ACIT Vs Ace Associates (ITAT Mumbai)
Summary: A completion certificate for a building in its original form did not prove that a later reconfigured commercial unit was ready to be let. That distinction led the Mumbai Tribunal to uphold deletion of a ₹16.84 lakh notional rent addition against real-estate developer Ace Associates. The Tribunal also rejected a ₹27.49 crore addition under section 68 for opening stock brought forward from earlier years. A third Revenue ground concerning ₹42 lakh failed because the amount was a lease security deposit, and had not been included as an addition in the Assessing Officer’s final computation.
Three Disputes from One Redevelopment Project
Ace Associates, a partnership firm, developed the Divyajyot redevelopment project at Goregaon West, Mumbai. It returned income of ₹88,30,660 for assessment year 2020–21. During scrutiny, the Assessing Officer examined commercial units held as stock-in-trade. One unit had been let out; another, measuring 5,167.04 sq. ft., was vacant.
The Assessing Officer invoked section 23(5) for the vacant unit. Using a monthly rent of ₹2,00,500 obtained from a NoBroker internet search, he calculated annual value of ₹24,06,000 and, after the deduction under section 24(a), added ₹16,84,200 as income from house property.
He also noticed opening stock of ₹27,49,50,173 in the firm’s trading account, while the immediately preceding year’s return did not show closing stock. He treated the opening stock as an unexplained credit under section 68. Finally, he discussed ₹42 lakh as a supposed property purchase from HDFC Bank Ltd. under section 69, although he did not include that amount in the final computation of assessed income.
The Commissioner (Appeals) decided all three matters in the assessee’s favour. The Revenue brought the dispute to the Tribunal.
The Certificate Related to the Building’s Earlier Form
The Revenue argued that the original project had been completed in financial year 2008–09 and had received an occupation certificate. Since the vacant unit was stock-in-trade and had not been let, it maintained that notional rent was chargeable under section 23(5).
Ace Associates did not dispute the earlier certificate. Its case was that the commercial premises were subsequently re-planned, altered and sub-divided. Revised work was approved on 30 September 2019, followed by a memorandum of understanding with the society on 12 December 2019. The firm maintained that the particular unit remained incomplete during financial year 2019–20; an application for completion of the revised work was made only on 27 January 2023.
The Tribunal held that the original occupation certificate, relating to the building’s earlier configuration, could not by itself establish that the subsequently reconfigured unit was complete, lawfully occupiable and capable of being let in the year under appeal. The Revenue produced no material to dislodge the Commissioner (Appeals)’s factual finding on the revised unit.
The rent estimate had a further weakness. It came from a general online listing, with no verified comparison addressing the condition and configuration of the premises in question. The Tribunal therefore upheld deletion of the ₹16,84,200 addition.
Opening Stock Is Not a Fresh Cash Credit
The ₹27.49 crore addition arose because the Assessing Officer could not find a corresponding closing stock figure in the previous year’s return. The Commissioner (Appeals), however, had examined a year-wise reconciliation, financial statements and supporting records. The project’s stock had been accepted in scrutiny assessment for assessment year 2010–11 and carried forward with related project and interest costs.
The Tribunal noted the basic accounting distinction: opening stock is an inventory balance brought forward, not a sum credited during the current year. During the year under appeal, one commercial unit was sold, one was let and another remained in closing stock. The Assessing Officer accepted the sale proceeds and rent, and had even sought notional rent on the vacant unit. Those treatments themselves recognised the existence of the stock he had simultaneously called unexplained.
An omission or incorrect disclosure of closing stock in the preceding return might be examined in accordance with law. It did not turn the brought-forward inventory into a fresh section 68 credit for assessment year 2020–21. The Revenue showed neither that the units had been disposed of earlier nor that the reconciliation accepted by the Commissioner (Appeals) was wrong. The Tribunal sustained deletion of ₹27,49,50,173.
₹42 Lakh Was a Lease Deposit
The Assessing Officer’s discussion of ₹42 lakh proceeded on the mistaken premise that Ace Associates had purchased property from HDFC Bank. A registered indenture of lease dated 13 September 2019 showed the opposite transaction: the firm had let premises to HDFC Bank and received ₹42 lakh as a security deposit, recorded in its books.
The Tribunal noted that this amount was never included as an addition in the assessment’s final income computation, making the Revenue’s ground academic to that extent. The lease document independently answered the allegation of unexplained investment. The Revenue’s ground failed.
Author’s Comments
The section 23(5) finding is tied to the specific unit and its later alteration. An old certificate for the original building was insufficient evidence of when the revised commercial premises became complete and lettable. The order does not suggest that every alteration automatically restarts the statutory period; the documented state of the particular unit was decisive here.
The stock finding is equally practical. A mismatch in successive returns calls for reconciliation, but the character and year of an item must still be established before applying section 68. Having failed on all three grounds, the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by the Revenue is directed against the order dated 24.03.2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘the learned CIT(A)’], arising out of the assessment order dated 28.09.2022 passed under section 143(3) read with section 144B of the Income-tax Act, 1961 (‘the Act’) for the assessment year 2020-21.
2. The Revenue has raised the following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made towards income from house property in respect of unsold flats under section 23, ignoring the fact that the assessee had not offered rental income in respect of the unsold flat.
2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made under section 69 of the Act, ignoring the fact that the assessee had failed to prove the genuineness of the receipt of Rs.42,00,000 with corroborative evidence and the nexus of the transaction with the receipt.
3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition made under section 68 of the Act, ignoring the fact that the assessee had failed to prove the genuineness of the credit of Rs.27,49,50,173 with corroborative evidence and the nexus of the transaction with the receipt.
4. The appellant craves leave to add, amend, alter, substitute or modify any of the above grounds or to raise an additional ground at or before the time of hearing.”
3. Briefly stated, the assessee is a partnership firm engaged in the business of real-estate development. It had undertaken redevelopment of the project known as ‘Divyajyot’ at Goregaon (West), Mumbai. The assessee filed its return of income on 30.12.2020 declaring total income of Rs.88,30,660. The case was selected for complete scrutiny. The Assessing Officer noticed that, out of the commercial units forming part of the assessee’s stock-in-trade, one unit admeasuring 4,436.16 sq. ft. had been let out and another unit admeasuring 5,167.04 sq. ft. remained vacant. He invoked section 23(5), adopted monthly rent of Rs.2,00,500 on the basis of an internet search on the website ‘NoBroker’, computed annual value at Rs.24,06,000 and, after allowing deduction under section 24(a), added Rs.16,84,200 under the head ‘Income from house property’.
4. The Assessing Officer further observed that opening stock of Rs.27,49,50,173 was reflected in the trading account for the year, whereas no closing stock was shown in the return for the immediately preceding assessment year. Treating the opening stock as an unexplained credit, he made an addition of Rs.27,49,50,173 under section 68 of the Act. In the body of the assessment order, he also proposed an addition of Rs.42,00,000 under section 69 on the premise that the assessee had purchased an immovable property from HDFC Bank Ltd.; however, this amount was not included in the final computation of assessed income.
5. In appeal, the learned CIT(A), after examining the documents and reconciliation furnished by the assessee, deleted the addition of Rs.16,84,200. The learned CIT(A) recorded that the commercial premises were undergoing reconfiguration and modification under a revised plan, that an application for issuance of the building completion certificate in respect of such work was made before the competent authority only on 27.01.2023 and that the Assessing Officer had brought no material on record to establish completion of the relevant unit so as to attract section 23(5). The addition under section 68 was also deleted after recording that the opening stock stood reconciled with stock carried forward from earlier years, including stock accepted in scrutiny assessment for assessment year 2010-11. As regards Rs.42,00,000, the learned CIT(A) found from the registered indenture of lease dated 13.09.2019 that it represented a security deposit received from HDFC Bank Ltd. and not investment in purchase of property. The learned CIT(A) also noticed that no such addition formed part of the final computation in the assessment order.
6. The learned Departmental Representative supported the assessment order. On the first ground, he submitted that the assessee had not furnished the date of the occupation certificate and, therefore, the learned CIT(A) was not justified in holding that section 23(5) was inapplicable. He submitted that the assessee itself had stated before the Assessing Officer that the project was completed in financial year 2008-09 and that the occupation certificate was received in the same year. Since the vacant unit was held as stock-in-trade and was not let out, its annual value was chargeable under section 23(5). On the remaining grounds, he submitted that the assessee had failed to discharge the onus regarding the amount of Rs.42,00,000 and the opening stock of Rs.27,49,50,173 and that the learned CIT(A) had accepted the assessee’s explanation without adequate verification.
7. Per contra, the learned Authorised Representatives supported the order of the learned CIT(A). It was submitted that the original occupation certificate dated 31.03.2009 concerned the building in its earlier configuration, whereas the commercial premises forming the assessee’s stock were subsequently required to be re-planned and sub-divided. Approval for the revised work was granted on 30.09.2019 and a memorandum of understanding dated 12.12.2019 was entered into with the society permitting re-planning, alteration and sub-division. The work in the impugned unit was incomplete during the relevant previous year and the application for completion of the revised work was made only on 27.01.2023. Hence, the unit was not capable of being lawfully occupied or let during the year. It was further submitted that the sum of Rs.42,00,000 was a lease deposit duly evidenced by the registered lease deed and that the opening stock was fully reconciled with the closing stock of earlier years. The learned Authorised Representatives accordingly submitted that no interference with the order of the learned CIT(A) was called for.
8. We have heard the rival submissions and perused the material available on record. Ground No.1 concerns the addition of Rs.16,84,200 under section 23(5). The provision applies where a property consisting of a building or land appurtenant thereto is held as stock-in-trade and is not let during the whole or any part of the previous year. The statute takes its annual value at nil for the specified period reckoned from the end of the financial year in which the certificate of completion of construction is obtained from the competent authority. Thus, for invoking the provision, the Revenue must first establish that the particular property or part thereof was a completed property capable of being let and identify the relevant completion certificate and the date from which the statutory period is to be reckoned.
9. The argument of the learned Departmental Representative that the assessee did not furnish the date of the occupation certificate does not advance the Revenue’s case. The assessment order itself records that the original project was completed and an occupation certificate was received in financial year 2008-09. The assessee’s case, accepted by the learned CIT(A), is not that no certificate ever existed for the original building. Its case is that the commercial premises in question underwent a subsequent re-planning, sub-division and modification pursuant to the revised approval dated 30.09.2019 and the memorandum of understanding dated 12.12.2019, and that the impugned unit was incomplete during the previous year relevant to assessment year 2020-21. The application dated 27.01.2023 for completion of the revised work was specifically taken note of by the learned CIT(A). The original occupation certificate for the building in its earlier configuration cannot, by itself, establish that the subsequently reconfigured commercial unit was complete and capable of being let during financial year 2019-20.
10. The learned CIT(A) has recorded the following material finding:
‘However, considering that the application for issuance of Building Completion Certificate was made by the appellant before the Executive Engineer, Special Planning Authority only on 27.01.2023, which reflects that the building was not complete, the amended provisions of section 23(5) will not apply in the case of the appellant. … The Assessing Officer has failed to bring any material on record to show that the project stood completed a year prior to the end of the financial year 2020-21. … In the absence of the date of completion, notional rent cannot be charged as per the provisions of section 23(5) of the Act.’
11. The Revenue has not brought before us any material to dislodge the above factual finding or to show that the revised commercial unit was complete, lawfully occupiable and capable of being let during the relevant previous year. The Assessing Officer merely proceeded on the date of completion of the original project and estimated rent through a general internet search. Such material does not answer the specific factual issue arising from the subsequent reconfiguration of the commercial premises. Even the annual value adopted by the Assessing Officer is based on an online listing and not on municipal rateable value or any comparable instance verified with reference to the condition and configuration of the impugned unit. In these circumstances, we find no infirmity in the conclusion of the learned CIT(A) deleting the addition of Rs.16,84,200. Ground No.1 raised by the Revenue is dismissed.
12. Ground No.2 relates to the sum of Rs.42,00,000. At the outset, the learned CIT(A) has recorded that although the Assessing Officer discussed this amount in the body of the assessment order, it was not added in the computation of total income. To that extent, the ground is academic. Even otherwise, the learned CIT(A) examined the registered indenture of lease dated 13.09.2019 and found that the assessee had let the premises to HDFC Bank Ltd. and received Rs.42,00,000 as a security deposit, which was duly recorded in the books. The Revenue has placed no material before us to demonstrate that the document was a purchase deed or that the amount represented an investment made by the assessee. Therefore, the order of the learned CIT(A) on this issue calls for no interference. Ground No.2 is dismissed.
13. Ground No.3 concerns the addition of Rs.27,49,50,173 under section 68. The amount represents the value of three commercial units appearing as opening stock on 01.04.2019. An opening stock is a debit item brought forward from the immediately preceding year; it is not, by its nature, a sum credited during the relevant previous year. The learned CIT(A) examined the year-wise reconciliation, financial statements and bank records and noticed that closing stock of the project had been accepted in the scrutiny assessment for assessment year 2010-11 and had thereafter been carried forward with the relevant project and interest costs. During the year under consideration, one unit was sold, one was let out and the remaining unit continued in closing stock. The Assessing Officer accepted the sale proceeds as business receipts and the rent from the let-out unit, and also sought to tax notional rent on the vacant unit. These accepted transactions themselves proceed on the existence of the very stock which was simultaneously treated as an unexplained credit.
14. The omission or incorrect disclosure of closing stock in the return for the immediately preceding year may call for examination in accordance with law, but it does not convert an opening inventory balance into a fresh cash credit in the books for the year under appeal. The Assessing Officer has not brought any material to show that the units comprising the opening stock had been sold or otherwise disposed of in an earlier year. The Revenue has also not controverted the reconciliation and documentary evidence examined by the learned CIT(A). We, therefore, find no infirmity in the deletion of the addition of Rs.27,49,50,173 made under section 68. Ground No.3 is dismissed.
15. Ground No.4 is general in nature and requires no separate adjudication.
16. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 23/09/2026.
