The assessee, along with his brother Sushilkumar K. Gupta, had jointly purchased a shop (Unit No.1B, Ground Floor) in GNP Galaxy Phase-1 project developed by the GNP Group. The purchase agreement was registered at ₹50 lakhs, and the assessee’s share of ₹22.5 lakhs was paid through regular banking channels.

Background of the Case (Chronology)

• The return of income for AY 2020-21 was filed declaring total income of ₹6,29,530.
• On 23.09.2021, the Income Tax Department conducted a search and seizure operation at the premises of M/s. GNP Consultancy and Solutions Pvt. Ltd. (part of the GNP Group), which is engaged in real estate development.
• During the search, an Excel sheet was seized containing details of various buyers. The sheet allegedly showed that the assessee and his brother had paid extra cash (on-money) of ₹25 lakh in AY 2020-21 over and above the registered sale consideration.
• Based on this seized material and statements of builder’s employees recorded under Section 132(4), the Assessing Officer (ITO Ward 2(2), Kalyan) issued notice under Section 147 and passed a reassessment order dated 22.03.2025, adding ₹25 lakh as undisclosed income.
• The assessee challenged the addition before the National Faceless Appeal Centre (NFAC/CIT(A)), which upheld the addition vide order dated 04.11.2025.
• Aggrieved, the assessee approached the ITAT Mumbai Bench.

Key Arguments & ITAT Ruling

The assessee, represented by Advocate Tanzil Padvekar, strongly denied having paid any on-money. It was argued that the addition was based solely on loose sheets/Excel data seized from a third party (the builder), without any corroborative evidence.

The ITAT Bench comprising Om Prakash Kant (Accountant Member) and Anikesh Banerjee (Judicial Member) delivered the order on 12.06.2026 in ITA No.1011/Mum/2026.

The Tribunal observed:

• In an identical matter for AY 2019-20 involving the same assessee (ITA No.6933/Mum/2025, pronounced on 13.05.2026), the Coordinate Bench had already deleted the ₹90 lakh addition on similar facts.
• Mere appearance of the buyer’s name in the builder’s internal Excel sheet does not constitute sufficient evidence to hold the buyer liable for on-money payment.
• Entries in loose papers or Excel sheets seized from a third party have very weak evidentiary value and are not admissible as standalone proof (relying on Supreme Court judgments in the Sahara Diaries case, CBI vs V.C. Shukla, and K.P. Varghese vs ITO).
• The burden of proof lies on the Revenue to establish the chargeability of income. The assessee cannot be asked to prove a negative.
• No cash was found in the possession of the assessee. There was no independent corroborative material linking the assessee to any actual cash payment.
• The assessee was not allowed to cross-examine the builder’s employees whose statements were relied upon.
• Section 69A was wrongly invoked in the facts of the case.

Respectfully following its own earlier order in the assessee’s case, the ITAT deleted the entire ₹25 lakh addition and allowed the appeal.

Significance of the Order

This ruling reinforces that Income Tax authorities cannot make additions in buyers’ hands merely on the basis of notings in builders’ internal records without concrete corroborative evidence. It is expected to provide relief to several other homebuyers who faced similar additions following the GNP Group search.

Also Read: Big Relief for Housing Societies: ITAT Mumbai Allows Deduction on Interest from Co-operative Banks

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Raheja Universal, a leading real estate developer with over four decades in the industry and more than 10 million sq. ft. developed across residential, commercial, and township projects in Mumbai and Navi Mumbai, had challenged several additions made by the tax department during assessment.

The key highlight of the order is the tribunal’s directive on deemed (imaginary/notional) rent for unsold flats. Under Section 23(5) of the Income Tax Act (introduced to provide relief to builders), unsold residential units held as business stock-in-trade are exempt from deemed rental income for the first two years after receiving the completion certificate. After this period, if flats remain unsold, the law requires adding a reasonable deemed rent as taxable income under the head “Income from House Property” — even if no actual rent is earned.

In this case, the Assessing Officer had estimated a high deemed rental value of approximately ₹12.18 lakh by applying 8.5% to the construction cost, citing the Bombay Rent Control Act. Raheja Universal argued that a realistic figure was only ₹2 lakh, considering factors like the age of the property (over 20 years old), need for repairs, and remote location.

The ITAT observed that neither side provided sufficient evidence to justify their figures. The tribunal noted:

• The AO failed to explain the basis for the 8.5% rate or the applicability of the Bombay Rent Control Act.
• The assessee did not fully substantiate the ₹2 lakh offer with objective proof (such as municipal ratable value, comparable market rents, property condition reports, or location details).

The bench, comprising Accountant Member Shri Om Prakash Kant and Judicial Member Shri Raj Kumar Chauhan, set aside the CIT(Appeals)’ order on this point and restored the matter to the Assessing Officer for fresh determination. The AO must now re-calculate the annual lettable value based on verifiable evidence, after giving the company a reasonable opportunity to present documents.

This ruling underscores the need for objective, evidence-based valuation in deemed rent cases involving builders’ unsold inventory, rather than arbitrary percentages or unsupported estimates.

