SAGAR DEVELOPER,PUNE vs. ACIT CIR-2, PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT AND Ms. ASTHA CHANDRA, JUDICIAL MEMBER

ITA No. 717/PUN/2026 Assessment Year : 2021-22 M/s. Sagar Developers, ACIT, Circle-2, Pune (NFAC), S.No. 27/22, Puneet Yash Income Tax Office, Arcade, Dhanukar Colony, vs. PMT Building, Kothrud, Pune City, Shankar Sheth Road, Maharashtra-411038. Pune-411037. PAN : AASFS3658Q (Appellant) (Respondent) Assessee by : Shri H.G. Sharma Department by : Ms. Bhavya I.V. Jt.CIT Date of Hearing : 22-06-2026 Date of Pronouncement : 07-09-2026 O R D E R PER ASTHA CHANDRA, J.M.:

The appeal filed by the assessee is directed against the order dated 17-12-2025 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)/NFAC”], u/s. 250 of the Income Tax Act, 1961 (the “Act”), pertaining to Assessment Year (“AY”) 2021-22.

2 ITA No. 717/PUN/2026 to which the assessee submitted its reply from time to time on e-filing portal. The Ld. Assessing Officer (“AO”) also issued notice(s) u/s. 133(6) of the Act to the various parties for confirmation of expenses asking them to confirm the transactions with the assessee along with certain details and information. However, no reply was received from the said parties and thus, he concluded the transactions to be „non-genuine‟. Since the assessee failed to substantiate its claim, the Ld.AO, therefore, proceeded to complete the assessment vide his order passed u/s. 143(3) r.w.s. 144B of the Act, dt. 23-12-2022 determining the total income of the assessee at Rs. 82,26,790/- and recalculating the eligible deduction u/s. 80IBA of the Act at Rs. 40,25,489/- by making the following additions/disallowances: i. Disallowance of expenses of Rs. 52,39,454/- incurred on account of commission and brokerage; ii. Disallowance of interest expenses of Rs. 25,76,300/- @ 10% of interest-free loans and advances given; and iii. Disallowance of expenses of Rs. 5,81,603/- incurred for security charges and construction work.

3 ITA No. 717/PUN/2026 “5. Observations, Findings and Decision 5.1. This is a case of re-adjudication following the directions of the Hon'ble ITAT, Pune, which set aside the earlier ex-parte appellate order to allow the appellant to substantiate its claims. I have carefully perused the assessment order, the grounds of appeal, and the written submissions filed by the appellant across various stages of the proceedings. 5.2. On the Issue of Commission Expenses (Rs. 52,39,454/-): The appellant's primary contention is that commission was paid to entities like Bankon Realty LLP and Samarth Properties to facilitate flat sales during a period of market "slack" caused by the Covid-19 pandemic. While the appellant has provided names, addresses, and PANs of these parties, the mere existence of a payment through banking channels and the deduction of TDS do not inherently prove "commercial expediency" under section 37(1) of the Act. 5.3. In a real estate business, the burden is on the assessee to demonstrate the specific services rendered by each agent for each unit sold. The appellant has failed to produce any formal agreements or correspondence that establish the scope of work or the specific role played by these agents in securing individual buyers. Generic justifications regarding "market conditions" are insufficient to allow a claim of such significant magnitude against taxable profits. Without evidence of actual services rendered, these payments remain unsubstantiated and are rightly treated as a device to inflate expenses. 5.4. On the Issue of Interest Disallowance (Rs. 25,76,300/-): The appellant argues that interest-free advances of Rs. 2.57 Crore were given for "business purposes" such as land purchase and were sourced from its own interest-free capital of approx. Rs. 16.61 Crore. However, the appellant has failed to provide a clear nexus or a "fund flow statement" demonstrating that only own funds were utilized for these advances. 5.5. When an assessee maintains a common pool of funds consisting of both borrowed (interest-bearing) and own (interest-free) capital, the onus is on the assessee to prove that the interest-free advances were not made out of the interest-bearing loans. In this case, the appellant paid a substantial interest amount of over Rs. 55 Lakhs during the year. It is logical and common-sensical to conclude that if the appellant had surplus interest-free funds, it would have used them to repay its own interest- bearing debts rather than advancing them interest-free to third parties. The diversion of interest-bearing funds for non-interest-earning purposes is a clear ground for disallowance. 5.6. On the Issue of Construction and Security Expenses (Rs. 5,81,603/-): The AO's attempt to verify these expenses through section 133(6) notices was met with non-compliance from the third parties. The appellant argues that these expenses are "genuine and required for construction". However, when the direct beneficiaries of the payments fail to confirm the transactions, the "onus probandi" shifts back to the assessee to provide secondary evidence like work completion certificates or delivery challans. The appellant has failed to do so. Unconfirmed expenses in a scrutiny assessment cannot be allowed merely on the basis of self-certified ledger accounts. 5.7. On the Deduction under Section 80IBA: The appellant claims that any disallowance leading to an increase in business profit should automatically increase the eligible deduction under section 80IBA. This argument is legally flawed. Section 80IBA provides a deduction on the profits and gains derived from the business of developing housing projects. If expenses are disallowed because they are found to be non- genuine or non-business related, such "notional" additions do not represent profits "derived from" the housing activity itself, rather, they represent the reversal of an artificial reduction of profits. Therefore, the

