ASSISTANT COMMISSIONER OF INCOME TAX, PANCHKULA CIRCLE, PANCHKULA, PANCHKULA vs. KONARK RAJHANS ESTATE PRIVATE LIMITED, PANCHKULA

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IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH, CHANDIGARH

PHYSICAL HEARING

BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT
AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आयकरअपीलसं./ ITA No. 805/CHANDI/2024
(िनधाŊरणवषŊ / Assessment Year: 2011-12
ACIT
Panchkula Circle
Panchkula.
बनाम/ Vs.
M/s Konark Rajhans Estate Private Limited
NH 73, Village Kot Extension-II, Sector 14,
Panchkula.
˕ायीलेखासं./जीआइआरसं./PAN/GIR No. AAECK-2405-Q
(अपीलाथŎ/Appellant)
:
(ŮȑथŎ / Respondent)

अपीलाथŎकीओरसे/ Appellant by : Sh. Manav Bansal (CIT) – Ld. DR
ŮȑथŎकीओरसे/Respondent by :
Sh. Parikshit Aggarwal (CA)-Ld. AR

सुनवाईकीतारीख/Date of Hearing
: 20-08-2025
घोषणाकीतारीख /Date of Pronouncement
: 13/11/2025

आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member)

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1. Whether on the facts and circumstances of the case, Ld. CIT(A) has not erredtoallow theappealoftheassessee anddelete thedisallowance of Rs.40,85,000/- made u/s40A(3) of the Act as the cash payments made by the assessee for purchase of land were having nature of revenue expenditure.
2. Whether on the facts and circumstancesof the case, Ld.CIT(A) has not erredin lawin holdingthatthelandpurchasedbytheassesseewasa fixedassetmerelyonthebasisofthefinancialstatementsofthe assessee, without examining the nature of business of the assessee and giving his finding on it.
3. Whetheronthefactsandinthecircumstances ofthecase,Ld.CIT(A)has not erred in not accepting the finding ofthe AO that since the assessee is abuilder and colonizer dealing in realestate, the land purchased was stock-in-trade and not a fixed asset.
4. Whetheron thefactsand circumstancesof thecase,Ld.CIT(A)was justified in accepting the contention of the assessee that the land under consideration was having nature of fixed asset without appreciating that the assessee had adopted different accounting treatments for the lands purchased by it.
5. Whetheronthefactsandinthecircumstances ofthecase,Ld.CIT(A)has not erred in deleting the disallowance of cash expenditure made u/s 40A(3) of the Act without appreciating the finding recorded by the AO that it was not covered under any clause of Rule 6DD.
6. Whether on the facts and circumstances of the case, Ld. CIT(A) has noterred in deleting the disallowance of expenditure made in cash u/s 40A(3) of the Acton the ground that no such expenditure had been debited to Profit & Loss A/c during the year without recording a finding of fact as to in which assessment year it had been claimed by the assessee and it was to be disallowed u/s 40A(3) of the Act?
7. Whether on the facts and circumstances of the case, Ld.CIT(A) has not erredtoallowtheappealoftheassesseeanddeletetheadditionof Rs.5,28,00,000/- u/s 68 of the Act without appreciating the fact that therewasnocreditworthinessofRoyalPalmlnfratechPvt.Ltd.toadvance such a huge amount of loan, as was evident from reply to Q.No.7 & 8 in the statement of Sh. Sanjiv
Kumar, Director M/s RoyalPalm lnfratech Pvt. Ltd., recorded by the AO u/s 131of the Act during assessment proceedings, wherein itwas stated that the lender company had given loan to the assessee out of token monies received in cash, for which there were no agreements to sell, and which were received for a housing projectwhich never took off.
8. Whether on the facts and circumstances of the case, Ld.CIT(A) has not erredtoallowtheappealoftheassesseeanddeletetheadditionof Rs. 1,79,75,000/- made u/s 68of the Act as the assessee clearly failed to prove the genuineness of the transactions and creditworthiness of the lenders.
9. ItisprayedthattheorderoftheId.CIT(A)beset-asideandthatoftheA.O.berestored.

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proceedings and assails the juri iction of Ld. AO to make the impugned additions. The grounds read as under: -
That on laws, factsandcircumstances ofthecase,the assessment proceedings and assessment order deserve to be quashed since the initiation, continuation as well as completion of the impugned assessment u/s 148 r.w.s. 147 was void-ab-initio and more-so when the reasons recorded were legally unsustainable and di not establish any valid ‘reason to believe; of escapement of income and also when no addition was made on issue on which reasons were recorded.

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Lacs was deleted. Aggrieved, the revenue is in further appeal before us.
3.3 On the issue of addition u/s 68 for Rs.528 Lacs, the assessee stated that to prove sources thereof, it had furnished various documents relating to RPIPL which includes copy of ITR, computation of income, copy of audited financial statements, ledgers extract of the assessee in the books of RPIPL, confirmation from RPIPL and bank statement of RPIPL. The director of RPIPL, in response to summons u/s 131, acknowledged the said loan. As per extant provisions of Sec.68 as applicable for this year, the assessee was only required to establish the source of the loans and not the source of source and the assessee had duly discharged its onus by furnishing above documents relating to RIPPL. Even otherwise, the RPIPL had received advances from customers which was evidenced by its financial statements. The Ld. AO did not doubt the identity and genuineness of the transactions and only doubted the creditworthiness of RPIPL. The creditworthiness stood substantiated by audited accounts. Reliance was placed on various judicial decisions including the decision of juri ictional High
Court in the case of GP International Ltd. (325 ITR 25) wherein addition u/s 68 was deleted on similar facts.
The Ld. CIT(A) concurred that director of RPIPL acknowledged business relation and confirmed the aforesaid loan. The loan was sourced from advances received by RPIPL from its customers who were interested to buy flats in approved projects. However, after joining hands with RPIPL, the plan of developing the project was dropped by 11
RPIPL and the advances so received was extended as unsecured loans to the assessee. The formal agreement of sale was not signed by RPIPL with prospective customers and the money was subsequently refunded through account payee cheque. After due consideration of provisions of Sec.68, it was evident that obligation to explain source of source was effective from AY 2023-24 only. Before 01-04-2023, the assessee was not required to explain the source of source. The assessee duly provided the detail of source of unsecured loan of Rs.5.28 Crores with documentary evidences. Therefore, the impugned addition could not be sustained in the light of various judicial decisions of High Courts and Tribunal which have already been enumerated in the impugned order. Aggrieved, the revenue is in further appeal before us.
3.4 Similar arguments were extended on the issue of addition of Rs.179.75 Lacs u/s 68 with respect to 11 parties. The attention was drawn to the fact that during reassessment proceedings for AY 2014-
15, the assessee submitted confirmation from the parties. All the loans stood settled due to change in management. The loans were received and repaid through banks. Confirmed copies of ledgers and Id proof was furnished before both the lower authorities. As against this, no notice was issued u/s 133(6) by Ld. AO to these parties to verify assessee’s claim.
The Ld. CIT(A) concurred that the assessee had furnished PAN and addresses of all the lender parties along with their respective confirmation. The loans were duly repaid in subsequent period which 12
stood confirmed by the lenders and such repayment was also confirmed by the lenders. No dispute was raised by AO with respect to the said facts and documents. The assessee had duly discharged the onus of Sec.68 by furnishing these documents. Accordingly, the impugned addition was also deleted against which the revenue is in further appeal before us.
Our findings and Adjudication
4. Since the assessee has raised pertinent legal ground in its Rule
27 petition which challenges the very assumption of reassessment juri iction of Ld. AO, we take up the same first. The copy or reasons as recorded by Ld. AO to reopen the case of the assessee has already been extracted in the assessment order. After careful consideration of the same, it could indeed be seen that Ld. AO has contradicted the factum of filing of return of income by the assessee. Though in the opening para, Ld. AO has acknowledged that fact that the assessee filed return of income and declared ‘nil’ income, however, in concluding para, Ld. AO has mi irected himself by noting that the assessee was non-filer and formation of reasons of escapement of income stem from this fact. It has been alleged in the recorded reasons that the assessee purchased immoveable property for Rs.819.57 Lacs and upon perusal of return of income as filed by the assessee, the said information was not verifiable and accordingly, the said investment remained unexplained. However, the assessee has never purchased land to that extent and whatever land was purchased, the same had been grouped under fixed assets in the financial statements. The assessee has 13
procured land for Rs.574.39 Lacs which has been sourced out of unsecured loans. Therefore, no case of unaccounted investment could be made out against the assessee. The assessee entity was incorporated only on 14-02-2011and this was the first year of its business operations. The information as procured from Tehsildar revealed that the assessee purchased only four properties for Rs.335.32 Lacs during this year. Ultimately, no addition has been made for unaccounted investment but Ld. AO has made addition for violation of provisions of Sec. 40A(3). It could thus be seen that the formation of belief of escapement of income has fundamental flaws which vitiate the very juri iction of Ld. AO. The assessee’s regular return of income was already processed u/s 143(1) wherein the assessee reflected its financial details including investment made in the land. The allegation of unaccounted investment ultimately remained un-true and no such addition has been made by Ld. AO while framing the assessment.
Therefore, in our considered opinion, the belief of escapement of income was flawed and having no substance at all and therefore, the consequential assessment so framed would be bad-in-law. We order so. The assessee succeeds in its legal grounds. The assessment is liable to be quashed on this score only.
5. For the sake of completeness, we proceed on the merits also. So far as disallowance u/s 40A(3) is concerned, it is quite clear from the adjudication of Ld. CIT(A) that the assessee successfully made out a case of commercial expediency and demonstrated the circumstances which led to cash payment in the land deals. Even otherwise, Ld.

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CIT(A) has followed the decision of Tribunal in assessee’s own case for AY 2012-13 which has identical facts. Therefore, the adjudication of Ld.
CIT(A) could not be faulted with.
6. So far as the addition of unexplained cash credit u/s 68 with respect to RPIPL and 11 other parties is concerned, we concur that the assessee had successfully discharged its primary onus to satisfy the primary ingredients of Sec.68 which mandate the assessee to prove the identity of the lender, genuineness of the transactions and creditworthiness of the lenders. The assessee filed sufficient documentary evidences to satisfy these ingredients and it was onus of Ld. AO to disprove the same. However, nothing of that sort is shown to have been done by Ld. AO. With respect to loan from RPIPL, the assessee furnished lender’s copy of Income Tax Return, computation of income, copy of audited financial statements, ledger extract of the assessee in the books of RPIPL, confirmation from RPIPL and bank statement of RPIPL. The director of RPIPL, in response to summons u/s 131, acknowledged the said loan. As per extant provisions governing Sec.68, the assessee was only required to establish the source of the loans and not the source of source and the assessee had duly discharged its onus by furnishing above documents relating to RPIPL. The loan by RPIPL was sourced from advances received by RPIPL from its customers who were interested to buy flats in approved projects. However, after joining hands with RPIPL, the plan of developing the project was dropped by RPIPL and the advances so received was extended as unsecured loans to the assessee. Thus, the 15
assessee had filed sufficient documentary evidences to substantiate this loan.
7. So far as loan of Rs.179.75 Lacs as taken form 11 parties is concerned, it could be seen that during reassessment proceedings for AY 2014-15, the assessee submitted confirmation from all these parties. All the loans stood settled due to change in management. The loans were received and repaid through banking channels. In support, the assessee duly furnished confirmed copies of ledgers and Id proof whereas no independent verification was done by Ld. AO by way of issuance of notices u/s 133(6) despite the fact that the assessee duly furnished PAN and addresses of all the parties along with their respective confirmations. The loans were duly repaid in subsequent period which stood confirmed by the lenders.No dispute was raised by AO with respect to the said facts and documents. The assessee had duly discharged the onus of Sec.68 by furnishing these documents.
Accordingly, the impugned addition has rightly been deleted by Ld.
CIT(A). Accordingly, we find no reason to interfere in the same. The assessee succeeds in its legal grounds as raised in Rule-27 Petition.
8. In the result, the appeal of the revenue stands dismissed.
Order pronounced on 13/11/2025 (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL)
VICE PRESIDENT ACCOUNTANT MEMBER

Dated: 13/11/2025

आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to :
1. अपीलाथŎ/Appellant
2. ŮȑथŎ/Respondent
3. आयकरआयुƅ/CIT
4. िवभागीयŮितिनिध/DR
5. गाडŊफाईल/GF