ACIT(CC)-7(3), MUMBAI vs. LOTUS LOGISTICS AND DEVELOPERS PRIVATE LIMITED, MUMBAI

CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 2.1. Grounds taken by the assessee in its cross objection are reproduced as under:

1.

1. The Learned CIT(A) erred in law and on facts in confirming the addition of Rs. 2,08,631/- collected from M/s Indian Film and TV Producer Council as maintenance charges, without considering that the amount represents a current liability. As per provision of the RERA Act, 2016, the assessee company is responsible for maintaining essential services until the association of allottees takes over. The said amount is to be transferred to the Resident Welfare Association (RWA) upon its formation and does not constitute the income of the assessee.

2. The respondent craves leave to add, alter or modify any ground of cross objection.”

3.2. In the course of assessment proceedings, assessee furnished all the relevant documentary evidences to establish identity and creditworthiness of the lenders and the genuineness of transactions. Assessee submitted their financials, confirmation letters, bank statements and income tax return acknowledgements to discharge its onus. However, ld. AO, ignoring these evidences, alleged that lender Santosh Gems Pvt. Ltd. is a shell company controlled by Shri Praveen Kumar Jain against whom search and seizure action had taken place in the past. ld. AO placed reliance on the statements of Shri Praveen Kumar Jain, Shri Dinesh Choudhary, purportedly a former director of the lender who is alleged to be engaged in providing accommodation entries. Assessee submitted that turnover of Santosh Gems Pvt. Ltd. was Rs. 48,83,20,693/- and it reported profit of Rs.14,84,784/- in its return filed for the year. Further, loan of Rs.25 lakhs taken by the assessee was repaid on 13.12.2017 i.e. in the same year under consideration. Also, assessee established from the bank statement of the lender company that it had sufficient bank balance out of which the loan was advanced to the assessee. Assessee, thus adequately discharged its onus in establishing the identity and creditworthiness of the lender and genuineness of the transaction.

3.3. According to the assessee, ld. AO had relied solely on the statement of Shri Praveen Kumar Jain without disclosing relevant extracts or sharing the statement with the assessee, which according to the assessee is gross violation of principles of natural justice. Further, CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 assessee contended that reliance placed on the statement of Shri Dinesh Choudhary is unjustified since he had ceased to be the director of lender company with effect from 14.02.2014 i.e., much before the year under consideration when the transaction of loan took place. Assessee also claims that no opportunity to cross-examine both these persons were afforded and therefore, is in violation of the principles of natural justice. According to the assessee, ld. AO erred relying solely on these statements without any corroborative documentary evidence. Most importantly, assessee also brought to the knowledge of the Bench that assessee had taken loan from Santosh Gems Pvt. Ltd. in the year 2016-17 which was accepted as genuine by the ld. CIT(A) in that year. Revenue had come up in appeal before the Tribunal in wherein the Coordinate Bench had accepted the genuineness of the loan transaction with Santosh Gems Pvt. Ltd. by order pronounced on 04.04.2025. Accordingly, the issue raised by the Revenue is no longer res integra.

3.4. In respect of the other two entities namely, Valaka Engineering Pvt. Ltd. and Antique Exim Pvt. Ltd., interest accrual of Rs. 24 lakhs in each of the cases, on the loan outstanding from both the parties has been added u/s. 69C, alleging unsecured loans from both the parties as bogus by relying on the statement of Shri Praveen Agrawal and certain general statements of alleged operators namely, Girish Kadel and Shri Atul Paldecha along with director of the alleged lender companies namely, Shri Shantilal Paldecha and Shri Pankaj Kumar Babel. Fact of the matter is that no fresh loan was taken in the year under consideration from both these two lenders. Only interest expense is accrued against the outstanding loan from both these parties.

CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 3.5. On similar fact pattern, loan from both the parties had been accepted by the ld. CIT(A) in Assessment Year 2016-17 on merits after taking into consideration comprehensive documentation placed on record which included ledger account confirmation, bank statement, audited financial statements and copies of their bank statement. Assessee submitted that financials of Valaka Engineering Pvt. Ltd. reveals that it had a turnover of Rs.2,65,75,258/- with a profit of Rs.1,62,55,932/- having a net worth of Rs. 53,78,28,420/-. It had reported total income at Rs.2,37,56,330/- and the loan of Rs.2 crores taken by the assessee was repaid on 28.03.2018. Further, assessee established from the bank statement of the lender that it had sufficient bank balance out of which the loan was advanced to the assessee. Similar documents were placed on record in respect of outstanding loan and interest accrual thereon from Antique Exim Pvt. Ltd. Assessee discharged its onus of establishing identity and creditworthiness of the two lender companies and the genuineness of transactions. Assessee also claimed that no opportunity of cross-examination has been granted in respect of the reliance placed by ld. AO on the statements of the aforesaid persons which is in gross violation of the principles of natural justice. It is also pointed out before us that ld. AO has neither made any enquiry u/s. 133(6) or 131 nor doubted any deficiency in the voluminous documentary evidences placed on record. Further, according to the assessee, addition made is purely based on suspicion, without any cogent material except for placing reliance on the statements of certain persons. It is also an important fact which is on record that these transactions have been accepted at the appellate stage in the proceedings for assessment year 2016-17.

CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 From the perusal of the same, we take note that detailed examination of the documents placed on record has been made by ld. CIT(A). Further, ld. CIT(A) has placed reliance on his own order for assessment year 2016-17 wherein transactions with all the three lender companies had been accepted by him and relief was granted in AY 2016-17. Also, transactions with Santosh Gems and Valaka Engineering have been accepted as genuine by the Coordinate Bench in assessee's own case for AY 2016-17 in dated 04.04.2025. Observations and findings arrived at by ld. CIT(A) in the first appellate order are reproduced for ready reference. “5.2.2. The issue arising is on the disallowance of interest paid on the alleged unsecured loans received from M/s Santosh Gems Pvt Ltd, M/s Valaka Engineering Pvt Ltd and M/s Antique Exim Pvt Ltd for sum of Rs. 53,91,452/- under section 69C of the Act and unsecured loan taken during the year from M/s Santosh Gems Pvt Ltd of Rs. 25,00,000/- u/s 68 of the Act. The said lender companies were alleged by the AO to have been engaged in providing accommodation entries. This conclusion was arrived by the AO based on statement of Shri Praveen Jain, Shri Praveen Agarwal and Shri Girish Kadel & Shri Atul Pandecha. The AO added a sum of Rs.25,00,000/- u/s. 68 of the Income Tax Act and Rs.53,91,452/- u/s 69C of the Act in respect of the said unsecured loan received from above-mentioned parties.

5.2.3. I have carefully considered the assessment order, submission and documents filed by the Ld. Counsel regarding the addition of unsecured loan of Rs. 25,00,000/- from M/s. Santosh Gem Pvt. and payment of interest thereon of Rs. 5,91,452/-. It is mentioned that similar additions of unsecured loans from M/s. Santosh Gem Pvt. Ltd. was made in the case of the appellant for A.Y. 2016- 17. The first appeal was decided by me in the favour of the appellant. The extract of the decision is as under “Considering the overall facts and circumstances of the case, I find that the appellant has discharged its onus of discharged its onus u/s. 68 of the Act. I do not agree with the findings of the AO that the said unsecured loan and the interest paid on the same is unexplained. The fact that the entire loan has been repaid back in later years, goes in favour of the appellant. Therefore, the action of the AO to invoke the provisions of section 68 and 57(iii) cannot be upheld. The addition of Rs 50,00,000/- made u/s 68 of the Act an Rs. 1,58,384/- made u/s 57(iii) stands deleted”

In this year too, I find that the appellant company has submitted the all the details with respect to the lender and thereby discharged its onus u/s 68 of the Act. The lender company had sufficient funds in its bank account at various points of time during the year under consideration. Further it is also noted that, the loan of Rs.25,00,000/- was repaid back on 13.12.2017 i.e. in FY 2017-18 itself. The CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 facts for the current year are identical to the facts for AY 2016-17, I follow my own order for the AY 2016-17 and hold that the addition of Rs 25,00,000/- u/s 68 and Rs 5,91,452/- u/s 69C cannot be sustained.