4 ITA No. 717/PUN/2026 AO was justified in not granting a commensurate increase in the 80IBA deduction. 5.8. Conclusion: Despite the opportunity provided by the Hon'ble ITAT, the appellant has failed to present any new, cogent evidence to refute the AO's detailed findings. The arguments presented are repetitive and lack the necessary documentary support to prove the genuineness and business necessity of the disputed expenditures. Order: In view of the above observations, the additions made by the Assessing Officer are upheld. The appeal filed by the appellant is hereby REJECTED.” 5. Dissatisfied, the assessee is once again in appeal before the Tribunal raising the following grounds of appeal: “On the facts and in the circumstances of the case and in law- 1. The Ld. Assessing Officer erred in the disallowance of the entire amount of Rs. 52,39,918/- incurred on account of Commission and Brokerage without considering the fact and submission made before him and further in an appeal to the Commissioner of Income Tax (Appeals) NFAC erred in confirming the order passed under section 250 r.w.s. 254 of the Income Tax Act without verifying and considering the evidences, records properly for which the Honorable ITAT has given direction in their order. 2. The Ld. Assessing Officer erred and not justified in disallowing of Rs. 25,75,300/-out of interest on assumption that interest free advances given for non-business purpose, without considering the fact and submission that advances are given for business purpose and the appellant has sufficient fund available in the form of own capital and interest free deposits. Further in an appeal to the Commissioner of Income Tax (Appeals) NFAC erred in confirming the order passed under section 250 r.w.s. 254 of the Income Tax Act without verifying and considering the evidences, records properly for which the Honorable ITAT has given direction in their order. 3. The Ld. Assessing Officer CIT (A) erred in making addition of Rs. 5,81,603.00 out of security expenses and construction expenses incurred during the year without considering the fact, nature of business, circumstances and submission made before him and further in an appeal to the Commissioner of Income Tax (Appeals) NFAC erred in confirming the order passed under section 250 r.w.s. 254 of the Income Tax Act without verifying and considering the evidences, records properly for which the Honorable ITAT has given direction in their order. 4. Without prejudice to Ground Nos 1 to 3, the Ld. Assessing Officer erred in holding that the entire amount of Rs. 82,26,790/- was assessees net taxable income without deducting the deduction under chapter VIA and not appreciating the fact that the entire profit of the project is exempted from income tax under section 80IBA of the income tax act and further in an appeal CIT(A) NFAC also eared in confirming the order passed under section 250 r.w.s. 254 of the Act. 5. The appellant craves leave to furnish Additional Evidence which may be relevant to the above Grounds of Appeal in course of the appeal proceedings. 6. The appellant craves leave to amend or alter any of the above Grounds of Appeal or to add new Grounds of Appeal during the course of appeal proceedings.”

5 ITA No. 717/PUN/2026 6. We have heard the Ld. Representatives of the Parties and perused the material available on record as well as the paper book(s) filed by the Ld.AR on behalf of the assessee. We have also considered the various judicial precedents relied upon by the Ld.AR. As regards the disallowance of commission/brokerage expenses for sale of units of Rs. 52,39,454/- incurred by the assessee, referring to the details/documents placed at pgs. 47-161 of the paper book, the Ld.AR submitted that these expenses have been incurred for the purpose of carrying on its business activities and without incurring such kind of expenses in the assessee‟s line of business, it is impossible to construct the project and achieve the sales target within the stipulated period. The Ld.AR submitted a comparative statement of expenses incurred in last three years with the financial year 2020-21 relevant to the AY under consideration in which the impugned addition is made and submitted that these expenses have been incurred only in this assessment year i.e. 2021-22 as the payments were made through respective brokers only after the substantial amount has been received from the perspective flat holders and registration of the flats as decided between them. The Ld.AR also submitted that the assessee had furnished all the primary evidences in support of the claim of expenditure by filing the copies of the ledger account, extracts of Brokerage and Commission Account, the ledger account extracts of the parties to whom commission was paid, invoices/bills raised by commission agents, PAN and addresses of recipients, details of payments made through account payee cheques and TDS deducted thereon as well as TDS returns filed by the assessee. The assessee further submitted the details demonstrating the business expediency and services rendered in support of its claim. Hence, the assessee duly discharged the primary onus casted upon it by furnishing the above evidences. Despite the above details/evidences furnished by the assessee, the Ld.AO without considering and verifying the same, has made

