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Facts
The assessee appealed against an order confirming the addition of INR 1,57,64,915/- made under Section 68 of the Income Tax Act, representing an unexplained loan from M/s. SRS Real Estate Pvt. Ltd. The assessee argued that a significant portion of the amount was interest, and the lender's financial standing was sufficient.
Held
The Tribunal held that the assessee had discharged its initial onus by providing details of the loan transaction, including confirmations and bank statements. The Assessing Officer failed to conduct further investigation to establish the lack of genuineness or creditworthiness of the lender, relying only on suspicion. Therefore, the addition was not sustainable.
Key Issues
Whether the addition of unexplained loan under Section 68 of the Income Tax Act is sustainable when the assessee has provided necessary documentation and the Assessing Officer has failed to conduct further inquiries to disprove the genuineness and creditworthiness of the lender.
Sections Cited
68, 143(3), 250, 131, 133(6), 69, 12AA, 80G, 234B
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Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI MANISH AGARWAL
Year : 2016-17] M/s. SRS Educational Society, vs ITO(Exemption), Amolik Chowk, Sector-88, Near Faridabad. SRS Residency, Faridabad, Haryana-121002. PAN-AAHTS2494P APPELLANT RESPONDENT Appellant by Dr.Rakesh Gupta, Adv., Shri Somil Aggarwal, Adv. & Shri Deepesh garg, Adv. Respondent by Shri Manish Gutpa, Sr.DR Date of Hearing 28.05.2025 Date of Pronouncement 18.06.2025 ORDER
PER MANISH AGARWAL, AM :
The present appeal has been filed by the assessee against the order dated 28.01.2020 passed by Ld. Commissioner of Income Tax (A), Faridabad [“ld. CIT(A)”] in Appeal No.10566/2018-19 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 21.12.2018 passed u/s 143(3) of the Act pertaining to assessment year 2016-17.
Ground Nos. 1 & 2 raised by the assessee are in relation to the addition of INR 1,57,64,915/- made u/s 68 of the Act by holding the loan taken from M/s. SRS Real Estate Pvt. Ltd. as unexplained and addition was made u/s 68 of the Act. In first appeal, Ld.CIT(A) has confirmed the findings of the AO therefore, the assessee is in appeal before us.
Before us, Ld. AR for the assessee submitted that the AO has made an addition of INR 1,57,64,915/- whereas during the year under appeal, the total amount received was 1,21,22,000/- only and the remaining amount is accumulation of interest (net of TDS) on the loan amount. He referred page 28 of the Paper Book which contained the details of short-term borrowing submitted during the course of assessment proceedings before the AO. As per this chart, the opening balance as on 01.04.2015 of outstanding loan taken from M/s. SRS Real Estate Pvt. Ltd. was of INR 1,61,32,332/- and during the year, a sum of INR 1,21,22,000/- was further received through banking channel, besides INR 12,28,234/- was credited through general entries and total repayment of INR 2,40,500/- was made during the year. Besides this, interest of INR 29,50,202/- was credited and TDS of INR 29,50,202/- was debited. After considering these amounts, closing balance of INR 3,18,97,247/- remained as on 31.03.2016 which was taken to the Balance Sheet. Out of total credits of INR 1,57,64,915/-, a sum of INR 29,50,202/- represents the interest which was never doubted however, the AO as well as ld. CIT(A) considered this amount of interest as part of the loan received during the year and included in the total amount received and made the addition of the same. Ld.AR for the assessee further submits that the assessee has filed copy of ITR of the lender i.e. M/s. SRS Real Estate Pvt. Ltd. wherein though it had declared NIL income based on which the AO as well as CIT(A) formed the opinion that the lender company is not having creditworthiness. However, according to Ld.AR, the company M/s. SRS Real Estate Pvt. Ltd. is engaged in the business of real estate and as per its financial statement submitted before the lower authorities, the Page | 2 company had declared total revenue of INR 65,68,91,123/- and though after claiming expenditures, it incurred the losses. This could be seen from the copy of the P&L Account available in Paper Book at page 64. Ld. AR further argued that besides this, M/s. SRS Real Estate Pvt. Ltd. had inventory of more than INR 362 crores as at 31.3.2016 and therefore, its creditworthiness cannot be doubted. Ld.AR further submits that the confirmation of this transaction as given by lender