Case Law Details
S.K. Builders and Developers LLP Vs ITO (ITAT Kolkata)
Advances received from customers in the ordinary course of a real-estate business, which are consistently adjusted against sales under the project completion method, cannot be treated as unexplained cash credits under section 68.
Summary: The ITAT Kolkata in S.K. Builders and Developers LLP vs ITO held that advances received from customers and flat purchasers in the ordinary course of a real-estate business cannot be treated as unexplained cash credits under Section 68 when such amounts are duly recorded in audited books and consistently adjusted against sales under the project completion method. The assessee, a real-estate developer, regularly received booking advances from customers which were either adjusted against sales during the year or carried forward as liabilities until project completion. The Assessing Officer treated the closing balance of customer advances amounting to ₹17.94 crore as unexplained cash credits despite accepting the books of account and disclosed sales. The Tribunal observed that the same accounting treatment had been consistently accepted in earlier years and that taxing the advances separately would result in impermissible double taxation once corresponding sales were offered to tax. It further held that selective rejection of one liability item without rejecting the books was arbitrary and unsustainable in law.
Issue: Whether customer advances of ₹17,94,02,522 received against booking of flats and commercial units could be assessed as unexplained cash credits under section 68.
Facts: The assessee, a real-estate developer, consistently followed the project completion method. It received advances from flat purchasers in the normal course of business and adjusted them against sales in the same or subsequent years. During AY 2020-21, the Assessing Officer treated the closing balance of customer advances as unexplained cash credits under section 68, despite the advances being duly recorded in audited books and reflected as liabilities in the balance sheet.
Tribunal’s Findings: The Tribunal held that receipt of customer advances is a regular feature of the assessee’s business model. Ledger accounts showed that opening advances were adjusted against sales and only the unadjusted balance was carried forward. Since these amounts arose from ordinary business transactions and were subsequently recognized as sales, they could not be regarded as unexplained cash credits.
The Tribunal emphasized that the same accounting treatment had been accepted in earlier years. Applying the rule of consistency laid down in Radhasoami Satsang v. CIT and CIT v. Excel Industries Ltd., it held that in the absence of any change in facts, the Revenue could not take a contrary view.
The Tribunal further observed that taxing the advances under section 68 would lead to double taxation—once as customer advances and again when the corresponding sales were recognized and offered to tax. Such duplication is impermissible in law.
It was also noted that the Assessing Officer accepted the sales and did not reject the books of account. Therefore, selectively treating one liability item as unexplained while accepting the rest of the accounts was arbitrary and contrary to law.
Held: Trade advances received from customers and flat purchasers in the ordinary course of business, duly recorded in books and adjusted against sales under the project completion method, cannot be assessed as unexplained cash credits under section 68.
Cases Relied Upon:
1. Radhasoami Satsang v. CIT
2. CIT v. Excel Industries Ltd.
3. PCIT v. Montage Enterprises Pvt. Ltd.
4. CIT v. Shivalik Buildwell Pvt. Ltd.
5. PCIT v. Forum Sales Pvt. Ltd.
6. Kaizen Enterprises Pvt. Ltd. v. ACIT
7. Mahaveer Kumar Jain v. CIT
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Commissioner of Income Tax Appeal, National Faceless Appeal Centre (NFAC), Delhi, (hereinafter referred to as the “Ld. CIT(A) NFAC”] dated 11.12.2025 for the AY 2020-2021.
2. The only issue raised by the assessee in the various grounds of appeal is against confirming the addition of Rs.17,94,02,522/- by the ld. CIT(A) as made by the AO u/s.68 of the Act in respect of advances from customers/flat purchasers received in the ordinary course of business.
3. The facts in brief are that the assessee filed return of income on 15.02.2021 declaring total income of Rs.54,73,280/-. The return of income was processed by CPC u/s 143(1) of the Act and the case of the assessee was selected for Limited Scrutiny assessment under CASS on the following reasons :-
i) Taxable receipts from other sources shown in Schedule TDS 2 is higher than the receipts shown in ITR
ii) High liabilities as compared to low income/receipts
iii) Purchase value of proper less than the value as per stamp authority.
4. Thereafter statutory notices u/s 143(2) and 142(1) of the IT Act, 1961 along with questionnaires were issued to the assessee and the assessee duly replied to all the said notices. The assessee is a limited liability partnership firm and is a builder , developer and job work contractor of Government for the last more than four years. The assessee is deriving income from business ,house property and other sources. The AO on examination of balance sheet for the impugned assessment year noted that the assessee has shown advances from parties/customers of Rs.17,94,02,522/- and Sundry creditors of Rs. 31,12,665/- under the head Trade Payable in the Balance Sheet as on 31.03.2020. The A.O. issued notice u/s 142(1) of the IT Act, 1961 dated 22.08.2022 asking the assessee to submit the details regarding advances receipts from customers in the particular format mentioned in the said notice. In response to the same the assessee submitted its response on time. Thereafter a show cause notice dated 31.08.2022 with proposed addition of Rs. 17,94,02,522/- was issued to the assessee and the assessee failed to respond to the said notice. The AO thereafter stated that in the absence of explanation and documentary evidences, the genuineness of the transaction could not be proved and thus the amount of Advance from Parties under the head Trade Payable of Rs. 17,94,02,522/- shown in the Balance Sheet as liabilities of the assessee remained unexplained and the same was added u/s 68 of the IT Act, 1961 vide order dated 08.09.2022 passed u/s 143(3) r.w.s. 144B of the IT Act, 1961.
5. In the appellate proceedings, the ld. CIT(A) dismissed the appeal of the assessee in limine by noting that the assessee did not furnish any reply in compliance to various notices issued by the AO and, thus, held that in absence of any supporting evidences, the AO rightly made the addition. Thus the addition was confirmed nevertheless the assessee furnished all the evidences/details/audited accounts before the ld. CIT(A) substantiating that the advances from customers were received in the orindary course of business and were adjusted regularly against the sales booked by the assessee. The ld. CIT(A) without taking into account the evidences furnished by the assessee restored the appeal to the Assessing Officer.
6. Ld. AR vehemently submitted that the assessee has been engaged in the business of properties(commercial and residential) development and also receives advance from the customers in the ordinary course of business the. The ld. AR submitted before the Bench that the advancess received from the customers against the booking/sale of flats which were duly adjusted either in the same year or in the subsequent year and therefore addiion by the AO u/s.68 of the Act of these advances and also confirmation by the ld CIT(A) is patently wrong and against the provisions of the Act. Ld. AR also submitted that the assessee has furnished before the AO as well as the ld. CIT(A) all the evidences explaining the nature of advancec received by the assessee. The ld. AR also referred to the assessment framed by the AO in the assessment year 2014-15, copy of which is available at page 223 to 232 wherein the ld. AR submitted that it has been noted by the AO that the assessee is engaged in the business of developer and builder ( residential and commercial complexes) and also noted the turnover of the assessee and accepted the advances s received by the assessee from the customers and no addition was made. Ld. AR referred to the balance sheet as at 31.3.2014 for A.Y.2014-2015 which is available at page Nos.233 to 241 of the paper book wherein the advances from the customers were Rs.21,83,92,838/- as on 31.03.2014 whereas the corresponding figure as on 31.03.2013 was Rs.13,01,71,173/-. The AO also referred to the balance sheet, copies of ITR and GST Return for Assessment Year 2019-20 and submitted that the advances from parties were shown at Rs.14,34,38,128/-. Thereafter the ld. AR referred to the balance sheet as on 31.03.2021 and submitted that the advances were received of Rs.23,83,97,416/- whereas the corresponding figure as on 31.03.2020 was of Rs.17,94,02,522/-. Ld. AR also referred to the copy of the ledger account in respect “advances received from the customers/parties at page 88 of the paper book wherein it is clearly demonstrated that the opening balance from flat purchasers/customers was Rs.14,34,38,128/-. During the year all these advances from purchasers adjusted against sales were Rs.14,17,61,086/- whereas the advances received during the year were Rs.17,77,25,480/- and closing balance as on 31.03.2020 was Rs.17,94,02,522/- Ld. AR thereafter referred to the copy of the profit and loss account and submitted that the gross receipts comprising revenue from operations including sale of flats, job work and other receipts, sale garrages, current income and interest on fixed deposits were Rs.13,01,85,034/-. Ld. AR submitted that the books of accounts were duly audited by the tax auditors. Therefore, the provisions of section 68 of the Act are not applicable at all and the AO as well as the ld. CIT(A) despite all the information being available before them overlooked the facts. Ld. AR also submitted that the assessee is following the project completion method as per the Accounting Standard-9 which is recognised system of accounting. Ld. AR in support of his contentions, relied on the series of decision which are as follows :-
i) Commissioner of Income Tax-IV vs. Shivalik Buildwell (P) Ltd in [2013] 40 com 219 (Guj HC);
ii) Commissioner of Income Tax vs. Montage Enterprises (P) Ltd in [2018] 100 com 100 (SC); and
8. Ld. AR also relied on the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT, (1992) 193 ITR 321 (SC), to cement his arguments that where a factual conclusion has been reached on one aspect, a contrary position on identical facts without material change is unsustainable in law.
9. Ld. AR also submitted that the assessee has already offered to tax the income earned from the projects by following project completion method in the current year and subsequent assessment years by adjusting the advances from customers , therefore the Ld. A.O. is completely wrong in making addition of entire advances received from customers in this year which clearly resulted into double taxation of the same income. Thus, double taxation is not permissible in law. In this regard, ld. AR relied on the decision of Jaipur Bench of the Tribunal in the case of Kaizen Enterprises (P.) Ltd vs. ACIT in [2025] 173 taxmann.com 621 (Jaipur Tribunal) and the decision of the Hon’ble Supreme Court in the case of Mahaveer Kumar Jain v. CIT (2018) 165 DTR 113 (SC).
10. Besides, the ld. AR submitted that books of accounts were not rejected by the AO while making this addition. The same is not permissible under the Act as has been held by the Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax, (Central)-1 vs. Forum Sales (P.) Ltd in 468 ITR 392 (Del HC). Finally, the ld. AR prayed that the order of the ld. CIT(A) may be set aside and the addition made by the AO may be deleted.
11. Ld. DR, on the other hand, submitted that the assessee though furnished the details/evidences before the AO but these were not legible and, hence, the AO was right in taking a view that the advances received from the customers could not be verified and unexplained and added the same to the total income of the assessee u/s 68 of the Act. Ld. DR also submitted before the ld. CIT(A) the assessee furnished all the evidences but since the AO had not considered the said evidences and thus rightly restored the appeal to the Assessing Officer. The DR finally submitted before the Bench that there was no proper representation by the assessee, therefore, the case may be restored to the file of ld. AO or ld. CIT(A) for fresh adjudication.
12. After hearing the rival contentions of the parties and perusing the material available on record, we find that the assessee has been following the project completion method in respect its development of real estate properties/projects and has been consistently offering income from the projects being residential as well as commercial to tax. We note from the balance sheet and other records placed before us that it is a regular phenomenon in the business of the assessee to receive advances from customers/flat purchasers which are adjusted in the same or in subsequent years when the sales are registered and the sales were duly shown in the profit and loss account and offered to tax. We have also noted that right from A.Y.2014-15, in the ordinary course of business, the assessee has been receiving advances from the customers and there has been regular adjustments advances remains unadjusted are shown as advances received against sales from customers. Therefore, the action of the AO in treating the advances from customers as unexplained cash credit u/s.68 of the Act is patently wrong and cannot be sustained. We note that the ld. CIT(A) has overlooked the basic facts available despite assessee furnishing all the details/evidences before the appellate authority and therefore, we do not find any merit in the contention of the ld. DR that the case may be restored to any of the authorities below.
13. We further note that the assessee is regularly filing return of income and following a consistent system of account of project completion which has been accepted in the preceding assessment year, therefore, unless there is a change in facts over the preceding year vis a vis current year, no contrary view can be taken by the revenue. The case of the assessee is squarely covered by the decision of the Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT, (1992) 193 ITR 321 (SC), wherein the Hon’ble Supreme Court has held that where a factual conclusion has been reached on one aspect, a contrary position on identical facts without material change is unsustainable in law. Similar ratio has been laid down by the Hion’ble Apex Court in the case of CIT Vs Excel Industries Ltd. wherein the Hon’ble’ble Court has held that where a factual position stands accepted by the revenue, departure therefrom without any material distinction violates the principles of tax certainly consistency.
14. We have also perused the decision in the case of Commissioner of Income Tax-IV vs. Shivalik Buildwell (P) Ltd in [2013] 40 com 219 (Guj HC) find that the Hon’ble Gujarat High Court has held that advance receipts not to be treated as trading receipts during the year under consideration. The relevant observations of the hon’ble High Court reads as under :-
“Assessee was a builder and developer – He received certain amount as advance from different parties-Assessing Officer added said amount to assessee’s taxable income -Tribunal set aside addition made by Assessing Officer holding that assessee being a developer of project, profit in its case would arise only on transfer of title of property and, therefore, receipt of any advance or booking amount could not be treated as trading receipt of year under consideration – Whether on facts, impugned order passed by Tribunal deleting addition was to be upheld
15. Same ratio has been relied on the case of Principal Commissioner of Income Tax vs. Montage Enterprises (P) Ltd in [2018] 100 com 100 (SC) wherein it is held that “Section 68, of the Income-tax Act, 1961- Cash credit (Trade advance)- In course of assessment, Assessing Officer made additions to assessee’s income under section 68 in respect of trade advances – Commissioner (Appeals) and Tribunal deleted said addition finding that trade advances received by assessee were adjusted against sales made in subsequent years – High Court upheld order passed by Tribunal – Whether, on facts, SLP filed against decision of High Court was to be dismissed”. We observe that in the above during the course of assessment, the AO made addition to the assessee’s income u/s.68 of the Act in respect of trade advances and the ld. CIT(A) & Tribunal have deleted the addition the addition on the ground that these advances were adjusted against the sales in the subsequent years. Therefore, the case of the assesee is squarely covered by the decision in the case Montage Enterprises (P) Ltd. (supra) as in the instant case also already the advances received from customers have regularly been adjusted against the sales made in the current year or in the subsequent years and whaever remains unadjusted at the year end is shown as advances from customers.
17. We note that if the addition is sustained as made by the AO and confirmed by the ld. CIT(A) , it would be amounting to double taxation on the same income which is not permissible under the Act. First when the assessee offer the sales to tax by debiting the advances from customers and crediting the sales and secondly when the addition is made by the Assessing Officer in respect of advances from customers.Therefore the addition made by the AO and as confirmed by the ld. CIT(A) can not be sustained. The case of the assessee finds support from the decision in Kaizen Enterprises (P.) Ltd vs. ACIT in [2025] 173 taxmann.com 621 (Jaipur Tribunal) wherein it is held that:-
“Double taxation not permissible, again, it is not denied that the assessee had already offered to tax the income earned from the project “Aashirwad Gokul by following project completion method in subsequent assessment year 2018-19. Copies of the audited financial annual statement of accounts have been duly submitted before the Assessing Officer and otherwise also they were available with the Assessing Officer along with uploaded filed along with ROI for assessment year 2018-19. The advances received from the customers in the preceding years including current year, were all credited in A/c “advances from customers against project” and were later on adjusted in the sales in assessment year2018-19. In support of this contention and for better appreciation, at a glance chart showing the details relating to the receipt of flat advance bookings and the sales recognition of the flat sold was submitted before the Assessing Officer. On one hand, the income declared in assessment year 2018-19 has been accepted, assessed and the department received the tax on such income in that year. Whereas, on the other hand the Assessing Officer after disturbing the declared income this year, taxed the entire advance of Rx.3.71 crores in this year which has clearly resulted into double taxation. The law is well settled that the same income cannot be taxed twice. [Para 20]”
18. Similar ratio has been placed in the case of Mahaveer Kumar Jain v. CIT (2018) 165 DTR 113 (SC) wherein it is held that
“We have gone through the relevant provisions but there seems to be no such provision in the I.T. Act wherein a specific provision has been made by the legislature for including such an income by an assessee from lottery ticket. In the absence of any such provision, the assessee in the present case cannot be subjected to double taxation. Furthermore, a taxing Statute should not be interpreted in such a manner that its effect will be to cast a burden twice over for the payment of tax on the taxpayer unless the language of the Statute is so compelling that the court has no alternative than to accept it. In a case of reasonable doubt, the construction must beneficial to the taxpayer is to be adopted. So, it is clear enough that the income in the present case is taxable only under one law. By virtue of clause (k) to Article 371F of the Constitution which starts with a non-obstante clause, it would be clear that only the Sikkim Regulations on Income-tax would be applicable in the present case. Therefore, the income cannot be brought to tax any further by applying the rates of the Act.”
19. We also find merit in the contention of the ld. AR that the AO had accepted sales shown in the profit and Loss Account and made addition of “Advances from Parties” of Rs. 17,94,02,554/- which is totally unsustainable in law. Therefore, any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate justification is not permissible under the Act and the same is arbitrary and may lead to an incomplete, unreasonable and erroneous computation of income of an assessee. The case of the assessee finds support from the decision of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax, (Central)-1 vs. Forum Sales (P.) Ltd in 468 ITR 392 (Del HC) wherein it is held that
“The series of judgments referred to clearly allude to the settled position of law that the books of account have to be necessarily rejected before the Assessing Officer proceeds to the best judgment assessment upon fulfilment of conditions mentioned in the Act. The underlying rationale behind such an action is to meet the standards of correct computation of accounts for the purpose of a more transparent and precise assessment of income. Therefore, any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate justification, is arbitrary and may lead to an incomplete, unreasonable and erroneous computation of income of an assessee. [Para 241”
20. Consequently, considering the facts of the case in the light of aforesaid decisions, we are of the view that the addition made by the AO and as sustained by the ld. CIT(A) in respect of advances received by the assessee from the customers treating the same as unexplained u/s.68 of the Act is completely wrong and unsustainable in law. Thus, we set aside the order of the ld. CIT(A) and direct the AO to delete the addition so made.
21. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 2026.
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