ACIT, NEW DELHI vs. VRINDA FARMS PRIVATE LIMITED, NEW DELHI

This appeal is filed by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-23, New Delhi [“ld. CIT(A)”, for short]

The Ld. CIT(A) has failed to appreciate that submissions of audited accounts and bank statements of alleged entry operator are necessary pre-requisite to give such entities a semblance or a genuine business. Filing of such documents does not mitigate lack of genuineness in its actual operations.

Ld. CIT(A) has failed to appreciate that accommodation entry operators have sufficient funds only in the form of investments in other non-genuine companies. There is hardly substantial balance in the bank account or genuine investment.

The Ld. CIT(A) failed to appreciate that there is no information of conduct of any audit/investigation by SEBIIRBI, while the search conducted by Investigation Wing brought out substantial evidence about actual financial conduct of these entry operators, masquerading in the guise of NBFC.

Whether the Ld. CIT(A) is correct in holding that the term "in evidence" used in section 132(4) of the Act cannot be treated as "as evidence" when statement u/s 132(4) made while con fronting with incriminating material gathered during the search operations.

Ld. CIT(A) has erred in holding that the Assessing Officer should have conducted further enquiry to find about the source of fund of the entry operator, without appreciating that Ld. CIT(A) could have conducted such enquiry himself or directed the 3 CO Nos.13 & 19/Del/2025

Ld. CIT (A) has erred in not appreciating that whatsapp chats undertaken between the entry operator and promoter of the company clearly shows that cash are being exchanged and such chats are backed Lip by statements u/s 132(4) of respective parties.

Ld. CIT(A) has failed to appreciate that the evidence collected clearly reveals the cash trails and in reply to notice u/s 133(6) of the Act the entry operators are not expected to accept that the loan transactions are not genuine.

The Ld. CIT(A) erred in deleting the addition of Rs.7,74,727/- without appreciating the fact that interest paid on account of bogus unsecured loan is also bogus in nature, therefore, the interest paid by the assessee to the tune of Rs.7,74,727/- is not genuine expense.

The Ld. CIT (A) erred in deleting the addition of Rs.2,23,500/- without appreciating the fact that the accommodation entries to the tune of Rs.1,83,00,000/- were taken during the year under consideration and commission must have paid to accommodate such entries.”

With regard to addition of Rs.1,83,00,000/- made by the Assessing Officer under section 68 of the Income-tax Act, 1961 (for short ‘the Act’), at the time of hearing, ld. AR of the assessee brought to our notice that the assessee company is a Group company of Filatex India Limited and the issues involved in the case of Filatex India Limited in ITA Nos.4635, 5000, 2060, 4999, 4648, 3988, 2061, 1455, 2062/De1/2024 which was decided by the coordinate Bench vide order dated 30.06.2025 are exactly similar to the present case.

He submitted that the assessee has taken loans from the following parties:- 1. Bhageria Finance Investment Private Limited 2. M/s.Savita Holdings Private Limited 3. M/s. R N Khemka Enterprises Private Limited 4. M/s.Satsai Finlease Private Limited 5. M/s.Fidus Finance

Filatex India Ltd. had also taken loans from the same parties which have been held to be genuine loans by the ITAT in the case of Filatex India Limited for AY 2016-17 vide & C.O.No.89/Del/2024. 6. He further brought to our notice the facts narrated in the assessment order as under:-  It was alleged by AO that Filatex group companies had taken bogus Share premium and bogus unsecured loan from other Shell companies as well in past several years. List of such bogus Entities mentioned by AO on Page 3 of Assessment order.  Shri Ankit Bhageria's office and residence was also covered in the above referred search operation and statements of Sh. Ankit Bhageria was recorded u/s 132(4) and key points from the statements are reproduced by Ld. AO on page 4-6 of Assessment order.

Ld. AR further brought to our notice that the assessee made submissions before the ITAT in the case of Group Company Filatex India Limited (supra) and the Tribunal has dismissed the appeal of the Department accepting the contentions of the assessee: -  The unsecured Loans has been repaid in subsequent Assessment Years which has been accepted by the AO and to substantiate the same, Ledger Accounts of the above Parties was submitted before CIT(A).  The assessee submitted that no evidences were found which can prove that assessee has paid cash against receipt of loan from such entities.  The AO could not find any corroborative evidence to prove that the contents of the Whatsapp Messages were true and linked with the unsecured loan taken by the assessee.  Further, no cash trail was established by the AO to prove that unsecured loans were taken in exchange of Cash Payments.  The source as well as the source of source have been provided by the assessee.