5.2.4. With regards to the interest on unsecured loan paid to M/s Valaka Engineering Pvt Ltd of Rs. 24,00,000/-, I have perused the following documents as submitted by the assessee namely ITR Acknowledgment, Computation of Income, Financial Statements, Bank Statement and Loan confirmation and found that the appellant company has furnished all the relevant documents in support of the transaction entered with M/s. Valaka Engineering Pvt Ltd to establish the identity, genuineness and creditworthiness. It is mentioned that the interest of Rs 24,00,000/- has been paid on the unsecured loan of Rs 2,00,00,000/-, which was received in the earlier years. There is no fresh loan taken in the FY 2017-18. The addition of Rs 200,00,000/- was made to the income of the appellant u/s 68 of the Act for the AY 2016-17. Said addition has been deleted in the first appeal on merits. The extract of the order of CIT(A) for AY 2016-17 is reproduced below-

“Considering the overall facts and circumstances of the case, I find that the appellant has discharged its onus of discharged its onus u/s. 68 of the Act. I do not agree with the findings of the AO that the said unsecured loan and the interest paid on the same is unexplained. Fact that the entire loan has been repaid back in later years, goes in favour of the appellant. Therefore, the action of the AO to invoke the provisions of section 68 and 57(iii) cannot be upheld. The addition of Rs 2,00,00,000/- made u/s 68 of the Act an Rs. 10,52,055/- made u/s 57(iii) stands deleted.

For the FY 2017-18(AY 2018-19), no fresh loan has been taken from M/s Valaka Engineering Pvt ltd. The interest has been paid through banking channel and TDS has been deducted on the same. Entire loan has been repaid on 28/3/2018, i.e. in the FY 2017-18 itself. With these facts, I am of the view that the interest payment of Rs 24 Lacs cannot be termed as unexplained. The addition of Rs 24,00,000/- u/s 69 C cannot be sustained.

5.2.5. With regards to the interest paid to M/s Antique Exim Pvt Ltd the issue arising is on the disallowance of interest paid on unsecured loan of Rs. 24,00,000/- on the unsecured loans received from M/s. Antique Exim Pvt Ltd. In this regard it is observed that the appellant had taken unsecured loan from the lender namely M/s. Antique Exim Pvt Ltd of Rs. 2,00,00,000/- in A.Y. 2017-18 and the said loan is subsequently repaid in the month of January 2020. It is also to be noted that the assessment order u/s 143(3) passed for the AY 2017-18 and no addition with respect to the unsecured loans taken from M/s Antique Exim Pvt ltd has been made in the said order. For the year under consideration, the Ld. A.O. had made addition of Rs. 24,00,000/- based on the information received from DDIT(Inv), Unit-4(4), Mumbai and the statements of Shri Atul Paldecha, Shri Girish Kadel, Shri Shantilal Paldecha & Shri Pankaj Kumar Babel directors of M/s Antique Exim Pvt Ltd and Shri Shubam Jain & Shri Rakesh Kumar Jain directors of M/s Tanman Jewellers Pvt Ltd. In this regards, the assessee has stated that statement referred of aforementioned parties are neither reproduced in the assessment order nor even provided or confronted to the assessee and further it is also noted that in the entire assessment order there is no discussion about the loan taken from M/s Antique Exim Pvt Ltd by the assessee company. Further it is also brought to the attention that Shri Atul Pandecha, Shri Girish CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 Kadel and Shri Praveen Kumar Jain is neither a director nor a shareholder in these alleged companies and hence, he had no role to play in the affairs of the business of the said companies which is supported by the details of director extracted from MCA website. 5.2.6. I find that the principal amount of Rs 200,00,000/- was taken in the AY 2017-18 and no addition u/s 68 has been made in the assessment order for that year. The interest amount of Rs 24,00,000/- has been claimed in the present year. Since the genuineness of the loan has been accepted in the AY 2017-18, the interest payment of Rs 24,00,000/-, cannot be termed as unexplained. More importantly, the entire outstanding amount has been repaid by the appellant in January 2020. Therefore, the addition of Rs 24,00,000/- made u/s 69C of the Act cannot be upheld. 5.2.7. Ground no 3 is therefore allowed.”

4.1. Considering the facts on record, plethora of documentary evidences and the fact-based detailed finding arrived at by ld. CIT(A) backed by decision of Coordinate Bench in assessee's own case for AY 2016-17, we do not find any reason to interfere with the findings so arrived at by ld. CIT(A) in deleting the additions made by ld. AO in respect of loan taken from Santosh Gems and the interest expense on the outstanding loans from the three parties u/s. 69C. Accordingly, Ground nos. 1 and 2 raised by the revenue are dismissed.

