ASSISTANT COMMISSIONER OF INCOME TAX, NEW DELHI vs. KIND BUILDING SOLUTIONS PRIVATE LIMITED, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”, DELHI

BEFORE SH. YOGESH KUMAR US, JUDICIAL MEMBER AND SH. MANISH AGARWAL, ACCOUNTANT MEMBER

ITA No.4979/DEL/2024 (AY 2015-16)

ACIT, Vs. KIND BUILDING SOLUTIONS ROOM NO. 316A, C.R. PRIVATE LIMITED, 1985/154, 1ST FLOOR, BUILDING, I.P. ESTATE, NEW DELHI – 110 002 GANESH PURA, TRI NAGAR, DELHI – 110 035 (PAN: AAFCK3394K) (APPELLANT) (RESPONDENT)

Appellant by Sh. Dayainder Singh Sidhu, CIT(DR) [Through VC] Respondent by Sh. Ruchesh Sinha, Adv. & Ms. Monalisa Maity, Adv.

Date of hearing: 05/03/2026 Date of Pronouncement: 20/05/2026

ORDER PER MANISH AGARWAL, AM : This appeal filed by the Revenue is directed against the order of the Ld. National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “NFAC”] dated 30.8.2024 arising out the assessment order 30-12-2017 u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) pertaining to A.Y. 2015-16. 2. The grounds raised in Revenue’s appeal read as under:- 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 14,20,00,000/- on account of unexplained credits u/s. 68 of the Act? 2. Whether on the facts and circumstances of the case, the Ld.CIT(A) erred in deleting the addition of Rs. 14,20,00,000/-

ignoring the fact that unsecured loans were received from companies in which the directors are accommodation entry providers Sh. Surender Jain and Sh. Virender Jain? 3. The brief facts of the case are that assessee filed return of income declaring loss of Rs. 1,57,97,650/- on 26.10.2015. The return was processed u/s. 143(1) of the Act. Subsequently, the case of the assessee was selected for limited scrutiny through CASS due to the following reasons: - Large squared up loans during the year (From 3CD). - Real estate business with high closing stock (verify whether assessee has adopted percentage completion method). - Mismatch in amount paid to related persons u/s. 40A(2)(b) reported in Audit Report and ITR. - Sale of property reported in Form 26QB. - Purchase of property reported in From 26QB. 3.1 Notice u/s. 143(2) dated 29.4.2016 was issued and served upon the assessee. Thereafter, notices u/s. 142(1) alongwith questionnaire dated 7.10.2016 and 3.2.2017 were issued and served upon the assessee. Subsequently, another notice and questionnaire u/s. 142(1) dated 15.6.2017 was issued and served upon the assessee. The assessee company made is engaged in the business of real estate developers. AO found that two of the parties from whom loans were received during the year and repaid during the year itself were such parties in whose case search and seizure action took place about 5 years prior to the instant year in FY 2010-11 and that they were found to be engaged in the business of providing accommodation entries in assessment year 2010-11. These two entities were ‘Mekaster Finlease Ltd.’ from whom loan amount taken during the year amounting to Rs. 11,00,0,000/- and ‘RKG Finvest Ltd’ from whom loan amount taken during the year amounting to Rs. 3,20,00,000/-. With respect to this transaction, the assessee stated that it has entered a purely genuine transactions and have duly paid the interest on the amount, have made the deduction of tax at source. The assessee stated that both these companies are NBFC and are therefore governed by the provisions of the RBI. During the course

of assessment proceedings, the assessee company furnished confirmations, income tax particulars as well as bank statements of both the parties, copy of the audited financials and also explained that loans stood repaid during the instant year itself by account payee chequye which were also verifiable from the bank statements as well as confirmations. But the AO held that the amount of Rs. 14.20 crores received as loan and also repaid during the instant year by the assessee is to be added under the provisions of section 68 of the Act, as the above two companies were managed by some accommodation entry provider and based on this, the AO has chosen to make the addition. Against the above, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 30.8.2024 allowed the appeal of the assessee. Aggrieved, Revenue is in appeal before the Tribunal. 4. Heard the rival contentions and perused the material on record. During under

appeal, the assessee has received loan from two companies namely M/s Mekaster

Finlease Ltd.’ and ‘RKG Finvest Ltd’ which were repaid during the year under

appeal. The AO based upon search and survey carried out on related parties of the

lending companies 5 years back in financial year 2010-11 alleged that these two

entities were engaged in providing accommodation entries of loans and made the

addition of the said amount as unexplained credit u/s. 68 of the Act. In first appeal,