6 ITA No. 717/PUN/2026 the impugned addition/disallowance solely on the ground that notices issued u/s. 133(6) of the Act to certain parties remained un-complied with and confirmations were not received from such parties. Nowhere the Ld.AO has disputed the actual payment of commission by the assessee and the TDS deducted thereon, the entries recorded in the books of account, mode of payment through banking channels and identity of the parties. His only reason for the addition is on account of non-compliance of notice u/s. 133(6) of the Act for which the assessee cannot be penalized. He argued that the assessee cannot be held responsible for the failure of the third parties to respond to the notices issued by the Ld.AO and once all the relevant details/evidences regarding the payees and the expenses incurred have been furnished by the assessee, the burden shifts upon the Department to make further enquiry. The Ld. AR argued that since no adverse findings have been brought on record by the Ld. AO regarding the expenses incurred by the assessee by way of services being not rendered by the parties, agents/ parties being non-existent entities, payments were returned to the assessee or the expenses have been incurred for non- business purposes etc. and therefore, the disallowance is solely based on the suspicion and conjectures and should be deleted.

i. CIT vs. Orissa Corporation (P) Ltd. (159 ITR 78); ii. Umacharan Shaw and Bros. vs. CIT (37 ITR 271); iii. Dhakeswari Cotton Mills Ltd. Vs. CIT (26 ITR 775).

7 ITA No. 717/PUN/2026 8. The Ld.AR further submitted that the Hon‟ble High Court(s) and the Tribunal(s) in catena of cases have consistently held that expenditure cannot be disallowed merely because notices issued u/s. 133(6) of the Act remained un-complied with and that the Assessing Officer must bring independent evidence to rebut the assessee‟s documentary records. It has been further held by the Hon'ble Courts that where the payments are made through proper banking channels and supported by documentary evidence, non-response by third parties is not sufficient to hold the transaction as non-genuine. In support thereof, reliance was placed on the following decisions: i. Devyani International Ltd. Vs. ACIT Delhi, ITA No. 860 & 862 Del. 2025 ITAT Delhi ii. M/s e2e Supply Chain Solutions Ltd. Vs. ACIT C. Circle-2(1) Chennai, ITA No. 2116 to 21120/Chny/2019 iii. Principal Commissioner of Income Tax vs. Chawla Interbild Construction Co. (P) Ltd. 412 ITR 152 (Bom) (2019) iv. The CIT-1, Mumbai vs. M/s Nikunj Eximp Enterprises Pvt. Ltd. ITA No. 5604 of 2010 v. PCIT, Surat-1 vs. Tejua Rohitkumar Kapadia, Tax Appeal No. 691/2017 (Guj HC) vi. Smt. Suman Prakash Utekar vs. ACIT-21(3) Mumbai ITA No. 567/Mum/2026 dt. 16-04-2026 vii. Sonicwall Rechnology System India Pvt. Ltd. Vs. ACIT Circle-15(1)(2), Mumbai, ITA No. 3860/Mum/2019, AY 2015-16. 9. The Ld.AR raised another argument that the Ld.CIT(A)/NFAC while passing the impugned order, has failed to comply with the directions of the Tribunal wherein it was directed to verify the evidences and adjudicate the matter afresh. The Ld.CIT(A)/NFAC has passed the impugned order without examining the evidences on record and mechanically confirmed

