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Facts
The assessee declared unsecured loans, but the Assessing Officer (AO) treated an amount of Rs. 88,00,000/- as unexplained cash credit under Section 68. The AO's view was that these transactions were not reflected in the bank statement and an audit report mentioned no loans were taken. The assessee claimed the loan was used to repay Mr. Arun Shah.
Held
The Tribunal observed that the AO erred in treating the unsecured loan as unexplained cash credit without proper verification. It noted that the assessee had provided loan confirmation letters and other documents. The Tribunal also highlighted that in similar cases, the burden of proof for identifying creditors and genuineness of transactions is on the assessee, but in this case, the AO did not conduct adequate inquiries.
Key Issues
Whether the AO was justified in treating the unsecured loan as an unexplained cash credit without proper inquiry, and whether the assessee had discharged the onus of proving the genuineness of the loan.
Sections Cited
68, 250, 147
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Date of Hearing 15.09.2025 Date of Pronouncement 04.11.2025 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.:
The present appeal has been filed by the assessee challenging the impugned order dt. 02.01.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2014-15.
As per the facts of the present case, it was noticed by 2. the AO that assessee had shown to have taken unsecured loan of Rs.1,19,00,000/- from M/s Maniratnam Exim Pvt.Ltd (hereafter will be referred as MEPL). In this regard the assessee submitted loan confirmation letter and other documents. On verification it was noticed by the AO that 01.06.2013 Rs. 29,00,000/- 03.06.2013 Rs. 27,00,000/- 04.06.2013 Rs. 6,00,000/- 04.06.2023 Rs. 26,00,000/- Total Rs. 88,00,000/-
Therefore, the assessee was asked to explain the reason due to which these transactions have not been routed through bank account. In response, the assessee stated that the loan amount taken from MEPL was paid to Mr. Arun Shah as repayment of loan against his outstanding dues.
However, the reply of the assessee was not accepted by the AO. The AO was of the view that receipt of Rs.88,00,000/- was not appearing in the bank statement of the assessee as the same was not received by the assessee company. Further, the AO also noted that in clause 31A of audit report submitted by the assessee, it was mentioned that no amount of loan was taken by the assessee during the year under consideration. Therefore, the said amount of Rs.88,00,000/- was treated as unexplained u/s 68 of the Act and added it to the income of the assessee.
We noticed that during the assessment proceedings, the assessee has produced loan confirmation letter of Shri Arun Shah which showed opening balance of loan taken of Rs. 1,24,33,942.34/-. To this opening balance, amount of Rs.5 Lakh was added through bank and Rs.25 lakh on behalf of Haresh Desai. The position of closing balance of unsecured loan as on 31st march 2013 is as under:
Arsh Adviser Pvt Ltd - 2,89,50,000 Opulent Jewelry Pvt Ltd - 2,33,00,000 Haresh Desai - 25,00,000
- 5,47,50,000
In closing balance of Rs.5,47,50,000/-, the opening balance of Rs. 1,24,33,942.34/- was not appearing and as such the fact of loan taken at Rs.1,24,33,942.34 was not appearing and not recorded in the books of account of assessee. In this regard when the assessee was confronted by the AO about this discrepancy, the assessee explained that Shri Arun Shah was creditor and hence the amount of said opening balance had been shown under the head sundry creditor till 31.03.2013 and has been converted into loan in current year. Assessee further explained vide letter dated 17.10.2016 that Shri Arun Shah had given advance to the assessee in F.Y. 2010-11 which has been outstanding for payment. Therefore in order to further verify Assessee was asked to submit copy of statement of Ritika Gems Pvt Ltd, Mumbai. bank account of Shri Arun Shah in this regard. However, the assessee did not furnish the same. Therefore, in the absence of the documentary evidence like bank statement showing the relevant entries of the claimed advance paid by Sh. Arun Shah, the contention of the assessee was not accepted by the AO. Further, it was seen by the AO that assessee had made payment to another entity named Pranamghar (India) Pvt Ltd (hereafter will be referred as PIPL) which the assessee claimed to have made to Shri Arun Shah. The AO stated that in such a situation, PIPL will claim loan from the assessee in its books and thus, the liability to Shri Arun Shah on account of creditor for the said amount of Rs. 1,24,33,942/- has been squared up by the assessee without any payment made to him. In these circumstances, the AO held that assessee has squared off the liability of Rs.1,24,33,942/- without making any payment to the creditor and accordingly, amount of Rs. 1,24,33,942/- was treated as income of the assessee.
6. Aggrieved by the order, the assessee has filed this appeal.
In this regard Ld. AR relied upon its reply and documents mentioned in para 5 which is reproduced herein below:
With reference to above and on behalf of our above named client we would like to humbly submit under:- i. The Appellant Company is engaged in the business of Trading in Diamonds and Investment in Shares. ii. The matter agitated before your august office relates to an addition per his order dated 26.11.2014 which, as made by the AO submissions hereunder will establish, is not within the permissible alms of the law. The addition mainly concerns with transactions with Shri Arun Shah, M/S Pranamghar India P Limited and Maniratnam Exim Pvt Limited. We enclose herewith ledger accounts of all relevant parties for your perusal, which were also submitted during the assessment to hon'ble AO. The following are the facts, needed to be evaluated before taking any further views: a. All parties are known, identified, with PAN, I Tax returns copies and other documents needed which were submitted. b. The assessee Company was acting as intermediary in diamond trade in addition to other business as explained. Maniratnam is a market trader and is known due to these relations. c. The Company was advised about temporary financial crunch these counterparties had and hence the financial transactions were undertaken. It was explained that the residential house of a bank, was Arun Shah which was mortgaged to possession of and hence there was a need and urgency of releasing payments due. The receivables/loans directly iza released companies/individuals. favor of the bankers of taken were thus the said d. The total effective set of transactions have resulted into the financial status as explained in the subsequent paragraphs. iv. The Appellant Company has taken unsecured loan from Maniratnam Exim Pvt. Ltd amounting to Rs. 1.19 Crore and the said loan fund was paid to Mr. Arun B. Shah. v. M/s. Maniratnam Exim Pvt. Ltd has given unsecured loan to the Appellant Company as Short Term Loan. This fund was used as repayment of loan to Mr. Arun Shah against his outstanding dues. The Appellant Company has cleared outstanding liability and paid to Mr. Arun B. Shah amounting to Rs. 1,51,50,000/- including the amount of Rs. 1.19 Crore which was received from Maniratnam Exim Pvt. Ltd. vi. Out of the above 1,51,50,000 paid to Mr. Arun Shah, The Appellant company has directly paid amounting to to Rs. 88,00,000/- Pranamghar (India) Pvt. Ltd on the behalf of Mr. Arun B. Shah in terms of the proceedings at DRT by the bank against Arun Shah and Pranamghar India Pvt Limited The said amount was paid directly by Maniratnam Exim Pvt Ltd Pranamghar (India) Pvt. ltd and Balance Amount was paid by Appellant Company Pranamghar (India) Pvt. Ltd Directly. facts and in circumstances of the case and On the law, the Learned Assessing Officer erred in treating the genuine Unsecured Loan amounting Rs. 88,00,000/- unexplained Cash Credit u/s. 68 of state the Income Tax Act, 1961 without any proper base. We wish that the AO has not conducted the parameters of such verification listed in the various judicial pronouncements as well natural justice. The established parameters are following of The counterparties ar identified. identifiable. In these cases, all parties meet with such is not doubted by the AO. b. The counterparties have financial abilities outlay. In these cases, the c. The AO should exercise all satisfied. these cases, the justifiable. and give reasons why he is not casons are either not given, not viii. In the case of Khandelwal Constructions v. CIT 227 ITR 900 (Gau.) has been held that Section 68 of Income Tax Act, 1961, empowers make enquiry regarding cash credit. If he is the Assessing officer satisfied that these entries are not genuine he has every right to add But before rejecting the these income from other sources. assessee's explanation A.O. must make proper enquiries and in the quiries, addition cannot be sustained. ix. Section 68 of the L. T. Act, 1961, it does not make any distinction between commercial loans and non-commercial loans, the onus lies, in the facts found on evidence in this case, on the assessce to prove the genuineness of the cash credits. For this, reliance was placed Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 at 649. In the case of a cash credit entry it is necessary for the assessee to prove not only the identity of the creditors but also to prove the capacity of the creditors to advance the money and the genuineness of the transactions. On the issue of burden of proof a very specific and illustrious decision from the Hon. Calcutta High Court in CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Ca 1) where in it was laid down that the assessee is expected to establish:- Identity of his creditors; Capacity of creditors to advance money; and Genuineness of transaction. xi. In the case of Jalan Timbers v. CIT [1997] 223 ITR 11 (Gauhati), it was held that where, in respect of certain cash credits, the assessee but also had not only disclosed them in his return of income produced confirmatory letters from the creditors, and the creditors had also declared the amounts in their income-tax returns which were accepted by the ITO, addition made as cash credits by ignoring the aforesaid facts would not be justified. xii. In the case of ITO v Suresh Kalmadi [1988] 32 TTJ (Pune) TM 300 it was held that where identity of creditor is established and entry shown to be not fictitious, the burden shifts on to the department to show as to why the entry still represented the suppressed income of the assessee. The assessee cannot be called upon to prove the worth of his creditor's creditor. The fact that in the books of the creditors exactly the same amounts had been credited in the name of other parties and that immediately after repayment, the creditors withdrew the money could not lead to any adverse inference when this was their modus operandi and assessee's case was not the solitary transaction. xiii. In the case of CIT Sahibganj Electric cables (p) Ltd. [1978] 115 ITR 408 (Cal.) where the amounts of loan received by cheques and repayments also made by cheques through asessec's bankers, the creditors gave confirmation letters mentioning therein their income enquiry. making tax file number. ITO without any further disbelieving the evidence of the assessee made addition. ITAT held the additions not justified as the assessee discharged the onus. High Court held that Tribunal is justified in deleting the addition. xiv. Rs. 31.03.2014 and also The appellant company was having unsecured loan amounting to 5,27,50,000/- having Trade Payables amounting to Rs. 2,18,69,817/- as on 31.03.2014. The opening balance (as 1,24,33,942/- and the closing balance (as on 31.03.2014) of Mr. Arun B. Shah was Rs. 2,83,942/-. Mr. Arun B. Shah has given advanc (Shown as Trade Payable) to Appellant Company since Financial Year 2010-11 and the said transaction is already accepted by Esteemed Incor Tax Department in A. Y. 2012-13. All angles of onus for recovery, identification and capabilities are thus long established. 01.04.2013) of Mr. Arun B. Shah was Rs. xvi. to The Appellant Company has been showing advance received from Mr. Arun B. Shah in the head of Trade Payable. Mr. Arun B. Shah had requested the appellant company several times to clear his outstanding dues/loans at the earliest that's why the assessee company has taken loan from Maniratanam Exim Pvt. Ltd amounting to Rs. 1,19,00,000/- and the same has been paid to bankers of Mr. Arun B,. Shah Directly / Indirectly. Further, the Appellant company has taken additional loan / advance from Arun B. Shah of Rs. 5,00,000/- and Rs. 25,00,000/- xvii. On the facts and in circumstances of the case and in law, the Learned Assessing Officer erred Balance the in treating Opening of Outstanding Loan amounting to Rs. 1,24,33,942/- as Income of the Assessee without any proper base. He has simply stated that there opening balance in books of account, disregarding submission that there was merely a classification change from trade was no payable to loan account and that does opening balance. mot mean the there was ΠΟ In the case of ITAT (Lucknow) Vs. Satish Chandra Pandey it was held that: "The Ld. A.O. arbitrarily and without assigning any cogent reason and without bringing any evidence on record treated the opening balance of Rs.16,42,480/- as on 01.04.2000 of cash in hand to be that of unexplained nature and added it back to the income of the appellant. But naturally the opening balance would have been the closing balance as on 31.03.2000 relating to the previous year relevant to the Α.