M/S. MUNDRA HOTELS AND RESORTS PRIVATE LIMITED (FORMERLY KNOWN AS M/S. MUNDRA ENTERPRISES PVT. LTD.),MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -4(2)(2), MUMBAI, MUMBAI

In the instant case, the Assessee had declared its total income at Rs.22,92,500/- by filing original return of income on 29.09.2012, which was initially processed under Section 143(1) of the Act on dated 08.10.2013. However, subsequently reopened under Section 147 of the Act by issuing a notice dated 29.03.2019 under Section 148 of the Act mainly on the reason that an information was received from Investigation Wing Calcutta, revealing that one Shri Pravin Agrawal, an entry operator, was engaged in providing bogus entries through various shell companies by issuing accommodation entries on commission, professional charges, sub-contracts and similar expenses. The investigation wing report identified the Assessee company, as one of the beneficiary during the AY under consideration. Thus, on the basis of the information, the AO formed the belief that income had escaped assessment.

The Assessee in response to the notice under Section 18 of the Act filed its return of income on dated 23.04.2019 declaring the same income as declared in the original return of income.

The AO, by considering the documents and the details available observed that during the AY under consideration, the Assessee had received a loan of Rs50,00,000/- from M/s. Esquire Enclave Pvt. Ltd. and Rs. 30,29,700/- from M/s. Kamtanath Synthetic Pvt. Ltd. Therefore, in order to examine the aforesaid loan amounts as alleged, show caused the Assessee, who in response filed various documents with regard to the loan amounts received from aforesaid companies, such as loan confirmation, bank statement of the lenders highlighting the transaction, bank statements of the Assessee highlighting the transaction, ITR acknowledgments of the lenders, financial statements of the M/s. Esquire Enclave Pvt. Ltd., loan repayment confirmation during AY 2014-15 along with bank statement, highlighting transaction of the bank statement of the Assessee highlighting transaction, as well as the notice issued under Section 133 (6) of the Act to the lender M/s. Kamtanath Synthetic Pvt. Ltd. and its reply.

Though, the AO not doubted the documents filed by the Assessee, however, on the basis of the investigation carried out by the Investigation Wing, Calcutta and statement of Shri Pravin Agarwal, who admitted to have provided accommodation entries, treated the loan transactions as unexplained in view of the provisions of Section 68 of the Act and ultimately, added the loan amounts of Rs. 50,00,000/- + Rs. 3029700/- in the income of the Assessee. The AO also added the amount of Rs.7,88,976/- and Rs.4,54,455/- being disallowance of interest expenses claimed by the Assessee as non-genuine.

The Assessee being aggrieved challenged the said additions by filing first appeal before the ld. Commissioner and during the course of appellate proceedings also filed additional evidence, such as ITR of the lenders, balance sheets and loan confirmation and ledgers as claimed and therefore, the AO on direction of the ld. Commissioner conducted the remand proceedings and ultimately submitted the remand report dated 15.01.2025 inter-alia submitting that the additional evidence filed by the Assessee under Rule 46A of the Income Tax Rules, 1962 (in short ‘Rules’) is liable to be rejected. Further, the lenders company were paper entities, without genuine business activities hence, the transactions claimed by the Assessee are non-genuine and the additions made during the reassessment proceedings, merit confirmation.

We have heard the parties and perused the material available on record. Admittedly, the Assessee in order to discharge its prima facie onus cast under Section 68 of the Act, filed the relevant documents as observed above and admittedly, the authorities below have not doubted the documents filed by the Assessee. Further it is also a fact that, as not in denial that the assessee subsequently repaid the loan amounts to the lenders, as detailed below:

As observed above, the Assessee has prima facie discharged its onus cast under Section 68 of the Act by producing the relevant documents referred to above and it is also a fact as observed that the Assessee has subsequently repaid the loan amounts along with interest, while deducting TDS and the interest expenses claimed have not been disputed by either of the authorities below. Thus, the Assessee by producing the relevant documents prima facie discharged its onus cast u/s. 68 of the Act and by making repayment strengthen the genuineness of the transaction, as also held by Hon'ble Gujrat High Court in the case of PCIT vs. Ambe Trade (P) Ltd. (2022) 145 taxmann.com 27 (Guj.), by holding inter alia as under:

According to the Hon'ble High Court, where the Assessee was not a beneficiary of the loan received by it and the loan was repaid by the Assessee in the subsequent year, then it led to unacceptable conclusion that the impugned transaction was a business transaction between the Assessee and the loan parties and therefore the loan could not be doubted for its genuineness. We further observe that the Hon'ble Gujrat High Court in the case of Deputy Commissioner of Income-tax vs. Rohini Builders [2003] 127 Taxman 523 (Gujarat) [19-03-2001], has also held on the similar footing, as held in the case of Ambe Trade Corp (P) Ltd. (supra). Thus, on the aforesaid analyzations, the addition under consideration made by the AO, as affirmed by the ld. Commissioner vide impugned order, are unsustainable and therefore, the same are deleted.

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