion, delay, possession, approvals and the possibility of the project being stalled. 9.4 It was accordingly submitted that the stamp duty values of Rs.2,46,87,582/- and Rs.3,41,38,000/- were excessive in comparison with the actual fair market value of the under-construction properties and that the difference should not automatically be brought to tax under section 56(2)(x)(b). Without prejudice, the learned counsel requested that, if the provision was held applicable, the matter be referred to the Departmental Valuation Officer for determination of the fair market value. 9.5 We heard the rival submission of the parties and peruse the relevant material on record. For ready reference, the provisions of Section 56(2)(x)(b) are reproduced as under: "56 (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the f....
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....cond proviso to sub-section (1) of section 43CA, the provisions of sub-item (ii) of item (B) shall have effect as if for the words "ten per cent", the words "twenty per cent" had been substituted;]" 9.6 On perusal of the above provisions, Section 56(2)(x)(b) is attracted where an immovable property is acquired for consideration and the stamp duty value exceeds the consideration by more than the statutory threshold. The provision does not make its applicability dependent upon the nature of the assessee's business or upon whether the transaction is described as an ordinary purchase or as part of a builder-financing arrangement. The learned CIT(A), therefore, was not justified in deleting the addition merely on the premise that the transactions constituted builder financing and that section 56(2)(x)(b) consequently stood excluded. That reasoning cannot be sustained in view of the plain language of the provision. 9.7 At the same time, the assessee had specifically disputed the correctness of the stamp duty value and requested determination of the fair market value. Section 56(2)(x)(b) itself contains a mechanism for dealing with such a dispute by reference to the valuation pr....
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....133/- had no connection whatsoever with the alleged builder-financing activity. Of this amount, Rs.32,32,323/- arose under section 112A from the sale of shares of listed entities. The balance amount of Rs.35,56,810/- represented gains from properties acquired as far back as Financial Year 2001-02, i.e., long before the alleged builder-financing activity. Thus, according to the assessee, the entire LTCG of Rs.67,89,133/- was unrelated to the activity alleged by the AO and the learned CIT(A). 10.3 It was further submitted that the assessee had incurred LTCL of Rs.2,40,82,310/- in AY 2022-23 and that the AO, while completing the assessment under section 143(3) for that year on 23.09.2024, had accepted the returned income and expressly allowed the said loss to be carried forward for set-off in subsequent years. The assessee had utilised Rs.67,89,133/- out of the carried-forward loss against the LTCG earned during the year under consideration. 10.4 The learned counsel also submitted that, in the assessment for the year under consideration, the AO himself had accepted the LTCG of Rs.67,89,133/- as returned. Having accepted the capital gain as such, the Revenue could not, according ....