Υ 2000-01 and accordingly there was no reason to treat the same as unexplained whereas it was brought forward balance of the period beyond the scope of assessment vide provision of Section 153A of the Act. In the case of Shri Rajendra Singh Vs. ITO, It can be noted that assessee has discharged his onus to prove the creditors u/s 68. Both the creditors have accepted giving advance to was deposited in the the The fact that identical cash account of creditors before loan was advanced to the assessce does not prove that the money was deposited by the assessee company subsequently repaid by particularly more assessee. when the loan Was Capacity of the creditor to advance the money to assessee is not a matter which could be required to be established by the assessee as that would amount to calling upon him to establish the source of the source. No direct enquiry was made by the AO from these creditors. In these circumstances, genuineness of the transaction the need by the creditor Ld. CIT(A) deleted. doubted & the addition CIT Vs. Jal Kumar Bakliwal (2014) 366 ITR 217/ 101 DTR 377 (Ra) (RC) it held that; raised 68 prov iately before their credito tion through from unt elatives. Th of the credit advanced the groun of grant of loan by them, cash well AO made able deposited in admitted by the AO that all the income-tax and they have provided all the payments we oat of the cash creditors held that their PAN. Moreo payee cheques appeared before the AO since there prov thus and xamined on oath. clinching evidence that the money actually belonged to imself, action of the AO appeared be made. the AO had been able the assessce be based but mere suspicion and CIT VS. H.S. Builders Ltd. 78 D (IIC) (2012) this case, order of CIT(A) deleting addition u/s 68 was upheld by Tribunal after finding that also the sessee had submitted income, balance sheets of computations count of creditors and evidence that the money giνσει upplied all their particulars essee had been shown in the respective balance sheets of the creditors, and that the creditors who affirmed the fact of giving money Tribunal bank of some of the credito found that the circums lead comp company by itself, would deposited by called by the so the AO did of deposit of cash in the the before giving cheques the conclusion that the money Therefore, it was held that there is inquiry so to appreciate & evaluate the evidence over again.
In that case of Labh Chand Bohra Vs. ITO 189 Taxman 141/219 CTR 571 (Raj.) (HC) it was held that; Identity of the creditors having been established who have confirmed the credits by making statements on oath and the amounts having been advanced by account payee cheques, impugned addition in respect of the entries in the names of said creditors cannot be sustained. Capacity of the lender to advance money to the assessee is not matter which could be required to be established by the assessee, that would source of the source. to calling upon him established. In case of CIT Vs. Jawahar Lal Oswal (2016) 133 DTR 15 where it is held that suspicion and doubt may be the starting point of an investigation but cannot at the final stage of assessment take the place of relevant facts, particularly where deeming provision is sought to be invoked. Other similar judiciary ruling are as under: CIT Vs. Shiv Dhooti Pearls & Investment Ltd. (2016) 237 Taxman 104 (Del.) (HC) CIT Vs. Deen Dayal Choudhary (2017) 148 DTR 275 (Raj.) (HC) Aravali Trading Co. Vs. ITO 187 Taxman 338 (Raj.) (HC) CIT Vs. Varinder Rawlley (2015) 366 ITR 232/114 DTR 367 (P&H) (HC) The Appellant Company's books of Accounts are duly audited and there were no adverse remarks of the Auditors were found in the audit Report. Therefore, the Company unot be doubted by the Appellant Following documents mitted during assessment ve genuineness being your hono perunal Copy urn of Acknowledgement along Computa Profit A/c for the A. Y. opy of Audited Balance Gheet 2014-15 Demate Account Note 3500 Equity Shares Credit Exim P. Ltd received from Manirate Copy of Relevant ank Stateme Confirmation Shri Arun B. 31 Affidavit filed by Shri Sushilkur Pay made Shri Nemichand Bagani B. Shah Copy Justification from Maniratnam Exim Pvt. Explanation company had genu dated 24.06.201 Exim Pvt. Ltd. A copy financial on with was learned made not alleged any bogu bogus transaction All Manirs RTGS/ Pay Order only. The AG has allegedly done by the company assessee company Hence it is crystal that the short term borrowing received by the assessee company is absolutely genuine and cannot be added back u/s. 68 the Income Tax Act, 1961. the income of the assessee company Copy Bank Ledger and Cash Book Details of Loans Advance unting Rs. 2,59,36,450/- Details of Unsecured Loan along with loan confirmations Details of Sundry Creditors along with Confirmation Copy of Demate Account Statement Copy of Capital Gain Statement Copy of Broker Notes Note on Business Activities Details Party wise Sales along with Copy of Invoice Details of Party wise Purchase along with Copy of Invoice xxvii. Similarly in Signature Hotels (P) Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has held under similar circumstances follows: have 'reason believe that income "Section 147 of the Income- tax Act, 1961, is wide but not plenary. The Assessing Officer chargeable tax has escaped assessment. This is mandatory and the 'reason believe' required be recorded in writing by the Assessing Officer. one A notice under can be quashed if the "belief is not bona fide, based vague, W.P. (C) NO. 8067/2010 irrelevant and non- specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There should be link between the reasons and the evidence/material available with the Assessing Officer. xxviii. Attention of your honour is invited to the decision of Hon'ble Delhi High Court in the case of CIT v/s Paradise Holidays 325 ITR 13 (Del) wherein it wa held under: or has not pointed out any specific ........... Where the A. Ο. discrepancy in the account books maintained by the Assessee which duly audited by independent chartered accountants, there was no justification in rejecting the books of accounts and making the addition the declared income. xxix. the lans In the case of ITO Vs. Nasir Khan J. Mahadik (ITAT Mumbai)- account of opening Mumbai ITAT has deleted the additions made balances of unsecured loans and the notional interest on such loans. The Tribunal held that only fresh loans or additions during the year in question can be considered for the purpose of addition. Previous years loans cannot be added to subsequent year's income by claiming them to be unexplained. The Tribunal observed: On plain reading of the provisions of the Income Tax Act, a person with reasonable knowledge of tax laws cannot even remotely venture addition referable to previous year's loans in upon making subsequent year, since unexplained cash credit referable to loan taken in the current year only, can be added under section 68 of the Act; Section 68 refers to the cash credit found in the books of account of assessee in the year under consideration." From above it is crystal clear that the transaction with Mr. Arun B. Shah is duly shown in Books of accounts of consider it request your honour therefore transaction and should n be treated company most genuine ransaction. undisclosed The appellant therefore submits that firstly treating the genuine Unsecured Loan unexplained Cash Credit u/s. 68 without any proper base & secondly treating opening balance of Outstanding 8. But since assessee could not appear before Ld. CIT(A), therefore the matter was decided on the basis of material available on record. Hence it was pleaded that proper and sufficient opportunity was not granted to the assessee.
Be that as it may, we are of the view that in the arguments raised by the assessee in order to rebut the Ritika Gems Pvt Ltd, Mumbai. findings of the authorities appears to be reasonable. It is a case of reconciliation of accounts and the entries contained therein, which needs verification at the end of AO. Therefore keeping in view the facts that assessee could not appear before Ld. CIT(A) and could not produced entire evidence and explain before the revenue authorities. Hence we are inclined to restore the matter back to the file AO for fresh adjudicatin.
Before parting, we make it clear that our decision to restore the matter back to the file of the AO shall in no way be construed as having any reflection or expression on the merits of the dispute which shall be adjudicated by the AO independently in accordance with law. Needless to mention after providing sufficient opportunity of the assessee.
In the result the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 04/11/2025