INCOME TAX OFFICER, MUMBAI vs. SUGEE REALTY & DEVELOPERS (INDIA) PRIVATE LIMITED, MUMBAI

Brief facts of the case are that the assessee company filed the return of income for the relevant year declaring total income of Rs.13,699/-. Subsequently, its case was selected for scrutiny through CASS and the AO completed the assessment u/s 143(3) r.w.s 144B of the Act making an addition of Rs.106,32,00,000/- u/s 68 of the Act since the assessee could not establish the identity, creditworthiness and genuineness of the loans and advances taken and also an addition of Rs.11,87,27,324/- was made u/s 69 of the Act as the assessee could not establish creditworthiness and genuineness for source of loan received from M/s Sugee Developers.

Ground no.1 pertains to the addition of Rs 106.32 cr. u/s 68 of the Act.Aggrieved by the assessment order, the assessee filed appeal before the appellate authority claiming that during assessment

1 Further, the assessee during the year under consideration made investments amounting to Rs. 11,87,27,324/-. In order to justify

Before the ld.CIT(A),it was further submitted that the assessee alongwith its subsidiary companies was engaged in the business of real estate and redevelopment of tenanted properties within Mumbai. They have undertaken various redevelopment projects wherein the said projects are carried out by its subsidiary companies. Further, the assessee‟s role in the said projects was to provide the financial assistance to its subsidiary companies by taking loans from various parties and providing the same to its subsidiary companies. The accounting of the same was done through Tally software wherein the said loan transactions were categorized into one single group i.e “Unsecured Loan” group and had consistently adopted the said approach while finalising its books of account and also at the time of filing its return of P a g e | 5 A.Y. 2022-23 Sugee Realty and Developers (India) Private Limited income. Thus, in stating so, in the instant year, the assessee had shown the closing balance of Loan Taken of Rs. 231.03 cr. and Loan given of Rs. 106.32 cr. in its books of accounts. However, while filing the Income Tax Retur, it had shown a net effect of the same i.e., Rs. 124.71 cr. (Rs. 231.03 cr. – 106.32 cr.) loan taken. It was further stated that as per the accounting software, while most loan transactions are categorized under the “Unsecured Loan” group head in Tally, a consistent approach is adopted by refraining from altering the group head or reshuffling the books in response to fluctuating ledger balances, which can vary between credit and debit due to factors such as repayments or new loans. Consequently, these transactions were consistently reflected on one side of the Balance sheet. Furthermore, this approach resulted in showing a net off effect and hence, the assessee had shown the net off amount in its ITR. However, the AO failed to appreciate the same and made an addition of differential amount of Rs. 106.32 cr. without considering the accounting methodology adopted by the appellant. Thus, no adverse inference can be drawn replying on the accounting software used by the appellant as the net effect of such loan transaction was reported in the ITR.

1 Further, it was submitted that, during the year under consideration, the assessee had raised fresh loans amounting to Rs.33.76

The ld.CIT(A) called for a Remand report w.r.t. submissions of the assessee and the supporting details. It was observed that the assessee had submitted reconciliation of loans taken and given during the impugned year. During the assessment and appellate proceedings, the assessee had submitted that the difference in amount of Rs.106.32 cr. pertained to the closing balance of loan amount given to various parties during the impugned year. There was an opening balance of P a g e | 7 A.Y. 2022-23 Sugee Realty and Developers (India) Private Limited Rs.197.27 cr, which pertained to opening balance of loan amount taken from its group companies i.e., inter corporate loan and during the impugned the year, it had received fresh loan of Rs.33.76 cr., therefore, the closing balance of the loans taken at the end of FY is Rs.231.03 crores (197.27 + 33.76). Further, it submitted that amount reflected in ITR was the net off effect of the loan given and loan taken which was arrived at Rs.124.71 cr. (Rs.231.03 minus 106.32). The method was consistently followed by the assessee for past several years. The submission made was considered and found acceptable. It was observed that the assessee had been following the same treatment of loans taken and given and offered the same in ITR as net off amount. The AO treated the difference amount between loans & advances shown in the ITR and Balance Sheet submitted by the assessee as unexplained cash credit. The action of the AO in this regard was stated to be devoid of merit as there was no provision u/s 68 of the Act to assess the difference between the amount shown in the ITR is less compared to what was shown in the Balance Sheet. The reconciliation provided by the assessee was brushed aside by the AO without giving logical findings or reasoning during the assessment proceedings or in the remand report. There was no further enquiry made to prove the reconciliation provided by the appellant is wrong. Therefore, it was held that only current year net loan balance

1 During the impugned year, the net addition to the loan was Rs.33.76 cr., for the same the assessee had submitted the following details during the assessment and appellate proceedings, “(i) signed confirmations, (ii) bank statements and (iii) copies of ITRs of the loan parties” All the lenders were the group companies of the appellant and all the required documents & evidences were submitted by the appellant during assessment proceedings and also during appellate proceedings, the same was also forwarded to the AO in calling for the remand report. In the assessment order or in the remand report,the AO had not found any infirmity with regard to the evidences provided by the assessee. In that circumstances, the three conditions of identity, creditworthiness of the creditor and genuineness of transaction are satisfied. The source of net loan balance of impugned year stood explained. Accordingly, the ld.CIT(A) held that the addition made by the AO amounting to Rs.106.32 cr. u/s 68 of the Act was not tenable due to the fact that the assessee properly explained and reconciled the difference of amount reported in ITR and balance sheet with proper documentary evidences. Further, the identity & creditworthiness of the creditor and genuineness

The ld.DR before us has relied on the orders of the lower authorities while the ld.AR has reiterated the same contentions as made before the ld.CIT(A).

On careful consideration of the entire factual matrix of the case,we find no infirmity in the appellate order. The AO made the impugned addition without appreciating the contentions of the assessee and the supporting filed.Even in the remand report, he merely reiterated the findings as per the assessment order.No adverse findings have been made w.t.r, to the various supporting evidences submitted in the form of confirmations, bank statements,ITRs etc.Acccordingly,we uphold the order passed by the ld.CIT(A) and consequently,the ground of the Revenue is dismissed.

Ground no.2 relates to the addition of Rs 11,87,27,324/- on account of Unexplained investment u/s. 69 of the Act. It was contended before the ld.CIT(A)that the assessee during the course of assessment proceedings, submitted various documents which to substantiate the source for making such investments. However, the AO failed to P a g e | 10 A.Y. 2022-23 Sugee Realty and Developers (India) Private Limited appreciate the same and alleged that prior to receipt of the loan by the assessee, amounts had been received in the bank account of the said Shri Nishant Deshmukh and hence added the same u/s 69 of the Act by stating that the source and source of source of such investment was not explained. It was submitted that the assessee had made investments in certain entities by raising loans from its own director and proprietor of M/s. Sugee Developers, Shri Nishant Deshmukh. Further, during the course of assessment proceedings,the assessee had also provided certain documents showing the source of funds for making such investments i.e. Ledger Confirmation, Bank Statements, Copies of ITR. Therefore, it had discharged its onus by proving the source and genuineness of the transaction and hence, no addition should be made in case of the appellant. In this regard, reliance was placed on the decision of Bangalore Tribunal in case of Rahul Udayashankar V. ITO having ITA No. 869/Bang/2023,ACIT V. Rajmohan Appalacharya N. Chakravarty having ITA No. 2120/Mum/2023,PCIT V. Joginder Singh Chatha having appeal no. ITA-25-2023. 9.1 The assessee also challenged the addition u/s 69 of the Act by stating that the alleged investments were recorded in the books of accounts whereas the provision of section 69 is applicable only to the alleged investments which are not recorded in the books of accounts. In P a g e | 11 A.Y. 2022-23 Sugee Realty and Developers (India) Private Limited this regard, it relied on the decision of jurisdictional Hon‟ble ITAT in the case of Rupee Finance & Management Pvt Ltd vs ACIT reported in [2008] 22 SOT 174 and also on the decision of Hon‟ble Mumbai ITAT in the case of Abalabba No.2949/Mum/2023. 10. The submission made by the assessee was considered and found acceptable to the ld.CIT(A)as the assessee had discharged its onus of providing source of the investments made by providing the sufficient documentary evidences in order to establish identity, genuineness and creditworthiness of the transactions. Further, the addition made by the AO was also considered as bad in law due to the fact that provision of section 69 clearly mentions that the investments which are not recorded in the books of accounts and offered no explanation about the nature and source of the investments. Further, the AO assessed investments made by the assessee by treating the same as unexplained investment u/s 69 of the Act.In this case, the assessee had recorded the investments in its books of accounts and offered the explanation about the source of such investments with documentary evidences such as the copy of bank statements, copy of ledger confirmation, copy of ITR etc., in order to establish identity, genuineness and creditworthiness before the AO and also during the appellate proceedings. Therefore, the provisions of P a g e | 12 A.Y. 2022-23 Sugee Realty and Developers (India) Private Limited section 69 of the Act were not applicable. Further, it was also observed that the assessee company is a holding company and the investments made were in its own subsidiary company only. Hence, the assessee had discharged its onus for the source of the investments with proper explanation along with documentary evidences. Therefore, the AO was directed to the delete the addition made amounting to Rs.11,87,27,234/-.

We have carefully considered all the relevant facts of the case and find no infirmity in the appellate order the contents of which have also been narrated in the preceding paras for the sake of clarity and brevity.It is quite palpable that the AO made the impugned addition without making any effort to understand the facts of the case properly and jumped to take an adverse view of the matter. The AO made the impugned addition without appreciating the contentions of the assessee and the supporting filed. Even in the Remand report, he merely repeated the findings as per the assessment order and nothing adverse has been brought on record. Accordingly, we uphold the order passed by the ld.CIT(A) and consequently, the ground of the Revenue is dismissed.

In the result, the appeal of the Revenue is dimissed.