5.1. According to the ld. AO, these expenses are not in relation with business expenditure as they are on account of default in respect of statutory dues and therefore, not allowable u/s. 37(1). Assessee made its submission to state that these expenses are compensatory only in nature and not to penalize the assessee for any violation of law. Interest on MVAT, CGST, SGST and service tax is on account of late deposit of the statutory dues and are not penal in nature and therefore, allowable as business expenditure u/s. 37(1). In respect of MVAT assessment tax, assessee submitted that it is allowable u/s.43B, since the section provides that any tax, duty, cess or fee paid under any law in force is allowed as a deduction when it is paid. Such a payment also includes interest on these taxes which are eligible for deduction. Ld. CIT(A) accepted the contentions of the assessee that interest on delayed payment of statutory dues is an allowable expenditure. According to him, penalties for offenses committed under various statutes are prescribed separately in respective statutes and hence, only such penalties are not allowable as expenditure u/s.37 of the Act. Assessee has placed reliance on several judicial precedents including the three listed below:

CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 i. Neelkamal Realtors Suburban Pvt Ltd v. ACIT, Mumbai ITAT: Pertains to interest on delayed payment of service tax and VAT ii. Emdee Digitronicsn Pvt Ltd v. PCIT-4, Kolkata ITAT: Pertains to interest on delayed payment of service tax and VAT iii. Vyoma Technologies Private Limited vs. DCIT, Bangalore ITAT: Pertains to interest on delayed fling of GST Return

7.1. On the above stated difference, ld. AO proposed to compute the profits and gains and invoked the provisions of section 43CA to make the addition. He contended that amendment made by Finance Act, 2018 which allows a tolerance band of 5% i.e., if stamp duty value does not exceed 105% of the actual consideration, the actual consideration will be deemed as full value, is applicable only from assessment year 2019- 20 and onwards. The said tolerance band is not available for the year under consideration i.e. AY 2018-19 and thus, made the addition.

7.2. Assessee contends that the amendment brought in by Finance Act, 2018 by way of a proviso to section 43CA with effect from 01.04.2019 provides for a tolerance band of accepting the difference if it is within 5%. Subsequently, by Finance Act, 2020, the tolerance band was increased from 5% to 10% which is effective from 01.04.2021 i.e. AY 2021-22. Claim of the assessee is that these amendments brought in by the respective Finance Act, 2018 and 2020 are curative and remedial in nature and hence, had to be applied retrospectively.

7.3. Assessee placed reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) which held that curative amendments should be applied retrospectively. Assessee also referred to the decision of Hon’ble Supreme Court in case of CIT vs. Vatika Township Pvt. Ltd. [2014] 367 ITR 466 (SC) which held that amendments which are beneficial in nature and remove unintended hardships must be interpreted as retrospective. Reference was made to the decision of Coordinate Bench in the case of Dharanshi Bhai Sonani vs. ACIT [2016] 75 taxmann.com 141 (Ahd), whereby the Coordinate Bench upheld the retrospective application of proviso introduced in Section 50C, holding that 5% CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 tolerance band is used for bona fide transactions. Similar view was taken by the Coordinate Bench of ITAT, Mumbai in the case of Stalwart Impex Pvt. Ltd. Vs. ITO in in the context of applying tolerance band upto 10% to hold that proviso to section 43CA(1) being similar to that of section 50C(1) is remedial in nature and hence, retrospectively applicable from the date of original insertion of the section.

7.4. For one unit No.1806 where the variation is exceeding the 5%, i.e., 5.4%, assessee contended that it is less than 10% tolerance band as per proviso to section 43CA(1) and hence to be allowed in the case of the assessee. Ld. CIT(A) considered the submissions made by the assessee as stated above and held that assessee is eligible for the benefit of tolerance band stipulated in section 43CA and gave relief to the assessee.

10.1. According to the assessee, collection of maintenance by the developer in the interim period is a legal obligation and not a revenue generating activity within the meaning of section 11(4)(d) of the RERA Act, 2016, whereby the promoter is obligated to provide and maintain essential services on reasonable charges until the RWA takes over such responsibility. Liability to maintain the project until the handover justifies the collection towards maintenance. It is a liability rather than an income. Assessee is merely a custodian of the amount until RWA is formed. Thus, the said amount does not partake the character of CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 taxable income in the hands of the assessee. To buttress its contention, assessee placed reliance on the decision of Coordinate Bench of ITAT, Mumbai in the case of Neel Yog Builders Pvt. Ltd. vs. ACIT in wherein it held that common maintenance charges cannot be charged as income of the assessee.

10.2. Ld. CIT(A) has held otherwise by stating that assessee is responsible for the maintenance of the project for which it is charging its members and therefore, the amount received represents income of the assessee on which TDS has been done by the payee. Further, ld. CIT(A) observed that assessee has claimed credit of the TDS amount and therefore, claim of the assessee that receipt of maintenance is a liability and not income is not acceptable.