ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 6(4), MUMBAI, MUMBAI vs. SURAJ OMPRAKASH AGRAWAL, NAGPUR

PER SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER: These cross appeals by the assessee and the Revenue are directed against order dated 9th September 2025, passed by the Learned Commissioner of Income-Tax (Appeals) - 54, Mumbai, (in short, the learned CIT(A)) for assessment year 2023-24.

“1.(a) The Commissioner of Income Tax(Appeals) 54. Mumbai ['CIT(A)'] erred in confirming addition of Rs.93,56,912/- made by the AO as alleged interest income earned by the Appellant in cash against the finance provided to builders. The Appellant submit that he has not earned any interest income 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.

“a) "Whether, on the facts and in the circumstances of the case, the learned CIT(A) is justified in deleting the addition of Rs. 3,06,36,135/- made u/s 69Aof the Act as the excess amount paid by the assessee to the builder (i.e. Finance amount - Agreement amount) has been returned to the assessee in cash and the same is not recorded in the books and hence the same is unexplained money of the assessee u/s 69A of the Act. ?" b) "Whether, on the facts and in the circumstances of the case, the learned CIT(A) has justified in deleting the addition of Rs. 70,70,252/- made by AO u/s 56(2)(x)(b) of the Act without considering that the provisions of section 56(2)(x)(b) are clearly violated in the case of the assessee even when the assessee is held to be earning interest income from builder financing activities by registering properties in its name as collateral and the same is taxed under the same head.?" c) "Whether, on the facts and in the circumstances of the case, the learned CIT(A) has justified in deleting the addition of Rs.70,70,252/- made by AO u/s 56(2)(x)(b) of the Act without considering its own decision in the case of Ravi Agrawal, where addition on identical issue has been upheld:" d) The Appellant crave, leave to add, alter, amend or modify any or all grounds of appeal on or before the date of hearing.” 4. Briefly stated, facts of the case are that assessee, an individual, filed return of income for the year under consideration on 30th October 2023 declaring total income at Rs. 27,16,550/-. The assessee derived income under the head income from house property, income from business, income from capital gain, and income from other sources. Subsequently, a search action under section 132 of the Income Tax Act, 1961 (in short, ‘the Act’) was carried out in case of ‘Ravi Omprakash Agarwal’ Group and related entities including the assessee.

8.1 The ground number 1 (one) of the Revenue's appeal relates to addition of Rs. 3,06,36,135/- for alleged cash returned by the builders and whereas ground No. 1 of appeal of assessee relates to amount of Rs. 93,56,912/- for interest received from builders pursuant to alleged builder financing.

8.2 The underlying controversy arises from the search conducted on 10.05.2023 in the case of Shri Ravi Omprakash Agarwal and connected persons, including the assessee. According to the AO, the material found during the search indicated that the assessee and other members of the group were engaged in builder-financing activities. The AO relied upon statements of Shri Navin Agarwal, an employee of the Ravi Agarwal Group, Smt. Varsha Chavan, Director of M/s Arun Gupta Advisors Pvt. Ltd., Shri Arun Gupta (husband of Smt. Varsha Chavan),and other connected persons, besides loose sheets, computer data and WhatsApp communications.

8.3 According to the AO, the modus operandi was that financially distressed builders, who were unable to obtain conventional finance, would approach the assessee or the group for funds. The transaction was structured as a purchase of unsold properties from the builders but in substance as collateral against a loan to the builder. The consideration recorded in the sale agreement represented the higher market/agreement value, whereas the amount actually intended to finance the builder was lower. The property was allegedly held as collateral for the loan financing. Upon completion of the loan financing period, the property was either sold back to the builder or otherwise disposed of, with the financier allegedly earning interest at rates ranging from 18% to 24% per annum. According to the AO, where the market/agreement value exceeded the financing amount, the differential amount was returned by the builder to the assessee in cash and the assessee also received interest in cash. Conversely, where the market/agreement value was lower than the financing amount, the assessee allegedly paid the differential amount in cash to the builder, besides receiving interest on the financing. In the impugned assessment order the ld AO explained by way of two scenario as under:

“Scenario 1: where market value of property is higher than alleged agreed loan: If the market value of the property is higher than the alleged agreed loan, then the builder 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 computer workstation, pdf file (“image 001 found in the desktop of computer, workstation No.35 Serial No.WD-WCC 6Y6CDSC8A at the office premises Shri Ravi Agarwal at 9th floor Times Square, Andheri East, Mumbai. The Assessing officer noted that the eight properties were purchased by the assessee in the guise of buying of properties but basically that was the financing activity of the assessee, having list as under:

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 difference between the registered value and the finance amount, and paying interest, usually in cash. For ready reference, relevant questions and answers recorded during search proceedings are reproduced as under:

Q.13 I am showing you your Whatsapp Chat in your mobile (Poco X3 Pro with Whatsapp no. 9833947450) with Monica Khemuka. Please confirm the same. Further, on 05.05.2023 you have sent her a document called 'PARAG SHAH.pdf. This documents contains details of property at 706, Avadh Neelkanth Kingdom Vidyavihar. It is seen that you have sent her ledger account of Parag Shah is also contained in this documents from 1st march 2023 to 5th May 2023. It is seen that there is various debit entries with voucher type 'Journal' and voucher no. 706. There are also journal debit entries of the nature of rent. The credit entries are primarily receipts which are also journal entries. The total receipts are Rs. 21,12,048/-. The total debits are Rs. 2,36,61,501/- It is seen that there are no bank accounts mentioned in the ledger for either debits or credits. Please explain this debit and credit transactions and the nature of the same and whether they have been carried out through banking channel or cash. Ans. Madam, I confirm that this chat is found from my mobile phone. Monica Khemuka had given me handwritten notes regarding this property, on the basis of which I have created this ledger. Voucher no. 706 is mentioned because that is the flat number. I don't know by what mode principal payment have been given and repaid. However, the interest payments have been received in cash. Rent is being received as the property possession is with Parag Shah. I normally create these workings of what is the agreement value, what is the market value, what is the 9 interest receivable, what is the total financing and finally what is the total receivable from the builder to whom loan has been given on the directions of Monica Khemuka. I calculate the interest receivable as per loan terms (quarterly/monthly as per agreed interest rate). The modus operandus is like this; a builder approaches us normally after his loan has been rejected from the bank. We purchase certain property from his project which is under construction. We negotiate with the builder as to how much financing will be done by us which is typically less than the agreement value for the property. 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 in cash. The assessee furnished its reply to the said show cause notice, vide letter dated 22nd January, but said explanation of the assessee was not accepted by the Assessing Officer

8.8 In respect of eight properties, the AO determined the aggregate purchase/agreement value at ₹11,61,89,135/- and the alleged financing amount at ₹8,55,53,000/-. The differential amount of ₹3,06,36,135/- was treated as cash received back from the builders and added under section 69A. A further addition of ₹93,56,912/- was made towards alleged interest received in cash.

8.9 On further appeal , the learned CIT(A) deleted the addition of ₹3,06,36,135/- under section 69A but sustained the addition of ₹93,56,912/- towards alleged interest income. While deleting the addition under section 69A, the learned CIT(A) proceeded on the basis that, according to the Revenue's own case, the assessee had paid the larger amount through banking channels and the differential amount was subsequently returned by the builder. He held that, if the amount returned represented the assessee's own money which had earlier been paid from disclosed sources, its source remained explained and no addition under section 69A was warranted merely because the return of money was not recorded in the books. The learned CIT(A) followed his predecessor's order dated 15.04.2025 in the case of Shri Ravi Omprakash Agarwal for the same assessment year, wherein a similar addition had been deleted. He accordingly deleted the addition of ₹3,06,36,135/-.

8.10 However, with respect to the alleged interest income, the learned CIT(A) accepted the Revenue's theory of builder financing and held that the return from such financing was in the form of interest. Relying upon the digital material and statements referred to in the assessment proceedings, he concluded that the assessee had received interest income and sustained the addition of ₹93,56,912/-.

