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

On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Unsecured Loan of Rs. 25,00,000/- u/s 68 of the Act received from M/s Santosh Gem Pvt.Ltd and disallowance of interest payments of Rs.53,91,452/- u/s 69Cof the Act paid on unsecured loans to M/s Valaka Engineering Pvt Ltd, M/s Antique Exim Pvt Ltd and M/s Santosh Gem Pvt. Ltd without considering the facts that the funds flowing into these entities were sourced from a complex network of other entities through share premiums or unsecured loans, which were subsequently transferred to other parties, including the assessee, in similar forms and merely submitting documents such as confirmation letter, income tax returns, bank statements, or financial statements did not prove the creditworthiness or authenticity of the transactions."

"On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition of Rs.1,89,634/-made on interest on delayed payments without considering the fact that interest arised due to default in meeting statutory liabilities and is not considered a business expense under Section 37(1) of the Income Tax Act, 1961."

"On facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting addition of Rs 37,96,105/- made u/s 43CA of the Act without considering the fact that the there is nowhere clearly mentioned in the Income-tax Act that the first proviso to the section 43CA of the Act is retrospective and unless explicitly stated, a piece of legislation is presumed not to be intended to have a retrospective operation."

1. Grounds taken by the assessee in its cross objection are reproduced as under: 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.

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

Brief facts of the case are that assessee filed its return of income on 31.10.2018 reporting total loss at Rs 1,84,46,469/-. Certain disallowances/additions were made in the assessment completed u/s. 143(3) and the total income was assessed at Rs.78,91,452/-. In ground No, 1 and 2 raised by the revenue, it is contested that ld. CIT(A) erred in giving relief on the addition of Rs 25 lakhs made u/s. 68 in respect of unsecured loan obtained by the assessee from Santosh Gems Pvt. Ltd. Revenue is also contesting on the interest charged on the unsecured loans claimed as expenditure by the assessee amounting to Rs. 53,91,452/- which was added u/s. 69C and relief was granted by ld. CIT(A). Details of addition made with respect to unsecured loan u/s. 68 and interest thereon u/s. 69C is tabulated below. Sr. No. Name of the party Amount (Rs.)

1. Assessee claims that it had taken unsecured loan from Santosh Gems Pvt. Ltd. of Rs 25 lakhs and paid an interest of Rs. 5,91,452/- on 4 ITA No. 137/Mum/2025 and CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19

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. 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,

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.

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. 4. We have perused the observations and findings given by ld. CIT(A) for each of the three lender companies while giving relief to the assessee.

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”

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-

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

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.

2.7. Ground no 3 is therefore allowed.”

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.

Ground 3 raised by the revenue is in respect of addition of Rs.1,89,634/- made in respect of interest on delayed payments of statutory dues of MVAT, CGST, SGST and service tax. Details of the said expenditure is tabulated as under along with explanation given by the assessee: Sr. No. Particulars Amount (Rs.) Explanation 1 Interest on MVAT

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:

We have considered the factual matrix and details furnished by the assessee as well as the observations and findings arrived at by ld. CIT(A). We take note that the expenditure claimed by the assessee is on account of interest charged owing to late deposit of various indirect taxes which includes MVAT, GST and service tax. These interest payments on account of delayed deposit are compensatory in nature and not penal and hence allowable u/s. 37(1) as well as u/s. 43B, details of which is tabulated above. We do not find any reason to interfere with the observations and findings arrived at by ld. CIT(A) on the above stated relief granted. Accordingly, ground No.3 raised by the revenue is dismissed.

Ground No. 4 raised by the revenue is in respect of addition of Rs.37,96,105/- made u/s. 43CA for which relief was granted by ld. CIT(A). In the course of assessment proceedings, ld. AO noted that assessee had sold certain flats at consideration lower than the value adopted by the Stamp Duty Valuation Authority. Details were called for to reconcile the factual position and assessee submitted that there is a 12 ITA No. 137/Mum/2025 and CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19

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.

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.

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%

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.

We have perused the material on record and given our thoughtful consideration to the submissions made. Admittedly, in all the 17 units, except for one, the variation is less than 5%. Further, we note that the issue under consideration is no longer res integra as held in long line of decisions already discussed above, whereby amendment brought in for the benefit of the assessee has been held to be curative in nature and has therefore, been applied retrospectively from the date of insertion of the relevant provisions in the statute book. Accordingly, the differences in the value are covered by the tolerance band of 5% brought in by Finance Act, 2018 and increased to 10% by the Finance Act, 2020. Considering the above submissions and facts on record as well as the provisions of law, we do not find any reason to interfere with the findings arrived at by ld. CIT(A) on this issue. Accordingly, ground no.4 raised by the Revenue is dismissed.

In the result, appeal of the Revenue is dismissed.

We now take up the cross objection filed by the assessee which relates to the issue of addition of Rs.2,08,631/- representing amount collected by the assessee from Indian Film and TV Producer Council towards maintenance charges. Claim of the assessee is that it is a current liability in the hands of the assessee since it received the said amount under the provisions of RERA Act, 2016 as assessee is responsible for maintaining essential services until the association of allottees takes over. According to the assessee, the said amount is to be transferred by it to the Residential Welfare Association (RWA) upon its formation and therefore, does not constitute income in the hands of the assessee. Assessee had collected this amount during the interim period, i.e., before the formation of the society. It accounted this under the head ‘other liability’ within the group ‘other current liabilities’ in its books of accounts, since assessee is under an obligation to transfer this amount to the society upon its formation. Assessee brought to the knowledge of the authorities below that no other unit holder except this one party had deducted tax at source on the maintenance charges so paid.

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 17 ITA No. 137/Mum/2025 and CO No. 28/Mum/2025 Lotus Logistics and Developers Pvt. Ltd. AY 2018-19 No.2196/Mum/2023, wherein it held that common maintenance charges cannot be charged as income of the assessee.

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.

We have considered the submissions made before us and also gone through the observations and findings of the authorities below. Assessee has submitted that the amount has been received in the interim period until the formation of RWA which is in accordance with the RERA Act, 2016 provisions. Assessee is under an obligation to maintain the project under the RERA Act. Further, assessee is liable to transfer the said amount to the resident society as and when it is formed and is merely a custodian for the maintenance amount until such RWA is formed. Accordingly, in the given set of facts, by following the decision of the Coordinate Bench of ITAT, Mumbai in the case of Neel Yog Builders Pvt. Ltd. (supra), we are of the view that maintenance charges received by the assessee are not in the nature of receipt of income in the hands of the assessee. Accordingly, addition made by the ld. AO in this regard is deleted. However, we direct the ld. AO to withdraw the credit given for TDS in respect of this amount claimed by the assessee.

In the result, appeal by the Revenue is dismissed and cross objection of the assessee is partly allowed.