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Facts
The Revenue appealed the deletion of additions made under Section 68 for an unsecured loan and commission, and for notional interest. The assessee had received a loan through banking channels, which was repaid with interest and TDS. The Assessing Officer made additions based on a third-party statement without independent inquiry.
Held
The Tribunal held that the Assessing Officer failed to conduct independent inquiry and relied solely on a third-party statement without cross-examination. The assessee had provided substantial documentary evidence to prove the loan's genuineness, identity, and creditworthiness.
Key Issues
Whether additions under Section 68 for an unsecured loan can be sustained solely on the basis of a third-party statement without independent inquiry and opportunity for cross-examination. Whether consequential additions for commission and notional interest are justified when the principal loan is found to be genuine.
Sections Cited
153C, 1961, 132, 68, 132(4)
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Income Tax Appellate Tribunal, ‘D’ BENCH
Before: SHRI AMIT SHUKLA & SHRI ARUN KHODPIA
आदेश / O R D E R PER AMIT SHUKLA (J.M): The present appeals have been preferred by the Revenue against the common order dated 11.04.2025 passed by the learned Commissioner of Income Tax (Appeals)–50, Mumbai, arising out of assessments framed under section 153C of the Income-tax Act, 1961 for the assessment years 2019–20 and 2020–21. Since both the appeals arise out of a common search, involve common parties, common facts, and substantially identical issues, they were heard together and are being disposed of by this consolidated order for the sake of convenience and judicial economy.
& 4290/Mum/2025 Metallica Metals India 2. In assessment year 2019–20, the Revenue has assailed the action of the learned CIT(A) in deleting the addition of ₹50,00,000 made under section 68 of the Act on account of an unsecured loan alleged to have been taken from M/s Ocean International, as also in deleting the consequential addition of ₹1,00,000 made on account of estimated commission at the rate of 2 percent. In assessment year 2020–21, the grievance of the Revenue is confined to the deletion of notional interest of ₹1,28,000 allegedly attributable to the same unsecured loan.
The factual matrix, shorn of unnecessary details, reveals that the assessee had filed its return of income for assessment year 2019–20 declaring total income of ₹48,96,530. A search and seizure operation under section 132 was conducted on 24.04.2019 in the case of Rakesh Javerimal Shah and others. During the course of the said search, certain documents were allegedly found and seized, which, according to the Investigation Wing, reflected accommodation entries in the form of bogus purchases and unsecured loans provided by certain entities, including M/s Destiny Star and M/s Ocean International. The name of the present assessee was stated to be appearing in the list of alleged beneficiaries. On the basis of the said material, notice under section 153C came to be issued to the assessee on 26.03.2022.
In the assessment framed pursuant thereto, the Assessing Officer made an addition of ₹50,00,000 under section 68 by treating the unsecured loan received from M/s & 4290/Mum/2025 Metallica Metals India Ocean International as unexplained. The Assessing Officer also proceeded to estimate commission expenditure at 2 percent amounting to ₹1,00,000 and made a further addition on that count. The entire edifice of the addition rested upon the report of the Investigation Wing and the statement recorded under section 132(4) of one Shri Ankur Doshi during the course of the search proceedings in another case.
In response to the show cause notice, the assessee had placed on record extensive documentary evidence to substantiate the loan transaction, including confirmation of account, bank statements of the lender, copy of return of income of the lender, details of interest paid, deduction of tax at source, and repayment of the loan through banking channels. However, the Assessing Officer, without undertaking any independent enquiry and without confronting the assessee with any adverse material beyond the investigation report, proceeded to disregard the documentary evidence and made the impugned additions solely on the basis of third-party statements.
Aggrieved, the assessee carried the matter in appeal before the learned CIT(A). It was contended before the first appellate authority that the loan was received through regular banking channels, that the lender had sufficient funds in its bank account, that there was no cash deposit preceding the issuance of the loan, and that the loan had, in fact, been repaid in the subsequent financial year along with interest after deduction of tax at source. The assessee also drew & 4290/Mum/2025 Metallica Metals India attention to the fact that it had unsecured loans aggregating to ₹14.84 crores from 47 parties, none of which had been doubted by the Assessing Officer except the present loan, without any distinguishing feature.
The learned CIT(A), after examining the material placed on record and after considering the legal position governing additions under section 68, recorded detailed findings in favour of the assessee. The operative findings of the learned CIT(A), which form the fulcrum of the appellate decision, are required to be reproduced verbatim. Accordingly, the same are left blank below to be incorporated in the final order:
“13. In the appellant’s case, the loan was taken through banking channels and repaid through banking channels, there were sufficient funds in the bank account of lender and no cash was deposited immediately before loan. The appellant has submitted loan confirmation and bank statement of the lender. On perusal of the financials of the appellant, it is observed that in the year under consideration, the appellant has shown total sales of Rs.80.6 crore, on which profit before tax of Rs.48,96,528/- is shown. The total unsecured loan shown is of Rs.14.84 crores from 47 different parties. The A.O has not carried out any inquires during the assessment proceedings. In the backdrop of the facts, merely relying on the statement of Shri Ankur Doshi, the alleged loan transaction in the case of the appellant cannot be held as bogus. In view of the above facts and judicial pronouncements as discussed above, the additions made u/s 68 of the I.T Act of Rs.50,00,000/- is deleted. Similarly, the disallowance made on account of interest payment of Rs.5,01,667/- and addition of commission of Rs.1,00,000/- is also deleted. Appeal on these grounds is thus ALLOWED.
& 4290/Mum/2025 Metallica Metals India 8. Upon careful consideration of the rival submissions and on perusal of the entire material placed before us, we find no infirmity in the conclusions arrived at by the learned CIT(A). It is evident from the record that the Assessing Officer has not carried out even a semblance of independent enquiry. The addition has been made solely on the strength of a statement recorded in the case of a third party, without affording any opportunity of cross-examination to the assessee and without demonstrating any live nexus between the seized material and the impugned loan transaction. Before the authorities below as well as before us the assessee has filed following documents / evidences to prove the identity, genuineness and creditworthiness of the parties.
Sr. No. Particulars 1 Copy of Balance Sheet and Profit and Loss Account and the computation of income for the A.Y. 2019-20. 2 Documents relating to the loan of Rs.50 lakhs taken from M/s. Ocean International (Prop. Shri Vishnu Kumar Sahu): (i) Copy of acknowledgement of return of income filed by Shri Vishnu Kumar Sahu for the A.Y.2019-20 (ii) Copy of the ledger account of the assessee in the books of M/s. Ocean International for the A.Y.2019-20 (iii) Copy of the Bank Statement of M/s. Ocean International in Kotak Mahindra Bank. (iv) Copy of the Loan confirmation of M/s. Ocean International for the A.Y.2019-20. (v) Copy of the TDS certificate issued to M/s. Ocean International for tax deducted on the interest payment
The documentary evidence furnished by the assessee clearly establishes the identity of the lender, the creditworthiness of the lender, and the genuineness of the transaction. The bank statements demonstrate that the loan was advanced through RTGS, that the lender had sufficient funds, and that there was no cash deposit immediately prior to the transaction. The repayment of the loan, along with interest and deduction of tax at source, further fortifies the genuineness of the transaction. Significantly, the Assessing Officer has not brought on record any material to controvert these evidences or to show that the funds had emanated from the coffers of the assessee itself.
It is well settled that additions under section 68 cannot be sustained merely on the basis of suspicion, conjectures, or generalised investigation reports, particularly when the assessee has discharged the primary onus cast upon it by law. The failure of the Assessing Officer to conduct any enquiry, despite the availability of complete particulars, renders the addition unsustainable in law. In such circumstances, we find no justification to interfere with the well-reasoned order of the learned CIT(A) deleting the addition of ₹50,00,000 under section 68 and the consequential addition of ₹1,00,000 on account of alleged commission.
Coming to assessment year 2020–21, it is an admitted position that the Assessing Officer has sought to impute notional interest on the same loan, notwithstanding the fact & 4290/Mum/2025 Metallica Metals India that the loan had already been repaid after payment of interest and deduction of tax at source. Once the principal addition itself has been held to be unsustainable and the loan transaction stands accepted as genuine, the question of making any further addition on account of notional interest does not survive. The learned CIT(A) was, therefore, fully justified in deleting the said addition, and we see no reason to take a different view.
In the result, the appeals filed by the Revenue for assessment years 2019–20 and 2020–21 are dismissed.
Order pronounced on 23rd December, 2025.