LAXMI INDUSTRIAL ESTATE,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 41(4)(1), MUMBAI, KAUTILYA BHAVAN

This appeal by the assessee is directed against the order dated 19.01.2026 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], under section 250 of the Income-tax Act, 1961 [“the Act”], arising from the assessment order dated 31.12.2016 passed by the Assessing Officer under section 144 read with section 147 of the Act for the assessment year 2009-10.

The assessee has raised the following grounds of appeal:

Brief facts are that the assessee, a partnership firm engaged in the business of construction and sale of industrial galas, filed its return of income on 29.09.2009 declaring total income of Rs.1,43,79,921. The original assessment under section 143(3) was completed on 16.12.2011 accepting the returned income. Subsequently, on receipt of information from the DGIT (Investigation), Mumbai referring to a Tax Evasion Petition and variation in prices of units in the project, the assessment was reopened by notice under section 148 dated 31.03.2016.

In the reassessment proceedings, the Assessing Officer noticed that six groups of industrial galas had been transferred for aggregate consideration of Rs.4,90,00,000, whereas their aggregate value adopted by the stamp valuation authority was Rs.7,25,00,280. The Assessing Officer inferred that the difference of Rs.2,35,00,280 represented on- money received outside the books. Observing that the assessee had not satisfactorily explained the difference, he treated the same as unaccounted business income under section 69A and assessed the total income at Rs.3,78,80,201.

Before the learned CIT(A), the assessee filed additional evidence, which was forwarded to the Assessing Officer for a remand report. It was explained that the lower rates arose from disputes and litigation with the societies, adverse publicity and market conditions; that substantial galas in Building No.5 had been acquired by the partners and their family members for personal use at a concessional rate; and that the properties constituted stock-in-trade. The Assessing Officer, in the remand report dated 21.07.2025, maintained that the information from the investigation agency, the pricing pattern and the stamp-duty values were sufficient circumstantial evidence. The learned CIT(A) held that the assessee had sold properties to related parties below market value in a premeditated action to reduce its profit and sustained the addition under section 69A.

Before us, the learned Authorised Representative submitted that section 69A could apply only where the assessee was found to be the owner of money, bullion, jewellery or another valuable article not recorded in its books. In the present case, no cash or other asset was found and no purchaser stated that consideration exceeding that recorded in the agreements had been paid. The addition rested solely upon the difference between actual consideration and stamp-duty valuation.

The learned Authorised Representative further submitted that the galas were stock-in-trade of the assessee’s development business. Section 50C was therefore inapplicable, while section 43CA, which creates a deeming fiction for transfer of land or building held otherwise than as a capital asset, was introduced only with effect from 01.04.2014 and did not govern assessment year 2009-10. It was also submitted that the principal difference related to galas acquired by partners and their family members, which was in substance a transaction with oneself and could not give rise to an inference that the firm received cash from itself. The difference was otherwise explained by civil litigation between the society and the developer. Reliance was placed on PCIT v. Swananda Properties (P.) Ltd. [2019] 111 taxmann.com 94 (Bom), Zain Constructions v. ITO [2019] 107 taxmann.com 300 (Bom) and CIT v. Neelkamal Realtors & Erectors India (P.) Ltd. [2017] 79 taxmann.com 238 (Bom).

The learned Departmental Representative relied upon the assessment order and the order of the learned CIT(A). He submitted that section 43CA was not on the statute for the year under consideration 4 and, for that reason, the Assessing Officer had correctly invoked section 69A. According to him, the substantial difference between the declared consideration and stamp-duty value, coupled with the sale to related parties, justified the inference drawn by the authorities below.

We have considered the rival submissions and perused the material available on record. The short question on merits is whether the difference of Rs.2,35,00,280 between stamp-duty value and disclosed sale consideration can, without evidence of receipt of any further amount, be assessed under section 69A.

Section 69A applies where, in a financial year, an assessee is found to be the owner of money, bullion, jewellery or other valuable article which is not recorded in the books, and the explanation regarding its nature and source is absent or unsatisfactory. Thus, the foundational fact is that the assessee must first be found to own the specified unrecorded asset. Here, neither the assessment order nor the remand report refers to any cash found, any unrecorded money traced, any statement of a purchaser admitting payment of on-money, or any document evidencing receipt over and above the registered consideration. Stamp-duty valuation is an estimate adopted for a statutory purpose. By itself it does not establish actual receipt of the difference by the seller. The basic jurisdictional fact required by section 69A is therefore absent.

The statutory scheme reinforces this conclusion. The subject galas were admittedly stock-in-trade. Section 50C is confined to computation of capital gains and cannot substitute stamp-duty value for the actual consideration of stock-in-trade. Section 43CA, which later created such a fiction for an asset other than a capital asset, was inserted by the Finance Act, 2013 with effect from 01.04.2014. It cannot be applied 5 retrospectively to assessment year 2009-10, directly or by using section 69A to achieve the same result. A deeming provision enacted prospectively cannot be supplied for an earlier year through inference.

In Neelkamal Realtors & Erectors India (P.) Ltd. (supra), the Hon’ble Bombay High Court held, in substance, that section 50C is placed in the Chapter dealing with capital gains and does not govern valuation of stock-in-trade; the subsequent enactment of section 43CA from 01.04.2014 further supports that distinction.

In Zain Constructions (supra), the Hon’ble jurisdictional High Court considered the case of a builder and held that, before section 43CA came into force, stamp valuation could not replace actual receipts in respect of stock-in-trade.

In Swananda Properties (P.) Ltd. (supra), while affirming deletion of a similar addition, the Hon’ble jurisdictional High Court noted the absence of any allegation or material that the assessee had received more than the amounts shown in the agreements. Its conclusion rested on the principle that the Revenue cannot tax a trader on a hypothetical maximum profit merely because the property could have fetched more.

The above decisions apply squarely. In fact, the present addition is even more directly vulnerable because it has been made under section 69A without discovery or proof of any unrecorded money. The explanation that a substantial part of the difference pertained to galas acquired by partners and their family members at concessional rates, and that the project was affected by civil disputes, supplies commercial circumstances for the negotiated price. It is unnecessary to treat the firm and its partners as legally identical for all purposes. The decisive point is that a related-party or concessional transaction, without evidence of additional payment, does not prove receipt of cash. Nor is an assessee 6 under an obligation to earn the maximum possible profit from every transaction.

The learned CIT(A) sustained the addition by stating that the assessee reduced its profits by selling below market value in a premeditated action. This finding proceeds from the very assumption that required proof. No material has been identified to bridge the gap between a valuation difference and actual receipt of money.

We accordingly hold that the difference between the stamp-duty value and the disclosed sale consideration cannot be assessed under section 69A on the facts of the present case. The addition of Rs.2,35,00,280 is directed to be deleted. Grounds nos. 4, 5, 7 and 8 are allowed. In view of our decision on merits, the jurisdictional grounds concerning reopening in grounds nos. 1, 2, 3 and 6 are left open and are not adjudicated. Ground no. 9 does not survive for separate adjudication.

In the result, the appeal filed by the assessee is allowed.