Ld. CIT(A)/NFAC has deleted the addition by observing that no material has been

brought on record by making enquiries and investigations to hold that the loans taken

from non-genuine loans. All the grounds are with respect to the deletion of addition

by the Ld. CIT(A), who while deleting the addition has observed as under:-

“7.1 These grounds of appeal are inter-related to each other regarding the addition made by the AO u/s. 68 of the I.T. Act and therefore all are adjudicated together as under. In these grounds of appeal the appellant has contested against the addition made by the

AO. The appellant claimed that the details regarding the source, identity, creditworthiness and genuineness of the transactions of having received loans were submitted before the AO alongwith the proof of repayment of the same. The appellant has also contested that the AO has failed to discharge its onus by not verifying the details submitted and arbitrarily rejecting all the documentary evidences only on the basis of suspicion, surmises and conjectures. Relevant portion of the appellant’s submission in this regard is reproduced as under:- “…… 1. It is evident from the facts as submitted in our previous submission that the loan…. 7.2 In respect of the issued raised in Ground No. 2, the supporting arguments submitted by the appellant are substantially similar to those placed before the Assessing Officer. The AO has discussed at length in the assessment order that the entities from which loans have been taken by the appellant are paper companies which are used to provide accommodation entries to beneficiaries by routing money. The AO has observed that The essential characteristic of paper companies is that they exist on paper and hence have all the paper work complete. The mere fact that the companies have a PAN, ITR and have been granted permit to carry of activities as an NBFC cannot vitiate the evidences that were found during the course of search proceedings. Detailed accounts of cash received and how they were routed through a web of companies by issuing cheques /RTGS were obtained. Based on the investigations carried out by the Department and further investigations carried out by the Serious Fraud Investigation Officer (SFIO), the

Enforcement Directorate filed charges against Mr. Surender Jain and Mr. Virender Jain for money laundering. The Hon’ble Delhi High Court vide its ruling on 20.9.2017 rejected the bail application of Mr. Surendra Jain and Mr. Virendra Jain based on the facts of the case. With such facts available on record, the mere fact that the companies M/s Mekaster Finlease Ltd. and M/s RKG Finvest Ltd. possess a PAN or ITR is not sufficient to establish that the transactions was genuine. The contention that the net worth of both these companies is high which establishes the creditworthiness of these companies is not a valid contention. The whole modus operandi is to increase the surplus and reserves of these bogus companies by channeling unexplained cash credits through various layers of bogus companies. The mere fact that there is high surplus in these companies does not substantiate that the net worth of the companies is high. Most of the assets of these companies can be attributed to the loans and advances given out by these companies. However, it is precisely these loans and advances which have been routed to several beneficiaries as an accommodation entry and cannot be considered as assets of genuine value. The AO has observed that the appellant’s contention that the “loan has been repaid during the year and the same points to the genuineness of the loan” cannot be held as valid arguments for treating the loan as genuine. Section 68 talks only about unexplained credits. The subsequent fate of the credit received is inconsequential for invoking the section 68. 7.3 From the assessment order, it emerges that the AO has relied only on the modus operandi discovered in the case of the lending companies, based upon search and survey actions carried out on

related parties of the lending companies in FY 2010-11 i.e. four years earlier. No specific evidence related to the loan taken by the appellant in the current year has been quoted by the AO. In the assessment order, the AO has discussed only the process adopted by bogus companies to accumulate funds in their bank account and the disbursement of the funds in the form of loans to the beneficiaries who, in the first place are the real owners of the funds. Thus, the discussion made by the AO in the assessment order are general in nature and no specific material has been brought on record to justify the disallowance. 7.4 Relying upon the modus operandi followed by third parties amounts to making use of circumstantial evidence and not direct evidence. In such a situation, it becomes imperative that all the surrounding circumstances must be given weightage and not merely selective circumstances. Therefore, in the context of the present case, the observation of the AO that section 68 talks only about unexplained credits and the subsequent fate of the credit received is inconsequential for invoking section 68, is not correct. In the context of the present case, the fact that the appellant has returned the loan assumes importance and ought to be taken into consideration. 7.5 The AO has expressed disbelief about the source of the repayment of the loan by observing that the source out of which the loans have been squared off appear to be mere book entries as the sale of land (from which money was sourced by the appellant to repay the loans) has been done by the appellant with a related party and a party having the same address as the directors in the appellant company. Here too, the AO has not presented any direct evidence but relied upon related party transactions to doubt the source of the repayments made by the appellant. The AO has not been able to establish that the return of the loan is false or even sham or

fraudulent. There is no finding or even allegation that after the appellant returned the loan through banking channel, the money was in any manner returned to the appellant, which could then cast some shadow of doubt upon the genuineness of the repayment. The absence of evidence to assail the repayment of the loan is also a factor to be kept in mind, considering that there is no direct evidence to assail the taking of the loan. 7.6 In this view of the matter, the AO's observation that "it is precisely these loans and advances which have been routed to several beneficiaries as an accommodation entry and cannot be considered as assets of genuine value" too is not borne out of any evidence as far as the appellant is concerned. 7.7 The AO has observed that "the mere fact that there is high surplus in these companies does not substantiate that the net worth of the companies is high. Most of the assets of these companies can be attributed to the loans and advances given out by these companies". In this regard, it is pertinent to observe that the nature of business operations of any bank, NBFC or financial institution is to accept deposits on interest and use the deposits as a source to give loans to others at a higher rate of interest. The net income majorly arises from the differential in interest paid on deposits vis-à-vis interest received on loans given. Such income is minuscule compared to the principal amounts which are taken as deposits and given as loans. Therefore, the observation of the AO that "Most of the assets of these companies can be attributed to the loans and advances given out by these companies does contain anything adverse to the appellant, it is true for any NBFC. 7.8 The next issue is the source of the appellant's lenders. In the present context, considering that the AO has not brought forth any direct evidence against the appellant but is relying on circumstantial

evidence, and also that the appellant has repaid the money, the liability to identify the source of the source cannot be affixed upon the appellant. 7.9 In view of the above discussion, it is concluded that there is no direct evidence in the case of the appellant to sustain the addition made by the AO. Also, the circumstantial evidence too is not sufficient to sustain the addition made by the AO. In the result, the addition made by the AO is deleted.” 4.1 It is observed that assessee company has discharged the onus that lay on it u/s.

68 of the Act by furnishing confirmations, income tax particulars as well as bank

statements and audited financial statements of both the parties. Further, the assessee

has repaid the loan and the immediate source of such repayments were explained

before the AO. The AO without making any independent enquiries or investigation

solely on the basis of material on record as a result of search carried out in FY 2010-

11 as alleged these two companies are paper companies and used by Shri Surender

Kumar Jain and Shri Virendera Kumar Jain to provide accommodation entries of

unsecured loans. It is observed from the findings of the Ld. CIT(A) that no material

was brought on record to controvert the submissions foiled by the assessee, nor any

material was brought before us to support the findings of the AO. In view of these

facts, we find that no error in the order of the Ld. CIT(A), as he has considered all the

aspects and deleted the addition. Accordingly, we affirm the order of the Ld. CIT(A)

and reject the grounds raised by the Revenue.

(YOGESH KUMAR US) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER

SR Bhatnagar

Date:20.05.2026