M/S LIGHTHOUSE DEVELOPERS PRIVATE LIMITED ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(2)(1), MUMBAI

The brief facts of the case are that assessee is a private limited company engaged in the business of acquisition and selling of land and development of real estate.Return of income for AY 2015-16 was filed on 30/09/2015, declaring a total loss of Rs. 60,27,701/-. This ROI was picked up for scrutiny and resulted into an assessment vide assessment order u/s. 143(3) dated 29/12/2017, determining a total income of Rs. 18,98,78,394/-. The ld. A O made following additions which are in dispute before usrelated deemed dividend under section 2(22)(e) of the Act amount to Rs. 12,00,53,000/-; unexplained cash credit under section 68 of the Act amount to Rs.6,52,35,600/- for interest free security deposit from M/s Amity Properties Pvt Ltd (in short, ‘APPL’); amount of Rs.1,04,50,000/- received as interest free security deposit from Neelkanth Realty Pvt Ltd (in short, ‘NRPL’) and the disallowance was made under section 37(1) of the Act related to expenses amount to Rs.1,67,495/-.The aggrieved assesse filed an appeal before the Ld. CIT(A). The Ld.CIT(A) dismissed the addition U/s 2(22)(e) of the Act. But related addition U/s 68 of the Act &U/s 37(1) of the Act grounds of the appeal are dismissed. So, the Ld. CIT(A) partly allowed the appeal. Being aggrieved on the appeal order, the assessee filed an appeal before us. 4. During the hearing, the Ld.AR filed a written submission of 147 pages which is kept in the record. The addition was made through two parties related to receiving of interest free security deposit amount to Rs.6,52,35,600/- from APPL. The assessee also received the amount of Rs.8,26,25,000/- from NRPL, but out of that during the alleged year, the assessee repaid the amount of Rs.7,21,75,000/-. So, the balance amount of Rs.1,04,50,000/- was added back with the total income of the assessee in substantive basis. 5. The Ld. ARon addition u/s 68 in respect of fund received from APPLsubmitted that assessee has received Rs.6,52,35,600/- from APPL as security deposit for purchase of properties submittedthat. A) during assessment proceeding assessee has submitted memorandum of understanding “MoU” executed between assessee and APPL, copy of ITR, acknowledgement, computation of income of APPL, balance sheet, bank statement and copy of ledger confirmation. thus, assessee has discharged onus on the part of the assessee proved identity, creditworthiness, and genuineness of the transaction as required u/s 68 of the Act. B) Ld. AR of assessee has submitted that during assessment / appellant proceedings assessee has filled following documents to establish identity, creditworthiness, and genuineness of the transaction: - a. Master data of the company from MCAwebsite b. Confirmation of accounts from APPL c. Annual audited accounts along with notes to accounts of APPL d. Trial balance of APPL e. Computation of income and income tax return f. Memorandum of understanding executed between parties. g. Bank statement of APPLand appellant showing details of transaction h. Replies to summons issued u/s 133(6) of the act along with acknowledgement of post. i. Statement showing details of receipt by appellant from APPL and source of fund of APPL. C) Copy of ledger account of NRPLin the books of APPLshowing source of fund along with copy of bank statements D) Ld.AO has disregarded the MoU with the reason that said MoU is a document only on the plain paper signed by the directors and the proposed transaction as mentioned in the MoU has never happened and no land parcel was identified by it in line with MoU but Ld. AOcould not show any reason that amount ofdeposit received by the assesseeis unexplained income of the assessee u/s 68 of the Act. E) The assessee has shown the annual accounts of the lender and without the sources of funds questioning the Ld. AOhas merely made the addition on conjectures and surmises. F) In respect of observation of Ld. AOthat notice issued u/s 131(1) has remained unanswered, Ld. ARof assessee submitted copy of reply filled by APPL against notice issued by Ld. AO along with proof of speed post. therefore, the finding of the Ld. AOis incorrect. G) The Ld. CIT(A) has confirmed the additions only the accounts of the appellant are not audited, despite the appellant being liable for statutory audit as per provisions of the Income tax Act, 1961 and APPL did not have any revenue from operations or reserves. the only source of funding was long term borrowings, which are not identifiable, as per ITRfiled as there is a loss of Rs.34,038/-. Hence, the creditworthiness of the party seems not to be genuine. in fact, for section 68 of the act, identity, creditworthiness of the borrowers is to be seen, and assessee has proved with overwhelming evidence. H) Ld. ARsubmitted that source of fund for payment of security deposit is long term borrowing obtained by APPL. In written submission filed before us, Ld. AR of assessee has demonstrated source of fund given by APPLin tabular format as below along with ledger of NRPL in the books of APPL wherein details of payment by NRPLto APPL is mentioned, signed and confirmed by both APPLand NRPLand bank statement of APPL wherein transaction as mentioned in the bank book of APPL is reflected. 6. Regarding Addition u/s 68 in respect of closing balance of fund received from Neelkanth Reality Private Limited (“NRPL”), Ld. AR submits that: - A) The assessee has received Rs 8,26,25,000/- from NRPL as security deposit for purchase of properties and repaid Rs.7,21,75,000/- and closing balance at the end of year is Rs.1,04,50,000/-. Ld. AO has noted that the assessee has not entered into any agreement with NRPL for receipt of money. Hence, amount received from NRPL is not business receipt. However, Ld. AR of the assessee demonstrated to us that during assessment proceedings assessee has submitted copy of Memorandum of Understanding (MoU) executed between assessee and NRPL. Further, assessee has also submitted copy of ITR, acknowledgement and computation of Income of NRPL, Balance Sheet of NRPL, Ledger Confirmation of NRPL and Bank Statement of NRPL B) During assessment / appellant proceedings assessee has filled following documents to establish identity, creditworthiness, and genuineness of the transaction: - a. Confirmation of accounts from NRPL b. Computation of Income and Income Tax Return c. Bank Statement from NRPL reflecting payment made to assessee and Bank Statement of assessee showing receipt from amount from NRPL. d. Statement giving details of receipts by the assessee from NRPL with details of cheque no., date, and bank details. e. Statement showing source of receipts by the NRPL with details of cheque no., date, and bank details. f. Annual Audited Accounts along with notes to accounts wherein advance given to assessee is mentioned in notes to accounts. g. MoU as well as termination of the same executed between parties. h. Master data of the company from MCA Website C) In respect of deposit from NRPL, from the submission made by assessee it is quite evident that MoU was submitted during assessment proceedings however the Ld. AO has failed to appreciate the same and concluded assessment and CIT(A) has upheld the same. Ld. AR of assessee has also explained the reason for not getting books of accounts audited. There is no denial of the fact that there is outstanding liability of Rs. 1,04,50,000/- classified under the head liability as security deposit. The same is also cross confirmed from the balance sheet of NRPL submitted in written submission wherein Rs.1,04,50,000/- given to assessee is shown as asset. D) Ld. AR of assessee has demonstrated that assessee has submitted copy of MoU during assessment proceedings vide submission dated 27.12.2017. Further, Ld. AR of assessee has also submitted due to objection raised by one of the shareholders, financial statement was not signed by the statutory auditors and hence accounts of the assessee are not audited. Ld. AR of assessee has also demonstrated source of fund given by NRPL. E) Ld. AR has brought to attention that during the year under consideration appellant has received Rs. 8,26,25,000/- pursuant to MoU executed with NRPL on 09/09/2014 and out of the same Rs. 7,21,75,000/- is repaid during the year only. The balance amount of Rs.1,04,50,000 which AO has assessed as undisclosed cash credit u/s 68 is also repaid back to NRPL in subsequent year by July 2015 by account payee cheque. Copy of Bank Statement of NRPL and appellant showing details of transactions and copy of bank statement of subsequent year for payment of outstanding balance is also submitted in the paper book at page no 111-134. F) Further, it is also brought to our notice that the closing balance of Rs.1,04,50,000/- is repaid by assessee in July 2015. The same is substantiated by Copy of Bank Statement of NRPL and appellant showing details of transactions and copy of bank statement of subsequent year for payment of outstanding balance Ld. AR of assessee has relied upon judgement of hon’ble Bombay High Court in the PCIT v Bairaga Builders (P.) Ltd 164 taxmann.com 162 (Bom), order of the Hon’ble Gujrat High Court inPCIT v Ambe Tradecorp (P.) Ltd 145 taxmann.com 27 (Guj) and CIT v Ayachi Chandrashekhar Narsangji 42 taxmann.com 251 Guj wherein it was held that no addition u/s 68 can be made in case where amount credited is repaid back in subsequent year. 7. Thus, it was submitted that both the additions confirmed by the Ld. CIT (A) u/s 68 of the act are devoid of any merit, unsustainable as assessee has discharged its onus ofproving identity, creditworthiness and genuineness of the credits so received. 8. It was further stated that when the assessee has discharged its initial onus cast u/s 68 of the Act no inquiry is made by the ld. AO, then additions u/s 68 cannot be made. It was submitted that the onus shifts from assessee to the Ld. AO. Here assessee has completely discharged its onus. Further assessee and both thecompanieswhose addition is made are also thegroup companies and so addition confirmed deserves to be deleted. 9. Ld. DR has relied upon order of the Ld. AO and the Ld. CIT(A) and argued that account of APPL and NRPL is used merely as conduit by the assessee for receipt of money. 10. We have carefully considered the rival contentions and perused the orders of revenue, considered paper book filed and written note submitted by the Ld.AR. brief facts shows that the revenue authorities have made the addition u/s 68 of the Act with respect to two sister companies or group concerns. 11. with respect to the addition u/s 68 of the Act of APPL submitted that the assessee has received Rs. 6,52,35,600/- from APPL. The assessee has submitted identity, creditworthiness, and genuineness of the transaction: - a. Master data of the company from MCA Website b. Confirmation of accounts from APPL c. Annual Audited Accounts along with notes to accounts of APPL d. Trial Balance of APPL e. Computation of Income and Income Tax Return f. Memorandum of Understanding executed between parties. g. Bank statement of APPL and appellant showing details of transaction h. Reply to summons issued u/s 133(6) of the act along with acknowledgement of post. i. Statement showing details of receipt by appellant from APPL and source of fund of APPL. j. Copy of ledger account of NRPL in the books of APPL showing source of fund along with copy of Bank Statements 12. In respect of observation of AO that notice issued u/s 131(1) has remained unanswered, Ld. AR of assessee filled copy of reply filled by APPL against notice by the Ld. AO along with proof of speed post. Thus, the reasons of the Ld. AO that there is no response by the assessee is devoid of any merit. In respect of findings by the Ld. CIT(A) that APPL does not have any revenue to make payment of security deposit to assessee. Ld. AR submitted that source of fund for payment of security deposit is long term borrowing obtained by APPL. In written submission filed before us. The Ld. AR of assessee has demonstrated source of fund given by APPL in tabular format as below along with Ledger of NRPL in the books of APPL wherein details of payment by NRPL to APPL is mentioned, signed and confirmed mentioned in the bank book of APPL is reflected. Date Amount Source Source Amount and Date 07/01/2015 1,00,00,000 Repayment of loan from Bhavik Bhimjyani& account balance Account balance Rs.30,00,000. 07/01/2015 Rs.70,00,000 07/01/2015 1,00,00,000 Security Deposit from NRPL 07/01/2015 Rs.1,00,00,000 07/01/2015 1,00,00,000 Security Deposit from NRPL 07/01/2015 Rs.1,00,00,000 07/01/2015 1,00,00,000 Security Deposit from NRPL 07/01/2015 Rs.1,00,00,000 07/01/2015 81,75,000 Security Deposit from NRPL 07/01/2015 Rs.81,75,000 08/01/2015 1,00,00,000 Security Deposit from NRPL 08/01/2015 Rs.1,00,00,000 17/03/2015 70,00,000 Security Deposit from NRPL 17/03/2015– Rs.70,00,000 Total 6,51,75,000

Thus, the assesseehas alsoshown the source of the funds with the depositor. On submission of the above details by assessee, Ld. AO did not make any inquiry to show that assessee has failed to disclose source and nature of the credits. Thus, the assessee has discharged its onusby proving identity,creditworthiness, and genuineness of the transactions. 14. Form the reading of the balance sheet of APPL, it is quite evident that source of deposit is long term borrowing. The same was also noted by Ld. CIT(A) in his order at paragraph two on page no. 50. Ld. AR of assessee has demonstrated and substantiated source of deposit from long-term borrowing by producing ledger confirmation from the books of APPL and bank statement of APPL. 15. The Ld.CIT(A) has confirmed the additionsonly the accounts of the appellant are not audited, despite the appellant being liable for statutory audit as per provisions of the Income Tax Act, 1961 and M/s Amity Properties Pvt Ltd did not have any revenue from operations or reserves. The only source of funding was Long Term Borrowings, which are not identifiable. As per ITR filed there is a loss of Rs.34,038/. The observation of these facts is with respect to assessee whereas the Ld. CIT (A) did not give any comment on the Creditworthiness of the depositor. In fact, for section 68 of the Act, identity creditworthiness of the Borrowers is to be seen and assessee has proved with substantial evidence. 16. In view of the above facts, we do not find any reason to sustain the addition u/s 68 of the act as the assessee has discharged its onus of proving identity, creditworthiness and genuineness of the transaction by producing details of the depositor which are neither controverted by the Ld. AO or Ld. CIT (A) and failed to make any inquiry to throw onus back to the assessee. In fact, assessee has shown source of source of funds available with depositor. Accordingly. The orders of the revenue authorities are reversed, and Ld. AO is directed to delete the addition of Rs. Rs. 6,52,35,600/- from APPL. 17. With respect to addition u/s 68 in respect of closing balance of fund received from NRPL facts shows that the assessee has received Rs.8,26,25,000/- Rs.7,21,75,000/- and closing balance at the end of year is Rs.1,04,50,000/-. The assessee has submitted copy of MoU executed between assessee and NRPL.

The Ld. AR has brought to attention that during the year under consideration appellant has received Rs. 8,26,25,000/- pursuant to MoU executed with NRPL on 09/09/2014 and out of the same Rs. 7,21,75,000/- is repaid during the year only. The balance amount of Rs.1,04,50,000 which AO has assessed as undisclosed cash credit u/s 68 is also repaid back to NRPL in subsequent year by July 2015 by account payee cheque.Copyof Bank Statement of NRPL and appellant showing details of transactions and copy of bank statement of subsequent year for payment of outstanding balance is also submitted in the paper book at page no 111-134. 21. In respect of deposit from NRPL, from the submission made by assessee it is quite evident that MoU was submitted during assessment proceedings however the Ld. AO has failed to appreciate the same and concluded assessment and the Ld. CIT(A) has upheld the same. The Ld. AR has also explained the reason for not getting books of accounts audited. There is no denial of the fact that there is outstanding liability of Rs.1,04,50,000/- classified under the head liability as security deposit. The same is also cross confirmed from the balance sheet of NRPL submitted in written submission wherein Rs.1,04,50,000/- given to assessee is shown as asset. 22. Further, it is also brought to our notice that the closing balance of Rs. 1,04,50,000/- is repaid by assessee in July 15. The same is substantiated by Copy of Bank Statement of NRPL and appellant showing details of transactions and copy of bank statement of subsequent year for payment of outstanding balance.Ld. AR has relied upon judgement of Bairaga Builders (P.) Ltd (supra), Ambe Tradecorp (P.) Ltd.(supra) and Ayachi Chandrashekhar Narsangji (supra) wherein it was held that no addition u/s 68 of the Act can be made in case where amount credited is repaid back in subsequent year. 23. Thus,the assessee has proved identity,creditworthiness, and genuineness of the transaction of the amount received from NRPL and proved the initial onus cast up on the assessee. Ld. AO and Ld. CIT(A) did not make any further investigation to how onus back on the assessee. Substantialevidence produced by the assessee proves the source and nature of receipt by the assessee. Thus, the orders of the revenue authorities with respect to above addition u/s 68 of the act is not correct. Thus, the order of the Ld.CIT(A) is reversed, and ld. AO is directed to delete the addition u/s 68 of the act of Rs 1,04,50,000/-. 24. Based on the above discussion we delete addition u/s 68 in respect of amount received from Amity Properties Private Limited and Neelkanth Reality Private Limited allow Ground no 1 of the appeal of the assessee. 25. Ground no 2 to 5 are supportive innature and does not require separate adjudication and in view of our decision on Ground no 1 areallowed. 26. Ground no 6 and 7 are with respect to disallowance of expenditure u/s 37(1) of the Act. Facts shows that during the year appellant has sold land and accordingly opening stock of work in progress is reduced. This opening stock of work in progress comprises of purchase cost of land, other expenses incurred for acquisition of land and interest expenses capitalized. Ld. AO has considered these expenses as ingenuine and exclusively for the purpose of business in absence of any documentary evidence submitted genuine. Hence, expense is disallowed u/s 37 of the Act. 27. The Ld. CIT(A) has also noted that assessee has failed to provide any documentary evidence during assessment proceedings and appellant proceedings. 28. The Ld. AR of assessee has submitted that during the year under consideration, assessee has sold land amounting to Rs. 5,46,06,502/- out of opening stock of land. In the books of accounts, the assessee has reduced closing stock to the extent to land sold. Thus, cost of goods sold for the year under consideration comprises of difference of closing stock and opening stock. 29. The Ld. DR has relied upon orders of the revenue authorities. 30. We have carefully considered the rival contentions and orders of the revenue authorities. From the above discussion it is quite evident that, expenses which are disallowed were incurred by assessee in previous years and formed part of opening stock of inventory. During the year under consideration what is claimed as deduction is opening stock of inventory which was sold during the year and not the other expenses.Hence, disallowance of other expenses u/s 37 is deleted. Considering above,Ground no. 6 and7 of the assesses’s appeal is allowed. 31. In the result, the appeal of the assessee bearing ITA No. 4759/Mum/2024 is allowed. Order pronounced in the open court on 17th day of January 2025. (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 17/01/2025 Pavanan

अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file.