8 ITA No. 717/PUN/2026 the addition made by the Ld.AO and hence, the impugned order on this issue is liable to be quashed. He therefore, prayed that the disallowance of commission and brokerage expenses should be deleted. The Ld.DR, on the other hand, relied on the decision of the Ld.CIT(A)/NFAC. We find some force in the arguments advanced by the Ld. Counsel for the assessee. We find that the assessee had duly furnished the relevant explanations/details/documentary evidence to establish that the expenses have been incurred for the purpose of its business and the transactions with the third parties to whom commission/brokerage payments have been made are genuine transactions. No adverse inference has been drawn by the Ld.AO / Ld.CIT(A)/NFAC that the transaction with the third parties are not genuine or these parties are non-existing and the expenses have not been incurred for the purpose of business of the assessee or the documentary evidence furnished by the assessee are bogus. No contrary material has been brought on record by the Revenue to prove otherwise. From the perusal of the details/documents and submissions made by the assessee before the Ld.AO which is on record, we tend to agree with the submission of the Ld.AR that the assessee has discharged its primary onus casted upon it to prove the genuineness of the said expenses and merely because the notices issued u/s. 133(6) of the Act by the Ld.AO to the third parties remained un-complied with, the disallowance of commission and brokerage expenses is not justified. From the perusal of the various decisions (supra) relied upon by the Ld.AR, we find that the Hon‟ble Courts and Tribunal(s) have consistently held that no adverse inference can be drawn merely because notices issued to third parties remain un-complied with and in the absence of any adverse material, the disallowance of expenses is unwarranted as it is based solely on suspicion and surmises. Undisputedly, in the instant case, the payments have been made through banking channels and supported by documentary evidences

9 ITA No. 717/PUN/2026 and thus, non-response by third parties to the notices issued u/s. 133(6) of the Act is not sufficient to hold the transaction non-genuine as held by the Court(s)/Tribunal(s) in several cases.

10 ITA No. 717/PUN/2026 however, he has made an incorrect observation that the assessee has not filed the same (pgs. 162-168 of the paper book refers). Raising another plank of argument, the Ld.AR submitted that the assessee had substantial interest free funds available during the year in the form of capital of Rs. 10,99,79,628.56 and interest free deposits of Rs. 5,61,71,846/- totaling to Rs. 16,61,51,474.56. The loan taken by the assessee-firm from Magma Housing Finance and other two parties on which the interest has been paid during the previous year are exclusively utilized towards the housing project. The advances of Rs. 2,57,63,003/- are given out of the aforesaid interest free funds available during the year in the form of capital and interest free deposits and not from the project loan taken by the firm as alleged by the Ld.AO. Hence, the observation of the Ld.AO that the assessee has used the funds for non-business purpose is not correct. The advances were made during the course of business and on the grounds of commercial expediency and no direct nexus between the borrowed funds and the advances has been established by the Ld.AO. Therefore, the addition made by the Ld.AO on account of disallowance of interest expenses of Rs. 25,75,300/- should be deleted.

11.1. In support of his above contentions, the Ld.AR relied on the various judicial precedents wherein the impugned issue has been decided in favour of the assessee based on the above propositions:

“a. In case of CIT v. Reliance Industries Ltd., Supreme Court, 410 ITR 466 (SC). Held that where sufficient interest-free funds are available, presumption arises that advances/investments are made from such funds and no disallowance of interest can be made. b. In case of Hero Cycles (P.) Ltd. v. CIT, Supreme Court, 379 ITR 347 (SC). The Honourable Supreme Court held that where advances are given on account of commercial expediency, no disallowance under section 36(1)(iii) can be made. c. In case of S.A. Builders Ltd. v. CIT, Supreme Court, 288 ITR 1 (SC). Held that Revenue cannot substitute its business wisdom for that of the assessee. d. In case of CIT v. Reliance Utilities & Power Ltd., Bombay High Court, 313 ITR 340 (Bom.), the Honorable Court held that If interest-free funds exceed advances, presumption is that advances are out of own funds.

