ACIT-2(3)(1), MUMBAI vs. SCAL SERVICES LTD, MUMBAI

The present appeal preferred by the Revenue is directed against the order, dated 28/05/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had partly allowed the appeal preferred by the Assessee against the Assessment Order, dated 22/04/2021, passed under Section 143(3) read with Section 144B of the Act for the Assessment Year 2018-2019. 2. The Revenue has raised following grounds of appeal :

Whether on the facts and. circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance of Rs.19.01 crores without appreciating the fact that the assessee could not prove the genuineness of the losses claimed. The assessee did not furnish the payment details through banking transactions made.

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made u/s.68 by the AO in respect of unsecured loan amounting to Rs.534,80,09,689/- without appreciating the fact that confirmation of loan in the bank account of the assessee is remained unverified?

Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance u/s.68 without appreciating the fact that the assessee did not furnish corroborating evidences to substantiate his claim during the Remand proceedings. As such the additional evidences filed by the assessee were liable to be rejected.”

The relevant facts in brief are that the Assessee filed its revised Return of Income for Assessment Year 2018-2019 on 19/02/2019 declaring loss of INR.81,75,59,093/-. The case of the Assessee was selected for complete scrutiny and the Assessing Officer completed the assessment vide Assessment Order, dated 22/04/2021, passed under Section 143(3) read with Section 144B of the Act assessing total income of the Assessee at INR.553.91 Crores under normal provisions of the Act and allowing carry forward of current year loss of INR.81.75 Crores. The income of INR.553.91 Crores assessed by the Assessing Officer consisted of (a) addition of INR.534 crores made under Section 68 of the Act in respect of unsecured loans reflected in the Balance and Sheet of the Assessee-Company for the relevant previous year and (b) addition of INR.19.10 Crores made by the Assessing Officer under Section 69C of the Act by disallowing Assessment Year 2018-2019

The Ground No.1 & 2 raised by the Revenue pertains to disallowance of INR.19.10 Crores made by the Assessing Officer.

1. The fats relevant to the adjudication of the grounds under consideration are that during the relevant previous year the Assessee had debited to the Profit & Loss Account INR.19.10 Crores under the head ‘Downside on Sale of Flats’. The Assessee had entered into different Memorandum of Understanding (For short ‘MoUs’) for purchased of residential flats with Bombay Dyeing & Mfg. Co. Ltd. (for short ‘BDMC’) and had paid the booking advance. As per the said MoUs, the risk and reward related to increase or decrease of selling price of the residential flats vested with the Assessee. The amount paid towards booking of flats under MOUs as standing in the books of accounts as on 31/03/2018 was INR.186.12 Crores disclosed under the heading 'Amount paid towards Flats Booked' in Note No. 14 of the Financial Statements for the relevant previous year. As and when the aforesaid residential flats were sold to the final customer by BDMC with the consent of the Assessee in terms of the aforesaid MoUs, the increase in the selling price of the residential flats was offered to tax as income credited to Profit & Loss Account under the head ‘Upside on Sale of Flats’ while the decrease in the selling price of the residential flats was claimed as expenses debited to the Profit & Loss Account under the head Assessment Year 2018-2019

2. We have heard both the sides on this issue and have given thoughtful consideration to the rival submissions and material on record.

3. During the course of hearing the Learned Departmental Representative had referred to the submissions filled by the Assessee before the Assessing Officer wherein it was stated that the Assessee had purchased flats and has suffered loss on sale of such flats. It was pointed out by the Learned Departmental Representative that the MoUs furnished by the Assessee were neither registered nor stamped. There was no purchased or sale of immovable property by the Assessee, therefore, the transactions between the Assessee and the BDMC could not be recognized as valid legal transactions. In this regard reliance was also placed by the learned Departmental Representative on the judgment of the Assessment Year 2018-2019

