Sheth Developers Private Limited Vs ACIT (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal, comprising Justice (Retd.) C. V. Bhadang, President, and Prabhash Shankar, Accountant Member, disposed of connected appeals of Sheth Developers Private Limited, Sheth Corp Private Limited and the Revenue for Assessment Years 2018-19 and 2020-21. The composite order dated 24 August 2026 examined notional rental income from unsold real estate inventory, deductibility of interest on delayed remittance of tax deducted at source, valuation differences under Section 43CA, depreciation on goodwill arising from amalgamation and the concessional tax regime under Section 115BAA.
On the issue of unsold flats held as stock-in-trade, the Assessing Officer had estimated deemed annual letting value at 8.5% of construction cost. The Tribunal held that Section 23(5) was applicable, but that an arbitrary percentage of investment could not substitute for an appropriate determination of annual value. Applying the Bombay High Court ruling in CIT v. Tip Top Typography and the coordinate-bench decision in Dimple Enterprise, it directed the Assessing Officer to ascertain municipal rateable value and recompute notional rent after obtaining relevant details from the assessee. The same approach was applied to the connected appeals, including the Sheth Corp Private Limited appeal involving an addition of ₹1,42,26,212.
For Assessment Year 2018-19, Sheth Developers contested a disallowance of ₹1,86,85,749 representing interest paid for delay in depositing TDS. The Tribunal distinguished compensatory interest from expenditure incurred for an offence or a purpose prohibited by law under the Explanation to Section 37(1). Following Mangal Keshav Securities Ltd. v. ACIT, it held that the interest compensated the exchequer for delayed remittance and directed the Assessing Officer to delete the disallowance.
In the Revenue’s appeal for Assessment Year 2020-21, the Tribunal upheld deletion of ₹14,75,200 added under Section 43CA because the difference between agreement consideration and stamp-duty value was only 0.67%, and the relevant tolerance provision was treated as retrospective in light of cited coordinate-bench decisions. It also sustained the deletion of ₹18,47,57,203 disallowed as depreciation on goodwill recognised upon the amalgamation of Precious Trading & Investments Limited with Sheth Developers. Relying on CIT v. Smifs Securities Ltd. and CIT v. Aditya Birla Nuvo Ltd., the Tribunal accepted the goodwill treatment arising from the approved amalgamation and related valuation.
As to the assessee’s election under Section 115BAA, the Tribunal treated delayed filing of Form 10-IC as a potentially procedural lapse, but remanded the issue to the Assessing Officer to verify compliance with Rule 21AE and the remaining statutory conditions before allowing concessional taxation. Accordingly, the assessee’s and Revenue’s appeals received different issue-wise relief, including remands for statistical purposes; the order’s final summation states that ITA Nos. 5603, 5604, 5605 and 6204/Mum/2025 are partly allowed. The decision does not eliminate taxation of all unsold inventory or dispense with verification of eligibility for Section 115BAA.
Cases Discussed
- CIT Vs Tip Top Typography (Bombay High Court) – (2014)
- Dimple Enterprise Vs DCIT (ITAT Mumbai) – Order dated 28 August 2023.
- Ansal Housing Finance and Leasing Co. Ltd. (Delhi High Court) – (2013)
- Mangal Keshav Securities Ltd. Vs ACIT (ITAT Mumbai)
- CIT Vs Smifs Securities Ltd. (Supreme Court)
- CIT Vs Aditya Birla Nuvo Ltd. (Bombay High Court)
- Maria Fernandes Cheryl Vs ITO (ITAT Mumbai) – (2021)
- Balkrishna Venkappa Bhandary Vs DCIT (ITAT Mumbai) – (2024)
- Glory Ship Management Private Limited Vs CIT(A) (ITAT Mumbai) – ITA No. 3149/Mum/2023.
- Sandeep Kumar Poddar Vs ITO (ITAT Kolkata) – ITA No. 484/Kol/2022, order dated 13 March 2023.
- Suminter India Organics Pvt. Ltd. (ITAT Mumbai)
