ACIT CC 2 4 MUMBAI, MUMBAI vs. JOYNEST PREMISES PVT LTD, MUMBAI

The revenue has taken the following Grounds. “GROUNDS OF APPEAL 1. Whether on the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.3,95,36,728 made by the Assessing Officer on account of notional interest on advances amounting to Rs.32,94,74,732/-, ignoring the fact that such advances remained outstanding without any business activity, billing, or movement during the relevant assessment year?

Whether on the facts and circumstances of the case and in law, the learned CIT(A) erred in admitting additional evidences without offering the opportunity under Rule 46A, thus violating principle of natural justice in deleting the addition of Rs.3,95,36,278/-?

Whether on the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.5,07,413/- made by the Assessing Officer on account of trading income, without appreciating that the assessee itself had capitalised the purchase cost of trading material and had not claimed the same as revenue expenditure in the return of income? 4. Whether on the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that the trading activity was not part of the assessee's core business of real estate development and that the assessee did not file a revised return to rectify the alleged accounting oversight, rendering the post-assessment claim untenable in law?

Whether on the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the addition resulted in double taxation, without appreciating that mere disclosure of gross sales in the Profit & Loss Account does not automatically imply correct computation of taxable profit, particularly when the corresponding expenses were not claimed during the year?

Whether on the facts and circumstances of the case and in law, the learned CIT(A) erred in directing allowance of Rs.17,73,869/- as revenue expenditure without adequate verification and without examining whether the conditions under section 37(1) of the Income-tax Act, 1961 were satisfied?”

Brief facts of the case are that the assessee-company is engaged in the business of construction and development of residential projects. The assessee filed its return of income on 22.10.2017 declaring total income at Nil. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act on 27.12.2019. The Ld. AO, inter alia, made an addition of Rs.5,07,413/- on account of trading income and a further addition of Rs.3,95,36,728/- by imputing interest @12% on outstanding advances aggregating to Rs.32,94,74,732/-, treating the same as income from other sources. The Ld. CIT(A) deleted both additions. The revenue is in appeal raising Ground Nos.1 to 6. Ground No.1 relates to deletion of notional interest of Rs.3,95,36,728/-; Ground No.2 alleges admission of additional evidence in violation of Rule 46A; and Ground Nos.3 to 6 relate to deletion of the addition concerning trading income and corresponding purchase cost.

The Ld. DR relied upon the assessment order and submitted that the assessee had advanced substantial amounts to various parties without charging interest despite having interest-bearing funds. The Ld. DR specifically drew our attention to paragraph 5.2 at page 4 of the assessment order. The relevant observation of the Ld. AO is reproduced as under:

The Ld. DR further submitted that the Ld. AO had identified advances aggregating to Rs.32,94,74,732/- in respect of eight parties where, according to the assessment order, there was no movement or corresponding work/billing during the relevant year. The Ld. AO consequently computed interest @12% amounting to Rs.3,95,36,728/- and assessed the same under the head “Income from other sources”.

In respect of Ground No.2, the Ld. DR contended that the Ld. CIT(A) had granted relief on the basis of material which, according to the revenue, constituted additional evidence, without granting an opportunity to the Ld. AO as contemplated under Rule 46A of the Income-tax Rules, 1962. This is the specific grievance raised by the revenue in Ground No.2.

Per contra, the Ld. AR supported the impugned appellate order. The assessee filed a paper book comprising pages 1 to 144. The Ld. AR submitted that no additional evidence was filed before the Ld. CIT(A) and, therefore, the revenue's grievance regarding violation of Rule 46A is factually misplaced. According to the Ld. AR, the submissions made before the Ld. CIT(A) were based upon the material and facts already forming part of the assessment proceedings.

The Ld. AR further submitted that during the assessment proceedings itself, vide submission dated 02.12.2019, the assessee had furnished, inter alia, copies/details relating to borrowings, finance cost, sale of trading materials, advances received from customers, details/cost relating to customers, details of expenses charged to the Profit & Loss Account and expenses capitalised to WIP. The relevant documents are placed at APB pages 88 to 113.

The Ld. AR contended that the impugned advances were not in the nature of loans advanced for non-business purposes but were advances made to various parties in connection with the assessee's business activities. It was submitted that in the succeeding years, the concerned parties raised bills and the advances were correspondingly adjusted against such bills. The assessment record itself records the assessee's explanation that the interest-free advances were given to contractors, professionals, suppliers and other parties for the assessee's project and business activities.

The Ld. AR also relied upon the findings of the Ld. CIT(A). Paragraph 7.1 of the appellate order, including its sub-paragraphs, is reproduced as under:

We have heard the rival submissions and perused the material available on record. We first take up Ground No.2 of the revenue relating to alleged admission of additional evidence in violation of Rule 46A. The revenue's grievance is that the Ld. CIT(A) admitted additional evidence without granting an opportunity to the Ld. AO. However, the Ld. AR has specifically submitted before us that no additional evidence was filed before the Ld. CIT(A). The assessee's case is that the material relied upon was already furnished during the assessment proceedings. In view of the factual position placed before us and there being no specific additional evidence identified by the revenue as having been admitted for the first time by the Ld. CIT(A), the objection raised in Ground No.2 does not survive. Accordingly, Ground No.2 of the revenue is dismissed.

Coming to Ground No.1, the controversy relates to the addition of Rs.3,95,36,728/- representing interest computed @12% on advances aggregating to Rs.32,94,74,732/-. The Ld. AO's principal objection was that there was no movement in the identified advances, no work had been done by the concerned parties relating to the project and no corresponding bills had been raised during the relevant assessment year. The Ld. CIT(A), on the other hand, accepted the explanation that the advances were made for marketing/advertising activities or prospective land acquisition and observed that, in most cases, bills were raised by the payees in subsequent years.

Before us, the assessee's specific contention is that these advances were made wholly for business purposes and that, in the succeeding assessment years, the advances were adjusted against bills subsequently raised by the respective parties. In our considered view, this factual aspect requires limited verification from the records of the succeeding year(s), particularly since the very basis of the Ld. AO's objection was the absence of work, movement and corresponding bills during the year under consideration.

Accordingly, Ground No.1 is restored to the file of the Ld. AO for the limited purpose of verification as to whether the impugned advances were in fact made for the purposes of the assessee's business and whether the same were subsequently adjusted against bills raised by the respective parties. For this limited verification, the assessee shall furnish before the Ld. AO the relevant confirmations of the parties, subsequent bills/invoices and the corresponding ledger accounts or other records demonstrating adjustment of the advances in the succeeding year(s).

We make it clear that the scope of the proceedings before the Ld. AO pursuant to this restoration shall remain strictly confined to verification of the business purpose of the impugned advances and their subsequent adjustment against the bills of the concerned parties. No other issue shall be examined or reopened in these proceedings. The assessee shall extend necessary cooperation and furnish the relevant documents for such verification. Thus, Ground No.1 is restored to the file of the Ld. AO for the aforesaid limited purpose.

As regards Ground Nos.3 to 6, the Ld. CIT(A) recorded that the sale proceeds of Rs.22,81,282/- already stood disclosed in the Profit & Loss Account and that the corresponding purchase cost of Rs.17,73,869/- had been capitalised to WIP due to an accounting oversight. The Ld. AO himself reduced the said purchase cost from WIP but additionally brought the differential amount of Rs.5,07,413/- to tax. The Ld. CIT(A), therefore, held that the separate addition resulted in taxation of the profit element already embedded in the disclosed sales and directed deletion thereof and allowance of the corresponding purchase cost.

Considering the material placed on record and the fact that the corresponding trading receipts had already been accounted for, we find no basis for interference with the findings of the Ld. CIT(A) on this issue. Accordingly, Ground Nos.3 to 6 raised by the revenue are dismissed.

Resulting ground-wise position: Ground No.1 is restored to the Ld. AO only for the limited verification specified above; Ground No.2 and Ground Nos.3 to 6 are dismissed.

In the result, the appeal of the revenue bearing ITA No.1843/Mum/2026 is partly allowed for statistical purposes. Order pronounced in the open court on 09th day of September 2026.