The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) upheld the deletion of the ₹8 crores addition made under Section 68 of the Income Tax Act,1961,due to insufficient evidence to support the claim of unexplained credit.
Ardor Overseas Pvt. Ltd.,the appellant-assessee, was involved in a land transaction with Nikshal Properties Pvt. Ltd. during the assessment year 2014-15. Nikshal Properties sold the land to the assessee for Rs. 44 crores, though it had originally purchased the land for Rs. 8 crores just a few days prior.
M/s. Nikshal Properties claimed that the transaction was an accommodation entry, with the inflated sale price intended to create a bogus capital gain, while the actual value was only Rs. 8 crores. The funds were alleged to have been routed back to the assessee through intermediary entities, with M/s. Nikshal Properties earning a commission. The assessee, however, maintained that the transaction was genuine.
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During the assessment, the Assessing Officer (AO) reduced the cost of the land from Rs. 44 crores to Rs. 8 crores based on M/s. Nikshal Properties directors’ statements that the transaction was inflated. The AO also added Rs. 8 crores to the assessee’s income under Section 68 of the Act, treating a loan from Matrix International—used in the transaction—as unexplained. Additionally, the AO disallowed interest paid on the loan, part of which had been capitalized as the cost of land.
On appeal, the Commissioner of Income Tax ( Appeals ) [CIT(A)] deleted the Rs. 8 crores addition made under Section 68, finding no sufficient grounds to treat the loan as unexplained.
The tribunal, in its review, focused on the addition of ₹8 crores concerning the loan from M/s. Matrix International. It clarified that M/s. Matrix acted as a conduit for the assessee, facilitating the purchase of land at inflated prices while being closely linked to the company’s director.
The bench emphasized that the funds transferred were legitimate, establishing that the conditions outlined in Section 68 regarding identity, creditworthiness, and genuineness of the loan were satisfied.
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The two member bench comprising T.R Senthil Kumar(Judicial Member) and Annapurna Gupta(Accountant Member) upheld the CIT(A)’s decision, asserting that the AO’s treatment of the loan as unexplained lacked merit, thereby confirming the deletion of the ₹8 crores addition and recognizing the genuine nature of the transaction and the source of funds involved.
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