DCIT, Central Circle 32 vs M/s. Constructo Cast Private Limited

PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :

The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-30, New Delhi [“Ld. CIT (A)”, for short] dated 23.12.2025 for the Assessment Year 2020-21.

Brief facts of the case are, the case of the assessee was reopened by the AO for AY 2020-21 on the basis of High Risk CRIU/VRU information received on the basis of search u/s 132 of the Income-tax Act, 1961 (for short ‘the Act’) conducted on 17.11.2021 on Galaxy Group, Shri Pradeep Indra Prasad Agrawalla and 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.65,00,000/- from the entities controlled by above stated entry operators. It was mentioned therein that the assessee had received accommodation entry amounting to Rs.65,00,000/- from one concern, from M/s Sirsa Deposits and Advances 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 22.03.2024 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 Sirsa Deposits and Advances Ltd. In response to the same, the assessee submitted that it has received unsecured loan of Rs.65,00,000/- from M/s Sirsa Deposits and Advances Ltd and subsequently paid back the same. Assessing Officer observed that Shri Himanshu Verma was held to be accommodation entry provider in the order passed by the Ld. CIT(A)-27, Delhi and this order of CIT(A)-27 was upheld by Delhi Bench of ITAT vide their order dated 15.03.2019. In view of the facts noted, the AO concluded that genuineness of the unsecured loan transaction taken by the assessee from M/s Sirsa Deposits and Advances 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.65,00,000/- along with disallowance of Rs.3,08,672/- u/s 36(1)(iii) of the Act as assessee has not explained the genuineness of the transaction and satisfy other conditions for availing deduction and further, the assessee has taken accommodation entries in lieu of commission and the assessee did not prefer to file any reply, therefore, the amount of Rs. 1,95,000/- (3% of Rs 65,00,000) is being added to the total income of the assessee u/s 69C of the Act.

Aggrieved by the aforesaid order, the assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. Ld. CIT (A), after going through the submissions of the assessee and the assessment order, dismissed the appeal filed by the assessee.

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) erred in law and on facts in upholding the reopening of assessment u/s 147. 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 before reassessment proceedings. He submitted that the loan taken from M/s Sirsa Deposits and Advances Ltd. amounting to Rs.65,00,000 in question was fully repaid by the assessee during FY 2020-21 well before the issuance of notice u/s 148. He submitted that if a loan amount which was taken previously has been repaid before assessment proceedings started cannot be construed as un-explained 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 Sirsa Deposits and Advances Ltd. amounting to Rs.65,00,000 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 Sirsa Deposits and Advances Ltd., hence the assessee proved beyond doubt the identity and creditworthiness of party and discharged its onus.

He further submitted that disallowance of interest of Rs.3,08,672/- 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 before the reassessment 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 under section 36(1)(iii) of the Act.

He further submitted that the addition of Rs.1,95,000/- made u/s 69C towards commission paid for procuring accommodation entries are 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 u/s 69A being incorrect, deletion of consequential addition u/s 69C is equally unsustainable.

He also submitted that M/s. Sirss Deposits and Advance Limited is a NBFC company and brought to our notice to the NBFC certificate dated 09.06.2003 by RBI to M/s. Sirsa Deposits and Advance Limited, which is placed at page 82 of the paper book and also submitted copy of PAN card of the aforesaid company.

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 additions made and confirmed u/s 68/69C may be deleted. 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 relied on the findings of lower Authorities.

Considered the rival submissions and material placed on record. We observed that ld. CIT (A) has sustained 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.65,00,000/- from M/s. Sirss Deposits and Advance Limited through banking channel vide account payee cheque and further the assessee has led complete evidence. We observed that the assessee has submitted a table at page 72 of the paper book which clearly shows that the payment of the aforesaid amount was made before the initiation of proceedings i.e. before issuance of notice u/s 148 of the Act. For the sake of brevity, the aforesaid table at page 72 of the paper book is reproduced below :-

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.

Further, it is also clear that M/s. Sirss Deposits and Advance Limited is a NBFC company and the assessee has submitted NBFC certificate dated 09.06.2003 issued by RBI, which is placed at page 82 of the paper book and also submitted copy of PAN card of the aforesaid company.

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 :-

Respectfully following the same, we are inclined to dismiss the grounds raised by the Revenue.

In the result, appeal filed by the Revenue is dismissed.