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Facts
The assessee, Leela News Network Pvt. Ltd., received ₹3.5 crore from VRR Financial Services Pvt. Ltd. The Assessing Officer treated this as an unexplained cash credit under Section 68 of the Income Tax Act during reassessment proceedings, initiated based on information from a search action. The assessee contended the amount was an advance for a proposed immovable property sale, supported by an Agreement to Sale and subsequent Deed of Cancellation.
Held
The Tribunal upheld the CIT(A)'s decision to delete the addition, finding that the assessee had discharged its onus by providing extensive documentation proving the identity, genuineness of the transaction (an advance for property sale, not a loan), and creditworthiness of VRR Financial. The amount was transferred through banking channels and subsequently repaid, and the AO failed to conduct an independent inquiry or conclusively rebut the evidence presented by the assessee.
Key Issues
Whether an amount received by the assessee constituted an unexplained cash credit under Section 68 or a genuine advance for a property transaction, and if the assessee successfully discharged its onus to prove the identity, genuineness, and creditworthiness.
Sections Cited
147, 148, 148A(b), 148A(d), 144B, 132(4), 68, 115BBE, 133(6)
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Date of hearing : 19-03-2025 Date of pronouncement : 26-05-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Revenue as against the appellate order dated 26-07-2024 passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [hereinafter referred to as CIT(A)-NFAC], arising out of the reassessment order passed under section 147 r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as "the Act") relating to the assessment year (A.Y.) 2018–19.
A.Y. 2018-19 Page No 2 ACIT vs. Leela News Network Pvt. Ltd.
Brief facts of the case are that the assessee is a private limited company engaged in media publication and printing, which also holds substantial equity in M/s.Sarvag Shipping Services Pvt. Ltd. (now M/s.Efcee Global Shipping Pvt. Ltd.), engaged in ship- breaking activities at Alang, Gujarat. For the assessment year 2018–19, the assessee filed its original Return of Income on 30.08.2018 declaring a total income of Rs.13,12,980.
2.1. Subsequently, based on information from a search action conducted on 25-11-2021 in the Digiana Group, Indore reopening proceedings were initiated u/s.147 of the Act, alleging that the assessee company had received accommodation entry of ₹3.5 crore from M/s. VRR Financial Services Pvt. Ltd., [hereinafter referred as VRR Financial] an alleged to be entry providers as per the statements of Sri Rajesh Vyas and Shri Hemant Dangi recorded u/s.132[4] of the Act. A notice u/s 148A(b) was issued on 10.03.2022 proposing reassessment. Despite a request for adjournment by the assessee, no effective time was granted for response and order u/s 148A(d) along with notice u/s 148 was issued on 30.03.2022.
2.2. In response assessee filed a Return of Income on 25.04.2022. The assessee claimed that the amount in question was not a loan, but rather an advance consideration for the proposed sale of immovable property located at Sub-Plot No. 1 & 2, Ghanchiwad, Rajkot, for a total consideration of ₹3.95 crores. In support of the same the assessee submitted the following evidences [a] Agreement to Sale dated 08.03.2018 entered into with VRR Financial Services Pvt. Ltd.; [b] Deed of Cancellation dated 23.09.2022, showing A.Y. 2018-19 Page No 3 ACIT vs. Leela News Network Pvt. Ltd. mutual agreement to cancel the transaction, with ₹25 lakh paid as compensation; [c] Confirmation letter and ledger account from VRR Financial; [d] Copies of bank statements reflecting the transaction; [e] copies of ITRs and audit reports of both the assessee and VRR Financial; [f] GST returns and property ownership details.
2.3. The Ld AO rejected the assessee’s explanation, primarily on the grounds that the property did not appear in the Schedule AL-1 of the ITR for A.Y. 2018–19. The Agreement to Sale was not registered and executed on manual stamp paper and attested by a Notary Public only. The documents were self-serving and hence unreliable. Cross-examination of Shri Rajesh Vyas was not effectively undertaken due to his absence in the scheduled Virtual Conference. Therefore, the Ld AO passed the reassessment order on 28.03.2023, treating the sum of ₹3.50 crore as unexplained cash credit u/s.68 of the Act and charging the same to tax u/s. 115BBE of the Act and demanded tax thereon.
Aggrieved against the reassessment order, assessee filed an appeal before Ld CIT(A) who partly allowed the appeal filed by the assessee by observing as follows:
“ … 4.1 In the instant case, the AO did not make any further enquiry, the burden cast upon the Revenue clearly had not been discharged so far as to entitle it to bring the amount of Rs. 3,50,00,000/- to tax under Section 68 of the Act. Assessing Officer did not conduct any independent enquiry except resting his conclusions on surmises. The AO without considering and pointing any deficiency in the documents/submissions made by the appellant and M/s VRR Financial Services Pvt. Ltd. held that the assessee failed to prove the identity of the creditor, explain the genuineness of transaction and establish the credit worthiness of the A.Y. 2018-19 Page No 4 ACIT vs. Leela News Network Pvt. Ltd. creditor. The assessee had furnished the details such as copy of ledger account, bank statements, copy of translated sale deed dated 25.06.2010, Agreement to Sell, legal notice, compensation paid, cancellation deed, income tax return, detail and documentary proof of board meeting and board resolution of M/s VRR Financial Services Pvt. Ltd. dated 05.03.2018, financial statements of M/s VRR Financial Services Pvt. Ltd. showing revenue of Rs.5,20,89,336/- in financial year 2016-17 and audited accounts etc. M/s VRR Financial Services Pvt. Ltd. also submitted its audited report, bank statement, confirmation, Agreement to Sell and cancellation agreement. The notice under section 133(6) of the Act was issued to M/s VRR Financial Services Pvt. Ltd., which were duly responded by it. The identity of the parties could not be, therefore disputed. The entire amount advanced by the M/s VRR Financial Services Pvt. Ltd. was through banking channels, this fact has been made part of the assessment order by the AO. It has also been seen from the submissions made by the appellant that the entire amount was repaid in subsequent year through banking channels. In view of the facts mentioned hereinabove, submissions made by the appellant and various judicial pronouncements, the addition of Rs.3,50,00,000/- is hereby deleted. “ 4. Aggrieved against the appellate order, Revenue is in appeal raising the following Grounds of Appeal:
1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs.3,50,00,000/- u/s 68 of the Act of the Act without appreciating the facts of the case ?"
2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in ignoring the fact that the assessee has transacted with M/s VRR Financial Services Pvt. Ltd., an entity which is an accommodation entry provider?" 3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary." 4. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored ?"
A.Y. 2018-19 Page No 5 ACIT vs. Leela News Network Pvt. Ltd. 4.1. Ld CIT DR Shri V Nandha Kumar appearing for the Revenue argued that the Ld.CIT(A) was not justified in deleting the addition of Rs.3.5 crores made u/s. 68 of the Act without appreciating the facts of the case and the so called Agreements of Sale and Cancellation Agreement are documents self-serving and hence unreliable and thereby supported the order passed by the AO and requested uphold the addition.
Per contra Ld. Senior Counsel Mr. Tushar Hemani appearing for the assessee brought our attention to the Agreement of Sale dated 08.03.2018, Board Resolution and legal notice issued on Deed of Cancellation 01.05.2022, along with the dated 05.09.2022 which are placed at page nos. 65–77 of the Paper Book, which clearly establish the genuineness of the property transaction. Further M/s. VRR Financial Services Pvt. Ltd’s., confirmation, ledgers, bank statement, and ITRs for A.Ys. 2018–19 and 2023– 24 at pages 78–106, 134–158 of the Paper Book, which confirm the receipt and repayment of the amount. Further the property transactions were recorded in the books of account of both parties. Thus the assessee repaid the entire amount and the repayment is verifiable through banking channels. Thus there is No loan agreement existed, hence, TDS was not applicable. The AO's refusal to reschedule the cross-examination of Shri Rajesh Vyas, despite the assessee’s request, violated the principles of natural justice.
5.1. Ld. Sr. Counsel relied on several decisions, including: CIT v. Lovely Exports Pvt. Ltd. [(2008) 216 CTR (SC) 195]; Kishorilal Santoshilal v. CIT [(1995) 216 ITR 9 (Raj)]; A.Y. 2018-19 Page No 6 ACIT vs. Leela News Network Pvt. Ltd.
PCIT v. Aditya Birla Telecom Ltd. [(2022) 21 GSTL 211 (Guj.)]; CIT v. Gangeshwari Metal (P) Ltd. [(2013) 30 taxmann.com 328 (Del.)]; to argue that where documentary evidences are submitted and identity, credit worthiness and genuineness are established, no addition can be made under section 68 of the Act and therefore requested to uphold the order of Ld. CIT(A).
Heard rival submissions at length and perused the materials available on record and Paper Book filed by the assessee. The reasons for reopening of assessment is based on the statements recorded u/s.132[4] of the Act of Sri Rajesh Vyas and Shri Hemant Dangi during the search action conducted on 25-11-2021 in the Digiana Group, Indore that the assessee company had received accommodation entry of Rs. 3.5 crores from M/s. VRR Financial Services Pvt. Ltd., alleged to be an entry provider. Apart from the statements of third parties, the AO was not in possession of any material on record that the transaction with the assessee is an accommodation entry. Whereas the assessee during the course of reassessment proceedings explained that the amount in question was not a loan, but rather an advance consideration for the proposed sale of immovable property located at Sub-Plot No. 1 & 2, Ghanchiwad, Rajkot, for a total consideration of Rs.3.95 crores. In support of the same the assessee submitted Agreement to Sale dated 08.03.2018 entered into with M/s. VRR Financial Services Pvt. Ltd., Deed of Cancellation dated 23.09.2022 showing mutual agreement to cancel the transaction, with ₹25 lakh to be paid as compensation; confirmation letters and ledger account from M/s. VRR Financial, copies of bank statements reflecting the A.Y. 2018-19 Page No 7 ACIT vs. Leela News Network Pvt. Ltd. transaction, copies of ITRs and audit reports of both the assessee and M/s. VRR Financial Services Pvt. Ltd. which are placed at page nos. 58 to 78 of the Paper Book. Copy of the Board Resolution dated 05-03-2018 of M/s. VRR Financial Services placed at page no.66 of the Paper Book authorising Mr. Arvind Kumar Tripathi to execute Agreement/Deed and documents on behalf of the company to buy Plot no.1 & 2 Ghanchiwad, Rajkot having industrial construction of 164.25 sq.mtrs.
6.1. The Ld AO has not made any independent inquiry about the sale transaction by summoning the Notary Public who Notarised/Signed the Sale Agreement or Cancellation Deed, but simply concluded that the Agreement is unregistered. The AO is also not clear whether it is compulsory to Register the Sale Agreement under the Registration Act, during March 2018. Whereas the assessee has discharged its initial onus cast upon it by providing all the relevant materials before the AO. Further when the AO issued summons u/s.133[6] to M/s. VRR Financial, the same was replied and furnished the relevant documents. Therefore the identity and genuineness are proved and the question of invoking section 68 of the Act does not arise in this case.
Nature of Transaction: The assessee has produced substantial documentation to establish that the amount of ₹3.5 crore was advance against property transaction, not a loan. The Agreement to Sale and Deed of Cancellation are consistent with the timeline and supported by ledger entries and confirmations. The property in question, though not shown in the Schedule AL-1, has been A.Y. 2018-19 Page No 8 ACIT vs. Leela News Network Pvt. Ltd. explained through their CA certificate and supporting ownership documents which was not disputed by AO on merits.
7.1. Genuineness and Identity of Party: The creditor, M/s. VRR Financial Services Pvt. Ltd., is an income tax assessee with PAN, filed ITRs and audit reports are available. The transaction were carried out through banking channels and repayment has been made, including compensation for cancellation deed. Further reply to the summons u/s. 133[6] by M/s. VRR Financial makes it clear the identity and genuineness of the transaction and not on accommodation entry.
Jurisdictional High Court in the case of PCIT -vs- Ambe Tradecorp Pvt Ltd. reported in [2022] 145 taxmann.com 27 held that where assessee took loan from two parties and assessee had furnished requisite material showing identity of lenders and that assessee was not beneficiary, as loan was repaid in subsequent year, no addition u/s.68 could be made on account of such loan by observing as follows:-
“68 of the Income-tax Act, 1961 - Cash credit (Bogus loan) - Assessment year 2012-13 - Assessee received loans from two parties - Assessing officer treated same to be sham for reason that creditworthiness of loan givers was not established and, accordingly, made addition under section 68 - It was noted that Tribunal recorded findings of facts that assessee had furnished details such as copy of ledger account, bank statements, income-tax returns, balance sheet etc. of loan givers - It was also recorded that notice under section 133(6) was issued to said loan givers which were duly responded by them, therefore, identity of parties could not be disputed - It was also noticed that assessee was not beneficiary as loan was repaid by assessee in subsequent year - Whether, on facts, identity and creditworthiness of parties and genuineness of loan transactions A.Y. 2018-19 Page No 9 ACIT vs. Leela News Network Pvt. Ltd. were well established, therefore, impugned addition made under section 68 on account of said loan amount was unjustified.”
In light of the above we are of the considered view the assessee has fully discharged its onus cast upon it under section 68, whereas the Ld AO has failed to conclusively rebut the evidences and made addition based on presumption and not by conclusive evidence which is not sustainable in law. Therefore we don’t find any infirmity in the order passed by Ld CIT [A] and it does not require any interference. Thus the Grounds raised by the Revenue are devoid merits and liable to be dismissed.
In the result the appeal filed by the Revenue is hereby dismissed.
Order pronounced in the open court on 26 -05-2025