The Mumbai Income Tax Appellate Tribunal (ITAT) granted relief to Preity Zinta and deleted the addition of Rs. 10.84 crores on account of unexplained cash credit, made in the hands of the actress under Section 68 of the Income Tax Act. The relief was granted after finding that the appellant had taken loans in the preceding years from a private company entity, and had repaid the same by selling a residential flat by making part payment.
Observing that she (appellant) had borrowed money from Ace Link, i.e., a partnership firm and repaid the loan of Ace Light Hospitality Ventures Pvt Ltd., and has not derived any benefit from these transactions, the Appellate Tribunal held that these transactions have resulted in merely transferring the liability of the appellant from the entity Ace Light Hospitality Ventures Pvt Ltd. to another entity Ace Links which is a partnership firm.
A Single Bench of Girish Agrawal (Accountant Member) observed that the actual lending to the appellant was done by Ace Light Hospitality Ventures Ltd, and the violation of Sections 184 and 185 of the Companies Act 2013 was attributable at the end of the said lender company. Further, when the lender sought to set right that default, and insisted that the appellant repay the loan and route it through Ace Links, which is a partnership firm, the appellant arranged part of the funds through the sale of a flat and part by moving it through a partnership firm.
The Bench found that when the AO issued notice under Section 133(6) to each of the three entities of the Merchant Group, all three entities had replied to the notices and furnished all the required details and documents, including their income tax return forms, their confirmation for the transaction undertaken with the appellant, and their bank statements.
The Bench also found that the AO, after having verified the transactions with all the entities of Merchant Group, noted that there is mere movement of funds without any actual source or generation, and thus, took an adverse view. Further, the genuineness of the loans taken and repaid was duly established by the appellant by proving the identity & creditworthiness of the parties as well as the genuineness of transactions for which all the necessary documentary evidences are placed on record.
Briefly, the appellant filed her ITR under the status of a non-resident individual (NRI) working in the film industry, reporting her income at Rs 46 lacs. The investigation wing revealed that she had engaged in a transaction amounting to Rs 13.10 crore, which included a credit of Rs 13 crore and a debit of Rs 13 crore, leaving a nominal balance of Rs 10,300 in her newly opened savings bank account with Corporation Bank.
The AO concluded that these large credit and debit transactions did not align with her income profile and deemed the source of the Rs 13 crore investment as unexplained, leading to the reopening proceedings under Section 148, which resulted in an addition of Rs 10 crore under Section 68 as unexplained cash credit.
Appearances:
Advocates Dharan Gandhi and Vinita Nara, for the Appellant
Krishna Kumar, for the Respondent/ Revenue
