In 26 June 2016, Bollywood actor Preity G Zinta filed income tax return as a "non-resident individual" with declared an income of Rs.46 lakh. On 31 March 2022, the Assessing Officer issued a draft assessment increasing her total assessed income to around Rs.11 crore.
In response to this draft assessment order, she raised objections with the Dispute Resolution Panel (DRP) which in an order dated 31st December 2022, supported the additions suggested by the Assessing Officer.
The department detected a large-value credit of Rs.13 crore and debit of Rs.13 crore leaving a nominal balance of Rs.10,300 in a newly opened Corporation Bank account on 25 January 2016. The Assessing Officer deemed the source of the Rs 13 crore investment as unexplained, leading to proceedings under Section 148, which resulted in an addition of Rs 10 crore under Section 68 as unexplained cash credit.
What Preity Zinta Argued?
Preity Zinta said that during the year 2012-2014 she had taken loans from a private company (Mr. Merchant and his group entities) due to financial distress.
The Quantum Park flat was mortgaged as security for these loans.
To repay these loans, she later sold the flat and the sale proceeds - along with inter-entity fund transfers within the "Merchant group" - were routed through her bank account, explaining the large credits and debits.
She provided loan-history documents, sale deed, capital-gains computation, detailed bank statements, transaction-wise ledger entries, and tax-audit disclosures.
The core argument - these were not fresh earnings or unexplained income - they were repayments and restructuring of previously existing liabilities (i.e. loans).
The identity, creditworthiness, and genuineness of all transactions were fully documented with bank statements, sale deeds, confirmations, and audited accounts.
ITAT Mumbai's Verdict
The Income Tax Appellate Tribunal (ITAT) Mumbai Bench accepted Preity Zinta's explanation after a detailed review.
The Tribunal held that the transactions were genuine and the assessee did not derive any benefit but only transferred liability from one entity to another.
The ITAT deleted the Rs 10 crore addition made by the tax officers, ruling the reassessment was unjustified.
The Tribunal's order effectively gave Preity Zinta a complete clean chit on the tax issues related to this case.
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