11 ITA No. 717/PUN/2026

e. In case of CIT v. HDFC Bank Ltd., Bombay High Court, 366 ITR 505 (Bom.) also held that where own funds are more than investments, no disallowance of interest can be made. f. In case of Thiruvalluvar Textiles Pvt. Ltd. v. ACIT, ITAT Chennai (2025). Held that Disallowance under section 36(1)(iii) deleted as assessee possessed sufficient own funds for investments and advances. g. In case of Oriental Enterprise Pvt. Ltd. v. DCIT, ITAT Ahmedabad (2024) the Honourable Tribunal deleted disallowance of Rs.26.25 lakh holding that sufficient interest-free funds and commercial expediency were established. h. In case of Chetankumar Raojibhai Patel v. DCIT, ITAT Ahmedabad (2023). The Tribunal held that where assessee demonstrated availability of sufficient own funds, no disallowance under section 36(1)(iii) was permissible. ITAT Ahmedabad Order reported in 2023 (8) TMI 427, The Tribunal upheld deletion of disallowance funds were under section 36(1) (iii) because own substantially higher than advances and Revenue failed to rebut the finding. i. In case of Arihant Premises Pvt. Ltd. ITAT Mumbai (2025). The Tribunal accepted that where share capital and reserves were sufficient cover to advances, disallowance under section 36(1)(iii) could survive.” 11.2. It was also brought to our notice that the Tribunal in the first round of appeal had restored the matter with a direction for verification of facts and evidences. However, the Ld.CIT(A)/NFAC has merely affirmed the assessment order without conducting any independent enquiry as directed by the Tribunal. Therefore, the addition made by the Ld.AO on account of disallowance of interest expenses of Rs. 25,75,300/- should be deleted. The Ld.DR, on the other hand, supported the order of the Ld.CIT(A)/NFAC and the Ld.AO and submitted that the assessee has shown only the Balance Sheet entries and no documentary evidence has been submitted by the assessee in support of its claim. He, therefore, submitted that the issue may be set aside for verification of the assessee‟s claim with a direction to the assessee to file the relevant details/documents in support of its claim. Having considered the arguments and submissions made by Ld. Representatives of both the parties, we find some force in the arguments advanced by the Ld. Counsel for the assessee. We find that undisputedly, the assessee had sufficient interest free funds available for giving advances to various parties. Nothing has been brought on record by the Revenue to rebut the submission of the assessee that such advances

12 ITA No. 717/PUN/2026 were given for the purpose of business of the assessee and that there is no direct nexus between the borrowed funds and interest free advances given by the assessee. We find that under the similar facts and circumstances of the case, the Hon‟ble Courts as well as the Tribunals in various decisions (supra) relied upon by the Ld.AR, have consistently decided the impugned issue in favour of the assessee, holding that no disallowance of interest is warranted. In the present case, considering the availability of sufficient interest free funds, absence of any nexus established by the Ld.AO that the loans taken by the assessee has been used for interest free advances and the advances not having been made for business/commercial expediency, we are of the view that the disallowance made by the Ld.AO and sustained by the Ld.CIT(A)/NFAC is not justified. However, having opined so, we are also of the view that the evidences / records need proper verification. We, therefore, deem it fit to set aside the order of the Ld.CIT(A)/NFAC and direct the Ld.AO to verify the evidences already on record and such other evidence as may be filed by the assessee in support of its claim during the course of fresh proceedings and delete the impugned addition if the claim of the assessee is found to be correct, after affording due opportunity of hearing to the assessee. We hold and direct accordingly. Ground No. 2 raised by the assessee is thus allowed in the above terms.

13 ITA No. 717/PUN/2026 deducting the due TDS thereon and the assessee also filed copies of TDS returns for AY. 2021-22 along with its return of income. It was brought to our notice that the Ld.AO has made the impugned disallowance for the reason that the three parties to whom the payments have been made by the assessee have not responded to the notice issued u/s. 133(6) of the Act. However, the assessee had submitted ledger account extracts and bank statement showing the payment made to the concerned parties and also filed confirmation of ledger accounts by these parties along with copies of invoices/vouchers etc. in support of its claim. Hence, the assessee had duly discharged the primary onus casted upon it to substantiate the expenses claimed by it. Reiterating the submissions made in respect of ground No. 1 above, the Ld.AR submitted that the impugned disallowance deserves to be deleted. The Ld.DR on the other hand, relied on the decision of the Ld.CIT(A)/NFAC and the Ld.AO. We have already considered the submission of the Ld.AR and Ld.DR while deciding Ground No. 1 (supra) and for the same reasons, we allow this ground of appeal also on the same terms as decided by us in respect of the Ground No. 1 above.

Sd/- Sd/- (RAMA KANTA PANDA) (ASTHA CHANDRA) VICE PRESIDENT JUDICIAL MEMBER पुणे/Pune; दिन ांक/Dated : 07-09-2026 Tadepalli Naga Digitally signed by Tadepalli Naga Murali Mohan Murali Mohan Date: 2026.09.08 11:57:49 TNMM +05'30'

14 ITA No. 717/PUN/2026 आिेश की प्रदिदिदप अग्रेदिि / Copy of the Order is forwarded to: 1. अपीि र्थी / The Appellant प्रत्यर्थी / The Respondent 2. 3. The concerned Pr.CIT, Pune 4. DR, ITAT, „B‟ Bench, Pune 5. ग र्ड फ ईि / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीिीय अदिकरण ,पुणे / ITAT, Pune