Further, in the same Para point (vi) it was held by Ld. CIT(A) that WhatsApp chats relied upon by AO does gives rise to suspicion but the same nowhere proves that cash has been exchanged against any specific loan taken by appellant. Based on the above mentioned reasons, ld. CIT(A) held that the addition u/s 68 of Rs.590 Lakhs made by AO shall be deleted. He further relied on various decisions relied upon to prove that no addition can be made on unsecured loans taken when the repayment is not doubted. 9. In the conclusion, ld. AR submitted that out of addition of Rs.1,83,00,000/- on account of unsecured loan taken from M/s. R.N. Khemka P. Ltd. and M/s. Savita Holdings P. Ltd., the same are squarely covered by decision of coordinate Bench in the case of Filatex India

In the cross objections filed by the assessee, cross-objections No. 1.1 & 1.2 are taken wherein assessee has challenged the action of the AO in making additions on the issues for which no reasons were recorded and on issue for which reason was recorded, no addition is made. The cross objections taken by the assessee are as under:

1 On the facts and in the circumstances of the case and in law, the learned CIT(A) should have quashed the assessment order as illegal, not tenable, void and without juri iction.

2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in ignoring that no independent reason for reopening was recorded, as the notice was issued on the basis of report of received from TDS ward 1(3)(1), International Taxation, Delhi.

3 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the assessment order was passed without following the principle of natural justice by not providing the copies of statement of various persons relied upon by Assessing Officer. On the ground of principle of natural justice also, the addition was liable to be deleted.

On the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have deleted the addition simply on the ground that the material relied upon by Assessing Officer is totally unrelated and irrelevant to the respondent.

On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not considering the fact that the assessment order passed by Assessing Officer had provided the new material directly in assessment order without confronting the same to the respondent company during assessment proceedings. On the basis of the principle of opportunity of being heard also, the addition was liable to be deleted.

The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objections either before or during the course of hearing of the same.

During the course of hearing it was requested by the ld.AR that the issues raised in cross objections No. 1.1 and 1.2 are legal and thus prayed to adjudicate the same separately, therefore, in the interest of justice and looking to the very nature of the cross objections, the same are hereby taken for consideration.

Before us, Ld.AR submits that the case of the assessee was reopened on the basis of the information received by the AO that the assessee has made payment on account of technical services to a foreign company and that these remittances are liable to withhold taxes within the definition of Fee for Technical Services under the provisions of Sec 9(1)(vi) and (vii) of the IT Act and as per Article 12(4) of the DTAA also, chargeable to tax u/s 115A(1)(b)(A) and 115A(1)(b)(B) of the Income Tax Act. The assessee was required to deduct Tax at source on the remittance amounting to Rs.87,34,375/- and thus after obtaining the approval from the competent authorities, notice u/s 148 was issued in 31.3.2021. Ld. AR submits that in response to said notice, return of income was filed on 14.07.2021. Thereafter, due enquiries were made by the AO and no addition was made on account of the reasons recorded and therefore, AO has no juri iction to make any other addition. For this, he placed reliance on the judgement of Hon’ble [2011] reported in 336 ITR 136 (Delhi) and in the case of CIT-II vs Jet Airways (I) Ltd. reported in [2011] 331 ITR 236 (Bom.). Ld. AR thus requested that the re-assessment order making additions of INR 100,11,32,484/- on the issues which are not the subject matter of reopening and without making additions on the issue for which reasons for reopening the 11 CO Nos.13 & 19/Del/2025

On the other hand, Ld. Sr. DR for the Revenue supported the order of the lower authorities and stated that once the case is reopened, the AO has juri iction to consider and decide all the issues which have come to his knowledge. He thus, requested for the confirmation of the initiation of the proceedings and consequent order passed u/s 143(3)/147 of the Act.

Heard the contentions of both the parties and perused the material available on record. From the perusal of the reassessment order it is seen that the case of the assessee was reopened on the issue of the non-deduction of Tax at source on the payment made towards fees for technical services to a foreign company. The AO after reopening the case, vide notice issued on 24.3.2022 asked the assessee to file the details of transactions with foreign company which were replied by the assessee on 29.03.2022, as reproduced at re- assessment order at page 3. After considering the reply of the assessee, the AO in para 9.6 of the order observed that no adverse inference is drawn on this account. Thereafter, the AO from para 10 onwards of the reassessment order went on discussed the issue of accommodation entry and finally made the additions/ disallowance towards unsecured loans taken and interest paid thereon by holding the same as accommodation entries.

It is thus clear that the AO has recorded his satisfaction of the escapement of income of Rs. 87,34,375/- being the payment towards fee for technical services made to foreign company without making deduction of Tax at source. However, no adverse inference was taken on this issue as has been observed in para 9.6 of the order and no addition was made on this account. In the context, the Hon’ble Juri ictional High Court in the case of Ranbaxy Laboratories Ltd. (supra) has held as under:-

The Hon’ble juri ictional High Court in the case of CIT vs Adhunik Niryat Ispat Ltd. reported in [2011] 63 DTR 212 (Delhi) has held as under:

Further the hon’ble juri ictional high court in the case of ATS Infrastructure Ltd. vs ACIT reported in [2025] 166 taxmann.com 61 (Delhi) has that AO cannot be permitted to improve the reasons recorded which form basis for initiating action under section 148A. The relevant observations of the hon’ble high court as contained in para 29 to 32 of the order reads as under:

We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A(b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened.

Explanation 3, or for that matter, the Explanation which presently forms part of Section 147, would come into play only once it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in light of principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the AO in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated.

Explanation 3, cannot consequently be read as enabling the AO to attempt to either deviate from the reasons originally recorded for initiating action under Section 147/148 of the Act nor can those Explanations be read as empowering the AO to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions.

Similarly, the Hon’ble Bombay High Court in the case of CIT vs Jet Airways (I) Ltd. (supra) has held that “it is not open to AO to independently assess some income other than the income referred in section 148 for which reason was recorded”. The relevant head note of the judgement reads as under:-

In view of the facts of the case as discussed above and by respectfully following the judgement of Hon’ble Delhi High Court and Hon’ble Bombay High Court, we are of the considered view that the AO in the instant case has exceeded its juri iction by making additions on the issue which is not forming part of the reasons recorded for reopening the assessment when no 14 CO Nos.13 & 19/Del/2025

As we have already quashed the reassessment order dt. 31.03.2022 passed u/s 147 r.w.s. 143(3) of the Act while allowing the cross objections No. 1.1 & 1.2 taken by the assessee, thus the issues challenged by the revenue on the merits of the additions made in such reassessment order become infructuous and thus, the appeal of the Revenue in ITA No. 2060/Del/2024 is hereby dismissed.

In the result, appeal of the Revenue in ITA No.2060 Del/2024 is dismissed and C.O.No.89/Del/2025 of the assessee is allowed.”

Further with regard to addition of Rs.50,00,000/- made in M/s. Fidus Finance (P) Ltd., we observe that ld. AR relied on the impugned order of the ld. CIT (A) wherein the ld. CIT (A) has deleted the addition and the same is reproduced below for the sake of brevity :- “105. In view of above discussion, and considering relevant facts on record, it is observed as under:

In view of detailed discussion made above it is observed that appellant has discharged its onus as required by provision 68 of the Act hence addition made u/s. 68 of the Act for Rs.1,83,00,000/- is deleted. Ground No.5 of appeal is allowed.

Respectfully following the aforesaid decision of coordinate Bench and relying on the impugned decision of ld. CIT (A), we are inclined to uphold the findings of the ld. CIT (A) and dismiss ground nos.1 to 9 raised by the Revenue. 14. With regard to ground no.10 regarding deletion of addition ofRs.7,74,727/- made by Assessing Officer on account of expenditure claimed for the year under consideration u/s 37 of the Act, at the time of hearing, ld. AR of the assessee submitted that this ground is in relation to the consequent interest disallowance made by AO as the unsecured Loans were held bogus by AO. Since, the Loans were held genuine by CIT(A) and TDS has been deducted on the interest expenses claimed, the disallowance of the same made by AO was deleted by CIT(A). After going through the submissions of both the parties and going through the order of ld. CIT (A), we are not inclined to disturb the findings of the ld. CIT (A) on this issue, accordingly this ground is dismissed.

With regard to ground no.11 regarding deletion of commission expenses of Rs.2,23,250/-, at the time of hearing, ld. AR brought to our notice that AO also made addition of alleged commission expense incurred by assessee for obtaining accommodation entries @ 0.25% on total credits as well as repayments i.e. 0.25% i.e. Rs.2,23,250 is added to income of assessee. Since the loans were held genuine by CIT(A), the alleged explained expenditure for taking accommodation entries was also deleted by Ld. CIT(A). After going through the order of the ld. CIT (A), we are of the opinion that ld. CIT (A) has rightly decided the issue in favour of the assessee and accordingly, we do not interfere with the findings of the ld. CIT (A). Hence, this ground is dismissed. 16. Since we have already dismissed the grounds of appeal taken by the Revenue, the objections raised in the cross objections of the assessee become academic and thus not adjudicated and are dismissed. 17. In the result, the appeal of the Revenue as well as cross objections of the assessee are dismissed. Order pronounced in the open court on this day 29th of October, 2025. (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER