ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-25(1), NEW DELHI, NEW DELHI V. WESTCOURT HOSPITALITY PRIVATE LIMITED, NEW DELHI

ITA 3294/DEL/2025

AI Insights

The case involves appeals by both the Revenue and the assessee, Westcourt Hospitality Pvt. Ltd., against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The primary issues revolved around the deletion of an addition of Rs. 43,72,80,000 as unexplained cash credit under section 68 of the Income Tax Act, 1961, and the disallowance of expenses amounting to Rs. 1,78,50,000 claimed under professional charges. The Tribunal examined the evidences and arguments presented by both parties, including the financial transactions and the nature of the expenses claimed by the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 825258 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2018-2019
• Appeal Filed On: 19-05-2025
• Other Referred Cases: CIT Vs. Havels India Ltd., India Cements Ltd. v. CIT, CIT vs Vrindavan Farms Pvt. Ltd., PCIT vs. Agson Global Pvt. Ltd., Mod. Creations (P.) Ltd. v. ITO, SA Builders Vs. CIT, Indian Molasses Co. P. Ltd. v. CIT, Empire Jute Co. Ltd. v. CIT, C J Patel & Co. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMISHA S. GUPTA
• Assessee Lawyers: C. S. ANAND
• Keywords: Additional evidence; Revenue expenditure; Business expenditure; Unexplained cash credit; Income from undisclosed sources; Onus to prove; Commercial expediency; Capital expenditure; Accommodation entries; Source of fund
• Section: 143(3); 142(1); 68; 133(6); 37; 37(1)

Judgement Text

" ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 1 THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI SUDHIR KUMAR, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.3294/Del/2025 [Assessment Year: 2018-19] ACIT, Circle 25(1), Room No. 192A, CR Building, IP Estate New-Delhi. 110002 vs M/s. Westcourt Hospitality Pvt. Ltd. 4391, B-5 & 6, Vasant Kunj, New Delhi-110070. PAN-AAACW8734G APPELLANT RESPONDENT ITA No. 3351/Del/2025 [Assessment Year: 2018-19] M/s. Westcourt Hospitality Pvt. Ltd. 4391, B-5 & 6, Vasant Kunj, New Delhi-110070. PAN-AAACW8734G vs ACIT, Circle 25(1),Room No. 192A, CR Building, IP Estate New-Delhi. 110002 APPELLANT RESPONDENT Revenue by Ms. Amisha S. Gupta, CIT DR Assessee by Shri C.S. Anand, Adv. Date of Hearing 04.11.2025 Date of Pronouncement 30.12.2025 ORDER PER MANISH AGARWAL, AM: The present appeal is filed by the Revenue against the order dated 04.04.2025 of Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2017-18/10008779 passed u/s 250 of the Income Tax Act,1961 [“the Act”] arising out of the assessment order dated Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 2 09.02.2021 passed u/s 143(3) of the Act pertaining to Assessment Year 2018-19. 2. Brief facts of the case are that assessee is a Private Limited company incorporated on 3.3.2009 and since incorporation is engaged in the business of consultancy in real estate projects. Return of income was filed on 9.10.2018 declaring current year’s loss of Rs.1,99,79,324/-. The case was selected for scrutiny to verify ‘A’ investments/ advances/ loans and ‘B’ business loss. Statutory notice u/s 143(2) of the IT Act was issued followed by notices u/s 142(1) alongwith questionnaire. In response, assessee furnished the requisite details and assessment order was passed at a total income of Rs.43,72,80,000/- against the returned loss of Rs.1,99,79,324/- by making additions of Rs. 43,72,80,000/- as unexplained cash credit u/s68 of the IT Act. Further disallowance of expenses of Rs.2,99,000/- towards increase in share capital was made besides making disallowance of Rs. 1,78,50,000/- by holding the same as incurred for non-business purposes. 3. Against the said order, the assessee preferred appeal before Ld. CIT(A), who partly allowed the appeal of the assessee wherein the addition made u/s 68 was deleted coupled with the disallowance of expenses of Rs. 2,99,000/- and confirmed the disallowance of Rs. 1,78,50,000/- made by the AO. Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 3 4. Aggrieved by the said order, assessee and the Revenue both are in appeal before the Tribunal. The revenue has taken following grounds of appeal:- “1. Whether, on the facts and circumstances of the case and in law the Ld. CIT(А) has erred in deleting the addition of Rs. 2,99,000/- on account of disallowance of expenses for increase of share capital. 2. Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 43,72,80,000/- on account of unexplained cash credit u/s 68 of the Act. 3. The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal.” 5. The assessee has taken following grounds of appeal: “1. That on the facts/circumstances of the case and in law, the expenses of Rs.1,12,00,000/- incurred by the assessee towards the services taken from M/s Westcourt Real Estate Pvt. Ltd. deserves to be allowed. 2. That on the facts/circumstances of the case and in law, the expenses of Rs.51,50,000/- incurred by the assessee towards the services taken from M/s Westcourt Real Estate Pvt. Ltd. deserves to be allowed. 3. That on the facts/circumstances of the case and in law, the expenses of Rs.15,00,000/- incurred towards the services taken from M/s Studio U Plus Advisory Pvt. Ltd., deserves to be allowed. NOTE: The assessee craves leave to amend/modify aforementioned grounds of appeal and/or to raise additional grounds) of appeal, at any time prior to / during the course of appellate proceedings.” 6. First, we take the Revenue’s appeal in ITA No.3294/Del/2025. ITA No. 3294/Del/2025 (Revenue’s Appeal) 7. Ground of appeal No.1 raised by the Revenue is with respect to the deletion of disallowance of expenses of INR 2,99,000/- out of share issue expense made by AO. Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 4 8. Before us, Revenue has vehemently supported the order of the AO and stated that assessee’s claim towards total expenses of Rs. 1,200/- incurred on increase in share capital is not verifiable thus this issue may be sent back to the file of AO for necessary verification. 9. On the other hand, Ld.AR for the assessee supported the order of ld. CIT(A) and submits that assessee incurred only Rs. 1,200/- for increase in the share capital however, the AO disallowed expenses Rs. 2,99,000/- without any basis and the balance payments are legitimate business expenses incurred by the assessee company which are admissible u/s 37 of the IT Act. Ld. AR further submits that AO in para 4.2(c) of the order himself has observed that “On perusal of the said ledger it is noted that the assessee has spent Rs.1,200/- for Roc fees for Increase in authorized share capital, on 26/12/2017; Rs.2,95,000/- for Purchase of Stamp duty for CCDs, on 22/03/2018; & Rs.2800/- for Roc fee payment for CCD allotment.” AS per ld. AR the AO invoked the provision of section 35D and disallowed the expenses which are not applicable to the facts of the present case as the assessee has issued CCD. Ld. AR submits that ld. CIT(A) has relied upon the judgement of hon’ble Delhi High Court in the case of CIT Vs. Havels India Ltd. reported in 352 ITR 376 (Delhi) which is squarely applicable to the present case and therefore he prayed for the confirmation of the order of ld. CIT(A) in this regard. 10. Heard the contentions of both the parties and perused the material available on record. It is seen that assessee has claimed only Rs. 1,200/- on the increase in share capital and remaining amount Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 5 was spent on the issue of CCD which is loan and not thus the provisions of section 35D of the Act are to applicable to the facts of the present case. The hon’ble jurisdictional high court in the case of Havels India Ltd. (supra) under identical circumstances has held the expenses on the issue of debentures as revenue expenditure by making following observations: “It is well settled that expenditure incurred in connection with the issue of debentures or obtaining loan is revenue expenditure. Reference in this connection may be made to the leading judgment of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 . The question before us however, is whether it is a debenture issue or an issue of share capital involving the strengthening of the capital base of the company. Though it prima facie appears that there are sufficient facts to indicate that what was contemplated was an issue of shares to the Mauritius Company under the Investor Agreement which would result in strengthening of the assessee's capital base, having regard to the judgments cited on behalf of the assessee, in which it has been held that despite indications to the effect that the debentures are to be converted in the near future into equity shares, the expenditure incurred should be allowed as revenue expenditure on the basis of the factual position obtaining at the time of the debenture issue, we are not inclined to take a different view.” 11. It is a fact on record that the expenses disallowed are in relation to the issue of CCD and therefore, by respectfully following the judgement of hon’ble jurisdictional high court in the case of Havels India Ltd. (supra), in our considered opinion there is no doubt about the nature of these expenses as revenue expenditure and accordingly, we hereby confirm the order of ld. CIT(A) deleting the disallowance made. In the result, ground of appeal No.1 of the revenue is hereby dismissed. 12. Ground of appeal No.2 of the 1revenue is regarding the deletion of the addition of Rs. 43,72,80,000/- made u/s 68 of the Act. Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 6 13. Before us, ld. CIT DR vehemently supported the order of the Ao and submits that the assessee has not established the creditworthiness of the lender before the AO and had filed additional evidences before ld. CIT(A) though ample opportunity was provided by the AO. Ld. CIT DR submits that assessee had issued CCD to the director Shri Manoharan Govindaswamy and his family members however, their creditworthiness is doubtful. Ld. CIT- DR drew our attention to the Agreement to Sale with Godrej Constructions Projects LLP executed with the family members of the director, available at paper book pages 36-92, as per which Godrej Properties has given refundable deposit of Rs. 45 crores to the family of Shri Manoharan Govindaswamy. Ld. CIT DR submits since Shri Manoharan Govindaswamy has failed to substantiate the source of the fund in his hands and ld. CIT(A) has admitted the additional evidences without any cogent reason as to why the same were not filed before the AO therefore, he requested for the restoration of the addition made by the AO. 14. On the other hand, ld.AR vehemently supported the order of ld. CIT(A) and submits that assessee has discharged the burden casted upon it of establishing all the three ingredients required u/s 68 of the Act as the CCD allotted are in the nature of borrowing. Ld. AR submits that the source of source was also established by filing the copy of agreement through which the family member of the director Shri Manoharan Govindaswamy received the funds which were given to him for subscribing the CCD issued by the assessee company. He further submits that the ld. CIT(A) has obtained remand report from Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 7 the AO which is reproduced at pages 4 to 8 of the appellate order. Ld. AR submits that from the perusal of the remand report it could be seen that the assessee and his family members have duly complied with the summons issued and filed all the details regarding source of funds in their hands. He further drew our attention to the fact that all the family members of the director has accepted providing him the funds which were invested in CCD and merely such funds were given as refundable security, it was wrongly presumed by the At that they have no creditworthiness. Ld. AR submits that once the source of source is established, the ld. CIT(A) has rightly deleted the addition, and he prayed for the confirmation of the said order on this issue. Ld. AR also filed written submission which reads as under: APROPOS REVENUE'S GOA NO.2 4. The learned AO had dealt with the issue relating to addition of Rs.43,72,80,000/- made by him u/s 68 in para 4.1 of the assessment order. Upon observing that the assessee had explained that it had received Rs.437280000/- from Shri Manoharan Govindaswamy, the learned AO had required the assessee to prove the identity, genuineness and creditworthiness of Shri Manoharan Govindaswamy. The assessee had furnished copy of bank statement of Shri Manoharan Govindaswamy while explaining that the source of such funds was the financial transaction between the family members of Shri Manoharan Govindaswamy and GODREJ. Upon going through the documents furnished by the assessee relating to the financial transaction between the family members of Shri Manoharan Govindaswamy and GODREJ, the learned AO had noted that GODREJ was to give Rs.45 Crores to the family members of Shri Manoharan Govindaswamy as refundable deposit. Towards end of para 4.1(f) on page 3 of the assessment order, the learned AO had mentioned \"Thus it is noted that the claim that the amount invested by Shri Manoharan Govindaswamy is from borrowed funds from his family members is not proved\". Ultimately the learned AO had made an addition of Rs.437280000/-u/s 68, while treating the same as unexplained credit. 5. Copy of Development Agreement dt.24.01.2018 between the family members & Ors. and GODREJ is placed in the paper book at PB:36- 92. Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 8 6. During appellate proceedings- (i) the assessee had seriously contested the addition of Rs.437280000/- made u/s 68 vide its letter dt.04.03.2025 [PB:01-03]; (ii) the learned CIT(A) had called for a Remand Report from the learned AO who during the remand proceedings had made direct inquiries not only from Shri Manoharan Govindaswamy but also from Smt. M. Saraswathi w/o Shri Manoharan Govindaswamy, Shri M. Naveen Kumar s/o Shri Manoharan Govindaswamy and Shri M. Chandru Kumar s/o Shri Manoharan Govindaswamy; (iii) In compliance to the inquiries made by the learned AO, Shri Manoharan Govindaswamy had uploaded his documents [PB:04-14], Smt. M. Saraswathi had uploaded her documents [PB:15-21], ShriM. Naveen Kumar had uploaded his documents [PB:22-28] and ShriM. Chandru Kumar had uploaded his documents [PB:29-35]; (iv) the learned AO had submitted his Remand Report dt.05.03.2025 [PB:93-98]; (v) the learned CIT(A) had provided copy of the learned AO's Remand Report to the assessee and asked for its comments on the learned AO's Remand Report [PB:99]; and (vi) the assessee had uploaded its letter dt.19.03.2025-cum- rejoinder/rebuttal to the learned CIT (A) [PB:100-106]. 7. The learned CIT(A) had reproduced (i) the learned AO's Remand Report in para 4 of the appeal order; and (ii) recorded his/her Finding and Decision in para 6. The learned CIT(A) had recorded his observations that the assessee had received the funds from Shri Manoharan Govindaswamy who in-turn received Rs. 13100000/- from his wife (Smt. M. Saraswathi), Rs. 150000000/- from his son (Shri M. Naveen Kumar) & Rs.150000000/-from his son (Shri M. Chandru Kumar). The learned CIT (A) had categorically mentioned that the learned AO could not question the authenticity of the evidences presented to him during remand proceedings but has remarked that the ITRs of the family members of Shri Manoharan Govindaswamy do not substantiate their creditworthiness as they have reported significantly low income in their filed ITRs. The learned CIT(A) had recorded his/her specific finding that even the source of source of the source is explained, while stating that not only the assessee but also Shri Manoharan Govindaswamy as well Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 9 as his family members namely (Smt. M. Saraswathi, Shri M. Naveen Kumar & Shri M. Chandru Kumar) have proved the sources. Finally after getting himself fully convinced with the sources of Rs.437280000/-, the learned CIT(A) had deleted the addition of Rs.437280000/- made by the learned A0 u/s 68. The learned CIT(A) had also commented that the evidences were adduced by the assessee only to aid the initial contention regarding the sources of funds while pointing out that the learned AO had admitted that Shri Manoharan Govindaswamy had received the funds from his immediate family members and also that the family members had received the funds from GODREJ. 8. It is a case where vide his Remand Report dt.05.03.2025, the learned AO had himself admitted that the sources of funds stood proved. 9. Strangely the learned AO had raised the ground \"Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 43,72,80,000/- on account of unexplained cash credit u/s 68 of the Act\". Your lordships will appreciate that under the given facts & circumstances, the revenue's this ground of appeal is liable to be dismissed. 15. Heard the parties and perused the material available on record. In the instant case, the assessee filed various details / evidences before ld. CIT(A) as additional evidences under Rule 46A of the Income Tax Rules, 1962 (the Rules) and the ld. CIT(A) had called for a Remand Report from the AO. The AO thereafter made direct enquiries from the director and subscriber of the CCD namely Shri Manoharan Govindaswamy and also from his family members Smt. M. Saraswathi (spouse), Shri M. Naveen Kumar and Shri M. Chandru Kumar (Both sons) by issue summons u/s 133(6) of the Act who in response field al the plausible evidence in support of the funds available in their hands which were provided to Shri Manoharan Govindaswamy for making investment in the CCD issued by the assessee company. In the remand report submitted by the AO, these details are discussed by the AO and merely doubted their Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 10 creditworthiness for the sole reason that ITR’s file by them had lower income. However, the most important fact which is ignored by the AO is that the family members of the assessee had received funds from M/ Godrej Irismark LLP in terms of Development Agreement executed between them dt 24.01.2018 placed at pages 36-92 of the paper book. The ld. CIT(A) after appreciating these facts and considering the details filed by the family members of the director Shri Manoharan Govindaswamy in support of the sources of funds transferred to him which were invested in the CCD’s issued by the assessee company has deleted the additions made by the AO u/s 68 of the Act. The relevant observation of ld. CIT(A) are reproduced as under: “Ground No. 3(i)(a) and 3(i)(b) are the material ground and relate to the three additions made, namely on account of CCDs received of Rs. 43,72,80,0000, expenses incurred of Rs. 1,78,50,000 which have been held as being not for the business purposes and Rs. 2,99,000 which are expenses for increase of share capital. The biggest addition is of Rs. 43,72,80,000 which, as per the AO has been unsubstantiated and suspicious and hence liable to be added back to the total income under sec 68. As per the assessee, this income has flown into the books of Westcourt Hospitality from Sh. Manoharan Govindswamy. Sh. Govindswamy has submitted that these