DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(4), MUMBAI, MUMBAI vs. MICRO ANKUR DEVELOPERS, MUMBAI

Ground Nos. 1 and 2 raised by the Revenue are interrelated and interconnected and relates to the sole issue of challenging the deletion of the additions of Rs. 37,62,000/- made by the AO on account of disallowance of interest expenditure. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

We have heard the Ld. AR, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we noticed that a search and seizure action under section 132 of the Income Tax Act was conducted in the case of Kamla Landmarc Group and its directors/partners on 10.12.2013, during which the assessee was also searched. Consequent to the search action, proceedings under section 153A of the Act were initiated.

As during the course of search, Jitendra Jain, a key person of the Kamla Group, was confronted with the statements of persons engaged in providing accommodation entries. In his statement recorded under section 132(4) of the Act on 13.12.2013, he explained that unsecured loans were obtained from various parties by paying brokerage and interest at varying rates, and he also admitted that 28 identified lenders were accommodation entry providers. 2

Relying on this statement, the AO concluded that the assessee had converted unaccounted "on money" into unsecured loans through entry providers. Therefore, after analysing the financials of the lenders, the AO ultimately made an addition of Rs. 6,60,00,000/- under section 68 in AY 2010-11, thereby treating the unsecured loan as an accommodation entry. Apart from this, the AO also disallowed interest payments on these loans for assessment years 2010-11 to 2014-15, with the interest amounting to Rs. 37,62,000/- for the year under consideration. Aggrieved by this order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the said additions by holding as under:

After having heard the counsels for the parties and perused the records, we find that the CIT(A) has deleted the additions on account of disallowance of interest by relying upon the order of the coordinate bench of the ITAT in ITA No. 1046/MUM/2019 dated 02.09.2022.

It is evident that, in the present case, the AO had concluded that during the year under consideration, the unsecured loans obtained by the assessee were accommodation entries and, therefore, non-genuine. However, an undisputed position on record is that the unsecured loans in question were originally received during AY 2010-11, and the said issue relating to their genuineness was the subject matter of the appellate proceedings culminating in the order of the ITAT dated 02.09.2022 in ITA Nos. 1046 to 1050/MUM/2019.

After having gone through the said decision of the coordinate bench of the ITAT, we find that the coordinate bench, after detailed examination, deleted the additions on the main unsecured loans made under section 68 of the Income Tax Act for AY 2010-11, holding thereby that the same were not supported by any incriminating material found during the course of search. The said findings of the coordinate bench of the ITAT have attained finality and are thus binding on the subsequent proceedings. The learned DR has brought nothing on record to counter the findings of the coordinate bench of the ITAT or has failed to place on record any order of the Hon'ble High Court challenging the said order of the coordinate bench of the ITAT or any stay granted by the Hon'ble High Court.

Now, as far as the facts of the year under consideration are concerned, admittedly, no addition has been made by the AO on account of the principal amount of the unsecured loan, and the only disallowance made by the AO is on account of interest expenditure amounting to Rs. 37,62,000/- incurred on the unsecured loans, the additions in respect of which have already been deleted by the ITAT. Therefore, in our view, once the addition of the unsecured loans itself has been deleted and has attained finality, the consequential disallowance of interest in the subsequent years cannot be made again for the reason that the said loans were bogus.

Even otherwise, no new facts, circumstances, or documents have been placed on record by the learned DR in order to controvert or rebut the lawful findings so recorded by the learned CIT(A). Therefore, we see no reason to interfere with or deviate from the findings so recorded by the learned CIT(A). Hence, we dismiss the grounds raised by the Revenue and uphold the order of the learned CIT(A).

In the result, appeal filed by the Department stands dismissed.