DCIT- 27(2), MUMBAI, VASHI, NAVI MUMBAI vs. NAYAN BUILDERS, GHATKOPAR EAST, MUMBAI

After analysing the correctness of each of the parties mentioned above, the Ld. AO concluded that the assessee has manipulated the amount in the creditors account and transferred the same to its own account and as such the transaction of unsecured loan amount and creditworthiness of loan creditor were not genuine. Ld. AO further found that the amount shown in the return of income of some of the parties was less than loan amount and the bank balance before transaction of loan is too less. Therefore, Ld. AO made inference that the lender has borrowed money and transferred the same in the account of the assessee through banking channel either on the same day or within few days which according to AO makes the said loan transaction as sham transaction and as such the Nayan Builders assessee has failed to show the creditworthiness of the unsecured loan given to it. Accordingly, the AO made the addition of Rs. 9,39,50,000/- and treated the same as unexplained income and the tax computed u/s 115BBE of the Act. Penalty proceedings were also initiated. 4. Aggrieved by the above order, the assessee filed the appeal before the Ld. CIT(A) and Ld. CIT(A) observed that the three ingredients i.e. i) identity of the party, ii) creditworthiness of the party and iii) genuineness of the transaction, have been sufficiently proved by the assessee and the arguments of the AO was found to be fragile and incorrect, therefore Ld. CIT(A) deleted the addition made by AO and partly allowed the appeal of the assessee. 5. Aggrieved by the order of Ld. CIT(A), revenue preferred the present appeal before us and has raised the following grounds of appeal:- “Ground1.Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the entire Unsecured Loans ignoring the fact that the assessee failed to satisfactorily prove the creditworthiness of the lenders.

Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the entire Unsecured Loans ignoring the fact that the disclosed return income of the lenders do not commensurate with amount of loan given and thus, creditworthiness of lenders was not proved. Nayan Builders 3.The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 6. To summarize the grounds of appeal, we have noticed that revenue has challenged only the creditworthiness of the lenders and as such there is no dispute regarding the identity of the creditors and genuineness of the transaction. Hence, we proceed to examine the material placed on record keeping in view the only issue regarding creditworthiness of the lenders i.e. 13 parties who has lent money to the assessee. 7. We have heard Ld AR and Ld. DR and examined the record. At the outset, Ld. AR on behalf of the assessee submitted that the AO has questioned about the creditworthiness of the lenders by simply observing that their ITR did not reflect as much as has been lent to the assessee and further the lender has borrowed money on the same day and transferred the same in the account of the assessee as unsecured loan. It is further submitted that the said observation and belief is unwarranted and contrary to the law settled because the assessee is not required to explain the source of the source once he has established the credit /unsecured loan have been received from the identified parties known and unknown as in the present case, no law prescribes borrowing of the amount and lending of the same by any individual /firm on the Nayan Builders same day when the transaction has been taken through banking channels and there is no cash transaction. Ld. AR further submitted that the requirement of source of source has been brought in section 68 of the Act by way of amendment by the Finance Bill 2022 which takes effective from 1st April 2023, AY 2023-24. 8. Ld. AR referred para 5.3.3 to 5.3.7 of the impugned order of Ld. CIT(A) with respect to creditworthiness of unrelated parties. Ld. AR further submitted that the finance statement of unrelated parties has been shown in page 35 of the paper book and the confirmation by creditors has been filed at pages 33 and 34 of the paper book where the financial of the each party has been clearly explained. Ld. AR further referred page 33, 38 and 39 of the paper book, showing the confirmation by the creditors and further stated that the financial statements of the parties has been filed and the same are never asked by the AO. Hence, it is submitted that the assessee in this case has satisfied all the three ingredients i.e. i) identity of the party, ii) creditworthiness of the party and iii) genuineness of the transaction. Thus, Ld. AR submitted that Ld. CIT(A) has rightly deleted the addition made by the AO. In support of Nayan Builders his arguments, Ld. AR filed the legal paper book 1 containing pages 1 to 38 and relied various case laws as under:- i) Gaurav Triyugi Singh Vs. ITO (2020) 121 taxmann.com 86 (Bom HC) 13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely : (i) identity of the creditor; (ii) genuineness of the transaction; and (iii) credit-worthiness of the creditor. 14. In Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspect i.e., he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur. 15. In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee 6.3 On the basis of all these documentary evidences, it could be concluded that the assessee had duly discharged the onus of proving the identity of the investor entities, their respective creditworthiness and the genuineness of the transactions. One of the reasons to doubt these transactions is the observation of Ld. AO that notices issued u/s 133(6) as well as summons issued u/s 131 were not responded to by the share-applicants. However, the assessee does not have any legal power to enforce the attendance of the share-applicants. Another noteworthy point that this is the first year of operation of the assessee-company and therefore, it is difficult to presume that the assessee generated unaccounted money in the first year of operation itself and routed the same in the garb of share-application money. 6.4 On the basis of above facts, it could be concluded that the assessee had discharged the initial onus of proving these transactions in terms of the requirements of Sec.68. Therefore, the onus had shifted on Ld. AO to dislodge the assessee's documentary evidences and bring on record cogent material to establish that the assessee generated unaccounted money and routed the same through banking channels in the garb of share-application money. Unless such an investigation is shown to have been carried out, the additions would not be sustainable in law since it is trite law that no addition could be made on the basis of mere suspicion, conjectures and surmises. Nothing adverse could be Nayan Builders borne out of the fact that most of the share-applicants had bank accounts in common bank/branch and the directors of corporate entities were running various other concerns. It could be seen that few of the investors belonged to common family and therefore, it would not be uncommon to operate the bank from same Bank and Branch. 6.5 We find that as per the provisions of Section 68 of the Income-tax Act, 1961, where any sum is found credited in the assessee's books and assessee offers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 1-4-2013 to provide that where the assessee is a company and the sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about nature and source of sum so credited and such explanation is found to be satisfactory. However, this proviso is applicable only from AY 2013-14 and the same is not retrospective in nature as held by Hon'ble Bombay High Court in the case of Gagandeep Infrastructure (P.) Ltd. (supra). The said position has also been reiterated by Hon'ble Bombay High Court in its recent decision tilted as Gaurav Triyugi Singh v. ITO [2020] 121 taxmann.com 86/423 ITR 531 which also consider its earlier decision of Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom.). Therefore, the assessee was not even otherwise obligated to prove the source of source of share application money in this year. 6.6 The Hon'ble Supreme Court in the case of CIT v. Lovely Exports (P.) Ltd. [2009] 319 ITR 5, dismissing revenue's appeal, observed as under : — "2. Can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to Nayan Builders the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 3. Subject to the above, Special Leave Petition is dismissed." The ratio of said decision has subsequently been followed by various judicial authorities in catena of judicial pronouncements. The said decision has been followed by Hon'ble Bombay High Court in the case of Gagandeep Infrastructure (P.) Ltd. (supra) & subsequently in CIT v. Orchid Industries (P.) Ltd. [2017] 88 taxmann.com 502 (Bom.). The Hon'ble Delhi High Court followed the said decision in Pr. CIT v. Adamine Construction (P.) Ltd. [2019] 107 taxmann.com 84 against which revenue's Special Leave petition was dismissed by Hon'ble Supreme Court which is reported at Pr. CIT v. Adamine Construction (P.) Ltd. [2019] 107 taxmann.com 85/264 Taxman 279. Similar is the position of decision of Hon'ble Delhi High Court rendered in Pr. CIT v. Himachal Fibers Ltd. [2018] 98 taxmann.com 172 against which revenue's Special Leave Petition was dismissed by Hon'ble Supreme Court which is reported at Pr. CIT v. Himachal Fibers Ltd. [2018] 98 taxmann.com 173/259 Taxman 3. Similar is the decision of Hon'ble High Court of Madhya Pradesh in Pr. CIT v. Chain House International (P.) Ltd. [2018] 98 taxmann.com 47 (MP) against which revenue's Special Leave Petition has been dismissed by Hon'ble Supreme Court on 18-2-2019 which is reported at Pr. CIT v. Chain House International (P.) Ltd. [2019] 103 taxmann.com 435/262 Taxman 207. Similar is the recent decision of Hon'ble Bombay High Court in Ami Industries (India) (P.) Ltd.'s case (supra) which has been rendered after considering the principles laid down by Hon'ble Supreme Court in its recent decision titled as NRA Iron & Steel (P.) Ltd.'s case (supra). 6.7 The Ld. DR has cited the decision of Hon'ble Delhi High Court in CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 18 taxmann.com 217/206 Taxman 207/342 ITR 169 which is factually distinguishable since in that case, the investors made an admission that they were accommodation entry Nayan Builders providers. No such admission has been made by the investors in the present case. The case law of Hon'ble High Court of Bombay in Royal Rich Developers (P.) Ltd. v. Pr. CIT [2019] 108 taxmann.com 382/265 Taxman 99 (Mag.) is a case where the investor failed to supply necessary details and documents to establish the genuineness of the investment. In the present case, the investments have duly been substantiated by requisite documentary evidences. The decision of Hon'ble Delhi High Court in CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 30 taxmann.com 292/214 Taxman 429/350 ITR 407 has already been distinguished by the Hon'ble Court in CIT v. Nipuan Auto (P.) Ltd. [2014] 49 taxmann.com 13/227 Taxman 147 (Mag.)/361 ITR 155 (Delhi) by observing that the assessee, in the present case, has been able to discharge the initial burden to establish the identity, creditworthiness and genuineness as regards the transactions concerning the allotment of shares. We find that in the case before us, the initial burden has similarly been discharged by the assessee. 6.8 Therefore, on the facts and circumstances, we hold that the impugned additions as made u/s 68 and consequential addition of estimated commission u/s 69C is not sustainable in law. By deleting the same, we allow Ground Nos. 1 & 3 of the appeal which render ground no. 2 merely academic in nature. The Ld. AO is directed to re-compute the income in terms of this order. The appeal stand allowed in terms of our above order.

We have considered the rival submissions and examined the record. The Ld. DR has relied the decision of Coordinate Bench of ITAT in the case of J. K. Global (supra), wherein the ITAT has confirmed the addition on the ground that the accommodation entries were provided by Shri Praveen Kumar Jain who in his statement u/s 132(4) of the Act in ITA No. 7191/Mum/2018 has categorically admitted that the entire business of accommodation entries is through him and Shri Pankaj Jain and companies under their control and the unaccounted commission earned by the assessee in the said case from 54 companies which was owing to a huge network of unlawful business to provide the tax for companies operating through Pankaj Jain and other and were rather involved in Nayan Builders money laundering. Admittedly the facts and circumstances of the case in J. K. Global is totally different from the facts of the case in hand and therefore finding of the Ld. Coordinate Bench are not relevant to the issue involved in the present case. Ld. DR relied another decision of ITAT Delhi Bench in the case of Kirat Hotels Pvt. Ltd. (supra), the facts and circumstances of this case is different as noted in para 10 of the said decision that the assessee produced the copies of confirmation, ledger account but without PAN and other details of assessment particulars and some of the confirmations did not bear the address of the creditors, therefore Ld. CIT(A) is of the opinion that the assessee did not discharge the primary onus and burden of proof as required under the provision of section 68 of the Act of providing genuineness, creditworthiness and identity of creditors to the satisfaction of the AO. Admittedly, in the present case the confirmation and other details do not lack in any manner, therefore the said case is also distinguishable. The other decision of Hon’ble Juri ictional Bombay High Court in case of PCIT vs. M/s. Ami Industries (India) P. Ltd. (ITA NO. 1231 of 2017) referred by Ld. DR in which the case of Hon’ble Supreme Court decision in the case of NRA Iron & Steel Pvt. Ltd. (supra) was relied and the Hon’ble High Court nowhere states that assessee was required to prove the Nayan Builders source of source. For better understanding, the relevant portion of the said decision is extracted below which also distinguishable from the facts of the present case:- 14. Section 68 of the Act has received considerable judicial attention through various pronouncements of the Courts. It is now well settled that under Section 68 of the Act, the assessee is required to prove identity of the creditor; genuineness of the transaction; and credit worthiness of the creditor. In fact, in NRA Iron & Steel (P) Ltd (supra), Supreme Court surveyed the relevant judgments and culled out the following principles:- "11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor / subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." Nayan Builders 15. It is also a settled proposition that assessee is not required to prove source of source. In fact, this position has been clarified by us in the recent decision in Gaurav Triyugi Singh Vs. Income Tax Officer-24(3)(1)2

In NRA Iron & Steel (P) Ltd (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either non- existent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable onfacts of the present case. 14. On perusal of the above discussion, it is crystal clear that the crux of the arguments advanced by the Ld. DR is that the assessee was required to establish the source of source whereas, the Ld. AR on behalf of the assessee states that as per settled legal position before the amendment of Finance Bill 2022 which is not applicable in this case, the assessee is not required to establish the source of source in order to establish the creditworthiness of the lenders in this case. Even otherwise the assessee has sufficiently established the creditworthiness qua lended amount, though the same has been borrowed on the same date by the creditors for which there is not legal bar so as to transfer the borrowed amount to the account source, so the source of the source is not legally required Nayan Builders and there is no legal bar to take lawful action against the creditors if revenue doubted the source of money lended by them to the assessee. 15. We have considered the findings of Ld AO as well as Ld. CIT(A) in the light of above discussion. The Ld. AO in page no. 9 and 11 of its order observed as under:- “In response to the show cause notice, the assessee submitted his online reply on 15.03.2021 (after due date) along with copy of ITR and bank statement in respect of other than family loans and ledger of expenses along with some bills/vouchers. The submission of the assessee has been verified and found not satisfactory which is mentioned in both lenders brief note in respect of family and other than family lender. Bank statement of lenders are not for complete financial year i.e 01.04.2017 to 31.03.2018 and maximum unsecured loan amount credited in their account and same day same amount transferred to the assessee account. As per bank statement and return income of the lenders submitted by the assessee they do not have the capacity to give unsecured loan in huge amount.” “It transpires from the above discussions that most of the fund contributed by the lenders comes from M/s Damji shamji Realty Pvt. Ltd and Universe Developer. And in turn it goes to the assessee .Bank statement submitted by the assessee are not for the complete financial year i.e 01.04.2017 to 31.03.2018. The submission has been verified with material available on record. In view of the same the loans are treated to be a sham transaction and the garb of loan the assessee has introduced the sum of money as discussed above. Thus, the loan is treated as an un-explained income to the tune of Rs. 9,39,50,000/- . The tax to be computed U/s 115BBE of the I.T. Act 1961.” Nayan Builders 16. Further, the said findings of Ld. AO has been dealt by the Ld. CIT(A) in the impugned order in para no. 5.3.3 to 5.3.9 as extracted below:- Nayan Builders Nayan Builders Nayan Builders Nayan Builders 17. After examining the findings returned by Ld. CIT(A) and in view of the discussions made by us, we are of the considered opinion that there is no legal infirmity or perversity in the order passed by Ld. CIT(A). In view of the analysis made by us for the relevant assessment year, the assessee was not required to prove the source of the source. Nothing has been brought to our notice by the revenue if any enquiry is done in the case of the creditors if it has doubted the source of the money lent by them to the assessee. Ld. CIT(A) has rightly deleted the addition made by the AO and the order of Ld. CIT(A) is confirmed. For the above discussion, we find no merit in the grounds raised by the revenue questioning the credibility of the lenders. 18. In the result, the appeal filed by the revenue is dismissed in above terms. Order pronounced in the open court on 14.10.2025. (PADMAVATHY S) (RAJ KUMAR CHAUHAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai / Dated 14.10.2025 Dhananjay, Sr.PS Nayan Builders Copy of the Order forwarded to:

The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //// BY ORDER