RAWASSA CONSTRUCTION,MUMBAI vs. DCIT CIR-22(1), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “D” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSIAN, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No.6351/MUM/2025 (AY: 2016-17) Rawassa Construction vs. DCIT Circle 22(1), Mumbai 638, Gori House, TPS III, 8th Road Piramal Chambers, Dr SS Rao Marg, Khar West, Mumbai 400052. Parel, Mumbai, Maharashtra 400012. PAN/GIR No: AAAFR6170N (Appellant) (Respondent) ITA No. 8553/MUM/2025 (AY: 2016-17) DCIT Circle 22(1), Mumbai vs. Rawassa Construction Piramal Chambers, Dr SS Rao Marg, 638, Gori House, TPS III, 8th Road Khar Parel, Mumbai, Maharashtra West, Mumbai 400052. 400012. PAN/GIR No: AAAFR6170N (Appellant) (Respondent) Assessee by Shri Bharat Kumar Revenue by Shri Umashankar Prasad (CIT DR) Date of Hearing 13.05.2026 Date of Pronouncement 22.07.2026 O R D E R PER BIJYANANDA PRUSETH, AM:

These cross appeals filed by the assesse and revenue emanate from the

order passed under section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by

the National Faceless Appeal Centre [in short, ‘CIT(A)’], dated 06.10.2025 for the

assessment year (AY) 2016-17.

“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in

ITA No.6351 & 8553/MUM/2025 Rawassa Construction confirming the action of the Assessing Officer (AO) in reopening the assessment under section 147 of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition of ₹6,33,62,590/- made by the AO on account of alleged business loss, without proper appreciation of the facts, submissions, and evidence placed on record. 3. The Assessee reserves his right to amend modify delete and make any additional grounds of appeal” 3. The grounds of appeal raised by the revenue are as under:

“1. Whether on the facts and circumstances of the case and in law the Ld. CITA erred deleting the addition of Rs 51148750 made by the AO us 69B of the Income tax Act 1961 without appreciating the fact that the assessee firm had not recorded the investment in the said land in its books of accounts 2. Whether on the facts and circumstances of the case and in law the Ld CIT(A) failed to appreciate that the non-disclosure of investment in the books of account clearly attracts the provisions of section 69B irrespective of nature of the asset being agricultural OR other wise 3. Whether on the facts and circumstances of the case and in law the Ld CITA erred in ignoring the finding of the AO that the assesee firm was the vendor in the sale deed whereas the investment in the said property was never reflected in its financial statements, thereby satisfying the conditions for invoking section 69B 4. Whether on the facts and circumstances of the case and in law the Ld CITA erred in law and on facts in holding that the Assessing officer was not justified in treating the sale consideration of Rs.51148750 as unexplained investment even though the assessee failed to explain the source of investment in the land 5. Whether on the facts and circumstances of the case and in law the Ld. CITA erred in law and on facts in holding that the Assessing officer was not justified in treating the sale consideration of Rs.51148750 as unexplained investment even though the assessee failed to explain the source of investment in the land.”

ITA No.6351 & 8553/MUM/2025 Rawassa Construction During the course of verification done by ITO (I & CI) in the case of Babulal Sukhlal Chavan and 16 other members of his family, it was noticed that the above 17 persons had purchased immovable property on 09.06.2015, being land situated at Mauje Isarwadi Taq. Paithan, Dist- Aurangabad, admeasuring 14 hectares and 11R for a total consideration of Rs.5,11,48,750/- from the assessee firm. In response to the notice u/s 148A(b), the assessee replied that transaction of sale pertains to agricultural land and hence, did not attract any Income-tax. As the assessee had not submitted necessary evidences to prove that the land in question was agricultural land, the AO reopened the case with prior approval of the Pr.CCIT. In response to notice u/s 148 of the Act, the assessee filed return declaring the same total income of Rs.2,43,53,890/-. After considering the submissions of the assessee, AO concluded that the land sold was agricultural in nature and hence the question of capital gains does not arise on the sale of land. However, the said property is not reflected in the books of account of the assessee firm. Therefore, the nature of the land loses its significance. According to the AO, since the investment in the said property was unexplained, provisions of section 69B of the Act are attracted. The AO added the sale consideration of Rs.5,11,48,750/- u/s 69B of the Act. 4.1 The AO also noted that assessee and another sister concern by name Rawassa Laminates (India) Pvt Ltd (RLPL) formed joint venture (JV) and incurred loss in business. During the impugned AY 2016-17, the assessee wrote off Rs.6,33,62,590/- advanced to the sister concern RLPL. The AO noted that assessee is a party to the JV along with its sister concern RLPL and loss incurred,

ITA No.6351 & 8553/MUM/2025 Rawassa Construction if any in the JV can be claimed only in the hands of such JV only. The assessee contended that in order to allow bad debt there is no need to prove the recoverability of the debt and mere write off in the books of account is enough. However, AO noted that this is not applicable in the case of the appellant as the appellant had joined hands with its sister concern and invested in the JV and any loss incurred in such JV can be allowed only in the hands of the JV. AO, accordingly, disallowed the claim of bad debt of Rs.6,33,62,590/- and added the same to the total income. 5. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) has dismissed the grounds on validity of reopening and the addition of write off of bad debt of Rs.6,22,61,590/-. However, he allowed the ground on addition u/s 69B of the Act of Rs.5,11,48,750/-. 6. Aggrieved by the order of CIT(A), both the assessee and the department have filed appeal before the Tribunal. The assessee has raised grounds on validity of reopening and addition of Rs.6,33,62,590/- on account of write off of bad debt. On the other hand, the revenue has contested deletion of addition of Rs.5,11,48,750/- made u/s 69B of the Act. 7. We shall first take up the case of the revenue in ITA No.8553/Mum/2025. During the proceedings before us, the Ld. AR submitted two paper books and submitted that the assessee was owner of the agricultural land and contention of revenue that it was not in the name of the assessee is not correct. The Ld. AR has filed an application for admission of additional evidence by way of a Paper Book- II. The request of the assessee is as under:

ITA No.6351 & 8553/MUM/2025 Rawassa Construction “1. The assessee is engaged in the business of construction (Civil) and is also deriving agricultural income, which has been consistently accepted in earlier years. 2. During the course of the last hearing, the learned Departmental Representative raised an objection that the agricultural land was not held in the name of the partner of Rawassa Constructions. In order to clarify this factual position, the assessee has already submitted a copy of the 7/12 extract as part of Paper Book-(Page No. 35-46) 3. The said 7/12 extract clearly evidences the details of land holding, including the area and the name of the agricultural land owner, thereby substantiating the assessee's claim regarding agricultural income. These documents are crucial for proper adjudication of the issue under appeal. 4. In view of the above, and in the interest of justice, the assessee respectfully prays that the additional evidence forming part of Paper Book-II may kindly be admitted in accordance with Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.”

reflected in the books of account. He submitted that if the additional evidence is

admitted, the matter may be set aside to the AO for verification.

ITA No.6351 & 8553/MUM/2025 Rawassa Construction substantial justice should be done and the interest of justice should be the overriding consideration. The Ld. CIT-DR has also no objection if the additional evidence is admitted. Considering the facts and the above discussion, the additional evidence is admitted. 9.1 Having admitted the additional evidence, we find that the same is necessary for proper appreciation of the impugned issue. The said evidence was not before the lower authorities. Therefore, without delving further into the matter, we deem it proper to set aside the order of CIT(A) and restore the matter to the file of AO for fresh assessment after granting adequate opportunity of being heard to the assessee. The AO shall consider the submissions including the additional evidence and decide the issue in accordance with law. Accordingly, the ground is allowed for statistical purpose. ITA No.6351/Mum/2025 (Assessee’s appeal) 10. The assessee has raised two effective grounds of appeal, i.e. validity of reopening the assessment u/s 147 of the Act and upholding addition of Rs.6,33,62,590/- on account of alleged business loss. The Ld. AR has filed paper book containing 323 pages and submitted that the assessee company is engaged in the business of construction and development. During FY 2001-02, the assessee entered into a Memorandum of Understanding (MOU) dated 15.03.2002 with its sister concern, M/s Rawassa Laminates (India) Pvt. Ltd. (RLIPL), with the objective of jointly venturing into the laminates and allied products business. As per the terms of the said MOU, the assessee will provide finance to RLIPL from time to time for business growth. RLIPL will utilise fund for business and it will share 20%

ITA No.6351 & 8553/MUM/2025 Rawassa Construction of profit to the assessee for ten years. The overall fund to RLIPL will be 10 crores only. RLIPL will return the said fund to the assessee after 10 years after getting profit from said business. No separate interest cost will be charged to RLIPL. Thus, the transaction was purely a commercial arrangement with a profit-sharing mechanism and not a loan simpliciter. Pursuant to the above arrangement, the assessee advanced an aggregate sum of Rs.6,22,61,590/- to RLIPL over a period of time. These advances were made in the ordinary course of business with a bona fide expectation of earning profits from the venture. The absence of interest cannot be viewed adversely, as the consideration for the advances was structured in the form of profit sharing, which is a recognized commercial model. However, RLIPL continuously incurred losses over multiple years, due to which the advance had become irrecoverable. Considering the persistent losses and bleak recovery prospects, the assessee wrote off the amount of Rs.6,22,61,590/- in its books during the relevant previous year. The Ld. AR submitted that such write off represents a genuine business loss arising out of a commercial transaction undertaken in the ordinary course of business. However, the AO, while framing the assessment, disallowed the said write off and made an addition of Rs.6,33,62,590/-. The Ld. AR submitted that the AO cannot step into the shoes of the businessman and decide how the business should be conducted. He requested that the business loss should be allowed. 11. On the other hand, the Ld. CIT-DR relied on the orders of lower authorities. He submitted that there was no debtor-debtee relationship between the assessee and RLIPL. The sister concern RLIPL has also not offered the impugned amount as

ITA No.6351 & 8553/MUM/2025 Rawassa Construction income u/s 41 of the Act. The CIT-DR also submitted that the assessee and RLIPL joined hands on profit sharing basis and the business loss in the joint venture cannot be treated as loss or bad debt in the hands of the appellant. Hence, the decision of the CIT(A) is in conformity with the facts and is in accordance with law. 12. We have heard both parties and perused the materials on record. We have also gone through the details filed in the paper book and find that there was a resolution of the assessee firm dated 09.02.2002 and MOU dated 15.03.2002. The AO has considered these documents and held that the assessee was entitled to profit share in the joint venture. There was no debtor-creditor relationship between the assessee and RILPL. RLIPL is still active as per ROC’s website. Though the assessee had written off the amount as bad debt, the sister concern has not offered the same u/s41(1) of the Act. The CIT(A) has also considered the facts and submission of the assessee and decided the issue against the assessee by stating as under: “5.14 The appellant along with its sister concern M/s Rawassa Laminates (India) Pvt Ltd., (RLIPL)signed a Memorandum of Understanding to venture into new businesses during the FY: 2001-02, AO has noted that the appellant is a party in this joint venture entitled for profit share. Appellant is not receiving any interest on its investment. However, appellant claimed deduction of 6,22,61,590/- written off in relation to advances given to its sister concern M/s RLIPI The AO disallowed the same stating that there was no debtor-debtee relationship and appellant's claim u/s section 37 was wrong. The AO noted that if the appellant had written off the amount as bad, then the sister concern M/s RLIPL should have offered the same as its income, u/s 41, but there is no evidence to show that M/s RLIPL has admitted this income in its ITR filed. According to the AO, the appellant-firm and its sister concern-company M/s RLIPL have joined hands in a business venture under MOU and less incurred in this venture cannot be treated as loss or bad debt in the hands of the appellant-firm. The explanation from the appellant-firm that since the amount became irrecoverable they decided to write off the said amount, is not reflecting the ground reality viz., losses incurred in the venture which is

ITA No.6351 & 8553/MUM/2025 Rawassa Construction separate from the sister concern M/s RLIPL and the appellant-firm itself. The case laws relied on by the appellant stand distinguished since there is no incidence of debt between the parties concerned so as to decide on the recoverability or otherwise of the investment in the business venture. Therefore, the disallowance made by the AO is upheld Ground No.4 is hereby rejected. 5.15 During the course of appellate proceedings, appellant stated that the correct write-off figure is Rs 6.22,61,590/- and not Rs.6.33,62,590/- as taken by the AO in the impugned assessment order. Hence, AO is directed to verify the correct figure and incorporate the same, if required. 5.16 Ground No.4 is hereby rejected with direction to AO to check accuracy of figure adopted in the impugned assessment order.”

12.1 We do not find any infirmity in the order of the CIT(A). As stated earlier the assessee has passed a resolution dated 09.02.2002, wherein “The partners in the meeting discussed the new profit area and it was decided/resolved to finance to RAWASSA LAMINATES (INDIA) PVT. LTD. on profit sharing basis and details discussion was made between the partners.” (Page 96 & 97 of PB). Subsequently, the MOU was entered on 15.03.2002. In view of the clear terms and conditions in the Resolution and the MOU, the findings of the AO, which was confirmed by the CIT(A), cannot be said to be wrong. Accordingly, the ground of the appellant is dismissed. 13. The next ground is validity of reopening u/s 147 of the Act. During the course of verification done by ITO (I & CI) in the case of Babulal Sukhlal Chavan and 16 other members of his family, it was noticed that the above 17 persons have purchased immovable property on 09.06.2015, being land situated at Mauje Isarwadi, Taq. Paithan, Dist- Aurangabad, admeasuring 14 Hectare and 11R for a total consideration of Rs.5,11,48,750/- from the assessee firm. In response to the notice u/s 148A(b), the assessee replied that transaction of sale pertains to 9

ITA No.6351 & 8553/MUM/2025 Rawassa Construction agricultural land and hence did not attract any Income-tax. As the appellant had not submitted necessary evidences to prove that the land in question was agricultural land, the AO reopened the case with prior approval of the Pr.CCIT. The appellant submitted before the CIT(A) that the land in question was agricultural land and hence, was not a capital asset u/s 2(14) of the Act. Hence, the reopening was without any basis. The CIT(A) did not find merit in the submission of the assessee and dismissed the ground by observing as under: “5.10 I have carefully considered the submissions of the assessee as well as the reasons recorded by the Assessing Officer. It is evident from the record that information was received from ITO (I&CI) regarding the sale transaction of land amounting to Rs.5,11,48,750/-, which was not disclosed in the return of income originally filed. The AO formed belief that income assessable to tax had escaped assessment as the transaction was not declared to the department. At the stage of recording of reasons and initiating reassessment, all that is required is that AO should have a prima facie reason to believe and not a conclusive finding on the taxability of income. The sufficiency of reasons cannot be gone into at this stage. 5.11 Accordingly, I find that the AO was justified in initiating proceedings u/s 147 in view of the tangible material available with him and the fact that more than 50 lakhs was involved and he also obtained required approvals as specified in the Act. Therefore, this ground of appeal is dismissed.”

13.1 We do not find any infirmity in the order of CIT(A). The Hon’ble Supreme Court in case of Raymond Woolen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC) held that in determining whether the commencement of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. The Hon’ble Court, again, in case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd [2007]

ITA No.6351 & 8553/MUM/2025 Rawassa Construction 291 ITR 500 held that the expression "reason to believe" would mean cause or

justification and cannot be read to mean that the AO should have finally

ascertained the fact by legal evidence or conclusion. Whether material would

conclusively prove escapement of income is not the concern at that stage. There

is no reason as to why the ratio of the above decisions shall not be applicable to

the facts of the present appeal. Considering the facts and decisions cited supra,

the ground is dismissed.

appeal revenue is allowed for statistical purpose.

Order is pronounced on 22.07.2026.

Sd/- Sd/- (SANDEEP GOSAIN) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER *Aniket Chand; Sr. PS MUMBAI Date: 22.07.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File By Order

Assistant Registrar ITAT, MUMBAI