DCIT, Central Circle 25 vs Kamadgiri Exports Private Ltd.

PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :

The Revenue has filed appeals against the order of the Learned Commissioner of Income Tax (Appeals)-29, New Delhi [“Ld. CIT (A)”, for short] dated 10.12.2025 for the AYs 2019-20 and 2020-21.

At the time of filing of appeal, the Registry has pointed out a defect that both the appeals are time barred by 15 days. In response thereof, the ld. DR for the Revenue submitted that there was a reasonable cause for the delay in filing the appeal. Accordingly, he prayed that the delay in filing the appeals be condoned. We have heard both the counsels on the issue of condonation of delay. In our considered opinion, there was a reasonable cause for the delay in filing the appeals. Therefore, we condone the delay in filing the appeals before the Tribunal.

Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the Revenue’s appeal being ITA No.4117/Del/2026 for AY 2019-20 as lead case to adjudicate the issues under consideration.

At the time of hearing, ld. AR of the assessee with the permission of the Bench brought to our notice relevant facts on record and his submissions as under. He submitted that the case of the assessee was reopened by the AO for AY 2019-20 on the basis of a search action u/s 132 of the Income-tax Act, 1961 (for short ‘the Act’) conducted on 17.11.2021 on Galaxy Group, entry providers - Shri Deepak Agarwal and Shri Himanshu Verma. The documents seized during the search contains information which show that the assessee is the beneficiary of accommodation entry to the tune of Rs.2,00,00,000/- from the entities controlled by above stated entry operators. It was mentioned therein that the assessee had received accommodation entry amounting to Rs.2,00,00,000/- from one concern, from M/s Albatross Homes Private Ltd., which was controlled and operated by Shri Himanshu Verma during the relevant year.

Accordingly, after taking approval from the competent authority, notice u/s 148 of the Income-tax Act, 1961 (for short ‘the Act’) dated 20.03.2024 was issued and duly served on the assessee by the Assessing Officer. In response, assessee filed return of income. Accordingly, notices u/s 143(2) of the Act was issued and served upon the assessee. Subsequently, notices u/s 142(1) of the Act were issued to the assessee by the AO on various dates requiring the assessee to explain the genuineness of transaction with M/s Albatross Homes Private Ltd.. In response to the same, the assessee submitted that it has received unsecured loan of Rs.2,00,00,000/- from M/s Albatross Homes Private Ltd. and subsequently paid back the same. Assessing Officer observed that Shri Himanshu Verma was subject to search action u/s 132 of the Act in past twice i.e. by Investigation Wing, Delhi and Investigation Wing, Noida on 29.03.2012 and 13.04.2017 respectively and in appeal order dated 26.12.2014, the ld. CIT (A) 27, New Delhi stated that Shri HImanshu Verma is an accommodation entry provider and the same has been upheld by the ITAT in his order dated 15.03.2019 that Shri Himanshu Verma is an accommodation entry provider. In view of the facts noted, the AO concluded that genuineness of the unsecured loan transaction taken by the assessee from M/s Albatross Homes Private Ltd., which is a non-descript entity, is not proved and accordingly, the AO completed assessment proceedings u/s 147 of the Act by making addition of Rs.2,00,00,000/-u/s 68 of the Act along with disallowance of Rs.6,00,000/- on account of commission (3% 0f Rs.2,00,00,000/-) being not providing documentary evidence u/s 69C and Rs.61,274/- towards interest being unexplained expenditure u/s 69C of the Act.

Aggrieved by the aforesaid order, the assessee preferred an appeal before the ld. CIT (A)-29, New Delhi and filed detailed submissions. Ld. CIT (A), after going through the submissions of the assessee and the assessment order, allowed the appeal filed by the assessee and also relied on various decisions, one of which is ITAT, Delhi Bench in the case of Real Innerspring Technologies (P.) Ltd.. The ld. CIT(A) has given his findings in Paras 5 to 5.31 of his order. For the sake of brevity, the relevant findings in para 5.20 to 5.31 of the ld. CIT (A) is reproduced as under :-

Aggrieved Revenue is in appeal before us raising following grounds of appeal :-

At the time of hearing, ld. AR of the assessee submitted that reopening of assessment u/s 147 is bad in law and void ab initio and further submitted that ld. CIT(A) rightly deleted the additions made by the AO. The reopening was initiated based on generalized third-party information without any independent application of mind or tangible material relating specifically to the assessee. He further submitted that reassessment based on borrowed satisfaction and constitutes mere change of opinion, the AO acted mechanically based on third-party statements and no inquiry was conducted to corroborate allegations with the assessee's case. He submitted that each case is separate case and the addition made merely on the basis of general statement of third party - Mr Himanshu Verma and the name of assessee was no-where mentioned by Mr Himanshu Verma.

He further submitted that there is violation of principles of natural justice as cross-examination was not provided. He submitted that the AO relied upon statements of third parties without granting the assessee opportunity to cross-examine them, which vitiates the assessment.

Ld. AR further heavily relied on his submissions that loan was repaid in full. He submitted that the loan taken from M/s Albatross Homes Private Ltd. amounting to Rs.2,00,00,000/- in question was fully repaid by the assessee. He submitted that if a loan amount which was taken previously has been repaid cannot be construed as unexplained loan and added to income of the assessee. In this regard, he relied on various judgments.

He further submitted that identity, creditworthiness and genuineness of loan taken from M/s Albatross Homes Private Ltd. amounting to Rs.2,00,00,000/- proved by the assessee. He submitted that the transaction was complete, bank-confirmed, and documented, leaving no outstanding or suspicious element. He submitted that during the course of assessment proceedings, assessee has filed the documents i.e. confirmation of account, copy of bank statement for receipt and payment of loan, PAN, audited balance sheet of M/s Albatross Homes Private Ltd., hence the assessee proved beyond doubt the identity and creditworthiness of party and discharged its onus. He accordingly submitted that the ld. CIT (A) rightly deleted the addition.

He further submitted that ld. CIT (A) rightly deleted the interest of Rs.61,274/- which is erroneous, excessive and unjustified. He submitted that AO has disallowed interest alleging that the same pertains to non-genuine loans, However, the assessee had repaid the loan much and had submitted all supporting documentary evidence, including confirmations, bank statements, and interest computation. Accordingly, the said interest expenditure was incurred wholly and exclusively for the purpose of business and is allowable, which the ld. CIT (A) rightly allowed.

He further submitted that ld. CIT (A) also deleted the addition of Rs.6,00,000/- made u/s 69C by the AO towards commission paid for procuring accommodation entries without examining the modus operandi, the standard commission rate (3%) established in Investigation Wing Reports and the judicial recognition of the same in cases of this group. He submitted that deletion of the primary addition being incorrect, deletion of consequential addition u/s 69C is equally unsustainable and the same is rightly deleted by the ld. CIT (A).

He further submitted that the assessee’s books were never rejected nor any specific defect pointed out. The addition was made arbitrarily despite the existence of audited books of accounts. Accordingly, in view of his submissions and decisions relied upon, he pleaded that the order of the ld. CIT (A) may be upheld who has passed a well-reasoned and detailed order. In this regard, ld. AR submitted that on the same facts on record, the ITAT had decided the issue in favour of the assessee in the following cases :-

On the other hand, ld. DR of the Revenue after relying on the assessment order submitted that the conditions of section 68 was not fulfilled in the transactions carried on by the assessee with the bogus and dummy company and all these facts were found during the search conducted in the case of Shri Himanshu Verma. He heavily relied on the findings of Assessing Officer.

Considered the rival submissions and material placed on record. We observed that ld. CIT (A) has rightly deleted the addition of unsecured loan u/s 68 of the Act on the basis of creditworthiness, genuineness of transaction and identity of the lenders. Various Courts have held that to determine the creditworthiness of the lenders, earning capacity is one of the criteria and ability to arrange and make the payment is relevant. We observed that lender has made the payment through banking channel and the lender has filed the confirmations of the same and assessee has brought to our notice bank statements and ledger account for payment of interest as well as repayment of loan subsequently. The above details clearly show that the assessee has taken unsecured loans and also paid the relevant interest and returned the relevant loan subsequently.

We observed that burden of the assessee stands discharged. From the records, it is clear that during the instant assessment year, assessee received unsecured loan of Rs.2,00,00,000/- from M/s Albatross Homes Private Ltd. through banking channel vide account payee cheque and further the assessee has led complete evidence. Thus, we observed that the assessee has discharged the burden u/s 68 of the Act by establishing identity of the creditors, creditworthiness of the creditors and genuineness of the transaction.

We observed that the similar issue was considered by the coordinate Bench in the case of Real Innerspring Technologies (P) Ltd. (supra) and held as under :-

In view of the above and respectively following the aforesaid decision, we observed that the ld. CIT (A) has rightly appreciated the facts and material relying on various decisions. Accordingly, we are inclined not to disturb the findings of the ld. CIT (A) and dismiss all the grounds raised by the Revenue.

In the result, appeal filed by the Revenue for AY 2019-20 is dismissed.

Since the facts in AY 2020-21 are exactly similar to Assessment Year 2019-20, our above findings in AY 2019-20 are applicable mutatis mutandis in Assessment Year 2020-21. Accordingly, the appeal filed by the assessee for AY 2020-21 is dismissed.

In the result, both the appeals filed by the Revenue are dismissed.