monies were received from his family members, namely Smt. Saraswati Manoharan, his wife, Sh. Naveen Manoharan his son and Sh. Manoharan Chandrakumar. Sh. Manoharan submitted that an amount of Rs. 42,20,00,000 was received from these three parties of which Rs. 13,10,00,000 was received from his wife and Rs. 15,00,00,000 each was received from his two sons. It'd be pertinent to mention that the AO, for the purposes of Remand Report had issued notices u/s 133(6) which were complied with and the entities responded along with their bank account statements. The respondents also explained the source of such funds which were subsequently transferred to Sh. Manoharan Govindswamy. They submitted that they had entered into a development agreement with Godrej Irismark LLP, a Godrej group company for a property of 25 Acres Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 11 in Bangalore Rural District. The copy of development agreement was also attached for the perusal of the assessing officer. Viewed in its entirety, the flow of funds was from Godrej Irismark to Govindswamy family, from Govindswamy family to Mr. Govindswamy, and finally from Mr. Govindswamy to Westcourt Hospitality. AO has not brought into question the authenticity of the evidence presented to him during remand, but he has remarked that the income tax returns of the family members of Sh. Manoharan Govindswamy do not substantiate their creditworthiness as they have reported significantly low income in their filed returns. He has further remarked that the investment made in convertible debentures through refundable deposits that are provided by Godrej to the family members of Sh. Govindswamy raises concerns and the situation calls into question the authenticity and legitimacy of the transaction in question. In my view, the assessee company has sufficiently proved the source of the funds which are from Sh. Manoharan Govindswamy. Thus the first source has been provided. Now Sh. Govindswamy has also proved the source of his funds. Thus even the source of source is proved. Additionally, even the family members who have lent the money to Sh. Govindswamy, have also proved their source of money, which came from Godrej. As such even the source of source of the source is explained. Thus I see no rationale in turning the CCDs into unexplained credits under Sec 68. As per the proviso to Sec 68, the entries have to be explained upto the second layer. In the present case even the third layer has been explained. As such there is no occasion to invoke Sec 68. AO has not commented adversely on the entries except raising a general remark that the transaction lacks authenticity and legitimacy, but has raised objections against accepting the additional evidence. For any evidence to be admitted under Rule 46A, certain conditions are prescribed in the Act. Assessee has contended that the Show Cause Notice was not received by him. As per the assessment order, SCN was issued on 15.01.2021 date of compliance was fixed for 21.01.2021. The final assessment order was passed on 09.02.2021. Furthermore, the evidence adduced only serve to aid the initial contention of the assessee regarding the source of funds. AO himself has noted in the assessment order that assessee vide his letter dated 16/12/2020 submitted the copy of bank statement of Sh. Manoharan Govindswamy and it was stated that the moneys were received from the family members of Sh. Govindswamy. Besides, the AO was also made aware that the ultimate source of funds was Godrej and the term sheet with Godrej was perused by the AO as well. Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 12 In view of the above, I am of the opinion that that the documents adduced have a fundamental bearing to the facts of the case and considering the assessee’s contention that no SCN was received by it, the additional evidence is admitted. Taking into consideration the facts in their entirety, the ground relating to addition of Rs. 43,72,80,000 is deleted and the ground is decided is decided in favor of assessee.” 16. Before us, Revenue has failed to controvert the findings given by Ld. CIT(A) which are based on the documents submitted by the subscriber of CCD and from the persons who provided the funds to him for making such investment. The assessee has discharged its burden of proving all the three ingredients of section 68 of the act i.e. the identity of the subscriber which is beyond doubts as the AO himself observed that he is one of the director of the assessee. The Second is Genuineness of the transaction which is also not in dispute as all the funds were transferred through banking channel. Third is creditworthiness of the subscriber which is doubted by the AO. As observed above, the assessee has filed the bank statements and ITR of the subscriber. Further before the