ASSISTANT COMMISSIONER OF INCOME TAX,CIR.20(1), MUMBAI vs. SHRI NITESH C. KOTHARI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER 1. ITA No. 5948/Mum/2024 (Assessment Year: 2010-11) ACIT Cir. 20(1) Shri Nitesh C. Kothari 3rd Floor, Piramal 901, Girnar Tower, Vs. Chambers, Lalbaug, Sheth Motisha Lane, Lower Parel, Mumbai – Mazgoan, Mumbai- 400 012 400 010 PAN/GIR No. BHFPK0099G (Applicant) (Respondent)

2 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: The appeal filed by the Revenue and the cross-objection filed by the assessee are directed against the order dated 23.09.2024 passed by the learned Commissioner of Income Tax (Appeals)-50, Mumbai[hereinafter referred to as "CIT(A)"], under section 250 of the Income Tax Act, 1961[hereinafter referred to as "the Act"], for the assessment year 2010-11. The impugned appellate order arises from the assessment order dated 29.03.2016 passed by the Deputy Commissioner of Income Tax, Central Circle-8(3), Mumbai, under section 143(3) read with section 153A of the Act. Since the appeal and the cross-objection arise from the same appellate order and involve interconnected facts, they were heard together and are being disposed of by this common order.

3 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari 3. No incriminating material was found during the course of search of the Appellant, therefore, the additions made are bad in law. 4. The approval u/s 153D is bad in law and therefore, the assessment order is bad in law. 5. The Authorisation memo is without any Document Identification Number and therefore, is bad in law. 6. The additions made are in gross violation of principles of natural justice as no opportunity to cross examine the person was provided. 7. The appellant craves leave to add to, amend, alter or delete all or any of the following grounds of appeal. Facts of the case

4 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari 6. During the course of search, a loose-paper file identified as Annexure A-2 was found and seized. Page No. 36 of the said file contained a copy of a Memorandum of Understanding entered into between the assessee, Shri Nitesh Kothari, and Shri Rakesh Kothari. As recorded in the impugned order, the Memorandum of Understanding related to a proposed transaction for purchase of the property of one Mohit at Mahim. It referred to an amount of Rs.2,00,00,000/- paid by Shri Rakesh Kothari in connection with the said property transaction. It further provided that, if the transaction materialised, Shri Rakesh Kothari would receive 4,500 square feet of land, and if the transaction was cancelled, interest at the rate of 2 per cent would become payable to Shri Rakesh Kothari. 7. The Assessing Officer issued a show-cause notice dated 18.02.2016 requiring the assessee to explain the transaction recorded in the Memorandum of Understanding and the receipt of Rs.2,00,00,000/- from Shri Rakesh Kothari. In response thereto, the assessee furnished a written explanation dated 26.02.2016. The assessee stated that the transaction concerned the property of Mohit at Mahim and that, since the assessee knew both Shri Rakesh Kothari and Mohit, he had brokered the transaction between them. The assessee further stated that, being a cousin of Shri Rakesh Kothari, he had agreed to stand as a guarantor in case anything went wrong in the transaction, and the Memorandum of Understanding was executed for that reason.

5 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari 8. The assessee also explained that the payment had been made directly by Shri Rakesh Kothari to Mohit. According to the assessee, the transaction was subsequently cancelled and the amount was returned directly by Mohit to Shri Rakesh Kothari. The assessee maintained that he had no other role in the transaction. 9. The Assessing Officer did not accept the explanation furnished by the assessee. According to the Assessing Officer, the language of the Memorandum of Understanding was unambiguous and showed that the assessee had received Rs.2,00,00,000/- from Shri Rakesh Kothari during the relevant previous year. The Assessing Officer further observed that no evidence had been furnished to establish that the assessee had not received the said amount. He accordingly treated Rs. 2,00,00,000/- as an unaccounted receipt representing the undisclosed income of the assessee and added the same to the total income. 10. The Assessing Officer further noticed from the application filed by Shri Rakesh Kothari before the Settlement Commission that Shri Rakesh Kothari had offered an amount of Rs.60,00,000/- as interest received from the assessee on Rs.2,00,00,000/- for a period of 15 months. The assessee denied having paid any interest to Shri Rakesh Kothari. The Assessing Officer, however, held that Shri Rakesh Kothari had categorically admitted the receipt of interest of Rs.60,00,000/- from the assessee.

6 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari 11. Since the transaction was stated to have been entered into on 01.06.2009, the Assessing Officer apportioned the alleged interest and held that interest of Rs.40,00,000/- pertained to the assessment year 2010-11, while the balance amount of Rs.20,00,000/- pertained to the assessment year 2011-12. The Assessing Officer accordingly made an addition of Rs.40,00,000/- as unexplained interest expenditure. The assessment was completed on 29.03.2016 under section 143(3) read with section 153A of the Act, determining the total income of the assessee at Rs.2,44,58,290/-. 12. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A) on 15.06.2016. The learned CIT(A) recorded that several notices under section 250 of the Act were issued to the assessee during the appellate proceedings. A final opportunity was also granted by notice dated 10.09.2024. Since the assessee did not comply with the notices and did not furnish any further documentary evidence or written submissions, the learned CIT(A) proceeded to decide the appeal ex parte on the basis of the assessment order, the Statement of Facts and the material available on record. 13. While considering the addition of Rs.2,00,00,000/-, the learned CIT(A) examined the contents of the Memorandum of Understanding found and seized during the search. The learned CIT(A) observed that the Memorandum of Understanding related to a transaction for purchase of land at Mahim, which was to be brokered by the assessee. The amount of Rs.2,00,00,000/- had

7 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari been paid by Shri Rakesh Kothari in connection with the proposed purchase of the land. The document also provided for payment of interest by the assessee to Shri Rakesh Kothari in case the transaction was cancelled. 14. Upon considering the document as a whole, the learned CIT(A) held that the amount of Rs.2,00,00,000/- represented an amount paid in connection with the proposed property transaction and could not be regarded as income of the assessee. The learned CIT(A), therefore, held that the action of the Assessing Officer in treating the said amount as unaccounted income was incorrect and directed the Assessing Officer to delete the addition of Rs.2,00,00,000/-. 15. As regards the addition of Rs.40,00,000/- on account of alleged interest expenditure, the learned CIT(A) observed that Shri Rakesh Kothari had admitted before the Settlement Commission that he had received interest of Rs.60,00,000/- from the assessee. The learned CIT(A) further observed that the terms of the Memorandum of Understanding provided for payment of interest by the assessee if the property transaction was cancelled. Since the assessee had himself stated that the transaction was cancelled, the learned CIT(A) held that the admission made by Shri Rakesh Kothari before the Settlement Commission stood corroborated by the Memorandum of Understanding seized during the search. The learned CIT(A), therefore, confirmed the addition of Rs.40,00,000/-.

8 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari 16. In relation to the assessee’s challenge to the validity of the assessment under section 143(3) read with section 153A of the Act, the learned CIT(A) observed that no explanation or submissions had been furnished by the assessee despite several opportunities. The learned CIT(A), therefore, expressed inability to adjudicate the said issue. The appeal was accordingly partly allowed. 17. The learned Departmental Representative relied upon the assessment order and supported the addition made by the Assessing Officer. 18. The learned Authorised Representative briefly reiterated the facts and invited our attention to paragraphs 11.3, 11.4, 12.2 and 12.3 of the impugned order. He submitted that the learned CIT(A), after examining the Memorandum of Understanding and the nature of the underlying property transaction, had correctly held that the amount of Rs.2,00,00,000/- could not be treated as income of the assessee. He accordingly relied upon the findings recorded by the learned CIT(A) and prayed that the Revenue’s appeal be dismissed. 19. We have considered the rival submissions and perused the orders of the authorities below. The solitary substantive grievance of the Revenue is against the deletion of the addition of Rs.2,00,00,000/- made by the Assessing Officer as undisclosed income of the assessee.

9 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari 20. The addition was founded upon the Memorandum of Understanding found at Page No. 36 of the loose-paper file identified as Annexure A-2 during the course of search. The Assessing Officer proceeded on the premise that the language of the Memorandum of Understanding showed receipt of Rs.2,00,00,000/- by the assessee from Shri Rakesh Kothari and that the assessee had failed to establish that the said amount was not received by him. On that basis, the entire amount was treated as undisclosed income.

“12.2 I have considered the assessment order and details available on record. It is seen from the assessment order that during the search conducted on the appellant u/s 132 of the IT Act, one loose paper file (annexure A-2) was found and seized. Page No. 36 of this file is a copy of MOU between the assessee and Shri Rakesh Kothari. As per this MOU Shri Rakesh Kothari has paid Rs.2 crores for the transaction of the land at the Mahim. This transaction is to be brokered by the appellant. If this transaction is cancelled, then the appellant is required to pay interest to Shri Rakesh Kothari @2%. As per the MOU it is evident that the amount of Rs.2 crores has been paid by Shri Rakesh Kothari to Shri Nitesh Kothari for the purchase of land at Mahim. Therefore, Rs.2 crores cannot be held as income of the appellant. Therefore, the decision of the AO to add Rs.2 crores as unaccounted income of the appellant is incorrect and hence, I direct the AO to delete the addition of Rs.2 crores.” 22. In our considered view, the learned CIT(A) has correctly appreciated the true nature and character of the transaction. The Memorandum of Understanding cannot be read selectively by

10 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari placing reliance only upon the recital concerning receipt of the amount. The document has to be read as a whole. When so read, it clearly indicates that the amount of Rs.2,00,00,000/- was connected with a proposed transaction for purchase of property at Mahim. It also records the consequence of completion of the transaction and separately provides for payment of interest in the event of its cancellation. 23. Thus, the document relied upon by the Assessing Officer itself establishes that the amount was transaction-specific and was not received by the assessee as consideration, profit, remuneration or income belonging beneficially to him. Even assuming that the amount was received or routed through the assessee, the mere fact of receipt, by itself, would not convert the amount into income. The taxability of a receipt depends upon its real nature and character and not merely upon the physical receipt or custody of the amount. 24. The assessee had explained before the Assessing Officer that he knew both Shri Rakesh Kothari and Mohit, had brokered the transaction between them and had agreed to stand as a guarantor because Shri Rakesh Kothari was his cousin. The assessee further explained that the payment was made for the property transaction and that, upon cancellation of the transaction, the amount was returned. The Assessing Officer did not bring any independent material on record to establish that the assessee had appropriated the amount for his own benefit,

11 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari retained the same as his own money or earned any income represented by the said amount.

“12.3 Regarding payment of interest by the appellant to Shri Rakesh Kothari, it is evident from the application filed by Shri Rakesh Kothari before the settlement commission, wherein he had admitted receipt of Rs.60 lakhs as interest paid by the appellant on Rs.2 crores. Further, as per the MOU the appellant was required to pay interest to Shri Rakesh Kothari @2% on Rs.2 crores, if the transaction is cancelled. As per the explanation submitted before the AO by the appellant this transaction was cancelled. Therefore, as per the MOU the appellant was required to pay the interest to Shri Rakesh Kothari. The terms and conditions of the MOU has not been denied by the appellant. Thus, the disclosure made by the Shri Rakesh Kothari before the settlement commission is corroborated by the MOU seized during the search. Further, the appellant has not furnished any documentary evidence/submissions during the appeal proceedings to disprove the decision of the AO.

12 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari Therefore, the addition made by the AO of Rs.40 lakhs on account of unexplained expenditure (payment of interest) is hereby confirmed.” 27. The aforesaid finding demonstrates that the learned CIT(A) did not accept the case of the assessee mechanically. He independently examined the nature of both additions. While the principal amount of Rs.2,00,00,000/- was held to be connected with the property transaction and not income of the assessee, the separate addition of Rs.40,00,000/- towards interest expenditure was confirmed on the basis of the terms of the Memorandum of Understanding and the disclosure made by Shri Rakesh Kothari before the Settlement Commission. This lends assurance to the fact that the impugned order is based on an issue-wise appreciation of the material on record. 28. The learned Departmental Representative relied upon the assessment order. However, he could not point out any specific factual error, perversity or legal infirmity in the findings recorded by the learned CIT(A). No material has been brought before us to show that the amount of Rs.2,00,00,000/- was beneficially retained or appropriated by the assessee or that it otherwise represented income chargeable to tax in his hands. 29. In these circumstances, we find no reason to interfere with the well-reasoned conclusion of the learned CIT(A). The order of the learned CIT(A) deleting the addition of Rs.2,00,00,000/- is accordingly upheld. The substantive ground raised by the Revenue is dismissed.

13 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari Cross-objection filed by the assessee 30. The assessee, in the cross-objection, has challenged the validity of the assessment framed under section 143(3) read with section 153A of the Act and has also challenged the addition of Rs.40,00,000/- made under section 69C of the Act, besides raising certain ancillary legal grounds. 31. At the time of hearing, the learned Authorised Representative submitted that, in the event the appeal filed by the Revenue is dismissed and the order of the learned CIT(A) deleting the addition of Rs.2,00,00,000/- is upheld, the assessee does not wish to press the cross-objection. 32. In view of the categorical statement made by the learned Authorised Representative at the Bar, the grounds raised in the cross-objection are dismissed as not pressed. We, therefore, refrain from adjudicating the grounds raised therein on merits. 33. In the result, the appeal filed by the Revenue is dismissed and the cross-objection filed by the assessee is dismissed as not pressed. Order pronounced in the open court on 02.07.2026.

Sd/- Sd/- (SAKTIJIT DEY) (MAKARAND VASANT MAHADEOKAR) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 02/07/2026 Dhananjay, Sr.PS

14 ITA No. 5948/Mum/2024 & CO No. 89/Mum/2025 Shri Nitesh C. Kothari आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. संबंधधत आयकर आयुक्त / The CIT(A) 3. आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai