ANNAI BUILDERS REAL ESTATES PRIVATE LIMITED,CHENNAI vs. ACIT, CENTRAL CRICLE 3(2), CHENNAI, CHENNAI

आयकर अपीलीय अधिकरण, ‘ बी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI श्री एबी टी वर्की, न्याययर्क सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER

आयकर अपील सं./ITA Nos.2585 & 2586/Chny/2025 निर्धारण वर्ा / Assessment Years: 2017-18 & 2018-19 Annai Builders Real Estate The Assistant Commissioner of Private Limited, No.16, vs. Income-tax, Cent.Circle 3(2) Medavakkam Main Road, Chennai. Madippakkam, Chennai–600 091. [PAN: AADCA6643H] (प्रत्यर्थी/Respondent) (अपीलधर्थी/Appellant) आयकर अपील सं./ITA No.2651/Chny/2025 निर्धारण वर्ा / Assessment Year: 2018-19 The Assistant Commissioner of Annai Builders Real Estate Private Income-tax, Cent.Circle 3(2) vs. Limited, No.16, Medavakkam Main Chennai. Road, Madippakkam, Chennai–600 091. (अपीलधर्थी/Appellant) (प्रत्यर्थी/Respondent) Revenue by : Shri. Shiva Srinivas, CIT Assessee by : Shri.N.Arjun Raj, Advocate सुिवधई की तधरीख/Date of Hearing : 04.02.2026 घोर्णध की तधरीख/Date of Pronouncement : 04.05.2026 आदेश /O R D E R PER BENCH :

The present appeals have been filed by the assessee for Assessment Year: 2017-18 & 2018-19 and the Cross Appeal by the Income Tax Department

:-2-: ITA. Nos.2585-2586 & 2651/Chny/2025 for Assessment Year: 2018-19 against the impugned order(s) dated 24.07.2025 passed by the Commissioner of Income Tax (Appeals) – 20, Chennai (hereinafter referred to as 'the Ld. CIT(A)') for Assessment Years 2017-18 and 2018-19. 2. The search in the premises of the assessee was conducted on 04.10.2017 and the Assessment Year (AY) 2018-19 is the year of search falling within the Financial Year 2017-18. Hence, the search assessment proceedings carried out are abated proceedings. The assessment order for A.Y. 2017-18 was passed by the Assessing Officer (hereinafter referred to as 'the AO') u/s.153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 17.01.2022, assessing the total income at Rs.17,88,82,440/- against the income returned u/s.153A of the Act at Rs.4,66,66,897/-. 3. The assessment proceedings for the AY 2018-19, immediately following the year of search, was initiated by issuance of notice u/s.143(2) of the Act and the assessment order for A.Y. 2018-19 was passed u/s.143(3) of the Act on 17.01.2022, assessing the total income at Rs. 25,93,13,582/- as against the returned income of Rs. 81,25,587/-. 4. Since both AYs are abated/pending assessments as on the date of search, the AO is empowered u/s.153A of the Act to frame assessments for these years. The present appeals accordingly arise for adjudication on the merits of the additions and disallowances forming part of the assessment orders. 5. The AO in the assessment order passed u/s.153A r.w.s. 143(3) for A.Y. 2017-18 made the following additions / disallowances over and above the income returned u/s.153A of the Act:

Particulars Para Ref. Amount (Rs.)

Income returned u/s 153A 4,66,66,897/-

:-3-: ITA. Nos.2585-2586 & 2651/Chny/2025 Add: Understatement of profit from New 11.1–11.9 35,23,239/- Chennai Project

Add: Disallowance u/s 40(a)(ia) — non- 12.1–12.4 11,71,607/- deduction u/s 194IA on payment to M/s Dennis Steels

Add: Stock adjustment entries — downward 13.1–13.2 10,32,70,042/- without outward movement

Add: Unreported income from sale of 14.1–14.2 1,44,000/- Thirumala Nagar plots

Add: Palakkad Andal Nagar — admitted 16.1–16.4 12,51,560/- income not offered

Add: Disallowance of Thiruvotriyur Project 15.1–15.4 22,19,323/- opening stock claim

Add: Disallowance u/s 40A(3) 17.1–17.4 8,42,239/-

Add: Disallowance u/s 40(a)(ia) — general 18.1–18.6 8,43,532/-

Add: Somiyampalayam purchase cost 19.1–19.4 1,89,50,004/- disallowed

Assessed Income 17,88,82,440/-

Enhancement of income by ld.CIT(A) Rs.1,08,518/-

:-4-: ITA. Nos.2585-2586 & 2651/Chny/2025

:-5-: ITA. Nos.2585-2586 & 2651/Chny/2025 11. We find considerable merit in the submissions of the Ld. AR. The AO's approach of dividing the total agreed consideration proportionately across 502.47 acres proceeds on the assumption that the original agreement will be performed in full is an assumption that is contrary to the factual matrix, where a full-fledged civil suit is pending, SBI has put the entire land to auction, and the assessee is realistically in a possession where it has received only 83.27 acres despite having paid Rs.57.19 crores. The principle of accounting requires that the cost of an asset should be determined by reference to the actual economic outflow attributable to the asset acquired and in the present case, Rs.57.19 crores is the total economic outflow that the assessee has incurred in exchange for 83.27 acres actually received. To adopt a lower notional cost based on the ratio of acreage in the original agreement, when that agreement has effectively broken down and the full performance thereof is in serious jeopardy, would result in an overstatement of taxable profit that does not reflect the true economic reality of the transaction. 12. Further, we note that the AO himself acknowledges in the assessment order (paragraph 11.4) that 'out of the area of 502 acres, only 83.27 acres has been released by the vendor as on 31.03.2018'. This observation of the AO that only 83.27 acres has been received coupled with the pendency of the civil suit and the SBI auction proceedings, supports the company’s position that the entire payment of Rs.57.19 crores represent the cost attributable to the 83.27 acres received. The assessee has adopted a commercially prudent and legally sound approach in treating its irrecoverable outlay. The addition of Rs.35,23,239/- is accordingly deleted. This ground of appeal is allowed. Issue No. 2 (AY 2017-18) - Disallowance u/s 40(a)(ia) for Non-deduction u/s.194IA on Payment to M/s.Dennis Steels - Rs. 11,71,607/-: 13. The AO has disallowed Rs.11,71,607/- (30% of Rs.39,05,358/-, the proportionate cost adopted by the AO for 23,405 sq.ft. sold) u/s.40(a)(ia) on the ground that the assessee did not deduct tax u/s.194IA of the Act on the payments made to M/s.Dennis Steels. The Ld. AR submitted, that since the company had entered into a marketing arrangement through an MoU with

:-6-: ITA. Nos.2585-2586 & 2651/Chny/2025 M/s.Rainbow Foundations Ltd. and derived income only as a marketing/co- developer, it did not directly purchase land and accordingly Section 194IA did not apply. Further, in any event, in the event of applying the provisions in Section 194IA of the Act, the facts of the present case, the disallowance u/s.40(a)(ia) of the Act can only be on the amount of expenditure 'claimed' in the year and since the cost of land is carried as part of inventory / work-in- progress, the question of Section 40(a)(ia) disallowance on the proportionate cost of land does not arise in the year of sale. 14. We find force in the submissions of the Ld.AR. The Section 40(a)(ia) contemplates disallowance of claim of deduction for payments on which tax has not been deducted at source. However, the disallowance can only operate in the year in which the expenditure is 'claimed' or 'deducted' in computing income. In the present case, the payments to M/s.Dennis Steels were made from F.Y.2013-14 onwards and were carried as stock-in-trade. The proportionate cost is not an independent expenditure claimed in the impugned year, and it is merely a cost of goods sold computation that goes into the determination of profit from the project. The AO has in effect applied Section 40(a)(ia) of the Act to a cost element embedded in a profit computation, which is not the intended scope of the provision. 15. Further, we find that no purchase has been made by the company and neither was the company the owner of the property. A Power of Attorney was executed in the name of the company, enabling the company to carry out marketing activities. Hence, it can be said that the company had executed the transaction merely on account of a POA and was not the owner of the property.

:-7-: ITA. Nos.2585-2586 & 2651/Chny/2025 part of its stock nor has any income other than marketing income been offered in its hands on account of this transaction. Accordingly, this ground of appeal is allowed.

Issue No. 3 (AY 2017-18) - Stock Adjustment Entries - Rs.10,32,70,042/-: 17. The AO has made an addition of Rs.10,32,70,042/- representing the aggregate value of 116 stock adjustment journal entries made by the assessee which had the effect of reducing the value of closing stock. The AO and Ld.CIT(A) proceeded to confirm the entire addition on the ground that no explanation was offered. 18. Before us, the Ld.AR submitted that the stock adjustment entries represent genuine downward revaluation of unsold stock in trade effected by the assessee on account of decline in commercial value of certain plots and units across multiple projects. The assessee, being a real estate developer executing numerous projects simultaneously, has unsold plots and units in various projects which remain unsold for extended periods. Given the stagnant or declining nature of real estate markets in the relevant years and the absence of buyers for certain plots, the assessee made a downward adjustment of approximately 20% to the value of the unsold stock to reflect the true commercial value thereof. The Ld.AR also placed reliance on the settled principle that the assessee is entitled to value closing stock at cost or net realisable value, whichever is lower, as per both accepted accounting standards and the income tax provisions. 19. We note that the revaluation of stock-in-trade to net realisable value when the commercial value of such stock has declined is a settled and recognised accounting principle. Under Accounting Standard 2 (AS-2) on Valuation of Inventories, inventories are required to be valued at cost or net realisable value, whichever is lower. In the real estate business, when plots or units have remained unsold for extended periods, a write-down of their carrying value to net realisable value is a commercially prudent and accounting-compliant

:-8-: ITA. Nos.2585-2586 & 2651/Chny/2025 approach. A mechanical rejection of all 116 entries without such examination is not sustainable. Further, we note that the stock adjustment does not represent any cash outflow or transaction outside the books and it is purely a valuation adjustment within the books of accounts. 20. We are of the considered opinion in view of the undisputed facts that the said exercise sought to be done by the Revenue is tax neutral as such re- valuation only amounts to timing difference. In the event such re-valuation being ignored, the closing stock reported at the end of the year would become the opening stock for the next year thereby negating the presumption of having any tax implication. It would be pertinent to note the decision of the Supreme Court in the case of Excel Industries Ltd. reported in 358 ITR 295 under similar circumstances had held as follows: “28. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did derive benefits under the advance license and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.”

By respectfully following the ratio laid down by the Supreme Court mentioned supra, we direct the AO to delete the addition made for the assessment year 2017-18. Accordingly, this ground of appeal is allowed.

Issue No. 4 (AY 2017-18) - Unreported Income from Sale of Thirumala Nagar Plots - Rs. 1,44,000/-:

:-9-: ITA. Nos.2585-2586 & 2651/Chny/2025 of income filed u/s.139(1) of the Act for A.Y.2019-20 and taxes have been paid thereon. The Ld.AR further submitted that to add the same amount once again to the income of A.Y. 2017-18, without correspondingly reducing the income of A.Y.2019-20, would result in double taxation of the same income. 22. We find merit in the argument of the Ld.AR. While it is correct that income accruing in a particular Assessment Year is taxable in that year, the AO cannot make an addition for A.Y.2017-18 without simultaneously directing reduction of the same income from A.Y.2019-20 in which the assessee had offered it to tax. The AO has expressly noted in the assessment order for A.Y.2018-19 that the Ganapathy Nagar plot income offered in A.Y.2018-19 was reduced since it was being assessed in A.Y.2013-14. The same logic and consistency must apply here, if the income is assessed in A.Y.2017-18, and same income cannot be brought to tax in two assessment years. Accordingly, we accordingly direct the AO to verify and delete the addition in the A.Y.2017-18, if the said income is already offered to tax during the AY 2019-20. This ground of appeal is allowed for statistical purposes. Issue No. 5 (AY 2017-18) - Palakkad Andal Nagar - Rs.12,51,560/-: 23. The AO added Rs.12,51,560/- based on an alleged shortfall in the income offered for A.Y.2017-18 from the Palakkad Andal Nagar property, by cross- referencing the sworn statement of the MD and the Tally account entries across A.Y.2017-18 and A.Y.2018-19. 24. The Ld.AR submitted that the income from the Palakkad Andal Nagar property was duly offered across the years in question, and that the addition arises solely from the AO's cross-year arithmetic reconstruction of the income offered, which itself is based on the sworn statement recorded u/s.132(4) of the Act without any independent corroborative documentary evidence. It was further submitted that the sworn statement recorded u/s.132(4) of the Act constitutes a rebuttable presumption u/s.132(4A) of the Act and cannot be the sole basis for an addition without corroborative material, as held by the jurisdictional Madras High Court in CIT v. J.Dinesh Mehta (TCA No. 84 of 2010

:-10-: ITA. Nos.2585-2586 & 2651/Chny/2025 dated 05.07.2018) and in Dr.M.Malliga v.ADIT (TCA No. 284 of 2011 dated 21.11.2024). The Ld.AR also argued that the said sum was offered to tax in the return of income filed for the AY 2018-19 under the head 'Sales/Revenue from Operations'. 25. We find that the addition of Rs.12,51,560/- is arrived at by the AO through a complex cross-year arithmetic, where the AO found that a sum of Rs.49,80,000/- was related to FY 2015-16 transaction included in FY 2017-18 sales, and then arrives at a shortfall figure of Rs.12,51,560/- for A.Y. 2017-18 relative to the sworn statement admission. The entire exercise is based on the sworn statement recorded u/s.132(4) of the Act and on the Tally account data, which is the reported books of accounts of the assessee. However, the sole issue arises from consideration is whether the disputed component of income was offered to tax as income of the assessee and in this regard, we find it fit to direct the AO to verify and delete the addition for the AY 2017-18 subject to offering of such income in the return of income filed for AY 2018-19. Accordingly, the grounds of appeal are allowed for statistical purposes.

Issue No. 6 (AY 2017-18) - Disallowance of Thiruvotriyur Project Opening Stock Claim - Rs. 22,19,323/-: 26. The AO has disallowed the assessee's claim of Rs.22,19,323/- towards cost of the Thiruvotriyur project (claimed as 'opening stock pertaining to Tiruvottiyur project, disallowed for AY 2011-12 on the ground that the disallowance in AY 2011-12 is the subject of a pending appeal and the assessee has not withdrawn the said ground of appeal. 27. The Ld. AR submitted that the disallowance in A.Y.2011-12 was made in the regular assessment order passed u/s.143(3) of the Act dated 28.03.2014 on the ground that only 32.64% of the cost of the Thiruvotriyur project was eligible to be claimed as deduction in A.Y. 2011-12 under the percentage completion method. The balance 67.36% of the cost was accordingly not allowed. In the subsequent years, as the project progresses and revenue is recognised, the corresponding cost (the balance 67.36% disallowed in A.Y.

:-11-: ITA. Nos.2585-2586 & 2651/Chny/2025 2011-12) becomes eligible for deduction as cost of goods sold in proportion to the revenue recognised. The assessee's claim of Rs. 22,19,323/- in A.Y. 2017- 18 represents the proportionate cost attributable to the revenue recognised from the Thiruvotriyur project during the year, which has been computed in accordance with the methodology upheld by the AO himself in A.Y. 2011-12. 28. This Tribunal while adjudicating the company’s appeal for the AY 2011- 12 arising from the scrutiny assessment order dated 28.03.2014, we have deleted the disallowance of the claim of cost towards the Thiruvotriyur project in directing the AO to allow the same in the said year. In such circumstances, the addition made by the AO for the AY 2017-18 stands confirmed. This ground of appeal is dismissed. Issue No. 7 (AY 2017-18) - Disallowance u/s 40A(3) - Rs. 8,42,239/- 29. The AO disallowed Rs.8,42,239/- u/s.40A(3) of the Act, representing the balance of cash payments exceeding Rs.20,000/- made during F.Y.2016-17 (over and above what the assessee had already disallowed in the return of income). The list of payments is drawn from the Tally accounts of the assessee (Annexure 2 of the Special Audit Report), and the AO has not doubted the genuineness of these transactions or the identity of the payees. 30. The Ld.AR submitted that the payments in question represent genuine business expenditures including staff welfare expenses, vehicle maintenance, site expenses, and petty site-related payments, all made in the ordinary course of conducting real estate business across multiple project sites spread across different locations. The Ld.AR placed reliance on the proviso to Section 40A(3) read with Rule 6DD of the Income Tax Rules, 1962, which carves out exceptions to the disallowance where, having regard to the nature and extent of banking facilities available, business expediency, and other relevant factors, cash payments are permissible. The Ld.AR relied upon the Hon'ble Supreme Court's decision in Attar Singh Gurmukh Singh v. ITO reported in (1991) 191 ITR 667, wherein it was held that the provisions of Section 40A(3) are not absolute and that genuine, bonafide transactions free from any tax evasion

:-12-: ITA. Nos.2585-2586 & 2651/Chny/2025 device are not intended to be hit by the provision. The Ld. AR also relied upon the Madras High Court's decision in Hotel Nagas (P.) Ltd. v. CIT (2016) and Asia Contact Lens Laboratory v. ACIT, wherein it was held that where the genuineness of the transaction is not in doubt and the payees are identifiable, disallowance u/s.40A(3) of the Act is not warranted. 31. We find that the AO had not independently examined the nature of the payments made in excess of the threshold limit and had solely relied upon the special audit report in a mechanical manner. Hence, we deem it fit to remand the said issue back to the file of the AO to examine the said issue independently without being influenced by the special audit report for the purpose of examining the applicability of the provisions in Section 40A(3) of the Act on the facts of the present case. Accordingly, the grounds of appeal are allowed for statistical purposes. Issue No. 8 (AY 2017-18) - Disallowance u/s 40(a)(ia) - Rs. 8,43,532/-: 32. The AO has disallowed Rs.8,43,532/- (being 30% of Rs.28,28,440/-, the payments on which TDS was alleged to have been not deducted / short deducted, as per Annexure 5 of the Special Audit Report, less amount already disallowed in the return) u/s.40(a)(ia) of the Act. The ld.AR submitted that the payments were made to various vendors in the ordinary course of business and that the second proviso to Section 40(a)(ia) r.w.s. the first proviso to Section 201(1) of the Act provides that no disallowance is called for where the recipient payees have included these receipts in their respective returns of income and paid the tax thereon. 33. The Ld. AR relied upon the decision of the Co-ordinate Bench of this Tribunal in ITA No.623/CHNY/2020 dated 24.03.2023, wherein it was held that if the recipient has offered the sum to tax in its return of income, no disallowance u/s 40(a)(ia) is warranted, and the AO may be directed to verify this fact. The Ld.AR also submitted that the provision of Section 40(a)(ia) applies to 'non- deduction' of TDS and not to 'short deduction' relying on the Hon'ble Calcutta High Court's decision in the case of S.K.Tekriwal and the Jurisdictional Bench's

:-13-: ITA. Nos.2585-2586 & 2651/Chny/2025 decision in Apollo Tyres Ltd., wherein it was held that disallowance u/s.40(a)(ia) is not available in cases of short deduction. 34. We find that the AO had not examined the nature of the payments made warranting disallowance in terms of Section 40(a)(ia) of the Act and had solely relied upon the special audit report in a mechanical manner. Hence, we deem it fit to remand the said issue back to the file of the AO to examine the said issue independently without being influenced by the special audit report for the purpose of examining the applicability of the provisions in Section 40(a)(ia) of the Act on the facts of the present case in line with the directions issued by the Ld.CIT(A) rendered at paragraph 6.5.3 of the impugned order. We further direct the AO to examine the applicability of 2nd proviso to Section 40(a)(ia) of the Act in the event of TDS provisions being attracted to the facts of the present case. In this regard, the Ld.AR placed reliance on the decision of the Co-ordinate Bench of the Tribunal in the case of M/s.Hamosons Exports P Ltd in ITA No.623/CHNY/2020 wherein the Tribunal had held as under: “However, in this appeal, the Ld.CIT(A) has confirmed the action of AO on one more ground to disallow the claim i.e. disallowance made since no TDS was deducted while making payment to M/s.Edelweiss under Section 40(a)(ia) of the Act. In light of this particular reason emanating from this appeal, we set aside the impugned order of the Ld.CIT(A) and restore the matter back to the file of the AO with a direction that if M/s.Edelweiss has shown the amount in question in the return of income for AY 2015-16 and offered for tax the same, then there is no need of ANY disallowance u/s.40(a)(ia) of the Act. And for verification of this fact, the AO may call for necessary details, directly from M/s.Edelweiss and verify. Therefore, only for limited purpose, we remit this issue back to “the file of the AO, and no disallowance is warranted if it is found that M/s Edelweiss has offered the same for taxation in its return of income, then in such an event, disallowance made to be deleted accordingly. Needless to say opportunity may be granted to assessee during verification as directed supra and assessee is at liberty to file relevant documents during the verification.” In the present facts and circumstances of the case and respectfully following the decision of the Co-ordinate Bench of the Tribunal, we modify the directions of the ld.CIT(A) in accordance with the decision referred to hereinbefore by allowing the related grounds of appeal raised by the Assessee.

:-14-: ITA. Nos.2585-2586 & 2651/Chny/2025 Issue No.9 (AY 2017-18) - Disallowance of Purchase Cost in Somiyampalayam Project - Rs.1,89,50,004/-: 35. The AO has disallowed Rs.1,89,50,004/- representing the difference between the total amount debited to the Purchases account in the Somiyampalayam project (Rs.9,47,50,007/-) and the value of closing stock shown (Rs.7,58,00,003/-). The AO held that since no sales were made from this project during F.Y.2016-17, the entire purchase cost should have been shown as closing stock, and the difference of Rs.1,89,50,004/- represents an impermissible deduction. 36. The Ld.AR submitted that the Somiyampalayam property was purchased by the assessee by initially entering into a Joint Development Agreement ('JDA') with Shri N.Ashok and Shri Balaji, paying Rs.2 crores as security deposit / advance. Subsequently, when the property was mortgaged by Shri Ashok and Shri Balaji to SBI and auctioned on default, the assessee acquired the property through Shri P.N.Pandian, the company's trusted employee. The total cost of acquisition through SBI auction was Rs.7,00,10,116/-. The original deposit of Rs.2 crores paid to Shri Ashok and Shri Balaji has become irrecoverable both persons have filed insolvency petitions before the Subordinate Judge, Coimbatore (I.P. No. 25 of 2013) and have absconded. The assessee has also filed a petition (I.A. No. 2021 in I.P. No. 25 of 2013) to be included in the list of creditors. The Rs.2 crores is therefore not a capitalizable asset it represents a loss on the original JDA deposit that has become irrecoverable, and is appropriately written off as an expenditure. 37. We find merit in the assessee's position. Where an advance or deposit paid in relation to a business transaction becomes irrecoverable due to the insolvency of the counterparty and the failure of the underlying deal the same represents a loss of a revenue nature that is deductible as a business expenditure in the year in which it becomes irrecoverable. The insolvency proceedings of Shri N.Ashok and Shri Balaji confirm that the Rs.2 crores paid by the assessee is irrecoverable. Thus, the advance/ security deposit paid to the tune of Rs.2,00,00,000/- paid during the FYs 2010-11 & 2011-12

:-15-: ITA. Nos.2585-2586 & 2651/Chny/2025 (Rs.1,00,00,000/- each) pertained to an irrevocable/non-refundable deposit paid by the assessee to secure the purchase of the land and therefore, the assessee is eligible to claim the same as deduction by way of adding it to the cost of the land. However, in the year of payment of such deposit, it appears that the assessee had wrongly classified the same as 'Advance' in its books of accounts and subsequently, upon realisation of the said inadvertent error in the subject AY, the company had reclassified the same by factoring the same to the cost of inventory in the FY 2016-17 (AY 2017-18) to show a true picture of its books of accounts. We are of the view that the above usage of wrong nomenclature / wrong grouping being a mere inadvertent mistake should not automatically result in hastening a tax liability upon the assessee. The AO went wrong in making an addition of Rs.1,89,50,004/- by holding that the assessee has debited expenditure to the extent of which is not allowable when no income from the project is shown. Therefore, this ground of appeal is allowed. Issue 10: Enhancement of income u/s.251(2) of the Act : 38. With regard to the issue of enhancement by ld.CIT(A) in invoking the provisions, we note that the AO had accepted the stand of the assessee in response to the Show Cause Notice while passing the assessment order for the AY under consideration by placing reliance upon the decision of this Tribunal in the case of Adyar Ananda Bhawan Sweets (I) Pvt.Ltd. vs ACIT (ITA Nos.402 & 403/Chny/2021 dated 08.12.2021) in accordance with the ratio laid down by the Hon’ble Madras High Court in the case of M/s.Industrial Security and Intelligence India P Ltd. (TCA No.585/2015). The ld.CIT(A) had invoked the provisions u/s.251(2) of the Act to make the said addition by following the subsequent judgement of the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd vs CIT in Civil Appeal No 2833 of 2016 dated 12.10.2022. 39. Before us, the Ld.AR brought to our notice the recent order of the Hon’ble Supreme Court in the case of Woodland (Aero Club) Private Limited Director v. Assistant Commissioner Of Income Tax (Petition for Special Leave to Appeal (C) No.1532/2026 dated 27.01.2026) wherein the Hon’ble Supreme Court had admitted the said SLP emanating from the judgement of the Hon’ble Delhi High

:-16-: ITA. Nos.2585-2586 & 2651/Chny/2025 Court following the judgement in the case of Woodland (Aero Club) Private Limited (supra) and further taking into consideration the divergent views of various High Courts. 40. In view of the subsequent developments, we find it deemed fit to remand the matter to the file of the AO to adjudicate the issue afresh in accordance with law. Needless to say, the AO shall grant sufficient opportunity of hearing to the assessee for substantiating its claim before adjudicating the issue. Accordingly, the grounds of appeal are allowed for statistical purposes.

ITA No. 2586/Chny/2025 - Assessment Year (AY) 2018-19: 41. For A.Y. 2018-19, the assessment was passed u/s.143(3) of the Act. The AO made the following additions and disallowances over and above the returned income:

Particulars Para Ref. Amount (Rs.)

Income returned 81,25,587/-

Add: Site maintenance expenses disallowed 11.1–11.4 14,78,53,935/-

Add: Unaccounted profit — New Chennai Project 10.1–10.8 7,57,097/-

Add: Deemed profits u/s 41(1) 12.1–12.5 1,90,63,355/-

Add: Expenses not supported by evidence 13.1–13.3 63,76,000/-

Add: Advances written off disallowed u/s 36(1)(vii) 14.1–14.4 10,50,000/-

Add: Opening stock of Thiruvotriyur project disallowed 17.1–17.4 64,19,814/-

Add: Disallowance u/s 40A(3) 19.1–19.4 9,69,255/-

Add: Disallowance u/s 40(a)(ia) 20.1–20.6 10,10,426/-

Add: Excess closing stock u/s 69 / 115BBE 16.1–16.4 4,97,73,047/-

Add: Deduction u/s 80IB(10) disallowed 15.1–15.2 1,89,25,492/-

Add: Deemed rental income u/s 23(5) 18.1–18.2 58,500/-

:-17-: ITA. Nos.2585-2586 & 2651/Chny/2025 Less: Ganapathy Nagar plot income reduced (assessed in AY 22 (75,25,124/-) 2013-14)

Assessed Income 25,93,13,582/-

Enhancement of income by CIT(Appeals) Rs.8,59,767/-

Issue No. 1 (AY 2018-19) - Disallowance of Site Maintenance Expenses - Rs.14,78,53,935/- : 42. The AO has disallowed Rs.14,78,53,935/- described as 'bogus site maintenance expenses' based on the Special Audit Report's findings that the certain site-related expenses were not supported by adequate documentation. 43. The Ld.AR submitted that the assessee is a real estate developer operating across more than ten projects involving construction of flats, development of plots, and site development activities. Site maintenance and development expenses are the very core of its business without which no project can be executed, and no revenue can be earned. The Ld.AR submitted that the AO has made a blanket disallowance of Rs.14.78 crores, an amount far in excess of even the total returned income of the assessee for the year, without independently examining each item of expenditure, without conducting any enquiry into the genuineness of the transactions, without doubting the identity of the vendors or the nature of the services, and without verifying whether the expenses were supported by vouchers, bills, and agreements. The Special Auditor's observation that certain expenses were insufficiently documented cannot automatically translate into a disallowance of the entire Rs.14.78 crores, when these are genuine, necessary, and entirely relatable to the real estate business of the assessee. 44. We find that the disallowance of Rs.14,78,53,935/- representing site maintenance expenses of a real estate developer operating multiple projects is patently excessive and is made without any proper enquiry. Site maintenance expenses are an integral part of the cost structure of any real estate developer. The onus of disallowing such expenses cannot be discharged by a blanket

:-18-: ITA. Nos.2585-2586 & 2651/Chny/2025 reference to the Special Audit Report's finding of insufficient documentation. We find that the income reported by the assessee has not been doubted by the AO. Hence, the action of the AO in reckoning such expenditure as bogus would completely distort the financial results inasmuch as but for this expenditure incurred by him, the assessee could not have made the corresponding sales which has been accepted by the lower authorities. Hence, it cannot be concluded that the assessee had not incurred any site related expenditure. 45. Moreover, we are of the view that the findings forming part of the special audit report are cryptic, which findings were mechanically followed by the AO without any due application of mind with regard to the actual evidences placed before them by the assessee in their attempts to dispel the allegation of the said expenditure as bogus. The present case before us is a classic case of borrowed satisfaction with the veracity of claim of expenditure wherein the AO had acted upon the findings forming part of the special audit report without disproving nor rejecting the submissions and documentary evidences filed by the assessee in support of claim of its genuineness. 46. Thus, in view of the admitted and irrefutable fact of the corresponding sales not being disputed by either of the authorities, the addition of the entire disputed expenditure incurred as bogus cannot be sustained in the eyes of law. Having said so, the inadequacy in the maintenance of supporting documents on the part of the Assessee cannot be ruled out. In such circumstances, we deem it fit to restrict the disallowance to the extent of 2% of the site expenses to cover the discrepancy on the inadequacy in maintenance of supporting documents while computing the taxable total income of the Assessee. Hence, the grounds of appeal are partly allowed. Issue No. 2 (AY 2018-19) - Understatement of Profit from New Chennai Project - Rs.7,57,097/-: 47. The AO has added Rs.7,57,097/- representing profit from the sale of one plot in the New Chennai Project during A.Y.2018-19. This addition arises from the same dispute on cost methodology as in A.Y.2017-18, the AO adopting a proportionate cost of Rs.33,17,52,988/- for 83.27 acres, as against the

:-19-: ITA. Nos.2585-2586 & 2651/Chny/2025 assessee's claim of Rs.57,19,00,000/-. Since the similar issue was adjudicated by us for the AY 2017-18, our decision rendered for the A.Y.2017-18 will apply mutatis mutandis for this appeal also. Accordingly, the grounds of appeal are allowed.

Issue No. 3 (AY 2018-19) - Deemed Profits u/s.41(1) - Rs. 1,90,63,355/-: 48. The AO has made an addition of Rs.1,90,63,355/- u/s.41(1) of the Act, representing credit balances appearing in the company’s books under the ledger head 'Booking', which the AO held to be no longer payable and hence deemed profits. The Ld.AR submitted that the sum of Rs.1,90,63,355/- was duly offered to tax by the assessee in the return of income filed u/s.139(1) of the Act for AY 2019-20 along with taxes thereon. The Ld.AR argued that to bring the same sum to tax in A.Y. 2018-19 (in which the assessee has already offered it) would constitute double taxation of the same income. 49. We find force in the submission of the Ld.AR that the assessee has offered Rs.1,90,63,355/- to tax in AY 2019-20 and has paid taxes thereon. To confirm the addition of the same sum in AY 2018-19 without any corresponding credit or reduction being given in AY 2019-20 would amount to taxing the same income twice which is impermissible under the scheme of the Act. Further, we note that Section 41(1) requires the satisfaction of specific conditions: there must be a trading liability that has been allowed as a deduction in computing business income in an earlier year, and the liability must have been subsequently remitted or ceased. The AO has not established that the credit balance of Rs.1,90,63,355/- represents a 'trading liability' that was allowed as a deduction in any earlier year. The Ld.AR submitted that these sums were booking advances / deposits received from customers, which are capital receipts and not trading liabilities. In the absence of the foundational conditions of Section 41(1) being established, and in view of the assessee having already offered the sum to tax in AY 2019-20, the addition of Rs.1,90,63,355/- is directed to be deleted. Accordingly, this ground of appeal is allowed.

:-20-: ITA. Nos.2585-2586 & 2651/Chny/2025 Issue No. 4 (AY 2018-19) - Disallowance of Expenses Not Supported by Evidence - Rs. 63,76,000/- : 50. The AO has disallowed Rs.63,76,000/- on account of certain expenses identified by the Special Auditor as not being supported by adequate documentary evidence. The Ld.AR submitted that the expenses in question are genuine business expenditures incurred in the ordinary course of the assessee's real estate business, and that the disallowance has been made without any independent enquiry as to the genuineness of the transactions or the identity of the payees. It was submitted that the assessee is a real estate developer dealing with hundreds of vendors and sub-contractors across multiple project sites, and that minor lapses in documentation cannot result in wholesale disallowance of business expenses. 51. We find that the AO has made the disallowance purely on the basis of the Special Audit Report's observation, without conducting any independent examination. The genuineness of the transactions has not been doubted nor has the identity of the payees been questioned. A mere observation by the Special Auditor that documentary support is insufficient cannot automatically result in disallowance of Rs. 63,76,000/-. 52. Moreover, as stated in the earlier paragraphs we are of the view that the findings forming part of the special audit report are cryptic which findings were mechanically followed by the AO without any due application of mind with regard to the actual evidences placed before them by the assessee in their attempts to dispel the allegation of the said expenditure being not proved with supporting evidences. 53. In such circumstances, we deem it fit to restrict the disallowance to the extent of 2% of the expenses to cover the discrepancy on the inadequacy in maintenance of supporting documents while computing the taxable total income of the Assessee. Hence, the grounds of appeal are partly allowed. Issue No. 5 (AY 2018-19) - Advances Written Off u/s.36(1)(vii) - Rs.10,50,000/-:

:-21-: ITA. Nos.2585-2586 & 2651/Chny/2025 54. The AO has disallowed Rs.10,50,000/- representing a rent deposit paid by the assessee to M/s.Jeans Park India Private Limited that was subsequently written off on account of the tenant's inability to pay rent. The AO's basis for disallowance is that Section 36(1)(vii) allows deduction for bad debts only in the case of banking or money lending businesses, and that the deposit paid by the assessee is not a 'debt' arising in the course of its business. 55. The Ld.AR submitted that the amount of Rs.10,50,000/- represents a refundable rent deposit paid by the assessee to M/s.Jeans Park India Private Limited in the context of a commercial rental arrangement. The property let out was a commercial property held by the assessee as part of its real estate business assets, and the rental income therefrom was income from business. The deposit was paid as part of the letting arrangement and its irrecoverability arises directly from the business relationship. The AO's characterisation of the write-off as a 'bad debt' eligible only for banking and money-lending businesses is incorrect, the correct characterisation is as a business loss arising from an irrecoverable deposit made in the course of the assessee's business, deductible u/s.28 r.w.s. 37(1) of the Act as a business expenditure. 56. We find that the AO has approached this issue from too narrow a lens. While Section 36(1)(vii) applies specifically to bad debts of trading/lending businesses, the irrecoverability of a business deposit is deductible as a business loss under the general provisions of Section 28 r.w.s. 37(1) of the Act. The assessee's case is that Rs.10,50,000/- was paid as a deposit in connection with a commercial property transaction forming part of its real estate business, and this amount has become irrecoverable. An irrecoverable deposit of this nature qualifies as a business loss. The AO erred in analysing this issue only through the lens of Section 36(1)(vii) without examining whether the deduction is otherwise allowable as a business loss. We accordingly set aside the disallowance of Rs.10,50,000/- and direct the AO to examine whether the conditions for a deductible business loss u/s.28 / Section 37 are satisfied, after affording the assessee an opportunity to place relevant evidence on record. This ground of appeal is allowed for statistical purposes.

:-22-: ITA. Nos.2585-2586 & 2651/Chny/2025 Issue No. 6 (AY 2018-19) - Excess Closing Stock as Unexplained Investment u/s.69/115BBE - Rs. 4,97,73,047/- : 57. The AO has added Rs.4,97,73,047/- as unexplained investment u/s.69 of the Act (taxed at special rate u/s 115BBE), based on the admission in the sworn statement of Shri T.Narayanan, MD, recorded u/s.132(4) of the Act on 01.12.2017. In the said statement, the MD admitted a difference of Rs.4,99,73,047/- between actual stock and book stock, which he agreed to offer as fan additional income. 58. The Ld.AR submitted that the sworn statement recorded u/s.132(4) of the Act creates only a rebuttable presumption u/s.132(4A) of the Act, and cannot be the sole basis for an addition in the absence of any independent incriminating material corroborating the alleged discrepancy in closing stock. The Ld.AR placed reliance on the decisions of the Hon'ble Madras High Court in CIT v. J. Dinesh Mehta (TCA No. 84 of 2010) and Dr. M. Malliga v. ADIT (TCA No. 284 of 2011), wherein the jurisdictional High Court has consistently held that a sworn statement u/s.132(4) of the Act is a rebuttable presumption and that an addition cannot be sustained solely on its basis without corroborative seized material. The Ld.AR further submitted that the closing stock figures are duly reflected in the books of accounts of the assessee, which are the same audited books that have been placed before the Department, and that no document or evidence found during the search independently establishes a discrepancy in the closing stock. 59. We find the submissions of the Ld.AR to be well-founded. The position settled by the Hon'ble Madras High Court in the above decisions is clear: a sworn statement recorded u/s.132(4) of the Act is rebuttable presumptive evidence and cannot, standing alone without corroborative material, sustain a substantial addition. In the present case, the AO has not pointed to any document, asset, inventory record, or physical evidence found during the search that independently corroborates the alleged discrepancy in closing stock.

:-23-: ITA. Nos.2585-2586 & 2651/Chny/2025 60. Both the lower authorities have not brought anything on record to demonstrate the quantification of the differential closing stock, justifying the addition made. Moreover, in view of the undisputed facts under consideration, we find that said exercise sought to be done by the Revenue is tax neutral as such the re-quantification of such alleged closing stock only amounts to timing difference, especially in view of the fact such re-quantification reported as closing stock at the end of the year would become the opening stock for the next year thereby negating the presumption of having any tax implication. It would be pertinent to note the decision of the Supreme Court in the case of Excel Industries Ltd. reported in 358 ITR 295 under similar circumstances had held as follows: “28. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did derive benefits under the advance license and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.”

By following the ratio laid down by the Supreme Court mentioned supra, we direct the AO to delete the addition made. Accordingly, this ground of appeal is allowed.

Issue No. 7 (AY 2018-19) - Disallowance of Deduction u/s 80IB(10) - Rs.1,89,25,492/-

:-24-: ITA. Nos.2585-2586 & 2651/Chny/2025 62. The AO has disallowed the deduction of Rs.1,89,25,492/- claimed u/s.80IB(10) of the Act on two grounds: (a) the assessee did not file Form 10CCB (the requisite Chartered Accountant's report certifying the deduction) before the due date of filing of the return of income; and (b) the assessee's own tax audit report in Form 3CD shows 'Nil' against deductions under Chapter VIA. 63. The Ld.AR submitted that the failure to file Form 10CCB within the due date of the return of income is a procedural lapse and not a substantive bar to the claim of deduction u/s.80IB(10) of the Act. The Ld.AR relied upon the series of decisions of the Supreme Court and various High Courts including the decision in PCIT v. Wipro Ltd reported in 448 ITR 1 (SC) and various Benches of this Tribunal to argue that once the underlying conditions for claiming deduction u/s.80IB are satisfied, a mere delay or non-filing of the Form should not result in the denial of the deduction, particularly when the assessee furnishes the Form at a later stage. The Ld.AR further submitted that the tax audit report showing 'Nil' under Chapter VIA deductions was a clerical error, and that the assessee had in fact claimed the deduction in the computation of total income filed along with the return. 64. We find that the issue of whether non-filing of Form 10CCB is a directory or mandatory condition has been extensively litigated. The Supreme Court in PCIT v. Wipro Ltd. (448 ITR 1) held in the context of Section 80IC that delay in filing the audit report does not disentitle the assessee to the deduction, if the underlying conditions are satisfied. Several Benches of this Tribunal have also taken a view on the filing of Form 10CCB, holding that it is a directory requirement and that the deduction cannot be denied for a procedural lapse, especially where the assessee furnishes the Form during the assessment/appellate proceedings. In the present case, the assessee claimed the deduction in the computation of total income and the non-filing of Form 10CCB appears to be a procedural oversight. Dehors the technicalities, we are of the view that the matter needs re-examination at the stage of the Assessing Officer and in this regard, we are inclined to remand the matter to the file of the Assessing Officer to re-examine the issue afresh de-novo without prejudiced by

:-25-: ITA. Nos.2585-2586 & 2651/Chny/2025 the Special Audit Report. Needless to say, the Assessee shall demonstrate the eligibility of such claim by furnishing necessary statutory forms and if the conditions are satisfied and the Form is duly furnished, the deduction of Rs.1,89,25,492/- shall be allowed. This ground of appeal is allowed for statistical purposes.

Issue No. 8 (AY 2018-19) - Disallowance of Thiruvotriyur Project Opening Stock - Rs. 64,19,814/-: 65. Since the similar issue was adjudicated by us for the AY 2017-18 (supra), our decision rendered for the AY 2017- 18 shall apply mutatis mutandis for this AY also. Hence, the grounds of appeal are dismissed.

Issue No. 9 (AY 2018-19) - Disallowance u/s.40A(3) - Rs. 9,69,255/-: 66. Since the similar issue was adjudicated by us for the AY 2017-18 (supra), our decision rendered for the AY 2017-18 shall apply mutatis mutandis for this AY also. Hence, the grounds of appeal are allowed for statistical purposes.

Issue No. 10 (AY 2018-19) - Disallowance u/s.40(a)(ia) - Rs. 10,10,426/- : 67. Since the similar issue was adjudicated by us for the AY 2017-18 (supra), our decision rendered for the AY 2017-18 shall apply mutatis mutandis for this AY also. Hence, the grounds of appeal are allowed for statistical purposes.

Issue No.11 (AY 2018-19 – Enhancement of income by CIT(Appeals) :

:-26-: ITA. Nos.2585-2586 & 2651/Chny/2025 69. In the result the both the appeals of the assessee are partly allowed for statistical purposes and the appeal of the revenue is dismissed.

Order pronounced in the court on 04th May, 2026 at Chennai.

Sd/- Sd/- (एबी टी वर्की ) (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) (ABY T VARKEY) लेखासदस्य/Accountant Member न्यायिर्क सदस्य/Judicial Member

चेन्नई/Chennai, ददनाांक/Dated, the 04th May, 2026. *Devadas आदेश की प्रदिदलदि अग्रेदिि/Copy to: 1. अिीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT Chennai / Salem / Madurai / Coimbatore. 4. दिभागीय प्रदिदनदि/DR 5. गार्ड फाईल/GF

Digitally signed DEVADAS by DEVADAS GOPALANACHAR GOPALA Y NACHARY Date: 2026.05.13 17:12:48 +05'30'