ITAT Mumbai Ruling in Welkin Developers Vs ACIT: Survey-Based Additions Challenged, Interest on Land Held as Allowable Business Cost
Overview of the Case
The Income Tax Appellate Tribunal (ITAT), Mumbai bench delivered a significant ruling in Welkin Developers Vs ACIT, addressing multiple additions made by the Assessing Officer (AO) following survey proceedings. The case involved assessment years 2018-19 and 2019-20, and the impugned order had been passed by the Commissioner of Income Tax (Appeals) under Section 250 of the Income Tax Act 1961, dated 05.07.2025. The original assessments were framed under Section 143(3) of the Act — for AY 2018-19 on 27.05.2021, and for AY 2019-20 on 28.09.2021.
Both appeals were filed by the assessee against separate orders of the Ld. CIT(A)-52, Mumbai, and given the common factual background, the ITAT heard them together. ITA No. 5069/Mum/2025 for AY 2018-19 was treated as the lead case, with the decision rendered therein to apply mutatis mutandis to the other appeal.
Background and Survey Proceedings
A survey was conducted by the revenue authorities on 15.01.2019 at the business premises of the assessee — a real estate developer. During the course of the survey, certain discrepancies were identified pertaining to AY 2018-19, which triggered selection of the case for scrutiny assessment.
On the basis of findings from the survey, the Ld. AO proceeded to make the following three major additions:
- Rs. 41,14,625/- — representing alleged under-reported profit from the Welkin Star project
- Rs. 20,00,000/- — on account of presumed sale of four parking spaces
- Rs. 79,42,978/- — disallowance of interest paid to Indiabulls Finance on loans connected with land acquisition at Ghansoli
The Ld. CIT(A) confirmed all the above additions without independent reasoning, prompting the assessee to approach the ITAT.
Ground No. 1 — Addition of Rs. 41,14,625/- on Account of Alleged Under-Reported Profit
AO's Basis for the Addition
During survey proceedings, a statement was recorded under oath on 18.01.2019 from the assessee's partner. Based on the figures disclosed in that statement — total sales of Rs. 4,76,31,100/- across AY 2017-18 and AY 2018-19, land cost of Rs. 88,34,400/-, and construction and other expenses of Rs. 1,39,84,221/- — the AO computed a net profit of Rs. 2,48,12,479/-. Since the assessee had disclosed only Rs. 2,06,97,854/- as profit in its return, the AO determined a balance profit of Rs. 41,14,625/- and added it to the assessee's income.
The AO's reasoning was that since the assessee followed the mercantile system of accounting, income had to be offered once revenue was recognized and sales were booked — irrespective of whether cash had been received.
Assessee's Submissions
The Ld. AR pointed out a critical procedural flaw: the figure of Rs. 1,39,84,221/- used by the AO was derived purely from the partner's oral statement recorded during the survey in January 2019. The assessee's books of account were finalized only in March 2019, after accounting for all correct expense figures. Consequently, the statement-based figure did not represent the audited financial position of the assessee.
The AR further highlighted that:
- The AO did not reject the books of account of the assessee at any stage
- No details or basis for the expense computation were ever communicated to the assessee for its rebuttal
- The assessee was denied a reasonable opportunity of being heard on this issue
- Both the AO and the CIT(A) remained silent on the basis of the expense figure adopted
A year-wise profit statement for the Welkin Star project was placed on record, demonstrating the correct accounting position as per audited books: