ITAT Mumbai Bench Quashes CIT(A) Order on Unsecured Loans and Property Sales

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench has quashed an order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] in deleting various additions made by the Assessing Officer (AO). The Tribunal held that the deletion was not sustainable in the absence of verification and examination of facts.

The Tribunal has remanded all the major issues back to the Assessing Officer (AO) for fresh adjudication, emphasizing the importance of thorough verification and examination of facts.

The assessee, Pushpa Construction Company, a partnership firm dealing in real estate development, had filed its return declaring nil income for the Assessment Year 2018-19. During the scrutiny assessment, the Assessing Officer (AO) observed that the firm had received unsecured loans amounting to ₹39.83 crore from 201 parties. However, confirmations were only furnished for 67 parties, leaving ₹32.67 crore from 134 parties unexplained. Consequently, an addition was made under Section 68.

The AO also noted that the firm reported a high work-in-progress (WIP) amounting to ₹77.61 crore with nil sales. The assessee failed to substantiate this claim with supporting documentation. As a result, the AO computed income at 10% of the WIP amount, adding ₹7.76 crore to the income. Additionally, the AO added ₹11.10 crore under the head 'unaccounted property sales' based on data obtained from the Sub-Registrar. However, the CIT(A) completely deleted all these additions.

The Revenue department argued that the assessee did not provide full details regarding the identity, creditworthiness, and genuineness of the loan creditors. The Revenue further stated that these deficiencies persisted even in the remand proceedings.

In response, the assessee argued that additional evidence was provided in the remand proceedings, and the income was reported using the Project Completion Method.

The Tribunal observed that the documentation was insufficient for some creditors, noting the absence of bank statements, ITRs, and confirmations. Therefore, the CIT(A) was not correct in holding that the assessee had established the burden under Section 68 without proper verification.

The Tribunal also noted that the claim by the assessee to have offered the income in subsequent years needed verification to avoid double taxation. Similarly, the issue relating to the sale of property was set aside for further consideration.

Accordingly, the Bench, comprising Sandeep Singh Karhail (Judicial Member) and Vikram Singh Yadav (Accountant Member), set aside the order of the CIT(A) on all grounds and remanded the case back to the AO for fresh consideration after providing adequate opportunity to the assessee.