AO, assessee has filed all the details of the persons from whom the subscriber has received the funds. As observed above, assessee has proved the source of source also though the amendment in section 68 was made vide Finance Act, 2022 wherein second proviso was inserted, so as to provide that the nature and source of any sum, whether in the form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or subscriber. This amendment has taken effect from 1st April, 2023 and accordingly applies in relation to the assessment year 2023-24 and all subsequent Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 13 assessment years. The year before us is AY 2018-19 thus this amendment is not applicable in the present case. 17. The coordinate Bench of Delhi bench of Tribunal in the case of ACIT v Smt. Prem Anand in ITA No. 3514/Del/2014 vide order dated 13.04.2017 held that amendment made in section 68 of the Act w.e.f. 01.04.2013 empowers the A.O. to examine source of source in case of share application money / share capital / share premium and thus this amendment does not give power to the A.O. to examine source of source of non-share capital cases. 18. The Hon’ble Delhi High Court in the case of CIT vs Vrindavan Farms Pvt. Ltd. in ITA No.71 of 2015 dated 12.08.2015 has held as under:- \"The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. lt was observed by the ITAT that the Assessing Officer had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High court.” 19. The Hon'ble Delhi High Court in the case of PCIT vs. Agson Global Pvt. Ltd reported in [2022]134 Taxmann.com 256 (Delhi) while allowing the appeal in favour of the assessee towards the additions made u/s 68 of the Act has held as under: “Section 68 of the Income-tax Act, 1961 – Cash credits (Share capital money) – Assessment years 2012-13 to 2017-18 – Assessee-company received share capital and share premium money from several investors – Assessing Officer made addition in respect of same on account of unaccounted income under section 68 on basis of recorded statement of managing director of assessee-company – Whether since assessee placed sufficient documentary evidence to establish that money which assessee had paid to investors was routed back to it in form of share capital/share premium and identity, creditworthiness and genuineness of investors was proved, there was no justification to make addition Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 14 under section 68 – Held, yes [Paras 11.4, 11.5 and 14.4] [In favour of assessee]” ………… 27. Regarding surrounding circumstances, it is observed that while making addition u/s 68 of the Act, the AO has doubted the financial capacity of loan creditors but such addition cannot be made on preponderance of probability and there has to be some evidence and substance in contention. The Assessing Officer has not brought anything on record to establish that the sources in the hands of loan creditors is non-genuine. Merely because they have shown meager income or no sufficient sources as presumed by Assessing Officer, loan taken by appellant from them cannot be held to be accommodation entries. It is well-settled position of law that no matter how strong suspicion is, it cannot take place of the evidence. Therefore, in the absence of any evidence showing that in fact, appellant has given cash in lieu of unsecured loan taken, merely on the basis of suspicion, no addition can be made for which reliance is placed on decision of Hon'ble Supreme court in the case of Daulatram Rawatmull, (1964) 53 ITR 574. 20. On the issue of discharge the onus of establishing the creditworthiness of the loan creditor, the Hon'ble Delhi High court in the case of Mod. Creations (P.) Ltd. v. ITO reported in [2013] 354 ITR 282, has held as under: \"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors. 20.1 It was further observed by the hon’ble court as under: 14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the Assessee to plough back its Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 15 own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala Ride. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.0. had any doubt about the material placed on record, which was largely bank statements or the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that its directors and shareholders or that of the sub- creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors. 21. In view of the above discussion, we find no error in the order of ld. CIT(A) who has rightly deleted the addition and therefore the same is hereby upheld. Accordingly, ground of appeal No. 2 is dismissed. 22. In the result, appeal of the Revenue is dismissed. 23. Now coming to assessee’s appeal in ITA No. 3351/Del/2025. 