Other Key Outcomes in the Order The tribunal largely favored Raheja Universal on several other grounds:

• Section 14A disallowance (expenses related to tax-free dividend income): Restricted to the actual exempt income of just ₹1,465 (from an AO claim of ₹87.61 lakh), following settled precedents that disallowance cannot exceed exempt income.
• Bad debt write-off (principal loan of ₹9 crore to a wholly-owned subsidiary): Allowed in full under Section 36(1)(vii), as interest portions were previously taxed. The tribunal dismissed Revenue’s grounds as academic since alternative findings (business loss under Section 28/37) went unchallenged.
• Hotel and club expenses (₹18.7 lakh): Fully allowed as business expenditure for networking and meetings, citing low percentage of turnover and Supreme Court precedents.
• Clerical error in return (₹26.84 lakh wrongly shown under Section 44AE): Sent back to AO for verification and possible deletion, as appellate authorities can entertain such fresh claims.

Overall, the tribunal partly allowed the Revenue’s appeal (for statistical purposes on the deemed rent issue) while allowing the company’s cross-objection similarly. The decision provides partial relief to Raheja Universal while emphasizing proper documentation in tax disputes involving unsold stock.

This case is being watched closely in the real estate sector, where unsold inventory taxation remains a contentious area amid market slowdowns.

Also Read: Raheja Universal Reacquires Raheja Centre Point, Kalina for ₹211 Crore

The post Raheja Universal’s Deemed Rent Dispute on Unsold Flats Sent for Fresh Calculation appeared first on Square Feat India.

The order, delivered on January 23, 2026, by Judicial Member Shri Sandeep Gosain and Accountant Member Shri Om Prakash Kant (ITA Nos. 3895 to 3897/MUM/2025), covered Assessment Years 2014-15 to 2016-17. It dismissed three appeals filed by the Deputy Commissioner of Income Tax (DCIT), Central Circle-2(3), Mumbai, against relief granted earlier by the Commissioner of Income Tax (Appeals)-48, Mumbai.

How the Suspicion Arose

F A Construction (PAN: AAAFF0282D), a partnership firm specializing in civil construction projects — including government and semi-government contracts — regularly withdrew large sums of cash from its declared bank accounts. For AY 2014-15 alone, the figure was ₹35,87,16,800 (with comparable amounts in the following two years).

The Income Tax Department spotted these high-value withdrawals through its internal INSIGHT portal. Suspecting the cash might be unexplained or linked to undisclosed income, the Assessing Officer reopened the assessments under Sections 147/148. When the firm initially failed to respond fully, the reassessment was finalized ex-parte under Section 144.

The tax officer added:

• The full ₹35.87 crore (and equivalents in other years) as unexplained money under Section 69A of the Income Tax Act — essentially treating it as potential black money.
• An additional ad-hoc disallowance of ₹12,09,21,303 (5% of ₹2,41,84,26,074 in claimed business expenses), arguing that verifiable details were lacking.

This created a significant extra tax demand on the firm.

The Turnaround: Full Proofs Submitted

On appeal, the firm — represented by advocate Mr. Vijay Mehta — provided comprehensive evidence during the CIT(Appeals) stage. The appellate authority called for a remand report from the Assessing Officer, who reviewed the documents but could not identify any specific irregularities.

Key submissions included:

• Bank statements showing withdrawals from the firm’s own disclosed accounts.
• Main cash book and site-wise petty cash books.
• Detailed summaries of cash utilization (by project site and expense head).
• Sample vouchers, bills, creditor ledgers, and Running Account (RA) bills signed by government engineers for public projects.

The firm explained that its operations are inherently cash-intensive:

• Labourers, many migrants from other states, demand daily or weekly cash wages.
• Urgent purchases of materials, repairs, and on-site needs (food, transport) often require immediate cash.
• Many project sites are remote with limited banking access.

All cash payments complied with Section 40A(3) restrictions (no excessive single cash transactions).

ITAT’s Clear Verdict

The Tribunal examined Section 69A, which applies only to money not recorded in books where the assessee fails to explain the source satisfactorily. Here:

• The source was undisputed — withdrawals from declared bank accounts.
• Once the source is explained, mere doubts about utilization do not justify invoking Section 69A.
• If any expense was unverifiable, it should have been scrutinized under normal provisions (e.g., Section 37 for business deductions), not reclassified as unexplained income.

The ITAT noted:

• No specific discrepancies, fake bills, or adverse material were found by the Assessing Officer in the remand report.
• The construction sector’s realities (labour-oriented, site-based, remote locations) make cash usage normal and necessary.
• Precedents from various ITAT benches (Raipur, Ahmedabad, Mumbai, Surat) support that documented cash withdrawals from disclosed accounts cannot be taxed as unexplained under Section 69A without contrary evidence.

On the 5% ad-hoc disallowance of expenses:

• Blanket percentage cuts are not allowed without rejecting the books of account (under Section 145(3)) or pinpointing specific bogus items.
• Full details were later furnished; no defects were highlighted.
• Deletion upheld.

Final Outcome

All three Revenue appeals were dismissed. The CIT(Appeals)’ orders — deleting the ₹35+ crore Section 69A addition and the ad-hoc disallowance — were confirmed. F A Construction faces no additional tax liability on these grounds for the three years.

This decision highlights a recurring theme in tax disputes involving construction firms: what initially appears as “black money” often stems from legitimate cash needs for labour payments, especially when full records eventually prove the case.

Also Read: ITAT Mumbai Clears Real Estate Developer of Fraud Allegations, Allows ₹1.79 Crore Tax Deduction

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