8.11 The relevant finding of the Ld. CIT(A) is reproduced as under:

“6.3.1. The modus operandi of builder financing business is that the builders who are not able to obtain loans from Schedule Commercial Banks or NBFCs approach Ravi Agarwal Group requesting for financing of the builder's construction activity. The terms and conditions of the builder financing are dictated by the builder financier and accepted by the 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 retracted. Of course, it is but natural for the assessee to deny the builder financing activity because of not declaring the builder financing activity in their returns of income and also mainly because of financing the builders through cash as well. But the truth is that the activity of the appellant-assessee is builder financing as corroborated with the evidences independently and simultaneously gathered during search and seizure action u/s.132 from not only Ravi Agarwal Group but from other mediating persons/entities, such as Ms. Varsha Chavan and Mr.Arun Gupta 6.3.2. No much credence need to be given to the retraction by the appellant and Ravi Agarwal Group because such retraction serves their interest and suits their purpose, and also because they want to try their luck through the appellate mechanism in order to protect their continued interest in future also through the modus operandi described above. The reasons for not declaring the builder financing activity are twofold, viz., (i) the assessee is not able to provide financing to the builder entirely through banking channels and thereby not able to bring cash portion of loan lent, into the books of accounts, (ii) to suppress the tax liability on interest income received/receivable from the builders by camouflaging it in the form of capital gains/rental incomes from the properties registered in assessee's name and (iii) also to take advantage of the provisions of the income from house property whereby to show two house properties as self-occupied properties (though which is not correct to declare nil income against two house properties even when rental income is received). The reason for registering the builder's/borrower's flats in the name of the assessee-lender is only to protect the interest of the (assessee) lender against any possible defaults by the builders. 6.3.3. The facts of the case in the present year are that the assessee provided finance amount of Rs.8,55,53,000/- for eight properties as evidenced from WhatsApp chats, loose sheets, documents and computers; whereas the appellant registered the properties as a collateral at Rs. 1 1 ,61 ,89,1 351. Since the finance amount of Rs.8,55,53,0001 was less than the agreement value of Rs.11,61,89,1351, the balance amount of Rs.3,06,36, '135/- (Rs.11,61,89,135 - Rs.8,55,53,000) was returned by the builder in the 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 pre.judice 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 reflected. 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. Therefore, no addition u/s.69A is called for on account of cash returned from the accounted sources of payments towards agreement value/s. 6.3.4 The issue under consideration has already been adjudicated by my predecessor in the case of Shri Ravi Omprakash Agarwal, in whose case search was carried out and the appellant being one of the related entity, for A.Y.2023- 24 vide Appeal No. CIT (A) 54, Mumbail10038l2o22-23 for the A.Y.2023-24 daled 15.04.2025. The relevant part of the order in the case of Ravi Omprakash Agarwal is reproduced as under: " 8.9.3 The appellant company is one of the business concern of Shri Ravi Agrawal. Monika Khemuka is sister of Shri Ravi Agrawal and Varsha Chavan is business associate of the group. They are involved in builder finance activity of the group. They are acting as per the direction of Shri Ravi Agrawal. Under that circumstances the AO has denied cross examinalion of Shri Pratik Agrawal, Shri Khemraj Parate and Shri Deepak Singh. 8.10 ln the case of the appellant, during the search proceedings in the case of Ravi Agarwal group as well as M/s Arun Gupta Advisors Pvt. Ltd., certain evidences were found which revealed Builder Financing activities carried out by Shri Ravi Agarwal. The appellant has not denied that he did not carry out any builder financing activities. The only dispute is regarding the addition made by the AO u/s.69A and 69C of the Act as well as in respect of interest earned from builder financing activities. The AO has made addition of Rs.2,78,82,0001 which was stated to be paid or returned by the builder in cash to the appellant. Such amount was returned in cash where the purchase price of the property was higher and the finance amount was lower. ln respect of 23 properties, the purchase value of the properties as per agreement was Rs.15,97,27,000/- and the finance amount was Rs.13,18,45,000/-. The difference of Rs.2,78,82,000/- was returned by the builder to the appellant. The AO has made addition u/s.69A on the ground that the amount was received in cash and it was not reflected in the books of account of the appellant. However, the fact remains that the amount of Rs.15,97,27,000/- was paid by cheque to the 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 was evidenced through digital devices and through corroborated statements, it is natural to conclude that the assessee received interest income. Therefore, the addition of interest of Rs.93,56,912/- made by the AO in respect of interest received from builder is upheld.” 8.12 Before us, the learned counsel for the assessee challenged both the addition sustained towards alleged interest and the case of the Revenue regarding builder financing.

8.13 The ld Counsel submitted that the assessee had purchased the properties through banking channels, duly recorded the purchases in his books and disclosed them as investments. Tax had also been deducted at source under section 194-IA. The agreements executed with the builders were agreements for purchase of property and contained no stipulation for payment of interest or any other financing component. Stamp duty had been duly paid and, when the properties were subsequently sold, the resultant capital gains had been offered to tax and accepted by the Department. Therefore, according to the assessee, the Department could not simultaneously accept the transactions as purchases giving rise to capital gains and re-characterise the same transactions as financing arrangements for purposes of taxing alleged interest.

8.14 As regards the addition of ₹3,06,36,135/- under section 69A, the learned counsel submitted that even on the AO's own hypothesis, the amount allegedly received back in cash represented a portion of the ₹11,61,89,135/- earlier paid by the assessee through banking channels. Thus, the source of the alleged cash receipt stood explained. Section 69A, according to the assessee, could not be invoked merely because an explained amount was allegedly received back in a different form. It was further submitted that no cash or other valuable article corresponding to the impugned addition was found in the assessee's possession during the search and, therefore, the foundational requirements of section 69A were not satisfied. Reliance was placed upon Patoa Brothers v. CIT, [1982] 133 ITR 672 (Gauhati), CIT v. Ravi Kumar, [2007] 294 ITR 78 (Punjab & Haryana), and Mahadhan AgriTech Ltd. v. ACIT, ITA No. 2227/Mum/2024 & Ors., order dated 24.07.2025.

8.15 With regard to the addition of ₹93,56,912/- towards alleged interest, the learned counsel submitted that the assessee's objective was to earn a return 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 return on the financing and did not establish receipt of interest in cash.

8.17 It was further submitted that the return expected from the transactions was ultimately realised through appreciation in the value of the properties and was offered to tax as capital gains. Consequently, taxation of the same return once again as cash interest would result in double taxation. The assessee also contended that the AO's alleged model of charging 18% to 24% interest in cash was commercially implausible because, when combined with the substantial discount at which the property was purchased and the stamp duty and registration costs borne by the builder, the effective cost of such financing would become commercially prohibitive.

8.18 The learned counsel accordingly prayed that the addition of ₹93,56,912/- be deleted. It was also pointed out that the learned CIT(A) had relied upon his order in the case of Shri Ravi Omprakash Agarwal for AY 2023-24 and that the said order had been challenged before the Tribunal by both sides.

8.19 Further, during the course of hearing, it was submitted that the appeals in the case of Shri Ravi Omprakash Agarwal was duly heard by the Coordinate Bench and order was awaited. Subsequently, the learned counsel for the assessee filed a copy of the Coordinate Bench of Tribunal in the case of Shri Ravi Omprakash Agarwal in ITA number 3560/Mum/2025 and cross appeal of the Revenue in ITA number 4946/Mum/2025 for assessment year 2023-24, along with cross objection of the assessee for assessment year 2023-24. The learned counsel submitted that in the case of Ravi Omprakash Agarwal, the Coordinate Bench had deleted the addition towards alleged interest income and upheld the deletion of the addition representing the alleged cash returned by the builders

8.20 The learned Departmental Representative, on the other hand, supported the assessment order and relied upon the reasoning of the AO and the learned CIT(A).

8.21 We have heard the rival submissions and perused the material available on record. We find that the learned CIT(A), while deciding both the issues in the present case, principally followed his predecessor's order in the case of Shri Ravi Omprakash Agarwal for AY 2023-24. The coordinate Bench of this Tribunal has since adjudicated the said appeal and examined, on the basis of the seized material and the statements relied 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 ₹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 considered the rival submissions, perused the assessment order, the impugned order of the learned CIT(A), the seized material relied upon by the Assessing Officer and the statements referred to during the course of proceedings in relation to the additions made towards alleged builder financing transactions. The Assessing Officer, on the basis of certain loose papers and entries found during search proceedings, inferred that the assessee had entered into financing transactions with various builders involving cash movement and interest components. On this basis, the Assessing Officer made addition of Rs.2,78,82,000/- treating the same as alleged cash returned by builders to the assessee under section 69A. Further addition of Rs.48,26,384/- was made treating alleged cash paid to builders as unexplained money under section 69A and an addition of Rs.2,31,46,262/- was made towards alleged interest income earned from such financing activity. The learned CIT(A), after examining the seized material and surrounding facts, deleted the addition of Rs.2,78,82,000/- while sustaining the addition of Rs.48,26,384/- and the corresponding interest income addition of Rs.2,31,46,262/-.

8.24 In these circumstances, and respectfully following the aforesaid decision of the coordinate Bench, we find no reason to take a different view. The addition of ₹3,06,36,135/- under section 69A has rightly been deleted by the learned CIT(A). Likewise, the addition of ₹93,56,912/- towards alleged interest income cannot be sustained on the same evidentiary foundation. Accordingly, the finding of the learned CIT(A) deleting the addition of ₹3,06,36,135/- is upheld and the corresponding Ground No. 1 of the Revenue is dismissed. The addition of ₹93,56,912/- sustained by the learned CIT(A) is deleted and Ground No. 1 of the assessee is allowed.

Issue II — Addition of Rs. 70,70,252/- u/s 56(2)(x)(b)

9.1 The facts in brief 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/-, te 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 and hence Section 56(2)(x)(b) or Section 50C were not applicable to the purchase and sale of property by the assessee. The relevant finding of the learned CIT(A) is reproduced as under:

“It has been established both during the search proceedings and assessment proceedings that the assessee was into builder financing activity only. I also held in these group cases that the group entities of Shri Ravi Agarwal were engaged in builder financing activity only and further held that the gains on sale of flats (actually taken as collateral against loan financing to the builder) and rental incomes from those flats held by the appellant were only a cover to the undisclosed interest income actually earned on the loan financing. I, therefore, as a first appellate authority having held the assessee was into builder financing business, should reject the form/cover/guise adopted by the appellant that the assessee was into buying and selling of flats either as business or as capital gains. Hence, all the incomes shown to have been earned by the appellant should be encompassed within the undisclosed interest income received from the amounts financed. Therefore, purchase of property claimed by the appellant is not actually purchase but only a cover to hide the builder financing activity. Accordingly, the provisions of 56(2)(x)(b) or Sec.50C are not applicable to purchase and sale of flats by the appellant. Thus, once the income from builder finance activity is held to be taxed in the form of interest received/receivable on the total finance amount, Sec.56(2)(x)(b) cannot be invoked in the appellant's case. Therefore, the addition made u /s 56(2)(x)(b) of Rs.70,70,252/- is deleted and thereby the grounds of appeal . 3(a) and 3(c) are allowed. Since, ground nos. 3(a) and 3(c) are allowed, ground no.3(b) becomes infructuous and hence dismissed as such.” 9.3 Before us, the learned counsel submitted that the two properties were in fact purchased for the stated consideration and that the stamp duty values adopted by the registering authority were based upon standard circle rates applicable to the locality. According to him, such values do not necessarily reflect the actual market value of a property which is still under construction. A completed property and an under-construction property cannot, according to the assessee, be placed on the same footing because 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 ₹2,46,87,582/- and ₹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 following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely:- (i) dividends: ….. (ii)……. (iii)….. (iv)…… (v)……. (vi)………… (vii)……… (viii)……. (ix)…….. (x) Where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,— a)any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; b)any immovable property,— (A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:— (i)the amount of fifty thousand rupees; and (ii)the amount equal to five per cent of the consideration:] Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause: Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account 88[ or through such other electronic mode as may be prescribed89], on or before the date of agreement for transfer of such immovable property: Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provi-sions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections: [Provided also that in case of property being referred to in the second 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 provisions of section 50C. The assessee's request for valuation, therefore, requires consideration before the final taxability of the differential amount is determined.

9.8 Accordingly, while the legal reasoning adopted by the learned CIT(A) in holding section 56(2)(x)(b) inapplicable cannot be upheld, the issue requires fresh determination after obtaining an appropriate valuation report. We, therefore, set aside the finding of the learned CIT(A) on this issue and restore the matter to the file of the AO with a direction to refer the valuation of the properties to the Departmental Valuation Officer, consider the valuation so determined in accordance with the statutory provisions, and thereafter adjudicate the addition afresh in accordance with law after providing adequate opportunity of hearing to the assessee. The ground numbers 2 and 3 of the Revenue are accordingly allowed for statistical purposes.

Issue III - Set-off of Brought-Forward Long-Term Capital Loss of Rs. 67,89,133/-

10.1 The facts relevant to the issue in dispute are that the assessee earned long term capital gain Rs. 67,89,133/-. The assessee in his return of income, set off equal amount of brought forward long term capital loss of Rs. 67,89,133/- and declared the net long term capital gain at Rs. Nil. But the assessing officer in the computation sheet appended to the assessment order did not allow set off brought forward long term capital loss of Rs. 67,89,133/- against the long term capital gain for the year under consideration. Aggrieved the assessee challenges the matter of not allowing the set off before the learned CIT(A). But the learned CIT(A) dismissed the ground of the assessee by observing that assessee was into builder financing activities and both the ‘capital gain’ and the ‘rental income’ declared by the assessee were only to cover actual ‘interest’ receivable in the case of the assessee and hence the claim of the assessee for allowing brought forward long term capital loss against the current year long term capital gain was rejected.

10.2 The learned counsel submitted that the LTCG of ₹67,89,133/- had no connection whatsoever with the alleged builder-financing activity. Of this amount, ₹32,32,323/- arose under section 112A from the sale of shares of listed entities. The balance amount of ₹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 ₹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 ₹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 ₹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 ₹67,89,133/- as returned. Having accepted the capital gain as such, the Revenue could not, according to the assessee, simultaneously deny the set-off of the brought-forward capital loss on the premise that the same capital gain actually represented interest from builder financing. Such mutually inconsistent positions could not be sustained.

10.5 We have considered the rival submissions and perused the material available on record. The foundation on which the learned CIT(A) denied the set-off of the brought-forward LTCL was his finding that the capital gains declared by the assessee were merely a camouflage for interest income from builder financing. We have, while adjudicating the preceding issue, upheld the deletion of the addition of ₹3,06,36,135/- under section 69A and deleted the addition of ₹93,56,912/- towards alleged interest income. The very basis on which the learned CIT(A) denied the capital-loss set-off, therefore, no longer survives.

10.6 Further, the assessee has specifically pointed out that the brought-forward LTCL of ₹2,40,82,310/- had already been accepted and allowed to be carried forward in the assessment for AY 2022-23, and that the LTCG against which the set-off is claimed comprises gains from listed shares and properties acquired much prior to the alleged builder-financing activity. These submissions require examination by the AO in the light of the assessment records and the provisions governing carry forward and set-off of capital losses.

10.7 We, therefore, set aside the finding of the learned CIT(A) on this issue and restore the matter to the file of the AO to examine the assessee's claim of set-off of brought-forward LTCL of ₹67,89,133/- against the LTCG of the year under consideration and allow the same in accordance with law, after due verification of the brought-forward loss, its eligibility and the nature of the current year's capital gains. The Ground Number 2 of the appeal is accordingly allowed for statistical purposes.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 15 /09/2026 SAUMYA SRIVASTAVA, Sr. P.S.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai