ORANGE CITY RECREATION RESORT PVT LTD,MUMBAI vs. INCOME TAX OFFICER, WD-7(3)(1), MUMBAI

The Assessing Officer also made an addition of Rs. 1,00,000/- being 0.25% of Rs. 40,00,000/- as commission paid to Mr. Rajesh Bhutoria for the services availed, as unexplained expenditure u/s. 69C of the Act.

The assessee challenged the said additions by filing first appeal before the Ld. Commissioner, who not only affirmed the addition on legal aspect, but in fact also on merit, by holding as under: - “6.4 On Ground of Appeal No. 3: The assessee submitted confirmations, PAN, audited financials and bank statements of the creditors. However, the AO has noted that all the lender entities were controlled by a group as discussed in assessment order in detail, which has been found by the Investigation Wing to be engaged in providing accommodation entries. The statements of Shri Rajesh Bhutoria and others clearly establish that these companies had no real business and were merely used as conduits. It is settled law that mere furnishing of PAN or filing of returns does not ipso facto establish creditworthiness or genuineness of the transaction. The assessee was required to prove three essential ingredients (i) identity of the creditor, (ii) creditworthiness, and (iii) genuineness of the transaction. While identity may not be in dispute, the assessee has failed to establish the creditworthiness of the creditors, who were found to have meagre income and negligible business activity. Further, the findings of the Investigation Wing clearly indicate that the loans were merely accommodation entries. The reliance placed by the assessee on the fact of subsequent repayment is misplaced. Repayment of an accommodation entry does not alter the colour of the original transaction. Further, the decisions cited by the assessee are distinguishable on facts. Considering the entirety of the facts and the findings of the Investigation Wing, I hold that the AO was justified in treating the sum of Rs. 40,00,000/- as unexplained cash credit u/s 68 of the Act. Accordingly. this addition is confirmed. 6.5 On Ground of Appeal No. 4: The AO has made an addition of Rs. 10,000/- towards commission expenditure incurred for arranging accommodation entries. Such commission is a normal incidence in entry-providing arrangements, and the estimate made by the AO is reasonable in the facts of the case. The assessee has not been able to rebut the finding with any evidence. Accordingly, the addition of Rs. 10,000/- made u/s 69C is confirmed.”

The Assessee, thus by producing said relevant documents, has established the identity and credit worthiness of the parties and genuineness of the transactions carried out as claimed. Further declaring the lowest income in the return of income is not a criterion for doubting the transactions, as financials in all aspects are required to be considered. In the instant case, it is not in dispute that the assessee in fact has also repaid the loan amounts in the subsequent years. And therefore, the said aspect strengthens the case of the assessee as genuine.

The Hon’ble Jurisdictional High Court in the case of PCIT Vs. Kaila Build of 2016(Bombay) - HC and in the case of PCIT vs. Bhupendra Champaklal Dalal [2024] 160 Taxmann.com (645)(Bombay)-HC, has also considered the particular aspect, wherein, the repayments have been made by the then Assessees to the parties and verified by the Assessing Officer. And, therefore, the Hon’ble High Court considering the repayment as one of the main grounds in deletion of the addition, affirmed the deletion of addition.

This Court further observes that Hon’ble Gujarat High Court in the case of Commissioner of Income Tax vs. Rajkot-I vs. Ayachi Chandrashekhar Narsangji (ITA 992 of 2013) decided on 2nd December, 2013 (citation 2014)42 taxmann.com 251 (Gujarat) has also came across with a situation, wherein, the amount of loan was repaid in the subsequent year, which was accepted by the Revenue and, therefore, the Hon’ble High Court affirmed the view of the Tribunal in deleting the addition.

Further, the Hon’ble Gujarat High Court in the case of Principal Commissioner of Income Tax Vs. Ojus Tarmake (P.) Ltd., R/Tax Appeal No. 533/2023 decided on 22nd August, 2023, (citation-2023) 156 taxmann.com 75(Gujarat) has also dealt with identical issue, wherein, the loan received by the assessee was returned to the loan party during the year itself and all transactions were carried out through banking channel, as well as interest was also paid by the then assessee to the creditors by A/c payee Cheque and therefore, the Hon’ble High Court by considering the peculiar fact and observed that merely because the summons issued to the some of the creditors, were not served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from the creditors, as non-genuine in view of the principles laid down by the Supreme Court in the case of Commissioner of Income-Tax, Orissa v. Orissa Corporation (P) Ltd., reported at (1986) 159 ITR 78, and ultimately affirmed the deletion of addition.

Coming to the other aspect of this case, the assessment year involved is 2012-13 and amendment under section 68 of the Act came into effect from the AY 2013-14 onwards to discharge the onus to prove the ‘source of source’ and thus, the assessee in the instant case was not supposed to prove the ‘source of source’.

Thus, on the aforesaid analyzations, this court is of the considered opinion that assessee has been able to discharge its prima facie onus cast u/s 68 of the Act and the AO except relying on statements of alleged directors of M/s KCA Allied Services Pvt. Ltd. and without providing any opportunity for cross-examination and without controverting the relevant documents filed by the Assessee and establishing substantive corroborative evidence, made the addition, which on the aforesaid reason, is unsustainable and thus, the same is deleted.

In the result, the Assessee’s appeal is allowed.