company and filed by assessee, is available at page 48 to 51 of the Paper Book which was doubted by the AO for the sole reason that it was signed by a person other than who had signed the Balance Sheet. In this regard, it is submitted by Ld.AR that the Balance Sheet is signed by the management whereas the confirmation was signed by the authorized signatory. Ld. AR further submits that if the AO has any doubt about the genuineness of the transaction and creditworthiness of the lender, he could directly issue the summons u/s 131 or 133(6) of the Act to the lender and can inquire about the transaction as well as of the financial capacity. Ld.AR further submits that during the course of assessment proceedings besides confirmation, assessee has also filed the copy of bank statement of relevant period during which M/s. SRS Real Estate Pvt. Ltd. advanced the loan to the assessee on various dates. A perusal of which shows that there were sufficient balances available in the bank account of lender company whenever funds were advanced to the assessee thus it cannot be said that the lender company has no creditworthiness and there was deficit of the funds before the loan amounts transferred to the assessee. He further submits that the assessee society is registered u/s 12AA & 80G of the Act and therefore, the provision of section Page | 3 68 of the Act are not applicable to it as admittedly all the funds received were utilized for the purpose of charitable activities. He further submits that the loans taken in preceding AYs were never doubted which is evident from the confirmation that there is an opening balance of INR 1,61,32,332/-. More so, the interest paid has already been allowed as application, therefore, again making the addition of the same amount is not sustainable in the eyes of law. In the last, he placed reliance on the following judicial pronouncements and prayed for the deletion of the additions so made:- [i] Mangilal Agarwal (Late) vs ACIT 300 ITR 372 (Raj.); [ii] Labh Chand Bohra vs ITO (Raj.HC) 219 CTR 571; [iii] Aravali Trading Co. vs ITO 220 CTR 622 (Raj.); [iv] CIT vs Metachem Industries 245 ITR 160 (MP); [v] Tolaram Daga vs CIT 59 ITR 632 (Assam); [vi] CIT vs Shri Ram Narain Goel 224 ITR 180 (Pun. & Har.); and [vii] Nemi Chand Kothari vs CIT & another 264 ITR 254 (Gauhati).
4. On the other hand, Ld. Sr.DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has failed to discharge the burden casted upon it of proving the genuineness and creditworthiness of the transactions therefore, the addition has rightly been made and upheld by the lower authorities and he requested for the confirmation of the same.
We have heard the rival contentions and perused the material available on record. In the instant case, the assessee has filed the confirmation of the lender, copy of its ITR and the bank statement of the relevant period when the funds were transferred to the assessee. The assessee has also filed the financial statement of the lender company. The AO invoked the provision of section 68 of the Act which reads as under:- Page | 4 Cash credits.
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”
6. A bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum received during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true, Page | 5 the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.
7. If we applied the above proposition of law to the facts of the present case, it is seen that by filing all the relevant details of the loan creditors before the AO, the assessee has discharged the onus lies upon it. Therefore, there is nothing left on the part of the assessee to prove further. If the AO was not satisfied with the explanation, he has powers u/s 131 or u/s 133(6) of the Act which he could have opted and verified whatever is submitted before him. The AO did not do so. This shows clearly the biased mind/approach of the AO. The Hon’ble Supreme Court in the case of Orissa Corporation 8. reported in [1986] 159 ITR 78 (SC) has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition, the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by alleging the creditors will not be sufficient to draw an adverse inference against the assessee.
In the present case as observed above, no such exercise was carried out by the AO. In case, the Assessing Officer was not satisfied with sources in the bank accounts of the lender company, the proper course would have been to make assessments in the cases of the lender company as unexplained investments under section 69 of the Act which also not done in the present case.
The Hon’ble Allahabad High Court in the case of Principal Commissioner of Income-tax v. Anshika Consultants (P.) Ltd. reported in [2024] 162 taxmann.com 792 (Allahabad) held as under INCOME TAX : Where assessee had received unsecured interest bearing loans from three corporate entities and had furnished necessary acknowledgement of return, balance sheet, profit and loss account, etc., to prove identity, creditworthiness and genuineness of transaction of unsecured loan taken by it, addition under section 68 was not warranted.
Similarly in the case of Deputy Commissioner of Income-tax v. Paswara Papers Ltd. reported in [2024] 159 taxmann.com 604 (Allahabad), the Hon’ble Court has held as under: INCOME TAX : Where assessee received loan from various creditors who sold their old jewellery and gave loan to assessee out of sale consideration, since assessee had disclosed name of jewellers to whom jewellery was sold and also established mode of payment through banking channel, and moreover existence of deposits made to assessee by creditors was not in dispute, impugned addition under section 68 with respect to loan could not be sustained. 12. The Co-ordinate Bench of ITAT, Delhi in the case of ITO Vs. Alpha Contech Pvt. Ltd. in vide order dt. 28.07.2023 has held as under: 7. On careful consideration of above rival submission, first of all, we note that the Assessing Officer made addition u/s. 68 of the Act, by observing that despite several opportunity the assessee failed to prove creditworthiness of lender and genuineness of transaction and thus could not discharge onus as per Page | 7 requirement of sec 68 of the Act. The assessee carried the matter before ld. CIT(A) and filed additional evidence under rule 46A of the Rules on which remand report was called wherein the Assessing Officer did not made any adverse comment on the additional documentary evidence of assessee and also admitted that the lender company received amount of Rs. 7,30,62,000/- as share premium reserve during immediately preceding assessment year and amount of loan of Rs. 3.60 crore advanced to the assessee during present assessment year was from the said reserve amount. The remand report of the Assessing Officer supported the case of assessee which was based on the strength of additional evidence filed by the assessee without raising any doubt or discrepancy therein.
We also find and appropriate to reproduce the relevant operative part of first appellate order as follows:- The appellant company has received Rs.3,60,00,000/- from M/s Fennie Commercial Pvt. Ltd. as unsecured loan / share application money during the year. The same was added by the AO on the ground that appellant has failed to file confirmation as well as other supporting documents of the lender party before AO to prove identity, genuineness and creditworthiness of the party. During the course of appellate proceedings, appellant filed an application under Rule 46A and filed following documents to prove identity, genuineness and creditworthiness of the party: i. Copy of Acknowledgement of IT. Paper Book page no. 48. ii. Copy of Audited Financial Statements along with all the annexures. Paper Book page no. 49-60. iii. Copy of Confirmed ledger account. Paper Book page no. 61. iv. Copy of Bank Statements reflecting the amount given to the assessee company. Paper Book page no. 62-63. v. Copy of confirmation. Paper Book page no.
These documents were forwarded to the A for carrying out necessary enquiry with reference to the lender party. The Assessing Officer after conducting enquiries with reference to the lender party has submitted remand report vide his letter dated 2.03.2016 which was forwarded by the Addl. CIT, Range 2 vide his letter dated 08.03.2016. The relevant part of the remand report is submitted as under: "4. As per directions received, the submissions made by the assessee before your good self as well as additional evidence submitted by it for admission at the appellate stage have been carefully perused. Besides, the additional evidence furnished by the assessee has also been independently verified from this Office by way of issue of letter us 133(6) of the Income Tax Act, 1961, to the third party concerned, i.e., to Ms Fennie Commercial Page | 8 Private Limited, 96-AV9, Neelkanth Apartments, Kishan Ganj, Vasant Kunj, New Delhi - 110070.
5. The said party has furnished its detailed reply to the letter issued us 133(6) vide its letter dated 08.01.2016, which is placed on record. The said party has given the details of the share application money of Rs.3.60 crores advanced by it to the appellant company and also produced the ledger account of the assessee company in its books for the relevant period, apart from the copy of the ITR-V in its case, copy of the Audit Report, Balance sheet, P & L Account and annexures. It is also seen from the annexures to the Audit Report that under the head "Loans & Advances (totaling Rs. 7,41,00,000/-), the name of the appellant company is appearing the List of Share application money given details wherein the sum of Rs.3.60 crores has been shown against the name of the appellant company, amongst other entities to whom share application money had been advanced by this company. As regards the source of investment made by this company, it has been submitted that the same has been made out of its own sources. Further, the perusal of the Balance Sheet of this company shows that it has Share Premium Reserve of Rs.7,30,62,000/-, which is the same as in the immediately preceding previous year, out of which funds have been invested in the appellant company and others.
However, it is also seen from the P & L Account filed in this case that this company has no apparent business activity during the relevant period, i.e. during the FY 2010-11, and it has declared a nominal sum of Rs.35,600/- as Consultancy / Commission income. This company has also furnished a copy of the intimation us 143(1) in its case, issued by CPC, Bangalore, in response to the specific query regarding furnishing copy of assessment order passed in its case for AY 2011-12.
7. As regards the present position of the said money advanced by MIs Fennie Commercial Pvt. Ltd. to the appellant company, it has been stated that they have not received any shares from M/s Alfa Contech Private Limited till date and the said Sum is lying as Loans & Advances in their books. However, this company has not furnished copy of its latest IT filed as well as copy of Audit Report, Balance Sheet and P & L Account despite being specifically called for in the letter issued us 133(6) to it.
8. It is also submitted here that as per the Balance Sheet of the appellant company for the AY 2011-12, it has shown a sum of Rs.3.60 crores as "Loans from Body Corporate", as per Schedule 3 annexed to the Balance Sheet and not as Share Application Money. Also, as per details filed by the appellant vide its letter dated 03.02.2014 during the course of the assessment Page | 9 proceedings in its case for AY 2011-12, it has furnished the name of Ms Fennie Commercial Private Limited, PAN AAACF9549A, from whom it had allegedly received unsecured loan of Rs.3.60 crores whereas the said party is showing this Loan & Advance as "Share Application Money". It is seen from the remand report that Assessing Officer has carried out enquiry with the lender party us 133(6) of the I.T. Act. The said party furnished the detailed reply vide its letter dated 08.01.2016. It has been reported by the AO that Ms Fennie Commercial Pvt. Ltd. has confirmed that it has given share application money of Rs.3.60 crore which has been accounted for by the appellant as unsecured loan in its balance sheet. The AO has also examined the ledger account of the appellant company from the lender party's books of accounts. The lender party has also filed copy of its return of income, audit report, balance sheet, profit & loss account and annexures. It has been observed by the AO from the annexures of the audit report that lender has shown loans and advances totalling Rs.7,41,00,000/- in its balance sheet. The appellant's name is also appearing in the loan and advances and has been shown as share application money of Rs.3.60 crore in the name of appellant. AO has also verified the balance sheet of the lender company and it is seen that said company has shown share premium reserve in its balance sheet in A.Y. 2010-11 out of which the amount has been given to the appellant. All these facts establish the identity, creditworthiness and genuineness of the transactions. It is seen that the said party has confirmed the transactions with the appellant and source of the money is also explained. M/s Fennie Commercial Pvt. Ltd. is assessed to tax with Ward 9(1). New Delhi and filing its return of income. The appellant company has filed copies of their bank statement, balance sheets and profit & loss a/c of the lender company before me to prove the identity, creditworthiness and genuineness of the transaction. These facts have been verified by the AO in the remand proceedings and has submitted report in this regard. It is seen that name of the appellant company is appearing in the balance sheet of the lender company. In view of the documents filed by the above named lender company before me as well as AO, it is established that the identity, source, creditworthiness of the lender company and genuineness of the transactions has been established. I find that the AO has not been able to bring on record any evidence to negate the genuineness of the transaction done by the appellant. Therefore, the addition cannot be sustained only on suspicion and surmises. Considering the fact that the identity, genuineness and creditworthiness of the lender company duly established, the addition made by the A cannot be upheld and hence the AO is directed to delete the addition of Rs.3,60,00,000/- made on account Page | 10 of unexplained income us 68 of the I.T. Act. In support of my above decision, reliance is placed on following judicial pronouncements: a. CIT Vs. Fair finvest Itd. [ 2014 ] 44 taxmann.com 356 (Delhi) HIGH COURT OF DELHI "Section 68 of the Income-tax Act, 1961 - Cash credit - Assessment year 2002-03 - Where assessee had filed documents including certified copies issued by Registrar of Companies in relation to share application and affidavits of directors, Assessing Officer could not make addition on account of share application money solely on basis of investigation report [In favour of assessee. Where assessee adduces evidence in support of share application monies, it is open to Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on report of investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between assessee and alleged hawala operators. Where assessee had filed documents including certified copies issued by Registrar of Companies in relation to share application, affidavits of directors, Form 2 filed with Registrar of Companies by such applicants, confirmations by applicants for company's shares, certificates by auditors, etc., Assessing Officer was not justified in making addition under section 68 on account of share application money merely on general inference to be drawn from the reading of the investigation report. The least that Assessing Officer ought to have done was to enquire into matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. b. Commissioner of Income-tax v. Mark Hospitals (P.) Ltd. [ 2015 ] 58 taxmann.com 226 (Madras) HIGH COURT OF MADRAS "Section 68 of the Income-tax Act, 1961 - Cash credit (Burden of proof - Assessment year 2006-07 - Assessee had obtained unsecured loans from agriculturists and submitted their names and addresses, but did not provide their PAN cards - Assessing Officer made addition under section 68 - It was found that loans were given to assessee through cheques and all creditors had confirmed that they had advanced loans mentioned against their names to assessee and, thus, identity of creditors could not be disputed - Further, all creditors were agriculturists and therefore, they did not have PAN card - Whether, on facts, no addition could be made - Held, yes [Para 6] [In favour of assessee]" c. ITO Vs. Neelkanth Finbuild Ltd., [2015] 61 taxmann.com 132 (Delhi - Trib.), held that "6. Keeping in view the findings given so the Assessing Officer as well as the learned first appellate authority and the documentary finding by the assessee before us, we are of the considered view that the learned first appellate Page | 11 authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. The hon'ble Supreme Court of India (sic.) in the case of CIT v. Lovely Exports (P.) Ltd. [2008] 299 ITR 268 (Delhi) which has confirmed the order of the hon'ble Delhi High Court has held that once the identity of the shareholder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of the company unless any adverse evidence is not on record. The learned first appellate authority has examined the documentary evidence filed by the assessee before the Assessing Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction, the assessee has also relied upon the judgment of Nemi Chand Kothari v. CIT [2003] 264 IT 254/[2004] 136 Taxman 213 (Gau.) wherein it has been held that it is a certain law that the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of the assessee to find out the source of money of creditors. Similar observation has also been given in the case of S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.) and CIT v. Daulat Ram Rawatmull [1973] 87 IT 349 (SC). The learned first appellate authority has cited various decisions rendered by the hon'ble Supreme Court of India as well as the hon'ble jurisdictional High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries. He did not find any evidence collected by the Assessing Officer which could prove otherwise and deleted the additions in dispute. As regard the addition of Rs. 12,500 made on account of commission which was presumed to have been allowed by the assessee for obtaining the hawala entry in dispute, the learned Commissioner of Income-tax (Appeals) observed that the Assessing Officer was not able to bring anything on record that it was the assessee's own money which was routed in the form of share application money and has rightly deleted the same.
Keeping in view all the facts and circumstances, we are of the considered view that the learned first appellate authority has passed the impugned order under the law and according to the facts of the present case and has rightly deleted the addition in dispute. We find no infirmity in the impugned order and uphold the impugned order by dismissing the appeal filed by the Revenue." d. Honorable Supreme Court of India in the case of CIT v. Kamdhenu Steel & Alloys Ltd., SLP (CC) no. 15640 of 2012, Page | 12 dated 17-09-2012 (Supreme Court), wherein the Hon'ble Supreme Court has dismissed the Special Leave Petition filed by the Revenue against the decision of Hon'ble Delhi High Court in the case CIT v. Kamdhenu Steel & Alloys Ltd. in which it has been held by Hon'ble Court that once adequate evidence/material given by the assessee, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter, in case such evidence is to be discarded or it is proved that the assessee has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under Section 68 and 69 of the Act." e. COMMISSIONER OF INCOME TAX-9 ERSTWHILE CIT-VI versus VRINDAVAN FARMS (P) LTD, ITA 71/2015, ITA 72/2015, ITA 84/2015, the High Court of Delhi held as under : "3. The ITAT has in the impugned order noticed that in the present case the Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the A by the Assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been righty commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the credit worthiness of the share holders.
The Court is of the view that the Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in Nova Promoters (supra), the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law.
5. In the facts and circumstances of the present appeals, the Court is satisfied that no substantial question of law arises. The appeals are dismissed." Page | 13 The facts of the above cited judicial pronouncements are identical with the facts of the appellant case, therefore, the ratio of the above cited judicial pronouncements is squarely applicable to the facts of the appellant case, hence, unsecured loan received by the appellant from M/s Fennie Commercial Pvt. Ltd. cannot be termed as unexplained income of the appellant and cannot be added u/s 68 of the I.T. Act. Therefore, the unsecured loan received from the above mentioned party is treated as genuine transaction and cannot be added us 68 of the I.T. Act. Therefore, the addition of Rs.3,60,00,000/- is deleted.
On the issue of discharging the onus, the Hon'ble Jurisdictional 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.
It was further observed by the Hon’ble Court that: 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 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 Page | 14 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. [See CIT v. Divine Leasing & Finance Etd (20092- 229-178.268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. 2006) 215 CTR 495 (SC).* 15. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd. etc. in of 2015 dated 12th August, 2015 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.”
Further 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 under section 68 – Held, yes [Paras 11.4, 11.5 and 14.4] [In favour of assessee]
It is also relevant to state an amendment is made vide Finance Act, 2022 wherein second proviso to section 68 is added, 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 entry provider. However, this additional onus of proof of satisfactorily explaining the source in the hands of the creditor, would not apply if the creditor is a well-regulated entity, i.e., it is a Venture Capital Fund, Venture Capital Company registered with SEBI. This amendment has taken effect from 1st April, 2023 and accordingly, applies in relation to the Assessment Year 2023-24 and subsequent assessment years. The year before us is AY 2016-17 thus this amendment is not applicable and as has been held by the Hon’ble Delhi High Court in the case of Vrindavan farms (supra), when the assessee had filed all the details, the burden of proving the genuineness and creditworthiness of the creditor stood discharged by the assessee.
As observed above, the requirement of explaining ‘Source’ of ‘Source’ in respect of loans is applicable from A.Y. 2023-24 and subsequent years. Reliance in this regard is placed on the judgement of coordinate bench of ITAT, Delhi dated 31/05/2022 in case of M/s Mall Hotels Ltd. Vs. CIT in ITA No. 2688/DEL/2014. Further the Hon’ble Delhi Bench of ITAT in the case of ACIT v Smt. Prem Anand (ITA No. 3514/Del/2014) vide its order dated 13.04.2017 has 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 Page | 16 from 01.04.2013 and this amendment does not give power to the A.O. to examine source of source of non-share capital cases.
Regarding surrounding circumstances, it is observed that while making addition u/s 68 of the Act, the AO has doubted the financial capacity of lender company 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 or any material on record to establish that the sources in the hands of lender company is non-genuine. Merely because it had NIL income or no sufficient sources as presumed by AO, loan taken by appellant from it cannot be held to be an accommodation entry. 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 this reliance is placed on decision of Hon'ble Supreme court in the case of Daulatram Rawatmull, (1964) 53 ITR 574.
Based on above discussion and after analyzing the facts of the case and further by respectfully following the decisions of Hon’ble Supreme Court, various High Courts including jurisdictional High Court and Co-ordinate Bench of Tribunal as referred herein above, it is apparent that the AO has failed to bring on record sufficient and reasonable material and evidence to support the conclusion that the loan received by the appellant is bogus, least that it is appellant's own cash re-routed through lender company, and, therefore, the addition of INR 1,57,64,915/- made is not sustainable. We hold accordingly. This ground is accordingly allowed.
Ground Nos. 3 & 4, the assessee has challenged the addition of INR 74,072/- confirmed by the Ld.CIT(A) on account of sundry creditors held as bogus by the AO.
Brief facts of the case are that the AO asked the assessee to furnish the copy of confirmation of the creditors of INR 40,33,741/- failing which the AO has made the addition of the said amount. In appellate proceedings, Ld.CIT(A) after obtaining Remand Report from the AO has deleted major part of the addition except the addition of INR 74,072/-(INR 3472/- of Mac Décor and INR 70,600/- of SRS Solution Ltd.) for the reason that the balances are static during the year.
Before us, Ld.AR for the assessee submitted that the AO as well as CIT(A) has not doubted the purchase made/services obtained from these parties which were taken in preceding years and the assessee had registration u/s 12AA & 80G of the Act where such purchases/services/expenditure claimed as application out of the income was allowed. These balances were outstanding for the reason that the accounts were not settled and subsequently they were settled and were paid off and therefore, no addition is required to be made on this score. He requested accordingly.
On the other hand, Ld. Sr.DR for the Revenue supported the orders of the lower authorities and submits that Ld.CIT(A) has already allowed the creditors which were verified by the AO during remand proceedings. He, therefore, prayed for the confirmation of the order of Ld. CIT(A) on this account. Page | 18
We have heard the rival contentions and perused the material available on record. It is seen that total addition of INR 40,33,741/- was made towards the balances outstanding against creditors at the year-end, out of which only INR 74,072/- pertaining to two creditors stood confirmed by Ld. CIT(A) for the sole reason that the balances were static during the year. The authorities below had not doubted the material purchased / services obtained from these parties. During the course of appellate proceedings, the assessee has filed confirmed copy of the accounts of the creditors. Further, the fact remain that the assessee is a charitable institution registered u/s 12AA & 80G of the Act therefore, it is not a case where addition can be made on account of outstanding creditors. Once it is established that the supplies from the creditors is not doubted, outstanding balance in their accounts cannot be treated as income of the assessee. Accordingly, we hereby direct the AO to delete the addition of INR 74,072/- made on account of sundry creditors. The grounds of appeal
No. 3& 4 of the assessee are allowed.
26. Ground No.5 raised by the assessee is in respect to the action of Ld.CIT(A) in enhancing the assessment by disallowing depreciation on the new assets created during the year under appeal.
27. Brief facts of the case are that the AO observed that the assessee has failed to produce the bills for the additions made in fixed assets and accordingly, he made the addition of the entire investment of INR 61,30,004/-. Ld.CIT(A) though deleted the same however, has directed the AO to disallow the depreciation and financial expenses on the new assets added during the year. After Page | 19 perusing the material available and hearing both the parties, we find that Ld.CIT(A) has disallowed the depreciation for the sole reason that the assessee has failed to establish that new assets were put to use during the year. It is not disputed that amounts were spent and assets were created therefore, once the creation of assets is accepted, depreciation should be allowed if the assets is ready for put to use. In view of these facts, we direct the AO to allow the depreciation if the assets are ready for put to use at the end of the previous year relevant to assessment year under appeal. With these directions, Ground No.5 of the assessee’s appeal is partly allowed for statistical purposes.
28. Ground No.6 is with respect to charging of interest which is consequential in nature and AO is directed to charge the interest u/s 234B of the Act on the income finally determined after giving effect to the present order.
29. Ground No.7 raised by the assessee is not pressed hence, dismissed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 18.06.2025.