SURESHA CHIKKAJALA RAMAKRISHNAPPA,BANGALORE vs. DCIT, CENTRAL CIRCLE-2(3), BANGALORE

At the outset, we note that Ground No. 1 is general in nature and does not call for any specific adjudication. Accordingly, the same is dismissed as general. Page 2 of 15

Further, Ground No. 2 raised by the assessee was not pressed during the course of hearing. Hence, the same is treated as dismissed as not pressed.

Ground No. 3 Relates to the addition made on account of loan received under section 68 of the Act.

The relevant facts of the case are that the assessee, an individual, is engaged in the business of real estate development who filed the return of income declaring a total loss of ₹1,55,13,484.00 only.

The relevant facts are that during the assessment proceedings, the AO observed that the assessee had shown advance received for land/sites amounting to ₹6,21,66,000 from M/s Krishna Development Corporation. However, as per the balance confirmation furnished by the said party, the balance was only ₹5,23,00,000. Accordingly, the AO noticed a difference of ₹98,66,000. Since the assessee failed to reconcile the said difference during the course of assessment proceedings, the AO treated the amount of ₹98,66,000 as unexplained cash credit u/s 68 of the Act and added the same to the income of the assessee.

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). During the appellate proceedings, the Ld. CIT(A) called for a remand report from the AO. In the remand proceedings, in respect of M/s Krishna Development Corporation, the AO reported that no reconciliation or confirmation explaining the difference of ₹98,66,000 was furnished. Accordingly, the Ld. CIT(A) sustained the addition of ₹98,66,000 made by the AO. Page 3 of 15

Aggrieved by the confirmation of the addition of ₹98,66,000 by the ld. CIT-A, the assessee is in appeal before us.

The Ld. AR before us has filed a paper book running from pages 1 to 84, containing the written submission, grounds of appeal, orders of lower authorities. The assessee submitted that the Ld. CIT(A) erred in sustaining the addition of ₹98,66,000 u/s 68 of the Act as unexplained cash credits on the ground that the assessee had not furnished reconciliation of the balance with M/s Krishna Development. The assessee further submitted that a duly signed ledger copy of the said party was furnished at page 30 of the paper book, which clearly shows the opening as well as the closing balance of ₹6,21,66,000.00 and therefore no addition is warranted.

Per contra, the Ld. DR supported the orders of the lower authorities and submitted that the assessee failed to furnish proper reconciliation and supporting evidence before the AO as well as the Ld. CIT(A). Therefore, the addition made u/s 68 was rightly sustained.

We have heard the rival submissions of both the parties and perused the materials available on record. The addition sustained by the Ld. CIT(A) to the extent of ₹98,66,000 relates to the balance appearing in the name of M/s Krishna Development. From the ledger placed on record at page 30 of the paper book, it is noticed that the sum of ₹6,21,66,000 represents the opening balance. The Ld. CIT(A) has not made any adverse observation with regard to this opening balance. In the absence of any such finding, it is evident that the opening balance has been accepted. Page 4 of 15

1 Further, the addition was sustained only on the ground that the assessee had not furnished reconciliation of the difference in the outstanding amount with the said party. However, the reconciliation was sought only with respect to the difference in balance and not in respect of the opening balance brought forward from earlier years. It is a settled position that an addition u/s 68 of the Act cannot be made in respect of an opening balance carried forward from the preceding year. In these circumstances, we find no justification in sustaining the addition merely on the grounds that reconciliation was not furnished. Accordingly, the addition sustained by the Ld. CIT(A) u/s 68 on this issue is hereby deleted. Hence, the ground of appeal of the assessee is hereby allowed.

Ground No. 4 relates to the disallowance of ₹1,00,37,112 by treating the expenditure as capital in nature and directing the same to be included as part of closing work-in-progress (WIP).

During the year under consideration, the assessee had debited certain expenses to the Profit and Loss Account as detailed below: Particulars Amount Interest on Unsecured Loan 79,68,803 Commission Expenses 15,68,055 Sub Contract Expenses 5,00,254 Total 1,00,37,112

1 During the course of assessment proceedings, the Assessing Officer observed that the assessee is engaged in real estate development and certain projects undertaken by the assessee were still under completion during the relevant year and no sale had taken place in respect of such projects. According to the Assessing Officer, the Page 5 of 15

2 The Assessing Officer, referring to ICDS-III (Construction Contracts) and ICDS-IX (Borrowing Costs), observed that all costs relating to contract activity which are attributable to construction or development of projects are required to be recognized as part of work- in-progress until the revenue from the project is recognized. Accordingly, the Assessing Officer issued a show cause notice to the assessee calling upon him to explain why the said expenditure should not be treated as part of closing WIP. However, the assessee failed to furnish any explanation during the assessment proceedings. Therefore, the Assessing Officer treated the said expenditure of ₹1,00,37,112 as capital in nature and added the same to the closing WIP of the assessee.

Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before Ld. CIT(A), the assessee submitted that the interest on unsecured loans amounting to ₹79,68,803 was incurred for general business purposes and was not relatable to any specific project. With regard to the commission expenses and sub-contract expenses, the assessee submitted that the said expenditure was incurred during the year in the course of carrying on business and the same could not be directly linked to any specific project. Therefore, it was contended that the said expenditures should be allowed as business expenditure.

1 However, Ld. CIT(A) rejected the contention of the assessee by observing that the assessee had merely stated that the expenses were incurred for business purposes but had not furnished any documentary Page 6 of 15

Aggrieved by the said finding of the ld. CIT-A, the assessee is in appeal before us.

The Ld. AR submitted that the Ld. CIT(A) erred in sustaining the disallowance of ₹1,00,37,112. It was contended that the interest on unsecured loans was incurred for general business purposes and was not relatable to any specific project, hence the same cannot be capitalized to work-in-progress. With regard to commission and sub-contract expenses, the Ld. AR submitted that these were normal business expenses incurred during the year and were not directly attributable to any particular project. Accordingly, it was prayed that the disallowance be deleted. The Assessee also referred to the relevant ledger attached in the paper book

Per contra, the Ld. DR supported the orders of the AO and the Ld. CIT(A) and submitted that the assessee failed to establish that the impugned expenses were not related to ongoing projects. Therefore, the AO was justified in treating the same as part of work-in-progress in terms of ICDS-III and ICDS-IX.

We have heard the rival submissions of both the parties and perused the materials available on record. The issue relates to disallowance of ₹1,00,37,112 by treating the same as capital expenditure forming part of closing work-in-progress. Page 7 of 15

1 From the assessment order, it is noticed that the AO has merely observed that the impugned expenses relate to projects under development and accordingly invoked ICDS-III and ICDS-IX to treat the same as part of work-in-progress. However, the AO has not brought any specific material on record to establish that the said expenses are directly attributable to any particular project undertaken by the assessee.

2 Similarly, the Ld. CIT(A) has also upheld the disallowance without recording any clear finding as to how the impugned expenses are relatable to a specific project. Though a remand report was called for during the appellate proceedings, the same does not conclusively establish the nexus of the said expenditure with any ongoing project. Further, on perusal of the ledger account relating to unsecured loans, we notice that a substantial portion represents opening balances which had been accepted in earlier years without allocating to any specific project. The ld. CIT-A and Ld. DR also could not bring any material on record to controvert this factual position despite the assessee has made similar submission before the ld. CIT-A.

3 With regard to commission expenses and sub-contract expenses, we note that there is no specific reasoning given by the lower authorities in their respective orders to justify that cost were incurred in relation to the specific project which was under the progress and no income qua such project was identified by the assessee in the books of accounts. Even the remand report on this aspect is silent whereas on a reference to the financial statements of the assessee placed on page 5 of the PB, it is seen that the assessee has accounted for certain incomes and Page 8 of 15

4 Without prejudice to the above, it is also observed that the adjustment made by the AO and confirmed by the learned CIT-A is tax neutral. As such, whatever income is enhanced in the year in dispute will get set off in the subsequent year as the opening WIP of the subsequent year will enhance by the identical amount. However, we find that the lower authorities have not given such finding in their orders for enhancing the value of the opening WIP in the subsequent assessment year.

5 In addition to the above, considering the nature of the business of the assessee and the relatively small quantum involved, we find no justification in disallowing the same merely on presumptions. In view of the above facts and circumstances, we find that the disallowance made by the AO and sustained by the Ld. CIT(A) is not justified. Accordingly, the addition made on this account is deleted and the ground raised by the assessee is allowed.

Ground No. 5 relates to the disallowance of ₹2,32,678 under the head miscellaneous expenses.

During the assessment proceedings, the AO observed that the assessee had debited a sum of ₹2,32,678 to the profit and loss account under the head miscellaneous expenses. On being called upon to substantiate the claim, the assessee failed to furnish supporting Page 9 of 15

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A).

Before the Ld. CIT(A), the assessee submitted that the said expenses were incurred wholly and exclusively for the purpose of business during the year under consideration. The assessee also furnished a copy of the ledger account in support of the claim. However, the Ld. CIT(A) rejected the contention of the assessee on the ground that no proper documentary evidence was furnished in respect of the said expenditure. Accordingly, the disallowance made by the AO was sustained.

Aggrieved by the order of ld. CIT-A, the assessee is in appeal before us.

The Ld. AR submitted that the Ld. CIT(A) was not justified in sustaining the disallowance of ₹2,32,678. It was submitted that the expenses were incurred through banking channels and mainly relate to consultancy charges. It was further submitted that the ledger account clearly shows that the payments were made after deduction of TDS. Accordingly, it was prayed that the expenditure being incurred for business purposes should be allowed.

On the contrary, the Ld. DR supported the orders of the AO and the Ld. CIT(A) and submitted that the assessee failed to furnish proper Page 10 of 15

We have considered the rival submissions of both the parties and perused the materials available on record. The assessee has claimed miscellaneous expenses of ₹2,32,678 in the profit and loss account. Before us, except for filing a ledger extract, the assessee has not been able to explain the exact nature of the expenses or demonstrate how the same were incurred wholly and exclusively for the purpose of business. In the absence of satisfactory explanation and supporting documentary evidence, the claim of the assessee cannot be accepted. Accordingly, we find no infirmity in the order of the Ld. CIT(A) in sustaining the disallowance made by the AO. Hence, this ground raised by the assessee is hereby dismissed.

Ground No. 6 relates to the addition of ₹20,19,600 in respect of income appearing in Form 26AS which, according to the assessee, was offered to tax in the next AY.

The relevant facts are that during the year under consideration the assessee received an amount of ₹20,19,600 on which tax was deducted at source and the corresponding credit appeared in Form 26AS.

In order to verify the claim of the assessee, the AO issued notices calling upon the assessee to explain why the said income should not be brought to tax in the year under consideration. However, according to Page 11 of 15

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A).

Before the Ld. CIT(A), the assessee submitted that the amount of ₹20,19,600 was actually offered to tax in the subsequent financial year. In support of this contention, the assessee furnished a copy of the ledger account of M/s Arvind Hughes Estates Pvt. Ltd. for the relevant period.

1 However, the Ld. CIT(A) rejected the contention of the assessee by observing that the income had accrued during the relevant assessment year and therefore ought to have been offered to tax in the same year. The Ld. CIT(A) further held that the assessee cannot postpone the recognition of such income to the next financial year and accordingly confirmed the addition made by the AO. At the same time, the Ld. CIT(A) observed that the assessee may seek appropriate remedy in the subsequent year for exclusion of the said income in accordance with law.

Aggrieved by the order of the ld. CIT-A, the assessee is in appeal before us. Page 12 of 15

The Ld. AR submitted that the Ld. CIT(A) was not justified in sustaining the addition of ₹20,19,600 merely because the income appeared in Form 26AS. It was submitted that the said income was duly offered to tax in the subsequent year and therefore the same cannot again be taxed in the year under consideration. The ld. AR also submitted that the ld. CIT-A has given a categorical finding to verify the facts, however the AO has not done so in the effect giving order. The Ld. AR also placed on record a giving effect order dated 30.05.2025 passed by the ACIT, Central Circle u/s 250 of the Act.

On the contrary, the Ld. DR vehemently supported the orders of the lower authorities and submitted that the income reflected in Form 26AS pertains to the relevant assessment year and therefore the AO was justified in bringing the same to tax in the year under consideration.

We have heard the rival submissions of both the parties and perused the materials available on record. The issue for consideration is whether the addition of ₹20,19,600 made on the basis of Form 26AS is sustainable when the assessee claims that the corresponding income has been offered to tax in the subsequent year.

1 It is not in dispute that the amount of ₹20,19,600 appearing in Form 26AS was subjected to deduction of tax at source during the year under consideration. The case of the assessee is that the income corresponding to such receipt was recognized in the subsequent financial year in accordance with the method of accounting followed by the assessee. The legal position u/s 199 of the Act read with Rule 37BA of the Income-tax Rules is clear that credit for tax deducted at source is to Page 13 of 15

2 At the same time, it is equally well settled that TDS is only a mode of tax collection and cannot result in double taxation of the same income. If the income has already been offered to tax in a subsequent year, the same cannot again be taxed in the present year merely because the corresponding entry appears in Form 26AS.

3 In the present case, the assessee has contended that the difference is only a timing difference and that the corresponding income has been offered to tax in the subsequent assessment year. To this effect, the direction was also given by the ld. CIT-A to the AO for verification, but we note that the OG does not contain the compliance of such direction. Accordingly, in the interest of justice, we set aside this issue to the file of the AO with a direction to verify whether the impugned income of ₹20,19,600 has been offered to tax in the subsequent assessment year. If the same is found to have been duly offered to tax, no addition shall survive in the year under consideration. The AO shall also ensure that there is no double taxation of the same income.

4 Before parting, it is equally important to note that the assessee should not claim the benefit of TDS in the year under consideration if corresponding income has not been offered to tax in the year under consideration. As such, the assessee shall be entitled for the benefit of TDS in the year in which the income in dispute has been offered to tax Page 14 of 15

Ground No. 7 relates to the levy of interest u/ss 234A and 234B of the Act.

We note that these issues being consequential and mandatory in nature, the AO is directed to recompute the interest, if any, while giving effect to this order as per the provisions of law. Accordingly, this ground of the assessee is disposed of as consequential.

Ground No. 8 is general in nature and does not call for any specific adjudication. Accordingly, the same is dismissed as general.

In the result, the appeal of assessee is partly allowed for statistical purposes.

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file