Pranav B Prem

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has granted major relief to well-known film actress Preity Zinta by deleting an addition of ₹10.84 crore that had been made to her income under Section 68 of the Income-tax Act, 1961 on allegations of unexplained cash credits arising from high-value bank transactions. The Bench comprising Shri Saktijit Dey (Vice President) and Shri Girish Agrawal (Accountant Member) held that the tax department failed to substantiate its allegation that the appellant had routed funds through entities linked to businessman Danish Merchant and emphasised that every credit entry was satisfactorily explained through documentary evidence.

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The reassessment proceedings were triggered after the Assessing Officer noticed sizeable debits and credits—totalling ₹13.10 crore—through a newly opened savings bank account of the appellant in January 2016, which ultimately showed a closing balance of only ₹10,300. Based on the Annual Information Return, the assessment was reopened under Section 147, and the Assessing Officer treated ₹10.84 crore of the credit entries as unexplained cash credits, alleging that the transactions represented circular routing of funds between the appellant and three entities of the Danish Merchant Group. It was mistakenly assumed that only ₹2.25 crore of the total credit represented the sale consideration of the appellant’s residential flat, resulting in the inflated addition.

In the course of reassessment, the appellant explained that due to financial difficulties in earlier years, she had borrowed substantial sums from Danish Merchant and his group entities. To repay these loans, she sold her residential flat at Quantum Park, Mumbai. Since the flat’s title was split into three parts for municipal compliance, the sale was executed through three related persons/entities, and the total sale proceeds of ₹7.12 crore were partly used to repay a loan from Standard Chartered Bank and partly to repay Ace Light Hospitality Ventures Pvt. Ltd. The appellant further clarified that part of the credit routed through Ace Links—a partnership firm—was not a new loan, but a restructuring undertaken at the lender’s request due to compliance concerns under Sections 184 and 185 of the Companies Act, 2013.

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The Tribunal noted that the Assessing Officer had issued notices under Section 133(6) to all three Danish Merchant entities and that each of them responded with confirmations, financial statements and bank records. Despite acknowledging these replies, the Assessing Officer disregarded the evidence and concluded that the transactions were circular and unsubstantiated. The Tribunal emphasised that there was no material to show that the appellant was connected in any manner with the Danish Merchant Group, weakening the premise of the alleged accommodation entries. It also noted that capital gains arising from the sale of the flat had duly been reported and assessed, and that the routing of funds was merely an internal shifting of liability without conferred benefit to the appellant.

The Tribunal found that the entire case of the Assessing Officer was built on suspicion and conjecture rather than evidence. In particular, the Assessing Officer erred in treating only a portion of the sale proceeds as explained and the balance as unexplained, despite complete documentation substantiating the sale transaction and its utilisation. The Bench held that the assessee had clearly explained—not only the nature and source—but also the "source of source" of every credit. Since the department failed to prove that the credits represented income of the appellant, the statutory requirements of Section 68 were not satisfied.

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Finding the impugned addition “unsustainable in law and on facts”, the Tribunal deleted the entire addition of ₹10.84 crore. The appeal of the assessee was accordingly allowed.

Appearance

Counsel For  Appellant: Dharan Gandhi

Counsel For Respondent: Krishna Kumar, Sr. DR

Cause Title: Preity G Zinta V. Income Tax Officer

Case No: ITA No. 4199/MUM/2025

Coram: Shri Saktijit Dey (Vice President), Shri Girish Agrawal (Accountant Member)