4. Per contra, the Learned Authorized Representative for the Assessee vehemently submitted that the reliance placed by the Learned Departmental Representative on the judgment of the Hon’ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. (supra) was misplaced since in the present case Assessee had never claim that the immovable property was transferred to the Assessee. Placing reliance on the MoUs, it was submitted that the Assessee had entered into understanding to purchase flats from BDMC. As per the agreement the consideration payable by the Assessee to BDMC was filed and any increase/decreased in the market/selling price was to be borne by the Assessee. BDMC was required to provide assistance to the Assessee for sale of flats to final customer for which BDMC was compensated by way of brokerage charges. It was submitted by the Learned Authorized Representative, the Assessee had secured contractual rights which were transferred and profit/loss arising from such transfer was recorded in books of accounts and offered to tax as business income or claimed as business expense. The Assessee has offered to tax such business income from ‘Upside on Sale of Flats’ in the preceding years and the same was accepted by the Revenue without raising any doubts about the nature or genuineness of the transactions. By following the same methodology Assessee had suffered losses during the relevant previous year and had, therefore, claimed deduction was claimed for the same. Assessment Year 2018-2019

5. We have perused the MoUs placed on record by the Assessee. As per the ‘Risk and Rewards’ clause [Clause No. 4 reproduced hereinafter], all risk and reward attached to the flats were transferred to the Assessee from the date of execution of MOU. The same is also reproduced below:

1 It is hereby explicitly agreed and confirmed between the Parties hereto that although the said Apartments are yet to be constructed by the Developers, all risk and rewards attached to the said Apartments shall be that of the Purchaser from the date of execution of this MOU and the obligation of the Purchaser to pay the said Balance Consideration as per Annexure "II" on the due dates to the Developer is final and absolute.

2 It is agreed by and between the parties hereto that this MOU is legally binding on both the parties and enforceable under law on both the parties.” (Emphasis Supplied)

6. Further, as per Clause 9.1(c)(ii) of the MoUs, if the flats were subsequently sold to the end customers, then the profit or loss arising on sale of such flats was to the borne by the Assessee. The said clause reads as under:

7. Under clause 9.2(j) of the MoUs, it was agreed that whenever the flats were sold, the related selling and any other expenditure with respect to the sale of flats incurred by BDMC will be reimbursed to BDMC by way of adjustment of Sale Consideration payable to Assessee. The aforesaid clause of MoUs reads as under: s “j. It is agreed between the parties that selling expenses Assessment Year 2018-2019

8. In terms of the above arrangement, the Assessee (being the ‘purchaser’) had allowed BDMC (being the ‘Developer’) to make ‘further sale’ of the 23 flats to the ‘new purchaser’. As per the modalities agreed upon by the Assessee and BDMC, the consideration at which these flats were sold to end customers/new purchasers by BDMC was approved by the Assessee. In case of 20 flats the consideration paid/payable by the end customer/new purchaser was less than what the Assessee had to pay to BDMC and as a result there was a loss of INR.17.60 Crores. In case of 2 flats the consideration paid/payable by the end customer/new purchaser was more than less than what the Assessee had to pay to BDMC, therefore, there was an aggregate gain of INR.0.59 Crores. As a result, there was a Net loss of INR.17.01 Crores on account of the aforesaid transaction. Further, the Assessee had also reimbursed brokerage expenses of INR.2.09 Crores to BDMC. Accordingly, an amount of INR.19.10 Crores was debited to the Profit & Loss Account under the head 'Downside on Sale of Flats’ and claimed as business expenditure in the return of income.

9. We note that the stand taken by the Revenue stems from the fact that the Assessee during the assessment proceedings stated that the Assessee had purchase the flats and had suffered loss on sale of such flats. However, during the appellate proceedings before the Tribunal the Learned Authorized Representative for the Assessee clarified that there was no purchase/sale of flats the Assessee. We find that the arrangement between the Assessee and BDMC was in the nature of an underwriting agreement whereby the Assessee had Assessment Year 2018-2019

10. It was contended on behalf of the Revenue that the Assessee had failed to furnished relevant documents and details during the original assessment and the remand proceedings. In this regard, we note that during the assessment proceedings the Assessee had also placed before the Assessing Officer following documents as Assessment Year 2018-2019

11. On perusal of application filed by the Assessee for admission of additional evidence, we find that the Assessee filed following additional evidences: (i) MOUs between SCAL and BDMC for sale of flats to SCAL (which were not submitted during assessment proceedings)

12. Perusal of the record further shows that the Assessing Officer had made following observation in the Remand Report in relation to additional evidence filed by the Assessee in relation to disallowance of INR.19.10 Crores made under Section 69C of the Act. “1. In view of the above, the Assessee states that all the necessary explanations regarding the claim of loss on downside of flats were provided during the assessment proceedings and therefore, the said loss of Rs. 19.11 crs cannot be treated as unexplained expenditure and hence same should be allowed as revenue expenditure.

13. We note that the CIT(A) had, after taking into consideration the additional evidence, the remand report as well as the reply/submission of the Assessee deleted the addition of INR.19.10 Crores holding as under: “7.2.1 I have gone through the assessment order, remand report, submission of the appellant and facts of the case. The appellant has claimed loss and expenses of INR.19,10,62,946/- on account of downside on sale of flats. The appellant has pleaded that the brokerage expenses of INR.2.09 Crores incurred on sale of flats has been accepted by the Assessing Officer in the remand report but the loss incurred on account of sale of flats (which is in accordance with the MOUs entered with BDMC) has been rejected by the Assessing Officer in the remand report. The Assessee has during the course of remand proceedings submitted before the Assessing Officer the details of 23 purchasers alongwith copy of agreement and statement showing working of flat-wise upside earned/downside loss incurred w.r.t. the flats sold during the year under consideration. Reply filed by BDMC in response to the notice under Section 133(6) issued by the Assessing Officer is also placed on record alongwith sample bank statement reflecting the payment involved in the transactions.

2.2 On perusal of submission of the Assessee it is seen that the Assessee has entered into agreement(s) with BDMC wherein it is mentioned in para „Risks & Rewards‟ that although the said apartments are yet to be constructed by BDMC, all risk and rewards attached to the said Apartments shall be that of the Assessee. It is further noted that the profit arising on sale of flats of similar nature in earlier years has been offered for taxation by the appellant and has been accepted by the Department.

2.3 In view of the above, the addition made by the Assessing Officer of INR.19,10,62,946/- is deleted. The ground of appeal raised is allowed.” (Emphasis Supplied) Assessment Year 2018-2019

14. On perusal of above, we find that the CIT(A) had accepted the transactions undertaking by the Assessee with BDMC as genuine transactions. Taking note of the terms of the MOU between the Assessee and BDMC, the CIT(A) had noted that the Assessee was the owner of risks/rewards attached to the flats. In the preceding assessment years, the same arrangement had resulted in income which was offered to tax by the Assessee and the same was accepted by the Assessing Officer. Therefore, the CIT(A) was of the view that the loss arising from the same arrangement should also be allowed as deduction to the Assessee. We find that the findings returned by the CIT(A) are based upon material on record.

15. While concluding as above, the Learned CIT(A) had taken into consideration the reply filed by BDMC in response to notice issued under Section 133(6) of the Act. A copy of the said reply filed by BDMC has been placed before us as part of the Paper Book at Page No.510 to 803. On perusal of the same we find that the reply letter dated 21/02/2024, filed by the BDMC was accompanied by following Annexures:

16. We also note that during the remand proceedings, the Assessee filed reply dated, 08/02/2024 linking the documents filed in support of loss incurred on downside of each flat with the evidence filed during the assessment proceedings and during the proceedings before the CIT(A) as additional evidence and the same reads as under:

ONE ICC 4903 MOU One ICC dated 29.03.2013 & Addendum dated 20.01.2017 to MOU Annexure 4 & 11 Annexure 4 submitted during Assessment

TWO ICC 203 Addendum MOU dated 20.01.2017 to MOU Annexure 6 Additional Evidence 16. TWO ICC 306 MOU TWO ICC dated 27.03.2014 & Addendum dated 20.01.2017 to MOU Annexure 8 & 11 Additional Evidence 17. TWO ICC 601 Addendum MOU dated 10.01.2016 & Addendum dated 20.01.2017 to MOU Annexure 9 & 11 Additional Evidence 18. TWO ICC 606 Addendum MOU dated 20.01.2017 Annexure 6 Additional Evidence 19. TWO ICC 903 Addendum MOU dated 20.01.2017 Annexure 6 Additional Evidence 20. TWO ICC 1201 MOU TWO ICC dated 30.03.202 & Addendum dated 20.01.2017 to MOU Annexure 7 & 11 Annexure 7 submitted during Assessment 21. TWO ICC 1703 Addendum MOU dated 10.01.2016 Annexure 10 & 11 Additional Evidence 22. TWO ICC 1801 MOU TWO ICC dated 27.03.2014 & Addendum dated 20.01.2017 to MOU Annexure 8 & 11 Additional Evidence

17. A perusal of record shows that the Assessee had filed all the MoUs referred to in the table reproduced in Table in paragraph 4.16 above before the Assessing Officer either in original assessment proceedings or in the remand proceedings. Further, the Assessee as well as BDMC had filed bank statements to show that the payments were made through banking channel and to establish the genuineness of the transaction. The entries in the bank statement were corroborated by the ledger accounts and the financial statements.

18. In view of the above, we reject the contention of the Revenue that the Assessee had failed to support the claim for deduction in respect Assessment Year 2018-2019

19. Thus, we are on the considered view that the order passed by the CIT(A) deleting the addition of INR.19.10 Crores made by the Assessing Officer under Section 69C of the Act does not suffer from any infirmity. Accordingly, Ground No.1 & 2 raised by the Revenue are dismissed.

Ground No.3 and 4 raised by the Revenue are directed against the order of the CIT(A) deleting the disallowance of INR.534 Crores made by the Assessing Officer under Section 68 of the Act in respect of unsecured loan reflected in the Balance Sheet of the Assessee-Company as on 31/03/2018. 5.1. During the assessment proceedings the Assessee was required to furnish complete details of loans availed, interest, purpose of loans and business expediency on account of which loan were taken along with supporting documentary evidence. According to the Assessing Officer the Assessee submitted a reply but failed to submit any clarification or documentary evidences to establish identity and creditworthiness of the lender and the genuineness of the transaction. Therefore, addition of INR.534.80 Crores were made by the Assessing Officer under Section 68 of the Act.

2. Being aggrieved, the Assessee carried the issue in appeal before the CIT(A) and filed additional evidence to support the contention that the Assessee had secured ICDs/loan from DHFL a well known housing finance company. After calling for a remand report from the Assessing Officer, the CIT(A) admitted the additional evidence and deleted the addition on INR.534.80 Crores made by the Assessing Officer under Section 68 of the Act. Assessment Year 2018-2019

3. Now the Revenue is in appeal before the Tribunal challenging the above relief granted by the CIT(A).

4. During the course of hearing learned Departmental Representative had supported the additions made by the Assessing Officer contending that the Assessee had failed to furnished relevant documents/details during the assessment proceedings. Per contra, it was contended on behalf of the Learned Authorized Representative that failure to furnish relevant documents/details before the Assessing Officer was on account of short period of time granted by the Assessing Officer to furnished response/details and the technical problems faced by the Assessee while downloading the documents from the Income Tax Portal. It was further submitted that the Assessee had furnished additional evidence before the CIT(A), which was admitted and that the Revenue has not challenged the admission of additional evidence in appeal before the Tribunal. In rejoinder, the Learned Departmental Representative submitted that even during the remand proceedings the Assessee had failed to furnish collaborative evidence in support of its claim. It was further submitted that the Assessing Officer had clearly stated in the remand report that the bank statements furnished by the Assessee could not be verified. In this regard, we note that the Revenue has not challenged the exercise of discretion by the CIT(A) to admit the additional evidence. By way of Ground No.4 it has been contended by the Revenue that the CIT(A) had deleted the disallowance even though the Assessee had failed to furnish corroborative evidences during the remand proceedings. Similarly, in Ground No.3 it has been contended that the bank account statements furnished by Assessee have remained unverified and therefore, the same could not have been accepted by the CIT(A).

5. We find that the Assessee had filed written submission dated, 18/08/2023, before the CIT(A) made following submission in relation Assessment Year 2018-2019

The ICD which was converted into loan of Rs..457.40 crores was forming part of the loan sanctioned by DHFL vide letter dated 04/10/2017. Copy of the minutes of Board Meeting approving the same is placed at FPB page no. 65-68. 4. DHFL had disbursed Rs..534.80 crores out of the Rs.650 crores sanctioned till end of AY 2018-19 tabulated below:

30/11/2017 4.20 Loan Disbursement Refer IDBI bank statement at FPB page no.22 3. 29/12/2017 4.10 Loan Disbursement Refer IDBI bank statement at FPB page no.24 4. 05/01/2018 18.60 Loan Disbursement Refer IDBI bank statement at FPB page no.25 5. 30/01/2018 4.00 Loan Disbursement Refer IDBI bank statement at FPB page no.25 6. 28/02/2018 12.00 Loan Disbursement Refer IDBI bank statement at FPB page no.27 7. 07/03/2018 28.50 Loan Disbursement Refer IDBI bank statement at FPB page no.28 8. 27/03/2018 6.00 Loan Disbursement Refer IDBI bank statement at FPB page no.28 Grand Total 534.80

The same was reflecting in note 4 of the notes to financial statements under the heading 'Long Term Borrowings'. The loan Assessment Year 2018-2019

The Assessing Officer in the impugned order has made an addition amounting to INR.534.80 crores under Section 68 of the Act as unexplained credits citing that no documentary evidence was provided during the assessment proceedings.

The Assessing Officer has failed to take note of the Assessee‟s submission dated 09/01/2021 wherein the Audited financial statements including Balance Sheet for the year under consideration was submitted. It was evident from 'note 4' of the notes to financial statements that the loan was taken from DHFL along with nature of security and repayment terms of the loan outstanding. The same is also reproduced below for ready reference:

Further, the Assessee had also submitted Form 3CD for the year under consideration vide submission dated 09.01.2021 (Refer FPB page no. 162-174) wherein Loan from DHFL is reflected under clause 31a of Form 3CD with amount, PAN and Mode of transaction (Refer FPB page no. 169). The same is also reproduced below for ready reference: Assessment Year 2018-2019

Further the receipt of the proceeds of said loan has been disclosed in the Cash Flow Statement under „Cash Flow from Financing Activities' as Proceeds from borrowing /ICDs INR.561.12 crores. Also, the loan was utilized for repayment of past borrowings/ICDs INR.497.53 crores, payment of interest and other finance charges – INR.60.32 crores which can be traced from the Cash Flow Statement. The same is also reproduced below for ready reference:

Hence, the Assessing Officers contention that no documentary evidence was provided during assessment is factually incorrect.

Further, DHFL is a well-known housing finance company and the Assessee having reproduced their PAN expects the department to extract the ITR from their Assessing Officer and satisfy with regards to the creditworthiness of the loan transaction.

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Without prejudice, the Assessee would like to bring Your Honour's kind attention that during the assessment proceedings, the initial notice dated 16/12/2020 (Refer FPB page no. 6-9) received from the Assessing Officer asked for the information about Loan and advances which were relating to Assessment Year 2017-2018 and not to Assessment Year 2018-2019. The Assessee had informed about the same to the Assessing Officer vide submissions dated Assessment Year 2018-2019

6. The documents on record clearly show that the factual averments made by the Assessee in the above submission are correct. The Assessee had availed Inter Corporate Deposit (ICD) of INR.450 Crores which was subsequently converted into loan along with accrued interest of INR.7.40 Crores. Thereafter, aggregate loan amount of INR.77.40 Crores was disbursed to the Assessee by DHFL between 30/11/2017 to 27/03/2018 and as a result the Assessee had aggregate outstanding loan of INR.534.80 Crores [INR.457.40 Cores plus INR.77.40 Crores] as on 31/03/2018. 5.7. On perusal of application for admission of additional evidence, dated, 12/09/2023, filed by the Assessee, we find that Assessee has submitted that the following documents filed along with Submission, dated 18/08/2023, be admitted as additional evidence: (i) Loan Agreement with DHFL dated, 26/09/2017 (ii) Loan Sanction Letter dated, 04/10/2017 (iii) Bank Statements showing disbursement of loan (iv) Loan confirmation statement as on 31/03/2019

8. We find that the Assessing Officer has made following observations in the Remand Report, dated 06/03/2024, in relation to additional evidence furnished by the Assessee to support the genuineness of the unsecured loans of INR.534.80 Crores outstanding as on 31/03/2018: