HIRAL CONSTRUCTION ,MUMBAI vs. ITO WARD 42(1)(2), MUMBAI

ITA 8431/MUM/2025Status: DisposedITAT Mumbai08 October 2026AY 2017-1816 pages
AI SummaryPartly Allowed

What were the facts?

The assessee, Hiral Construction, a partnership firm engaged in construction and real estate, filed its return for Assessment Year 2017-18. The Assessing Officer (AO) made several additions, including Rs. 4,50,600 as notional interest on security deposits, Rs. 2,73,02,823 as unexplained cash credit for capital introduction by a partner, Rs. 9,18,500 for cash deposits, and Rs. 1,46,239 under Section 14A. The total income was assessed at Rs. 2,95,47,850. The assessee appealed to the CIT(A), which sustained the additions. The assessee then filed an appeal before the Income Tax Appellate Tribunal (ITAT).

What did the Tribunal hold?

The Tribunal decided the issues as follows: 1. Ground No. 1 (Notional Interest): The addition of Rs. 4,50,600 was deleted. The Tribunal held that tax can only be levied on real income that has accrued or arisen, not on hypothetical returns. Since the security deposits were interest-free and there was no finding of suppressed rent, no interest income had accrued. 2. Grounds 2(a) & 2(b) (Capital Introduction): The Tribunal noted that the issue of capital introduction by partner Shri V.M. Shah was restored to the AO for verification of the source of funds and the correct figure of introduction. 3. Grounds 3(a) & 3(b) (Cash Deposits): The addition of Rs. 7,58,500 was deleted as it was found to be part of the capital introduction already considered, thus avoiding double addition. The balance amount of Rs. 1,60,000 was restored to the AO for verification from the cash book and other materials, with a direction to grant an opportunity of hearing. 4. Ground No. 4 (Section 14A): The addition of Rs. 1,46,239 was deleted. The Tribunal held that Section 14A can only be invoked if there is exempt income, which was not the case here. Furthermore, no specific defect in expenditure was pointed out. 5. Ground No. 5 (Interest): The AO was directed to recompute interest under Sections 234A, 234B, and 234C while giving effect to the order. 6. Ground No. 6 (Penalty): The challenge to the initiation of penalty proceedings was considered premature and not adjudicated. 7. Ground No. 7 (CIT(A)'s Order): As substantive additions were adjudicated, no separate adjudication was required. The appeal was partly allowed for statistical purposes.

What were the issues?

1. Whether the addition of Rs. 4,50,600 as notional interest on interest-free security deposits is justified, given that the rental income was offered to tax and no finding of depressed rent was made (Section 68). 2. Whether the addition of Rs. 2,73,02,823 as unexplained cash credit for capital introduction by partner Virendra Manilal Shah is sustainable, considering the submission of additional evidence before the CIT(A) and the correct figure of capital introduction (Section 68). 3. Whether the addition of Rs. 9,18,500 for cash deposits is justified, especially considering that a portion of it (Rs. 7,58,500) was part of the partner's capital introduction and whether a show-cause notice was issued (Section 68). 4. Whether the ad hoc addition of Rs. 1,46,239 under Section 14A is valid when the assessee had no exempt income (Section 14A). 5. Whether the levy of interest under Sections 234A, 234B, and 234C is consequential. 6. Whether the initiation of penalty proceedings under Sections 270A and 271AAC is valid at this stage. Assessee's arguments: The assessee argued that notional interest on security deposits is not taxable as real income. For capital introduction and cash deposits, it contended that evidence was provided, and there was a potential for double addition. For Section 14A, it argued that the disallowance is invalid without exempt income. Revenue's arguments: The revenue relied on the findings of the lower authorities, arguing that substantial interest-free deposits provided a commercial benefit and that the assessee failed to provide sufficient material to rebut the additions.

Which sections of the Income-tax Act were involved?

Section 68,Section 14A,Section 234A,Section 234B,Section 234C,Section 270A,Section 271AAC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SMT. BEENA PILLAI & SHRI VIKRAM SINGH YADAV

Pronounced: 08/10/2026

PER SMT. BEENA PILLAI, JUDICIAL MEMBER:

Present appeal filed by the assessee arises out of the order passed by the Ld.CIT(A) for A.Y. 2017-18, vide order dated 26/11/2025 on following grounds of appeal:

“1. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in making addition of Rs.4,50,600/

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 68

All 29,634 judgments and leading authorities on Section 68 →

Recent GST High Court judgments

Search GST case law →