HEMANSHU KANTILAL MODY,MUMBAI vs. THE COMMISSIONER OF INCOME TAX, APPEAL, BHUBANESWAR

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ITA 8865/MUM/2025Status: DisposedITAT Mumbai28 July 2026AY 2013-144 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the principal loan transactions were accepted in earlier years, the corresponding interest expenditure on that loan cannot be disallowed. The addition made by the Assessing Officer was therefore set aside.

What were the facts?

The Assessing Officer disallowed interest of Rs. 6,00,000/- as unexplained expenditure, treating it as an accommodation entry. The assessee had previously taken a principal loan which was later accepted by the CIT(A) in earlier assessment years.

What were the issues?

Whether interest on a loan can be disallowed as unexplained expenditure when the principal loan amount has been accepted as genuine in earlier assessment years.

Which sections of the Income-tax Act were involved?

Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH; MUMBAI

Hearing: 20.07.2026Pronounced: 28.07.2026

IN THE INCOME TAX APPELLATE TRIBUNAL“E” BENCH; MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No. 8865/Mum/2025 (Assessment Year: 2013-14)

Hemanshu Kantilal Mody Assistant Commissioner of 104/ D-31 Yogi Prasad Society, Income Tax, Circle 42(1)(1), Yogi Nagar, Borivali (West), vs. Mumbai Mumbai, Maharashtra, 400091 Addl./Jt. Commissioner of Income Tax, Range -1 Aayakar PAN: AACPM8724B Bhavan, Bhubaneswar, Odisha, 751007. (Appellant) (Respondent) For Assessee : Shri Kamlesh Doshi For Revenue : Shri Ashok Charan, SR DR Date of Hearing : 20.07.2026 Date of Pronouncement : 28.07.2026 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), ADDL/JCIT (A) Bhubaneswar [‘Ld.CIT(A)’], dated 24.10.2025, pertaining to Assessment Year (AY) 2013-14, wherein the assessee has challenged the sustenance of addition of Rs. 6,00,000/-.

2.

Briefly, the facts of the case are that the assessee has filed his original return of income on 29.09.2013 and the assessment was completed u/s. 143(3), vide order dated 17.02.2016. Thereafter, case of the assessee was reopened, basis information that the assessee has taken accommodation entry of Rs. 56,00,000/- from the business

ITA No. 8865/Mum/2025; A.Y. 2013-14 HemanshuKantilalMody concern of Shri Deepak Kailash Babel. Thereafter, notices were issued calling for the necessary information and documentation which were considered and the Assessing Officer finally recorded his finding stating that no deposits amounting to Rs. 56,00,000/- were received during the financial year 2012-13. However, the receipts of Rs. 50,00,000/- were held as accommodation entry during the earlier F.Y. 2011-12. Therefore, the interest portion of Rs. 6,00,000/-which were accrued to the assessee on 31.03.2013 was disallowed and brought to tax as unexplained expenditure u/s. 69C of the Act.

3.

The assessee thereafter carried the matter in appeal before the ld. CIT(A), where the said addition was sustained as business income as against u/s. 69C as so done by the Assessing Officer and against the said finding, the assessee is in appeal before us.

4.

During the course of hearing, the ld. AR submitted that the principle loan amount was taken in F.Y. 2010-11 relevant to A.Y. 2011- 12 and in F.Y. 2011-12 relevant to A.Y. 2012-13, wherein the Assessing Officer has added Rs. 25,00,000/- each in the respective assessment years. Thereafter, the assessee carried the matter in appeal before the ld. CIT(A) and the ld. CIT(A) has since deleted the said addition vide his order dated 06.03.2024, pertaining to A.Y. 2011-12 and dated 19.02.2024, pertaining to A.Y. 2012-13 and our reference was drawn to the findings of the ld. CIT(A) which are similarly worded and the same reads as under:

“4.3.5 I have gone through the assessment order and the detailed submissions along with the evidence filed by the assessee. It is seen that the AO has built the case of undisclosed income u/s 68 on the basis of the statement recorded by Sri Deepak Babel before the Investigation wing. However, the assessee has submitted that Sri Babel had retracted his statement made before the IT authorities. A copy of Sri Babel's affidavit confirming the same has been submitted by the assessee before the appellate authority. Along with the affidavit, the assessee has also filed a copy of bank account showing that all the transactions have been

ITA No. 8865/Mum/2025; A.Y. 2013-14 HemanshuKantilalMody made through banking channels, and confirmation from the said party ie Sri Babel. Against this, the AO has not made any independent enquiries or third-party investigation to corroborate that the amount was indeed the undisclosed income of the assessee himself. 4.3.6 Although the AO has made a compelling argument about the loan being just an entry in the books, he has failed to substantiate it with any supporting evidence. The main pillar of his argument was the statement of Sri Deepak Babel which was demolished once the statement was withdrawn. In the absence of any other evidence, and in the presence of the supporting documents provided by the assessee, the addition made by the AO cannot be sustained. Hence, the addition made by the AO of Rs 25,00,000/- u/s 68 is deleted.”

5.

It was accordingly submitted that where the addition towards principle loan amount has been deleted and the loan transactions have been accepted, the corresponding expenditure by way of interest on the same loan amount cannot be disallowed and it was accordingly submitted that the addition so made and sustained by the ld. CIT(A) be deleted.

6.

The ld. DR has been heard, who has relied on the order passed by the lower authorities.

7.

We have heard the rival contentions and perused the material available on record. Admittedly, the principle loan transactions were subject matter of disallowance in A.Y. 2011-12 and 2012-13 which stands accepted by the order of the ld. CIT(A) referred supra. In light of the same, the interest payable on the said loan amount,which was disallowed solely for the reason of principle loan transactions being disputed,cannot be disallowed and the addition so made by the Assessing Officer is hereby set aside and the appeal of the assessee is allowed.

8.

In the result, the appeal filed by the assessee is allowed.

Order pronounced on 28.07.2026

ITA No. 8865/Mum/2025; A.Y. 2013-14 HemanshuKantilalMody

Sd/- Sd/- SIDDHARTHA NAUTIYAL VIKRAM SINGH YADAV (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)

Mumbai, Dated: 28.07.2026 Karishma J. Pawar, SR. PS

Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file

By Order

Dy./Asst. Registrar I.T.A.T, Mumbai

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