24. All the grounds of appeal taken by the assessee are with respect to the disallowance of expenses of Rs.1,78,50,000/- claimed by the assessee under the head professional charges thus they are taken together for consideration. 25. Before us, ld. AR of the assessee submits that the assessee has claimed expenses towards consultancy charges on the project “West Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 16 One project” which was related to other company however, the AO as well as ld. CIT(A) has failed to appreciate the fact that the assessee entered into an arrangement for carrying out this project and in this process has taken consultancy to examine the viability of the project. Since the expenses were incurred wholly and exclusively for the purpose of business therefore, the same deserves to be allowed as claimed. Ld. AR placed reliance on the judgement of House of Lords in the case of Hughes (Inspector of Taxes) Vs. Bank of New Zealand reported in 6 ITR 636. Ld. AR also filed detailed written submission which is reproduced as under: “1.The assessee company was Incorporated to carry on the business of real estate consultancy. The assessee has been maintaining books of account & other connected records, and getting the same audited by a firm of Chartered Accountants. 2. A company named West One Electronic City Pvt. Ltd. was owing/holding a land in Bangalore (area admeasuring 7 acres), for which substantial payments were already made to Bangalore Development Authority. With a view to enter into some arrangement with West One Electronic City Pvt. Ltd., the assessee had taken a conscious call to take professional consultancy services in advance and in this process the assessee had incurred expenses to the tune of Rs.17850000/-. Details regarding expenses incurred. Name of Service Provider Date of Invoice Amount of Service Charges (Rs.) Out of pocket expenses (Rs.) IGST Amount(Rs.) Westcourt Real Estate Pvt. Ltd. (PAN:AACW6937F) 05.12.2017 11200000 2016000 Studio U + A Advisory Pvt. Ltd. 05.12.2017 1500000 270000 Westcourt Real Estate Pvt. Ltd. (PAN:AACW6937E) 01.03.2018 5150000 30000 932400 17850000 30000 3218400 Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 17 3. The learned AO had disallowed such expenses on the ground that the assessee does not have any project of its own and thus such expenses. are not allowable as business expenses. 4. The learned CIT(A) has upheld such disallowance by stating \"....it is clear that the expenses relate to West One project and that being so, it cannot be controverted that expenses borne on behalf of West One which is a separate entity in itself, cannot be legitimately claimed under the provisions of Income Tax Act. This expense ultimately benefitted West One and there is no legal bearing for holding it as allowable in the hands of the present assessee.\" 5. The learned CIT(A) had formed an incorrect view that the assessee had incurred such expenses on behalf of West One Electronic City Pvt. Ltd. and also that such expenses had benefited West One Electronic City Pvt. Ltd. As a matter of fact, the assessee had incurred such expenses for the purposes of business. 6. Respectful submission in this regard before your lordships is that the lower authorities have failed to appreciate that since such expenses were incurred by the assessee for the purposes of business, the same are liable to be allowed. It seems that the lower authorities had adopted a narrow approach while keeping into mind the concept behind section 57(iii). 7. Your lordships will appreciate that there is clear cut distinction between the scope of section 37(1) and the scope of section 57(iii), in as much as the former talks about the expenses incurred 'for the purposes of the business' and the later talks about the expenses incurred 'wholly and exclusively for the purpose of making or earning such income'. 8. Your lordships will also appreciate that section 37(1) does not mandate that the expenses incurred for the purposes of business must yield some income to the assessee. For this proposition, the reliance is hereby placed on the judgment in Hughes (inspector of taxes) vs Bank of New Zealand (6 ITR 636) wherein Lord Thankerton held \"Expenditure in the course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does require the presence of a receipt on the credit to justify the deduction of an expense\". 9. It is worth clarifying that it is not the case of the lower authorities that (i) such expenses were personal or capital expenses; (ii) such expenses were paid for activities which are offenses or prohibited by law; (iii) such expenses were not paid or accrued in the previous year relevant to AY 2018-19.” 26. On the other hand, ld. CIT DR supported the orders of lower authority and submits that the expenses incurred by the assessee Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 18 are related to the project of other company and therefore, the expenses has rightly disallowed by the AO and thus requested for the confirmation of the same. 27. Heard the parties and perused the material available on record. The assessee is engaged in the business of real estate and developing real estate projects. Assessee was in the process of making some arrangement for developing the project with M/s West One Electronic City Pvt. Ltd. and obtained certain professional consultancy regarding viability of the project as the total exposure of project was quite high. The consultancy expenditure incurred in this regard is wholly and exclusively for the purpose of business and were incurred for the betterment of the business of the assessee. These expenditure were incurred under business expediency and necessity for which the AO cannot step into the shoe of the businessman to verify the necessity or the business expediency. 28. The hon’ble Gujarat Hogh court in the case of C J Patel & Co. vs. CIT reported in 158 ITR 486 (Guj) has defined the terms Wholly and exclusively as under: Meaning of wholly and exclusively - The adverb \"Wholly\" in the phrase laid out or expended for business refers to the quantum of expenditure. The adverb \"exclusively\" has reference to the object or motive of the Act behind guest house expenditure. Unless such motive is solely for promoting the business, the expenditure will not qualify for deduction. 29. 2The hon’ble Calcutta hogh court in the case of D1T vs. Health & Co. (Calcutta) (P) Ltd. reported in 14 1TR 605 (Cal.) held that there must be Connection between Expenditure and object must be Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 19 real and not remote or illusory. The hon’ble court has observed as under: 1t is well settled by now that all expenditure incurred by the assessee though voluntary i.e. not obligatory, which is ultimately designed to further the objects and purposes of the assessee can be treated as business expenditure so long as the connection between the expenditure incurred and the objects is real and not remote or illusory.” 30. The hon’ble Surpeme court in the case of Empire Jute Co. Ltd. vii. CIT 124 ITR 1 (SC) has held as under: What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency 31. In the case of SA Builders Vs. CIT reported in 158 Taxman 74 (SC) has held as under: Section 37(1) of the Income Tax Act. 1961 - Business expenditure- Allowability of - Assessment years 1990-91 and 1991-92 – Whether expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency - Held, yes. 32. The hon’ble Supreme court in the case of Indian Molasses Co. P. Ltd. v. CIT reported in 37 ITR 66 (SC) held that in order to claim deduction of expenditure u/s 37(1) following conditions should be satisfied: (i) The expenditure in question should not be of the nature described under the specific provisions of sections 30 to 36; (ii) The expenditure should not be of the nature of capital expenditure; (iii) It should not. be; a personal expenditure; and (iv) The expenditure should have been laid out or expended wholly and exclusively for the purpose of business or profession. 33. In the instant case, the assessee fulfils all the conditions laid down by the hon’ble Apex court therefore, expenditure as claimed is Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 20 allowable in terms of the provisions of section 37(1) of the Act. It is settled law that no addition can be made on the basis of surmises, suspicion and conjectures. Reliance for this proposition is placed on the judgement of hon’ble Supreme court in the case of Uma Charan Shaw & Bros. Co. Vs. CIT reported in 37 ITR 271 (SC). 34. Since the revenue has filed to controvert the claim of the assessee that these expenditures were incurred in the day-to-day business activity and is wholly and exclusively for the purpose of the business. 35. Thus, in our considered view and by respectfully following the judgements of hon’ble Apex court as stated supra, the expenditure claimed by the assessee are under business expediency and thus are allowable expenditure. Accordingly, we hereby delete the disallowance made by the AO. All the grounds of appeal of the assessee are thus allowed. 36. In the result appeal of the assessee is allowed. 37. In the final result, appeal of the Revenue in ITA No. 3294/Del/2025 is dismissed and of the assessee in ITA No. 3351/Del/2025 is allowed. Order pronounced in the open Court on 30.12.2025. Sd/- Sd/- (SUDHIR KUMAR) JUDICIAL MEMBER Date:- 30.12.2025 PK/Sr. PS (MANISH AGARWAL) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant Printed from counselvise.com ITA No.3294/Del/2025 & 3351/Del/2025 ACIT Vs. Westcourt Hospitality Pvt. Ltd. Page | 21 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 6. Guard File ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "