DEPUTY COMMISSIONER OF INCOME TAX, DELHI vs. M/S. SHRISH ENTERPRISES PRIVATE LIMITED, DELHI

4. In appeal, the Ld. CIT(A) restricted the addition to the tune of Rs.10 lakhs on account of unsecured loan taken from Pinki Goel by the assessee. Hence, the instant appeal before us by the Revenue against the order of deletion of Rs.2,23,18,873/-.

“Aforesaid allegation of the Learned A.O. is rebutted as under: 1. Reg Unsecured Loan from Mr. Mayank Goel of Rs.52.90,762/-, Ms. Anandi Devi of Rs.10,73,711/- and Naresh Kumar Goel -HUF of Rs. 1,59,54.400/- Regarding the background of the aforesaid unsecured loans, it is submitted as under: M/s Indwell Pharma is a partnership firm and a related party of the appellant with whom regular trading transactions for purchase of medical supplies are being done by the appellant. During the year the appellant had purchased medical supplies worth Rs.3,67, 19.596/- from M/s Indwell Pharma. The Brief summary of transactions with M/s Indwell Pharma in the books of appellant is as under: Particulars Debit (Rs.) Particulars Credit (Rs.) To Bank (payments 1,43,31,423 By purchases 3,67,19,596 for purchases) To Purchase return 2,655 To Sales 69,300 To Balance Payable 2,23,18,873 3,67,19,596 3,67,19,596 As tabulated above, the appellant had outstanding liability towards Indwell Pharma of Rs.2,23,18,873 which was discharged by taking over the following outstanding loans of M/s Indwell Pharma on 05.12.2017.

Particulars Amount (Rs.) Naresh Kumar Goel HUF 1,59,54,400 Mayank Goel 52,90,762 Anandi Devi 10,73,711 2,23,18,873 As it is clear from the above that takeover of unsecured loans of Mr. Naresh Kumar Goel (HUF), Mr. Mayank Goel and Ms. Anandi Devi was in lieu of payment due to M/s Indwell Pharma against purchases made from later. The above takeover of unsecured loans by the appellant was recognised by both the parties in their respective books and in respect of the same copy of ledger account of Indwell Pharma in the books of Appellant along with copy of ledger account of appellant in the books of Indwell Pharma is attached at pages 115 to 120 and 147 to 150.

Now, Background of takeover of unsecured loans of Mr. Naresh Kumar Goel (HUF), Mr. Mayank Goel and Ms. Anandi Devi, (here in after called "Lenders") by the appellant M/s Indwell Pharma is a partnership firm and a related party of the appellant who was an exclusive all India sales and marketer of a pharma company named M/s Ind-swift Limited. The agreement of dealership between M/s Ind-swift Limited and M/s Indwell Pharma got terminated during the year. In Dec/ 2017, M/s Indwell informed the appellant that because of termination of agreement by Ind-swift Limited, it would no longer be able to continue doing business and further requested the appellant to adjust payment for sales made by it with the unsecured loans of Mr. Mayank Goel, Ms Anandi Devi and M/s Naresh Kumar Goel HUF as mentioned above. The appellant acceded to the request of M/s Indwell pharma as it was obligated to make payment for the goods it had purchased from M/s Indwell Pharma and therefore credited the running accounts of the aforesaid parities against the amount payable to M/s Indwell Pharma as on 05.12.2017. (Copy of the ledger account of M/s Indwell Pharma in its books evidencing the same is attached at pages 115 to 120.

As a result of commercial decision, unsecured loans taken from Lenders by M/s Indwell Pharma were taken over by the appellant in lieu of payment for purchases to be made by it from M/s Indwell Pharma.

Further, the above commercial decision was agreed by all the parties namely M/s Indwell Pharma, Lenders and appellant. And further it is pertinent to point out that all the loans were taken by M/s Indwell pharma through banking channels and subsequently all the said loans were also repaid by the appellant in future year/s through banking channels (Copy of ledger account are attached as per page no. 138 tob 141. (Required to rebut the allegation of unaccounted money was routed) Following, documents were submitted before the Ld. A.O. in the assessment proceeding to substantiate the above 1 Annexure 3 of reply dated 21.03.2021 and Annexure 5 of reply dated 12.08.2020.

1. Complete ledger account of the Ms. Anandi Devi and Naresh Kumar Goel HUF in the books of M/s Indwell Pharma for three years 01.04.15 to 31.03.2018 (Page no. 100 to 105)

2. Bank Account statement of the Ms. Anandi Devi and Naresh Kumar Goel HUF from 2015-2018 substantiating amount was landed to Indwell Pharma via banking channels. (Page no. 108 to 109 and 111)

3. Income Tax return of the Mayank Goel, Ms. Anandi Devi and Naresh Kumar Goel HUF. (Page no. 106 to 107 and 110)

4. Complete Ledger accounts of Lenders in the books of appellant along with confirmation. (Page no. 80 to 83) 5. Ledger account of M/s Indwell Pharma showing the details of purchases made during the year and payment made through account payee cheques/RTGS/Takeover of loans. (Page no. 115 to 120).

It is humbly submitted that the Ld. AO on hand accepts the purchases made by the appellant from M/s Indwell Pharma and the sales made against those purchases (as the appellant is a trader) to be genuine and accepted the resultant profit earned by the appellant.

However, at the same time loan taken over against the outstanding amount for purchase of goods has been treated to be unexplained cash credit. Further as matter of fact in contradiction to the allegation of the Ld. A.O, no cash deposit has been made by the appellant against which the aforesaid unsecured loans were converted.

Further, it is pertinent to point out here that the Ld. AO also accepts and allows the interest expenses on alleged unexplained cash credit as a genuine business expense, regarding the same the appellant relies on the judgment of the jurisdictional ITAT in the case of Society for Institute for Professional Studies Vs JCIT (ITA.No.4127/Del./2017) Dated: 02.03.2021 where it has been held that:

Where the interest has been allowed as deduction by the A.O., then, A.O. cannot take a different view that loans are unexplained u/s 68, Relevant Extracts reproduced here as under:

…The loans are subject to payment of interest earned and TDS has also been deducted. Details of the TDS ore filed of Pages - 114 & 115 of the pape' book. The assessee has filed the details to show that all the loan amounts have been utilized towards objects of the assessee society and details are also filed at Paper Book -106 to show that loans have been later on returned to the parties. Thus, at the time of scrutiny assessment, all the loans were repaid by the assessee. The Hon'ble Gujarat High Court in the case of Rohini Builders 256 ITR 360 (Guj.) considering the findings of the Tribunal in which interest have been allowed by the A.O. on loans, therefore, addition on merit of the unexplained loan have been deleted. The view of the Tribunal has been affirmed by the Hon'ble Gujarat High Court. Since in the present case also the 'merest has been allowed as deduction by the A.O, therefore, A.O. cannot take a different view that loans ore unexplained.

It is further submitted that the Learned AO in complete disregard to the facts on hand tries to pin the credit of purchases which are genuine and duly accepted by him to be unexplained credit only for the want of formal agreement among partners of firm i.e. Indwell Pharma and any confirmation signed by all partners which permit the appellant to convert credit balance of M/s Indwell Pharma in the books of the appellant as unsecured loan in the name of Lenders.

As a matter of fact, it was mutually decided between the parties (Indwell Pharma, lenders of unsecured loan and appellant) that the unsecured loan will be taken over by the appellant against the outstanding balance of purchases made from Indwell pharma. This has been substantiated by the confirmations or account books provided by all three parties.

The above understanding was actually implemented by all the parties as evidenced by the repayment of unsecured loan taken over along with the interest in the subsequent year/s. further TDS on these interest payments have also been deposited. Copy of ledger account and bank account depicting the aforesaid fact as per attached pages 80, 86 and 89.

Regarding dispute among partners mentioned in earlier replies of the appellant, it is humbly submitted that dispute was never related to the aforesaid transaction which is evidenced by further events like (i) no partner has disputed the transaction in any court of law or otherwise ii) the Lenders of the unsecured loans also had not disputed the takeover of loan by appellant from M/s Indwell Pharma, (iii) Mr. Anil Trikha and Pranav Trikha (unrelated party to the appellant) has subsequently retired by will from M/s Indwell Pharma and remaining partners Mr. Mohit Goel and Ramesh Goel are still continuing partners. It is to be noted that all the documents submitted earlier were signed by continuing partners.

Further, it is emphatically submitted that it is not out of charity that the unsecured loans were taken over by the appellant, it was a commercial transaction wherein the appellant who was required to make the payment for the purchase of goods as per the credit terms, got an extension by taking over the loans which would otherwise be required to be paid immediately.

The appellant contends that a businessman is the best judge of his affairs and knows the best way to run his business, that the AO could not step into his shoes and guide him about the commercial expediency and justifiability of any business transaction and the same has to be judged from the point of view of a businessman and not the taxman.

The business expediency and prudence are to be judged by the appellant only. It is further submitted that the Assessing Officer cannot sit in the armchair of businessman and decide what the appellant has to do to maximize his profits. We find support from the decision of Hon'ble Bench of ITAT, Chandigarh in the case of Bakemens Home Products v. Income Tax Officer [1984] 7 ITD 371 (CHD.) which held as under, "Thus; it can be easily seen that the parties to the agreement had, from either side, commercial consideration as the first priority. Moreover, it is easier to sit in an armchair and try to find whether the payment is excessive or unreasonable with what may be called 'hind sight'. A successful industrial undertaking does not necessarily operate upon the strength of its capital, though it is indeed important. Much depends upon the business acumen of the parties involved. This is amply demonstrated by the example in hand. Whereas Rieta Biscuits were finding it difficult to make any headway with the same plant and machinery, the lessee- assessee has made it a thumping success. So, the genuine payments wholly and exclusively made for the purpose of the business cannot be considered excessive or unreasonable by applying the subjective standards of the ITO, because the highest Court of this land has laid down, as seen in the following cases, that reasonableness of the expenditure has to be seen from businessman, point of view."

• CIT v. Walchand & Co. (P) Ltd. [1967] 65 ITR 381(SC) • J.K. Woollen Manufacturers v. CIT[1969] 72 ITR 612 (SC) • Aluminum Corpn. of India L TD. v. CIT [1972] 86 ITR 11 (SC)

Reliance is further placed in: • CIT Vs. Dhanrajgirji Raja Narasingirji 91ITR 544 (SC), wherein it has been held that it is not open to department to prescribe what expenditure appellant should incur and in what circumstances he should incur that expenditure. • CIT Vs. Wal Chand and Co. (P) Ltd. 65 ITR 381 (SC), wherein it has been, inter alia, held that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively has to be adjudged from the point of view of the businessman and not of the revenue.

The law is well settled that business decisions of appellant cannot be the subject matter of consideration of revenue authorities. How he has to earn income? How he has to make expenses, what type of business he shall be doing? what will be the nature of the business. It is up to the Appellant has to decide it Now, the additions made by the assessing officer under section 68 of the Act is not sustainable for the following reasons:

1. Section 68 is not applicable to amounts received as regular business transactions.

2. Onus to prove nature and source has been duly discharged Each of the aforesaid contention is elaborated as under:

Re (a): Section 68 not applicable to business receipts Section 68 of the Act reads as under:

'Cash credits.

…………” (emphasis supplied)

Ongoing through the provision of Section 68, it is evident that the following ingredients are required for the application of provision of Section 68 of the I.T Act, 1961 and for proving the genuineness of loans/deposits: Any sum found to be credited in the books of accounts of the assessee,

1. Books maintained for any previous year, 2. Explanation of the assessee is required about the nature and source of the said sum so credited to the satisfaction of the A.O.

It is humbly submitted that Ld. A.O. has erred in applying the two out of three ingredients of Sec. 68.

Appellant respectfully submit that

1. there are no sum credited in the books of accounts as supported by decisions held in various court cases.

2. The Assessee has submitted necessary explanation to Ld. A.O. to substantiate the nature and source of the transaction in question.

(a) Non- applicability of Sec. 68 being no sum credited in the books of Accounts as supported by various Court decisions It is submitted that the Legislature has employed the phase 'any sum' in the above provision. It would be pertinent here to refer to the decision of Hon'ble Supreme Court in the case of Shri H.H. Rama Varma vs. CIT (supra) wherein it was held that 'any sum' means 'sum of money'. The relevant extract of the judgment is as follows:

One of the dictionary meanings of the expression 'sum' means any indefinite amount of money. The context in which the expression 'sums paid by the assessee' has been used makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation. The Act provides for assessment of tax on the income derived by an assessee during the assessment years; the income relates to the amount of money earned or received by an assessee. Therefore, for purposes of claiming deduction from income-tax under section 80G(2)(a), the donation must be a sum of money paid by the assessee.

In view of the above decision the phrase 'any sum' employed in Section 68, cannot be extended to include any book entry, notional adjustment, payment in kind etc.

In the facts of the present case, only book entry was passed in the balance sheet whereby appellant recorded the value of loans acquired in the unsecured loans and debit the liability due to M/s Indwell Pharma against purchases made from them. The recording of the acquisition of loan of M/s Indwell Pharma in lieu of trading liability due to Indwell Pharma was nothing but a journal entry in the books of appellant. Ld. A.O erred in treating the amount credited in loan Account of the Lenders as if the amounts have been infused by the Lenders in the books of accounts and this figure has been taken as a sum credited.

In this regard reliance is placed on the findings recorded in the context of the interpretation of the provisions of Section 68 in the decision of the Special Bench comprising of five members in the case of Manoj Agarwal Vs DCIT reported in 113 ITD 377 wherein the Tribunal had explained the difference between the receipt of any sum for the purpose of Section 68 of the I T Act 1961 versus the liability to pay amount representing outstanding purchase consideration.

'The argument that section 68 is not applicable where an asset is sold, and the sale proceeds are credited in the books of account cannot be accepted having regard to the settled legal position that t is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the cred% for the reason that the purchase itself was allowed as expenditure only on being satisfied that was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction therefore has been allowed, m all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable, and it is for the assessee to prove satisfactorily the nature and source of the monies"

There is a difference between credit representing a liability payable by the appellant and a credit representing monies received from another person. It is because of this distinction a liability which arises as a consequence of any purchase resulting in a corresponding credit to the account of the supplier cannot be added u/s. 68 of the Act, more so, when the purchase has been accepted as genuine. In other cases, involving actual receipt of money, the provisions of sec. 68 are applicable and then the onus is on the assessee to prove satisfactorily the nature and source of the monies In the facts of the present case, the transactions between the Lenders and the appellant is that liability is taken over in lieu of payment to be made against purchases made from Indwell Pharma on the request of later. Ld. A.O erred in equating journal entry passed in the books of appellant for amount due on account of purchase of goods with sum credited i.e., receipt of money so as to invoke Section 68 of the Act. There was no receipt or involvement of any sum or cash in the transaction and therefore the provisions of Section 68 were not applicable in the given set of facts.

Reliance is further placed on the observation of Kolkata Bench of the Income tax Appellate Tribunal ('The Tribunal") in the case of Abhijeet Enterprises Itd Vs. ITO where in The Tribunal observed that the entire transaction in question was between group companies i.e., the holding company and the subsidiary company i.e., the assessee company. Also, there is no receipt of money rather there is a liability on the assessee company to pay outstanding purchase amount to M/s. APL. We further note from the material on record that there was no cash involved in any stage of the transaction and that in the subsequent assessment year itself the transaction has been squared up by the assessee company by issue of debentures. In the same case, relying on the various court and Tribunal decisions viz Jatia Investment Co. Vs. DCIT, V.R. Global Energy Pvt. Ltd. Vs. ITO, CIT Vs. Pancham Das Jain, The Tribunal observed that the provisions of Sec. 68 of the Act does not apply to any or every credit entry in the books of accounts interalia including books of entries, barter transactions, outstanding liabilitiy payable in respect of purchases.

Reliance is further placed on the decision of the Madras High Court in the case of V.R. Global Energy Pvt. Limited vs. ITO where it was held that when there was no cash involved in the transaction of allotment of shares, provisions of Sec. 68 would not apply.

(b) Onus discharged by the appellant - no addition can be made In respect of third condition, i.e., "explanation of the appellant about the nature and source of the sum so credited to the satisfaction of the A.O", it is brought to your kind notice that the appellant had submitted explanation enclosing the supporting evidence before the Ld. A.O. during course of assessment proceedings.

In order to establish the identity, source and genuineness of the purchases, the appellant, vide submission(s) dated 21.03.2021 and 12.08.2020 filed the following details/ documents/ information:

1. Complete ledger account of the Ms. Anandi Devi and Naresh Kumar Goel HUF in the books of M/s Indwell Pharma for three years 01.04.15 to 31.03.2018 (Page no. 100 to 105) 2. Bank Account statement of the Ms. Anandi Devi and Naresh Kumar Goel HUF from 2015-2018 substantiating amount was landed to Indwell Pharma via banking channels. (Page no. 108 to 109 and 111)

3. Income Tax return of the Mayank Goel, Ms. Anandi Devi and Naresh Kumar Goel HUF. (Page no. 106 to 107 and 110)

6. Purchase bills from M/s Indwell Pharma (Page no.121 to 128)

Therefore, it is submitted, no doubt that in terms of aforesaid provisions of section 68 of the Act the primary onus to explain the nature and source of the amount found credited is on the assessee. The expression nature' encompasses bringing on record evidence about nature of the receipt, be it loan, advance, share application money, etc. The expression 'source' envisages establishing the identity and creditworthiness of the source/ person from whom the amount is received. However, once the assessee furnishes reasonable explanation, the onus, rt is trite law, shifts to the Revenue.

Reference, in this regard, may be made to the decision of the Supreme Court in the case of Orissa Corporation (P) Limited: 159 ITR 78, wherein in the context of requirement of the assessee to discharge primary onus under section 68 of the Act, the Court observed that the assessee having given the names and addresses of the creditor who were income-tax assessees, the mere fact that such creditors did not respond pursuant to notice under section 131 of the Act could not be used against the assessee.

Similarly, the Courts have in various decisions summarized hereunder repeatedly held that where the assessee led evidence to prove the identity of the creditors and furnished confirmation letters indicating their Permanent Account Numbers/GIRs, the onus placed on the assessee was discharged and no addition could be made to the income of the assessee in terms of section 68 of the Act: • Pr. CIT vs. Softline Creations (P) Ltd: 387 ITR 636 (Del): The Hon'ble Court held that where the assessee has provided sufficient indication(s) including by way of permanent account number, to highlight the identity of the share applicants and produced affidavits of directors of the companies along with bank details of share applicants, then it would be a valid discharge of the identity of the share applicants, genuineness of the transaction and their creditworthiness. • CIT vs. Nipuan Auto (P.) Ltd. 361 ITR 155 (Del): Assessing Officer made addition on account of share application money received by assessee as cash credit from two companies. Identity of said two companies as sister concerns stood established, their bank accounts, IT returns and balance sheet in addition to their confirmation letters were produced. In such circumstances, the Court held that since assessee had discharged its initial burden, addition under section 68 was to be deleted. • CIT vs. ARL Infratech Ltd.: 394 ITR 383 (Raj.): Where PAN of share applicants have been given and the mode of payment has been explained, in absence of any direct/ indirect relation between the assessee and the applicants, application money received cannot be doubted and added under section 68 of the Act. • DCIT Vs. Rohini Builders: 256 ITR 360 (Guj): The Court held that once the assessee having furnished the loan confirmations giving full address, GIR Number/PAN, etc. of all the depositors, assessee had discharged initial onus which lay on it in terms of section 68 by proving the identity of the creditor. It was further held that the assessee also proved the capacity of the creditor by showing that the amount was received by account payee cheque. It was thus concluded that the assessing officer was. therefore, not justified in making addition of unexplained cash credit. (SLP against this decision was dismissed by Supreme Court)

Similar view has been taken by the Delhi High Court in the case of CIT v. Dwarkadhish Investment Ltd: 194 Taxman 43 wherein the Court, in the context of amount received towards share capital, observed as under:

8. in any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share appellants by either furnishing the PAN number or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share appellants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. One must not lose Sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the source of source.

To the same effect are the following decisions: • CIT v Antartica Investment (P) Ltd. 262 ITR 493 (Del) • CIT v. Dolphin Canpack Ltd.: 283 ITR 190 (Del.) • CIT v. Iliac Investment (P) Ltd.: 287 ITR 135 (Del.) • CIT v. Oasis Hospitalities P. Ltd: 333 ITR 119 (Del.) • CIT v. Kamdhenu Steel and Alloys Ltd: 361-ITR 220 (Del.) • CIT v. Victor Electodes Ltd.: 329 ITR 271 (Del.) • CIT v. Vacmet Packaging India (P) Ltd.: 367 ITR 217 (All.) • CIT v. Arunanada Textiles P. Ltd: 333 ITR 116 (Kar) • CIT v. Gagandeep Infrastructure (P.) Ltd.: 80 taxmann.com 272 (Bom)

The ratio, thus, emanating from the aforesaid decisions may be summarized as under:

The assessee has to prima facie provide documents to prove the identity of the lender as well as the genuineness of the transaction.

The identity stands established if any information regarding PAN etc is provided; The genuineness of the transaction shall, prima facie, stand established where the amount has been subsequently transmitted through banking channels.

Once identity and genuineness of transaction is prima facie established as aforesaid, the burden of proof shifts on the Revenue.

The Revenue, then, in order to invoke the provisions of section 68 has to bring on record, evidence to controvert the evidence furnished by the assessee.

The Revenue should prove that the money introduced was, in fact, emanating from the coffers of the assessee.

On perusal of the aforesaid, it would be noticed that the initial burden to satisfy the ingredients of section 68 of the Act is on the assessee and once the primary onus is discharged and there is nothing to controvert the evidence placed on record by the assessee, no addition can be made by the assessing officer under the said section.

In this regard, we submit that honorable Mumbai High Court in the case of Pr.CIT vs. Veedhata Tower Pvt. Ltd, order dated 21.04.2018 has held that when all the necessary details of the fund provider were available with the assessing officer, he was free to make the necessary enquiry and addition under section 68 in the hands of the recipient were unjustified. Furthermore, assessee has also paid interest to the lenders. It has also deducted tax at source. Loan have been duly repaid; some part has been repaid even in the present assessment year. In these circumstances, in our considered opinion assessee has discharged the onus. The assessing officer has not brought on record any cogent material to make the addition as unproved cash credit. Hence, the addition made by the assessing officer is not sustainable.

Assessee's explanation not to be rejected arbitrarily Various courts have held that the A.O cannot reject the appellant's explanation arbitrarily.

Hon'ble Bombay High Court of Nagpur Bench in very old case of Naidu (RBNJ) vs CIT (1956) 29 ITR 194 (Nag) held that where the explanation furnished by an assessee about the amount credited is prima facie reasonable, the said explanation cannot be rejected on capricious and arbitrary grounds.

Further, Hon'ble Supreme Court in the case of CIT vs K.S Kannan Kunhi (1973) 87 ITR 395 (SC) in para 6 of the judgment expressed its displeasure that explanation furnished by the assessee and for rejecting the same arbitrarily and without assigning any reason for the same. The ratio of the judgment in this case is that the assessee's explanation must, be examined carefully and if it is found not to be acceptable, the proper reason for rejecting the explanation should be given in the order. The relevant portion of the judgment is reproduced for your kind perusal.

The ITO did not examine the merits of those explanations. He rejected them by merely observing that they were not saves factory. The explanations offered by the assessee are not prima facie absurd. They were capable of being examined by the ITO. It was possible for the ITO to go into the extent of the immovable property owned by the HUF and its income. He did not care to do so. It was also possible for the ITO to go into the question of remittances made by Kannan Kunhi from Ceylon. Here again the ITO did not choose to do so. It was not even suggested by the ITO that the assesses was having any business activity in India prior to 17th Aug. 1950, or any other source of income taxable wider the Act f the explanation given by the assessee that part of the initial business capital was supplied by Kannan Kunhi is correct then the same is a good explanation. That explanation has not been examined at all. Similarly, the assessee's explanation that he was having income from the agricultural property has not been examined. The AAC also did not choose to examine the explanation given nor did the Tribunal care to go into that explanation. It just brushed aside that explanation with the observation that the assessee had no proper or satisfactory explanation for the sources of these amounts. In our opinion, the Departmental authorities as well as the Tribunal had arbitrarily rejected the explanation given by the assessee. Under these circumstances we do not think that we will be justified in going into the niceties of the law, whether the High Court was justified in going into, the meats of the findings reached by the Tribunal. All that we need say is that this is not a fit and proper case where we should exercise our discretionary jurisdiction.”

In view of the aforesaid, mere bald observation that the appellant has routed its own unaccounted money in its books by crediting amounts in the name of its related parties as unsecured loan without bringing any evidence of any unaccounted money and more-so when all the requisite documents to discharge onus in terms of section 68 of the Act has been placed on record, is of no consequence and is liable to be thrashed to nullity.

In the present case, the allegation made by the assessing officer shows that the addition has been made without considering the conduct of the parties and the appellant, on the basis of mere conjectures, surmises/ suspicion, without pointing any inaccuracy in the explanation furnished by the appellant or any adverse material coming to the possession of the assessing officer. Regarding the applicability of decision of Honorable Supreme Court in case of McDowell & Co. Limited vs. CTO 154 /TR 448 (SC) relied upon by the Id. A.O while reaching at the conclusion that “This entire edifice was basically a colourable device to give the colour of genuineness to these transactions through which he was successful in bringing back his own unaccounted cash into his books without the need to pay any taxes” “It is humbly submitted that the said decision is not applicable to the facts of the instant case as in that case, it was held that Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and 'f is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.” In the instant case the appellant has not used any device to avoid tax, therefore, the said decision is not at all applicable. In the facts of the present case, both the nature & source of the unsecured loans taken over were fully explained by the appellant. The appellant had discharged its onus to prove the identity, creditworthiness and genuineness of the lenders of unsecured loans. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Without doing any due diligence, the AO on the basis of conjectures and surmises concluded that the appellant has employed a colourable devise to bringing back its own unaccounted cash into his books without the need to pay any taxes and further he has not even bothered to elaborate any deposition of cash by the appellant in any bank accounts. In the aforesaid circumstances, it is emphatically submitted that the unsecured loans taken over against the purchase consideration payable to M/s Indwell Pharma in the regular course of business could not be regarded as unexplained cash credit under section 68 of the Act and consequently, the addition made by the assessing officer under that section calls for being deleted in toto.”

This is with reference to the Notice under Section 250 of the Income Tax Act, 1961 issued vide DIN No. ITBA/NFAC/F/APL_I/2024- 25/1065485485(1) on 07/06/2024 requiring the assessee M/s Shrish Enterprises Private Limited (hereinafter may be referred to as the Firm") to provide the documents and information as per the annexure of the said notice, we would like to submit as under:

1. Please prove the genuineness of purchases of Rs. 3.67 Cr made from M/s Indwell Pharma (Firm). Please produce copy of delivery challans and invoices raised by the firm. Also please produce copy of VAT/GST returns filed for the F.Y. 2017-18 by reconciling the purchases from M/s Indwell Pharma with VAT/GST Returns purchase data.

M/s. Indwell Pharma is a partnership firm and a related party of the appellant with whom regular trading transactions for purchase of medical supplies are being done by the appellant.

During the year the appellant had purchased medical supplies worth Rs.3.67 crores (inclusive of all the applicable taxes) from M/s. Indwell Pharma. The same can be validated from the audited financial statements. Refer Note no. 26 of the audited financial statements on page no. 52 of the paper book, (attached for ready reference at page no. 21).

As required by your good self, we are enclosing herewith: -

1. Copy of the ledger accounts of M/s. Indwell Pharma in the books of the appellant depicting the invoice wise details of the purchases made to the tune of Rs. 3,67,19,596/- (inclusive of all the applicable taxes). Refer page nos. 115 to 120 of the paper book, (attached for ready reference at page nos. 23 to 27) 2. Copy of all the invoices raised by M/s Indwell Pharma for the aforesaid amount. (Refer page nos. 28 to 134)

2. Copy of the VAT and GST Returns as below:

Sr. No. Return Period Amount (Rs.) Page No. Remarks VAT Return 01.04.2017 to 68,58,237 139 Entry No. 9 & 10 30.06.2017 O) GST Return 01.07.2017 to 2,98,61,359 141 – 143 27.11.2017 ffl Total 3,67,19,596 Purchase amount including all the applicable taxes.

2. Copy of the GST Return- GSTR 2A clearly depicts the purchases made from M/s.Indwell Pharma amounting to Rs.2,98,61,359/- (inclusive of all the applicable taxes) for the period 1st July 2017 to 27th Nov 2017 (as purchases were made only up to 27th Nov 2017). Refer page nos. 141 to 143.

Note: GST Returns (GSTR-2A) downloaded from the GST portal shows the name of M/s. Gangesh Medicare in place of M/s. Indwell Pharma in respect of purchases from the latter. It is pertinent to note that the GST portal takes the latest name of the firm at the time of downloading the reports.

To further clarify, name of M/s. Indwell Pharma got changed to M/s. Gangesh Medicare w.e.f 1st Sep 2022 and hence in the copy of the GSTR-2A as downloaded from the GST portal shows the name as M/s. Gangesh Medicare in place of M/s. Indwell Pharma. Copy of the supplementary partnership deed detailing the change of name is also enclosed at page nos. 144 to 145. Further to revalidate the same, copy of PAN cards before and after the change of name are also enclosed at page nos. 146 to 147.

The details of loans taken over in lieu of purchases of Rs. 2.23 crores from M/s. Indwell Pharma as mentioned above is from three loan creditors as under:

Sr. No. Name of Loan Creditor Amount (Rs.) 1. M/s Naresh Kumar Goel 1,59,54,400 HUF 2. Mr. Mayank Goel 52,90,762 3. Mrs. Anandi Devi 10,73,711 Grand Total 2,23,18,873 Loan taken over of M/s. Naresh Kumar Goel - HUF Rs. 1,59,54,400/- The entire loan was repaid in the immediate succeeding year i.e. A.Y. 2019-20. Copy of the ledger account for A.Y. 2018-19 & 2019-20 as well as the bank statement highlighting the corresponding repayment entries is enclosed at page nos. 148 to 154.

Loan taken over of Mr. Mayank Goel Rs. 52,90,762/- The entire loan was repaid in the immediate succeeding year i.e. A.Y. 2019-20. Copy of the Ledger account for A.Y. 2018-19 & 2019-20 as well as the bank statement highlighting the corresponding repayment entries is enclosed at page nos. 155 to 160.

Loan taken over of Mrs. Anandi Devi Rs. 10,73,711/- The entire loan was repaid in the immediate succeeding year i.e. A.Y. 2019-20. Copy of the Ledger account for A.Y. 2018-19 & 2019-20 as well as the bank statement highlighting the corresponding repayment entries is enclosed at page nos. 161 to 163.

Hope this clarifies the requirements of your good self.

In case if any further information is needed or any clarification is required, the appellant will be glad to furnish the same. Needless to say, the appellant would request for a personal hearing in case if the same is needed to decide the case in the best possible way.”

The appellant-assessee submitted in its paper book that the assessee made credit purchases of Rs.3.67 Crores from M/s. Indwell Pharma. However, in course of time the assessee cleared the dues of the supplier, M/s. Indwell Pharma and thereafter the balance outstanding towards M/s. Indwell Pharma remained at Rs.2.23 Crores. That means there was a liability of Rs.2.23 Crores towards M/s. Indwell Pharma in the books of the appellant-assessee. In other words, in the books of M/s. Indwell Pharma there is a receivable (asset account) of Rs.2.23 Crores from the appellant-assessee. The appellant further submitted that M/s. Indwell Pharma at the same time had a combined liability of Rs.2,23,18,873/- towards three persons, viz., Shri Mayank Goel (Rs.52,90,762), Naresh Kumar Goel - HUF (Rs.1,59,54,400) and Smt. Anandi Devi (Rs.10,73,711). It appears from the appellant's submissions that M/s. Indwell Pharma endorsed its liability of these 3 persons to the appellant-assessee which accepted this liability of Rs.2,23,18,873/- in lieu of its liability for the same amount towards M/s. Indwell Pharma. In other words, M/s. Indwell Pharma squared up its liability of Rs.2,23,18,873/- towards these 3 persons against the receivable of Mayank Goel (Rs.52,90,762) Naresh Kumar Goel- HUF (Rs.1,59,54,400) and vi.., Anandi Devi (Rs.10,73,711) appeared as unsecured lenders in place of M/s. Indwell Pharma. Either against these 3 persons or against M/s. Indwell Pharma, the liability amount of Rs.2,23,18,873 would remain in the books of the appellant-assessee. These entries in the books of the parties, (1) M/s. Indwell Pharma, (2) the appellant-assessee (M/s. Shrish Industries) and (3) the persons Mayank Goel, Naresh Kumar Goel- HUF and Smt Anandi Devi could be passed only through journal voucher entries. Indeed, squaring up of the liability against the receivables in the books of M/s. Indwell Pharma would also be done through journal voucher entries. Journal voucher entries per se cannot be doubted particularly in view of the explanation. Thus this explains how these 3 persons (Mayank Goel, Naresh Kumar Goel- HUF and Smt Anandi Devi entered as unsecured lenders into the books of the appellant-assessee. In view of this, the unsecured loans of Rs.2,23,18,873 from these 3 persons cannot be treated as unexplained. Therefore, the addition made of Rs.2,23,18,873 from the three persons, Mayank Goel, Naresh Kumar Goel - HUF and Smt. Anandi Devi is ordered to be deleted and accordingly the grounds on this issue are allowed.