DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(4), MUMBAI, MUMBAI vs. STARLIGHT SYSTEMS(I) LLP, MUMBAI
What did the Tribunal hold?
The Tribunal held that deemed rental income for unsold stock-in-trade must be computed based on the municipal rateable value, not a percentage of cost. It also held that an addition for unexplained expenditure cannot be solely based on a survey statement without corroborative evidence.
What were the facts?
The assessee's appeals and Revenue's appeals concerned additions made on account of deemed rental income from unsold inventory and unexplained expenditure. The Assessing Officer made additions, and the CIT(A) granted partial relief on rental income but sustained the addition for unexplained expenditure.
What were the issues?
Whether deemed rental income for unsold stock-in-trade should be based on municipal rateable value, and whether an addition for unexplained expenditure can be made solely on survey evidence without corroboration.
Which sections of the Income-tax Act were involved?
Section 23(5),Section 69C,Section 133A,Section 37(1),Section 65B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Heard together (10 matters)
Read from the judgment's own cause title. This page is filed under one of them.
PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER:
These cross-appeals filed by the assessee as well as the Revenue for Assessment Years (AYs) 2018-19 to 2022-23 are directed against the separate orders passed by the learned Commissioner of Income Tax (Appeals)-51, Mumbai [Ld. CIT(A)] dated 26.09.2025. Since common issues are involved in all these appeals and they pertain to the same assessee, they were clubbed together, heard together, and are being disposed of by this consolidated order for the sake of convenience and brevity.
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD) We shall first take AY 2021-22 as the lead assessment year. The facts relevant to the issues involved are discussed hereunder.
ITA No. 7952/Mum/2025 (Assessee’s Appeal – AY 2021-22) ITA No. 7869/Mum/2025 (Revenue’s Appeal – AY 2021-22)
The brief facts of the case are that the assessee filed its original return of income for AY 2021-22 on 14.12.2021 declaring a loss of Rs.2,80,20,543/. A survey action under section 133A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") was conducted on 22.12.2021 in the case of Sunteck Group, including the premises of the assessee.
Subsequently, assessment proceedings were initiated under section 147 of the Act. The assessment was completed by the Assessing Officer (AO) under section 143(3) read with section 147 of the Act, wherein various additions were made, inter alia, on account of:
(i) deemed rental income under section 23(5) of the Act in respect of unsold inventory; and
(ii) addition under section 69C of the Act on account of alleged unexplained expenditure of Rs.13,00,000/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) granted partial relief with regard to the computation of Annual Letting Value (ALV) in respect of deemed rental income and sustained the addition made under section 69C of the Act.
Both the assessee and the Revenue are in appeal before us against the order of the Ld. CIT(A).
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD) Ground Nos. 2 and 3 raised by the Assessee and Ground Nos. 1 to 6 raised by the Revenue relates to challenging the addition made on account of deemed rental income under Section 23(5) of the Act.
During the course of assessment proceedings, the AO observed that the assessee had completed projects namely "Signature Island" and "Signia Isles" and was holding certain unsold flats as stock-in-trade.
Invoking the provisions of section 23(5) of the Act, the AO computed deemed rental income by applying 3% of the cost of the properties, resulting in additions for AYs 2018-19 to 2022-23. For AY 2021-22, the addition made on this account was Rs.19,98,00,000/-.
The assessee challenged the said addition before the Ld. CIT(A). The Ld. CIT(A) held that ALV could not be determined by applying a flat percentage of the cost of the property and directed the AO to determine the ALV based on market rentals/comparable instances. Accordingly, the addition for AY 2021-22 was restricted to Rs.9,54,16,460/-.
Before us, the Ld. AR submitted that the determination of ALV in respect of vacant/unsold properties held as stock-in-trade has to be made with reference to the municipal rateable value and cannot be based on arbitrary estimation or percentage of cost of the property.
Reliance was placed on the decision of the Hon’ble Jurisdictional High Court in the case of PCIT vs. Laxmi Jain (ITA No. 1285/2015, order dated 16.04.2018) and decisions of the Coordinate Benches in the cases of Ravi K Sheth v. DCIT (ITA No. 1907/Mum/2025), Dimple Enterprises v. DCIT
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD) [154 taxmann.com 653 (Mum. Trib.)] and Ambika Trading Corporation v. AO (ITA Nos. 6057 & 6058/Mum/2024).
The Ld. DR relied upon the order passed by the AO and submitted that the Ld. CIT(A) was not justified in granting relief to the assessee.
We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that it is an undisputed fact that the properties under consideration were held as stock-in-trade and remained vacant during the relevant assessment years.
The issue regarding determination of ALV of vacant properties under section 23 of the Act is no longer res integra. The Hon’ble Jurisdictional High Court in the cases of PCIT vs. Laxmi Jain (supra) and CIT vs. Tip Top Typography [(2014) 368 ITR 330 (Bom.)] has held that the Annual Value of an unlet property cannot be determined on the basis of hypothetical estimation or by applying a fixed percentage of investment and has to be determined with reference to the rateable value assessed by the Municipal Corporation.
The Coordinate Bench in the case of Ravi K Sheth v. DCIT (supra) has also reiterated the said legal position by observing as under:
"5.1. ...in case of vacant property, tax on rental in terms of section 23 can be calculated only on the basis of rateable value assessed by the Municipal Corporation."
Respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court and Coordinate Benches, we hold that the ALV of unsold flats
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD) held as stock-in-trade is required to be computed on the basis of the rateable value determined by the Municipal Corporation.
Accordingly, the AO is directed to recompute the deemed rental income under section 23(5) of the Act for all the assessment years under consideration in accordance with law.
Thus, the grounds raised by the assessee are allowed and the grounds raised by the Revenue are dismissed.
Ground No. 4 raised by the Assessee for AY 2021–22 relates to challenging the addition made under Section 69C of the Act.
As per the facts of the case during the course of survey proceedings under section 133A of the Act, certain WhatsApp communications between Shri Ajeet Singh (VP of Sunteck Group) and Shri Anand Shroff were found, wherein Shri Ajeet Singh had allegedly requested cash of Rs.13,00,000/-.
Based on the statement recorded from Shri Ajeet Singh during the survey proceedings, the AO held that the said amount represented cash expenditure incurred towards liaisoning expenses with MCGM employees and accordingly made an addition of Rs.13,00,000/- under section 69C of the Act. The Ld. CIT(A) sustained the said addition.
Before us, the Ld. AR submitted that the addition was made solely on the basis of the statement recorded during survey proceedings under section 133A, which has no evidentiary value in the absence of corroborative material. Reliance was placed on the judgment of the Hon’ble Supreme Court in the case of CIT vs. S. Kader Khan Son [300 ITR 157 (Mad.)].
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD) It was further submitted that the WhatsApp chats relied upon by the Department were not supported by the mandatory certificate under section 65B of the Indian Evidence Act, 1872 and therefore could not be relied upon as admissible evidence.
The Ld. AR also submitted that Shri Anand Shroff, in his statement recorded under section 131 of the Act, had categorically denied providing any cash to Shri Ajeet Singh and no cash was found or seized during the survey proceedings.
On the contrary Ld. DR relied upon the orders of the lower authorities.
We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. It is a settled position of law that a statement recorded during survey proceedings under section 133A of the Act, by itself, cannot be the sole basis for making an addition unless supported by independent corroborative evidence.
In the present case, Shri Anand Shroff has denied having provided any cash to Shri Ajeet Singh. Further, no evidence regarding payment of cash or utilisation of unaccounted funds was brought on record by the Department.
In the absence of any corroborative evidence, the addition made under section 69C of the Act merely on the basis of survey statement and unverified electronic communications cannot be sustained.
Accordingly, the AO is directed to delete the addition of Rs.13,00,000/-. Ground No. 4 raised by the assessee is allowed.
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD) Ground No. 3 raised by the Revenue for AY 2020–21 relates to challenging the deletion of the disallowance made under Section 37(1) of the Act in respect of prior period expenses.
In AY 2020-21, the AO disallowed Rs.10,44,054/- out of legal and professional expenses on the ground that the invoices pertained to AY 2019- 20.
The Ld. CIT(A) deleted the disallowance after observing that the liability crystallised during the relevant assessment year and that no double deduction had been claimed by the assessee.
We have considered the rival submissions and find no infirmity in the order of the Ld. CIT(A). Under the mercantile system of accounting, an expenditure is allowable in the year in which the liability crystallises.
Since the assessee has demonstrated that the liability crystallised during the year under consideration and the expenditure was not claimed in any earlier year, the Ld. CIT(A) was justified in allowing the claim under section 37(1) of the Act.
Accordingly, Ground No. 3 raised by the Revenue for AY 2020-21 stands dismissed.
In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD)
ITA Nos. 7949/Mum/2025 (AY 2018–19), 7950/Mum/2025 (AY 2019– 20), 7951/Mum/2025 (AY 2020–21) and 7953/Mum/2025 (AY 2022–23), filed by the Assessee, and ITA Nos. 7585/Mum/2025 (AY 2018–19), 7867/Mum/2025 (AY 2019–20), 7868/Mum/2025 (AY 2020–21) and 7586/Mum/2025 (AY 2022–23), filed by the Revenue, involve facts and issues identical to those arising in ITA No. 7952/Mum/2025 (Assessee's appeal) and ITA No. 7869/Mum/2025 (Revenue's appeal). Accordingly, the findings and conclusions recorded by us in the above paragraphs while adjudicating ITA No. 7952/Mum/2025 and ITA No. 7869/Mum/2025 shall apply mutatis mutandis to the present appeals as well.
Order pronounced in the open court on 04.08.2026.
Sd/- Sd/- PRABHASH SHANKAR SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 04.08.2026 RY-SrPS
ITA 7949/MUM/2025 and others M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD)
Copy to: M/S. STARLIGHT SYSTEMS (I) LLP (NOW MERGED WITH SUNTECK REALTY LTD), 5TH FLOOR SUNTECK CENTRE,37-40 1 SUBHASH ROAD VILE PARLE EAST, MUMBAI, MUMBAI-400057, MAHARASHTRA DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 3(4), MUMBAI, ROOM 1915, 19TH FLOOR, AIR INDIA 2 BUILDING,NARIMAN POINT ,MUMBAI,400021, MUMBAI-400021, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE
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