JBA METAL COMPANY,TIRUVANNAMALAI vs. DCIT, CIRCLE-1, VELLORE

Further, the AO sought details relating to (i) unsecured loans received during the relevant previous year and (ii) capital introduced by the partners. In compliance, the assessee produced documentary evidence including confirmations from all the lenders and partners, PAN, Income-tax Returns, bank statements, ledger accounts, confirmations explaining the source of funds, capital accounts, bank reconciliation statements mapping each credit with the corresponding banking transaction, details of withdrawals from sister concerns, and other supporting records establishing the complete movement of funds in compliance with section 68 of the Act.

However, on perusal of the documentary evidence placed on record by the assessee, the AO rejected the same by passing an order u/s.143(3) of the Act dated 26.03.2024 and treated unsecured loans aggregating to Rs.11,19,48,688/- received from 15 lenders and partners’ capital (5 partners) aggregating to Rs.19,35,35,925/-, totaling to Rs.30,54,84,613/-, as unexplained cash credits u/s.68 of the Act and subjected to tax u/s.115BBE of the Act. While making the additions the AO relied on the decision of the Hon’ble Supreme Court in CIT, West v. Durga Prasad More (82 ITR 540) and also Pavankumar M Sanghvi [2018] 97 taxmann.com 398. According to the assessee, the additions are not founded upon any investigation conducted by the Department. The AO did not issue notices u/s.133(6) of the Act to any lender or partner, did not exercise powers u/s.131 of the Act, did not conduct any field enquiry, did not obtain any report from the Investigation Wing, did not record any adverse

On appeal before the ld.CIT(A), while dismissing the appeal by passing an order dated 10.02.2026, substantially reproduced the reasoning of the AO without independently appreciating the voluminous documentary evidence already on record or examining the legal consequences arising from the complete absence of any enquiry by the AO.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us by raising the following grounds of appeal:

The ld.AR for the assessee Mr.D.Anand submitted that whether the impugned addition u/s.68 of the Act is sustainable in law when the assessee had discharged the entire initial burden by producing cogent documentary evidence establishing the identity of the creditors, the genuineness of the transactions and the creditworthiness of the creditors, but the AO, instead of discharging the burden that had shifted upon the Revenue by conducting enquiries u/s.131 or 133(6) or by bringing any independent adverse material on record, rejected the evidence solely on the basis of suspicion, conjectures and subjective disbelief?

He submitted that the assessee discharged the burden cast upon it u/s.68 of the Act in its entirety. During the course of assessment proceedings, the assessee furnished exhaustive documentary evidence in support of every unsecured loan received during the relevant previous year. The documentary evidence included the PAN of all the lenders, confirmations from each lender, copies of their Income-tax Returns, bank statements evidencing the transfer of funds through normal banking channels, ledger extracts, bank reconciliations mapping every receipt with the corresponding banking transaction, confirmations explaining the source of funds and other supporting records establishing the complete trail of money. The details of the same are tabulated hereunder:

Likewise, in respect of the capital introduced by the partners, the assessee furnished confirmations from each partner, their Income-tax Returns, bank statements, capital accounts, source confirmations, details of withdrawals from sister concerns and documentary evidence establishing the source and movement of every contribution.

Thus, every ingredient required to discharge the burden u/s.68 of the Act stood fully established through unimpeachable documentary evidence.

He submitted that the AO has nowhere disputed the authenticity of the documentary evidence produced by the assessee. There is no finding in the assessment order that the PAN details are incorrect, that the Income-tax Returns are fabricated, that the confirmations are false, that the bank statements are manipulated, that the banking transactions never took place or that the creditors themselves have denied advancing the loans. It is equally submitted that there is no finding that the partners have denied introducing the capital into the firm. In fact, the existence and identity of the creditors and partners, as well as the actual transfer of funds through banking channels, stand admitted. The ld.AR submitted that once these foundational facts remain undisputed, the initial burden cast upon the assessee u/s.68 of the Act stood completely discharged.

The ld.AR argued that having discharged the initial burden cast upon it by law through the production of complete documentary evidence establishing the identity of the creditors, their creditworthiness, and the genuineness of the transactions, the onus shifted to the AO to objectively examine such evidence. If the AO entertained any doubt regarding the correctness or veracity of the material produced, it was incumbent upon him to invoke the wide investigative powers vested in him under the Act, to verify the facts before drawing any adverse inference.

On the contrary, the ld.AR argued that the assessee itself requested the AO to invoke his statutory powers u/s.133(6) of the Act for verifying the creditors and also requested that any adverse material, if collected, be confronted to the assessee and an opportunity of cross-examination be afforded. Instead of undertaking such verification, the AO simply observed that it was not the responsibility of the Department to establish the creditworthiness of the creditors. He submitted that such an approach is fundamentally contrary to the settled principles governing the burden of proof u/s.68 of the Act. In support of the aforesaid submission the ld.AR relies on the following decision: - Samrat Finvestors Pvt Vs ITI (Kol ITAT)-ITA NO: 840/KOL/2023.(refer to pages 3-4, 7-10) - ACIT Vs Supreme Placement-(Delhi ITAT)- ITA No5259/Del/2013. (refer to pages 7 para 3.5, page 24 & 36-40). - Surender Singh Sangwan Vs ITO -ITA 1639/Del/2025

The ld.AR submitted that a careful reading of the assessment order would demonstrate that the additions are founded entirely upon presumptions and subjective disbelief. The AO has proceeded on the premise that certain cash deposits were found in the bank accounts of the creditors or partners before the funds were transferred to the assessee and, therefore, the credits are not genuine. However, this conclusion is not supported by any investigation whatsoever. The partners and creditors had specifically explained that the cash deposits represented business receipts, agricultural income, operational cash

The ld.AR relied on the decision of the Hon'ble Supreme Court in Orissa Corporation 159 ITR 78 (SC) and various High Courts (Nemi Chand Kothari 264 ITR 254) have consistently held that once an assessee produces prima facie evidence establishing the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor, the burden shifts upon the Revenue. If the AO seeks to reject such evidence, he must first conduct an effective enquiry and bring positive material on record to establish that the explanation furnished by the assessee is false or unreliable. In the absence of such enquiry, documentary evidence cannot be discarded merely because the AO remains unconvinced. The present case squarely falls within this settled legal principle. He stated that the assessee has discharged every obligation cast upon it by law, whereas the Revenue has failed to discharge the corresponding burden that arose thereafter. In these circumstances, the impugned addition u/s.68 of the Act is wholly unsustainable in law and are therefore liable to be deleted in their entirety.

The ld.AR submitted that, after the assessee has discharged the initial burden cast upon it u/s.68 by producing cogent documentary evidence establishing the identity of the creditors, the genuineness of the transactions and the creditworthiness of the creditors, the AO can avoid the statutory burden that shifts upon the Revenue by refusing to exercise the investigative powers conferred u/s.131 and 133(6) of the Act, and proceed to make an addition solely

He contended that section 68 undoubtedly casts an initial burden upon the assessee to satisfactorily explain the nature and source of the credits appearing in its books of account. However, the burden contemplated under the provision is not an endless or perpetual burden. It is only an initial burden which stands discharged once the assessee produces prima facie evidence establishing the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor. Once such evidence is placed on record, the burden immediately shifts upon the AO to examine the veracity of the evidence and, if he entertains any doubt regarding its correctness, to disprove the same through an appropriate investigation. The law does not permit the AO to indefinitely insist upon further evidence while simultaneously refusing to undertake any enquiry himself.

In the present case, the assessee has furnished complete documentary evidence in support of every unsecured loan and every capital contribution. The identity of the creditors and partners stood established through PAN, Income- tax Returns and confirmations. The genuineness of the transactions stood established through banking channels, ledger accounts and corresponding entries in the books of account. The financial capacity and source of funds were demonstrated through bank statements, capital accounts, source confirmations, business income, agricultural income and withdrawals from sister concerns. Thus, the assessee discharged the entire burden cast upon it u/s.68 of the Act.

Further, the ld.AR stated that there is no finding in the assessment order that any of the documents are fabricated, manipulated or otherwise unreliable. Likewise, there is no finding that the creditors or partners are fictitious persons, that the bank accounts are non-existent, or that the transactions recorded therein are sham or make-believe. In fact, the existence of the creditors, the identity of the partners and the actual transfer of funds through banking channels stand admitted. The AO has rejected the explanation primarily on the ground that certain cash deposits were found in the bank accounts of the creditors or partners prior to the transfer of funds and that, according to him, the financial capacity of the contributors appeared doubtful.

The ld.AR also argued that it is equally significant fact that the AO has failed to establish any live nexus between the alleged deficiencies noticed in the accounts of the creditors and the credits appearing in the books of the assessee. Even assuming, without admitting, that there existed certain irregularities in the financial affairs of the creditors, such circumstances, by themselves, cannot justify an addition in the hands of the assessee unless it is further established through cogent evidence that the monies introduced into the assessee’s books actually represented its own undisclosed income routed through those creditors. The assessment order contains no such finding. The entire reasoning proceeds on generalised doubts regarding the creditors rather than any evidence connecting those doubts with the credits recorded in the books of the assessee.

The ld.AR submitted that the settled principles governing section 68 require the Revenue to rebut the documentary evidence produced by the assessee by bringing positive and credible material on record. In the present case, the Revenue has produced no such material. The documentary evidence produced by the Appellant remains wholly uncontroverted. The identity of the :-14-: ITA. No:1725/Chny/2026. creditors is undisputed, the genuineness of the banking transactions is admitted and the financial records of the contributors have never been shown to be false. In these circumstances, rejection of the Appellant's explanation merely on the basis of suspicion amounts to substituting conjecture for evidence, which is impermissible in law. It is a cardinal principle of evidence that suspicion, however grave or compelling, cannot take the place of proof. This principle applies with greater force where the statute creates a legal fiction such as section 68 of the Act.

In respect of the impugned addition towards the capital introduced by the partners the ld.AR stated that it is wholly unsustainable in law as well as on facts. He submitted that the settled legal position is that where the partners themselves admit the introduction of capital into the partnership firm, establish their identity, explain the source of such contribution and support the same by cogent documentary evidence, the provisions of section 68 cannot ordinarily be invoked in the hands of the partnership firm. He further contended that a partnership firm and its partners are distinct taxable entities under the Act, and unless it is demonstrated by cogent evidence that the money ostensibly introduced by the partners actually represents the undisclosed income of the firm itself, the addition cannot be sustained in the hands of the partnership firm. It is submitted that in the present case, the identity of every partner is undisputed. Each partner has unequivocally admitted the capital contribution made to the assessee firm and has furnished confirmations affirming the amounts contributed. The partners have also produced their PAN, copies of their Income-tax Returns, bank statements evidencing the transfer of funds through banking channels, capital accounts and documentary evidence explaining the source of the funds introduced into the firm. In several instances, the source of the capital contribution was further explained by producing evidence relating to withdrawals from sister concerns, business receipts, agricultural income and other disclosed sources. Thus, the identity of the contributors, the genuineness of the transactions and the source of the capital introduced stand fully supported by contemporaneous documentary evidence.

In the present facts of the case, he submitted that the assessee never sought to conceal the fact that certain cash deposits preceded the transfers made by the creditors and partners. On the contrary, the assessee furnished detailed explanations supported by documentary evidence demonstrating the source of such deposits. The explanations included business receipts, agricultural income, operational cash generated from business activities, withdrawals from sister concerns and other disclosed sources. These explanations were substantiated by confirmations, bank statements, Income- tax Returns, capital accounts and other documentary records produced during the course of assessment proceedings. Thus, the assessee not only disclosed

The ld.AR further submitted that the impugned assessment order does not contain any finding that the business receipts, agricultural income, withdrawals from sister concerns or other sources relied upon by the creditors and partners are false or fabricated. There is no finding that the Income-tax Returns filed by the contributors are incorrect or that the bank statements have been manipulated. There is no evidence demonstrating that the cash deposits originated from the Appellant itself or that the funds travelled back to the contributors after being introduced into the firm. In fact, the Revenue has not established any cash trail whatsoever linking the alleged cash deposits to the undisclosed income of the assessee. The additions have therefore been made purely on the basis of suspicion arising from the timing of the deposits, without any evidence connecting those deposits to any undisclosed income. Unless the Revenue demonstrates by independent enquiry that the explanation regarding such deposits is false or that the money actually emanated from the assessee, an addition u/s.68 of the Act cannot be sustained. This principle finds support in decisions such as CIT v. Orissa Corporation (P.) Ltd. (SC), Rohini Builders v. No.1730/Del/2024).

It is also pertinent to note that the AO has failed to establish any live nexus between the alleged cash deposits in the accounts of the creditors or partners and the business affairs of the assessee. Even assuming, for the sake of argument, that the Revenue entertained doubts regarding the source of cash available with a particular creditor or partner, such doubts could only justify an enquiry into the affairs of that individual. They cannot automatically result in an addition in the hands of the assessee unless it is further established that the :-18-: ITA. No:1725/Chny/2026. monies introduced into the assessee’s books were, in reality, the assessee’s own undisclosed income routed through those persons. No such finding has been recorded in the present case. In these circumstances, it is respectfully submitted that the mere existence of cash deposits in the bank accounts of the creditors or partners, without disproving the explanation regarding the source of such deposits through independent enquiry and cogent evidence, cannot constitute a valid ground for invoking section 68. Since the Revenue has failed to rebut the documentary evidence and explanations furnished by the Appellant and has not brought any independent material on record demonstrating that the credits represented the assessee’s undisclosed income, the impugned additions are wholly unsustainable in law and deserve to be deleted in their entirety.

Per contra, the ld.DR, strongly supporting the orders of the authorities below, submitted that the assessee had failed to discharge the onus cast upon it to establish the creditworthiness of the parties from whom the loans were stated to have been received. He further submitted that the partners had introduced capital into the assessee-firm through banking channels; however, immediately prior to such introduction, substantial cash deposits were made into their respective bank accounts. According to the ld.DR, the mere routing of funds through banking channels would not, by itself, establish the genuineness of the transactions or the creditworthiness of the parties, particularly when the source of the cash deposits remained unexplained. He, therefore, contended that the amounts introduced by the partners and received from the lenders represented unexplained/unaccounted money of the assessee routed through such parties and, accordingly, prayed that the additions sustained by the authorities below be confirmed.

We have heard the rival submissions and perused the material available on record, including the assessment order, the order of the ld.CIT(A), the paper book filed by the assessee and the evidences placed therein. The assessee is a partnership firm engaged in the business of manufacturing and trading of TMT

Notwithstanding the documentary evidence so furnished, the AO made an addition of Rs.11,19,48,688/- in respect of unsecured loans received from 15 lenders and Rs.19,35,35,925/- towards capital introduced by five partners, aggregating to Rs.30,54,84,613/-, treating the same as unexplained cash credits u/s.68 of the Act and applying the provisions of section 115BBE of the Act. While doing so, the AO placed reliance, inter alia, upon the decisions of the Hon'ble Supreme Court in CIT v. Durga Prasad More, 82 ITR 540 (SC), and Pavankumar M. Sanghvi, 97 taxmann.com 398 (SC).

At the outset, we may observe that there is no quarrel with the general proposition that in proceedings u/s.68 of the Act the AO is entitled to examine not merely the documentary form of a transaction but also its surrounding circumstances and the substance of the explanation furnished by the assessee. The principle laid down in Durga Prasad More is that the apparent may not necessarily be real and that the taxing authorities are entitled to consider the surrounding circumstances while appreciating evidence. However, the said principle does not dispense with the requirement of arriving at an adverse conclusion on the basis of material and evidence. The doctrine of surrounding circumstances cannot be converted into a licence to reject otherwise relevant documentary evidence solely on the basis of conjecture or subjective suspicion.

Likewise, the decision in Pavankumar M. Sanghvi cannot be applied in isolation from the factual circumstances in which the decision was rendered. In that case, the finding against the assessee was founded upon specific

Therefore, the principle emerging from Pavankumar M. Sanghvi is not that the existence of a cash deposit in a creditor's bank account, followed by a banking transfer to the assessee, automatically constitutes unexplained cash credit u/s.68 of the Act. The said decision has to be appreciated in the factual setting in which there was material and enquiry supporting the adverse conclusion. In the present case, we have to examine whether comparable material was brought on record by the AO in respect of the 15 lenders and five partners.

We first examine the unsecured loans individually. The paper book demonstrates that the assessee furnished documentary evidence correlating the respective creditors, PAN, dates and amounts of advances with the corresponding bank transactions and ledger entries. For instance, in the case of Kaladevi, PAN - DMTPK9641F, an amount of Rs.5,00,000/- was received on 13.05.2021 through KVB account 778, with the corresponding bank entry and ledger evidence placed at paper book pages 18 and 253. Similarly, in the case of Karuppaye, PAN - ECBPK5287A, an amount of Rs.5,00,000/- was received on 13.05.2021 through the same banking channel, with the corresponding evidence at paper book pages 17 and 252. 38. In the case of Mohan Breweries & Distillers Ltd., PAN - AAACM2415L, the assessee received Rs.50,00,000/- on 23.09.2021 through KVB account 778 and the corresponding bank and ledger evidence is stated to be available at paper book pages 25 and 257. The transaction is thus identifiable not merely by a confirmation but by the corresponding banking transaction and accounting entry.

Likewise, in the case of Akila Corp, PAN - AAHFA0949D, amounts of Rs.22,50,000/- and Rs.14,88,000/- were received on 12.07.2021 and 30.12.2021 respectively. The corresponding bank and ledger evidence is identified at paper book pages 21, 30 and 31, with ledger pages 38 to 41. In the case of D. Senthil Kumar, PAN - CCSPS5080G, an amount of Rs.30,00,000/- was received on 12.07.2021, with the relevant bank/TDS and ledger evidence placed at paper book page 20 and pages 150-158 and 42-45 respectively.

In the case of Midas Enterprises, PAN ABOFM5015G, two amounts of Rs.30,00,000/- and Rs.24,80,000/- were received on 13.07.2021 and 27.12.2021 respectively. The corresponding TDS and ledger records are identified at paper book pages 22 and 29, TDS pages 161-174 and ledger pages 46-49. Similarly, Shanmuganadhan, PAN - BVIPS0160D, advanced Rs.30,00,000/- on 12.07.2021, Rs.30,00,000/- on 13.07.2021 and Rs.59,52,000/- on 28.12.2021, with the corresponding TDS/bank and ledger records at paper book pages 20, 22 and 23 and ledger pages 54-56. 42. The same pattern is evident in respect of Shanthi.S, Sundaramoorthy, Velmurugan.M, Velmurugan HUF and Yasodha.A. In each case, the assessee has furnished the particulars of the creditor, PAN, date and amount of receipt and corresponding bank/ledger/TDS records. Shanthi.S advanced Rs.29,76,000/- on 28.12.2021; Sundaramoorthy advanced Rs.37,50,000/- on 14.07.2021; Velmurugan M advanced Rs.45,00,000/- on 13.07.2021; Velmurugan HUF advanced Rs.29,76,000/- on 28.12.2021; and Yasodha.A advanced Rs.93,75,000/- on 13.07.2021 and Rs.44,64,000/- on 28.12.2021. :-22-: ITA. No:1725/Chny/2026. The corresponding evidence is identified in the paper book at pages 20-30, 23- 24, 28 and 29-30, read with the respective ledger/TDS pages referred to therein.

The assessee has also furnished documentary evidence in respect of Devi Innoventures Ltd., PAN - AANFD2225K, which advanced Rs.50,00,000/- on 20.11.2021, Rs.1,99,99,976/- on 24.11.2021 and Rs.50,00,012/- on 25.11.2021. The corresponding evidence is identified at paper book pages 26, 27 and 28, read with ledger page 258. 44. We have referred to the individual transactions not for the purpose of reproducing the entire evidentiary record, but to demonstrate that the assessee's explanation cannot be characterised as a mere general or omnibus explanation. There is creditor-wise identification, PAN-wise identification, date- wise identification, amount-wise identification and correlation with the corresponding bank and ledger records. The Revenue was therefore required to examine whether any particular transaction, creditor or document was false, fabricated, inconsistent or otherwise incapable of supporting the explanation u/s.68 of the Act.

It is significant that the assessment order, as placed before us, does not record that the PAN of any of the creditors was incorrect, that any creditor denied the transaction, that any bank statement was fabricated, that the corresponding ledger entries were fictitious, or that the money credited in the assessee's books did not actually emanate from the bank accounts of the respective creditors. The Revenue has also not demonstrated that any of the creditors was non-existent or that the confirmations were false. The identity and actual movement of the funds have therefore not been displaced by any positive material.

The principal objection of the AO appears to be that certain cash deposits were made in the bank accounts of the creditors/partners shortly before the amounts were transferred to the assessee and that, consequently, the financial capacity of the creditors was doubtful. We agree with the Revenue to the limited extent that such a circumstance is relevant and cannot simply be ignored. A :-23-: ITA. No:1725/Chny/2026. preceding cash deposit may constitute a circumstance requiring verification of the source of the deposit. However, the existence of such circumstance does not, by itself, establish that the subsequent amount received by the assessee represents its own undisclosed income.

The crucial question, therefore, is what the AO did after noticing the cash deposits. In the present case, the record placed before us does not show that the AO issued notices u/s.133(6) to the creditors, summoned the creditors or partners u/s.131 of the Act, examined their books or bank accounts, conducted enquiries through their respective juri ictional AOs, verified the source of the cash deposits with the concerned banks, conducted field enquiries or brought any investigation report on record. The assessee had specifically requested such verification and also requested that any adverse material collected be confronted to it. Nevertheless, no such independent verification is shown to have been undertaken.

This factual aspect materially distinguishes the present case from Pavankumar M.Sanghvi. In that case, the adverse conclusion was based upon specific facts concerning the lender entities and their bank transactions, coupled with the failure of the assessee to produce the lenders for verification. The Hon’ble Supreme Court's decision, therefore, cannot be read as laying down a universal rule that whenever a cash deposit precedes a banking transfer, the corresponding credit in the books of the assessee must necessarily be treated as unexplained.

In the present case, the assessee has offered explanations for the cash deposits, including business receipts, agricultural income, operational cash generated from business activities and withdrawals from sister concerns. The assessee claims that these explanations were supported by Income-tax Returns, bank statements, confirmations, capital accounts and other documents. The material before us does not disclose any independent enquiry by the AO establishing that these explanations were false or fabricated.

The reliance placed by the AO on the decision of the Hon'ble Supreme Court in Durga Prasad More does not alter the above conclusion. We have no difficulty in accepting that the taxing authorities are entitled to look into the surrounding circumstances and human probabilities while appreciating evidence. However, the said principle cannot be employed to disregard primary evidence without identifying the specific defect in such evidence. In the present case, the surrounding circumstance relied upon by the AO is principally the timing of cash deposits. That circumstance may justify enquiry; it cannot, without more, substitute for an enquiry or positive material demonstrating that the credits in the assessee's books represent its undisclosed money.

The distinction is particularly material because the assessee has not relied merely upon self-serving confirmations. It has furnished PAN, Income-tax Returns, confirmations, bank statements, ledger accounts and corresponding transaction records. In several cases the transactions are further supported by TDS records and detailed ledger references. Therefore, the surrounding circumstances relied upon by the AO have to be weighed against the contemporaneous documentary evidence rather than being treated as conclusive of the matter.

We now turn to the addition of Rs.19,35,35,925/- towards capital introduced by the partners. Here also, we consider it necessary to examine the evidence partner-wise rather than dispose of the issue by applying a general proposition. The assessee has furnished capital accounts, confirmations and :-25-: ITA. No:1725/Chny/2026. bank statements in respect of the partners. In the case of Jamaludeen, the capital account is placed at paper book pages 259-260, confirmation at page 334 and bank statements at pages 261-277, with the capital contribution stated at Rs.10,38,61,240/-.

In the case of A.Mohamed Ansar, the capital account is placed at page 329, confirmation at page 333 and bank statement at page 330, with capital contribution of Rs.9,50,000/-. In the case of Basheer Ahamed, the capital account is placed at page 278, confirmation at page 335 and bank statements at pages 280-323, with capital contribution of Rs.6,97,91,554/-.

Similarly, in the case of Asrar Ahmed, the capital account is at page 324, confirmation at page 336 and bank statements at pages 325-328, corresponding to capital contribution of Rs.1,30,43,131/-. In the case of Zubair Ahmed, the capital account is at page 331, confirmation at page 337 and bank statement at page 332, corresponding to capital contribution of Rs.58,90,000/-.

Thus, in respect of the partner capital also, the assessee has not relied merely upon an assertion that the partners introduced the capital. The capital accounts, confirmations and corresponding banking records have been identified and placed on record. The partners have acknowledged the contributions, and there is no material before us showing that any partner denied having introduced the capital.

We are conscious that the mere admission by a partner that he has introduced capital does not, by itself, prevent the AO from examining the source of such capital where the facts warrant such examination. Equally, the production of a bank statement does not automatically discharge every conceivable evidentiary requirement. The question has to be determined on the cumulative evidence available in the particular case. Here, the assessee has furnished the partner-wise documentary trail, while the Revenue has not brought any independent material establishing that the capital actually represented the undisclosed income of the firm.

We are also unable to accept the proposition that the assessee's burden u/s.68 of the Act continues indefinitely even after the assessee has furnished substantial prima facie evidence and the Revenue has chosen not to verify the same. Section 68 of the Act undoubtedly places an initial burden upon the assessee to explain the nature and source of the credit. But the discharge of that initial burden has to be assessed from the totality of the material furnished. Once the assessee produces credible material establishing the identity of the creditor, the existence of the transaction and the financial/source particulars relied upon, the AO has to examine the evidence and, if he seeks to reject it, identify the basis for such rejection.

The present case is not one where the assessee merely produced loan confirmations at the fag end of assessment proceedings and thereafter failed to provide any supporting evidence. On the contrary, the paper book contains transaction-wise evidence identifying the creditors, PAN, dates, amounts, banking channels and corresponding ledger entries. In several cases TDS records have also been furnished. The partner capital is similarly supported by capital accounts, confirmations and bank statements.

We are mindful of the proposition emerging from Pavankumar M. Sanghvi that the genuineness of a loan cannot be established merely by producing confirmations and ledger accounts where the surrounding facts demonstrate that the lender transactions are not genuine. We respectfully agree with that :-27-: ITA. No:1725/Chny/2026. proposition. However, the application of that principle necessarily depends upon the existence of such adverse surrounding facts being established through material. In the present case, apart from the observation regarding preceding cash deposits and doubts regarding financial capacity, no comparable material has been brought before us showing that the creditors were shell entities, that they were non-existent, that they denied the transactions, that the funds were circularly routed, or that the money had actually originated from the assessee.

In our considered opinion, therefore, the reliance placed upon Pavankumar M. Sanghvi does not advance the case of the Revenue on the facts before us. The said decision supports an examination of the substance of the transaction; it does not authorise an addition merely because the AO considers the surrounding circumstances suspicious without undertaking the verification necessary to convert such suspicion into a factual finding.

Another significant feature which weighs with us is that the assessee itself requested the AO to exercise his powers u/s.131 and 133(6) of the Act for verification of the creditors and partners and requested that any adverse material collected be confronted to it. The assessee's request was not for acceptance of the transactions without scrutiny; rather, it sought independent verification. The assessment order does not demonstrate that the requested verification was carried out.

We do not hold that an AO is invariably required to issue notices u/s.131 or 133(6) of the Act in every section 68 case. The statutory powers are enabling powers and the necessity of their exercise depends upon the facts. However, where the AO proposes to reject extensive documentary evidence specifically on the ground that the financial capacity and source of the creditors are doubtful, and where the assessee specifically requests verification of those very matters, the absence of any effective verification becomes relevant in examining whether the adverse conclusion is supported by material.

Having considered the matter transaction-wise and cumulatively, we find that the assessee has placed sufficient primary evidence on record in respect of the impugned unsecured loans and partners’ capital. The evidence includes confirmations, PAN, Income-tax Returns, bank statements, ledger accounts, capital accounts, TDS records and transaction-wise banking details. The corresponding paper book references demonstrate that the explanation furnished by the assessee is supported by contemporaneous records and is not a subsequent explanation unsupported by books or banking records.

The presence of cash deposits in the accounts of some creditors or partners shortly before the corresponding transfers is undoubtedly a circumstance which may give rise to a legitimate enquiry. However, in the facts of the present case, such circumstance has not been followed by any effective independent enquiry or by any positive material demonstrating that the cash deposits represented the assessee's undisclosed income or that the subsequent banking transactions were accommodation entries. The inference drawn by the AO consequently remains at the level of suspicion and has not been converted into a demonstrable finding by reference to independent evidence.

We reiterate that our conclusion should not be understood as laying down an absolute proposition that the existence of PAN, confirmation and banking transactions is sufficient in every case to discharge the burden u/s.68 of the Act. Nor do we hold that a cash deposit preceding a banking transfer is irrelevant.

In view of the foregoing discussion, we hold that the addition of Rs.11,19,48,688/- towards unsecured loans u/s.68 is not sustainable on the facts and evidence available on record. Accordingly, the same is directed to be deleted.

Likewise, in respect of the partners' capital aggregating to Rs.19,35,35,925/-, the partner-wise documentary evidence, including capital accounts, confirmations and bank statements, has not been rebutted by any independent material establishing that the capital contributions represented the undisclosed income of the assessee-firm. The addition of Rs.19,35,35,925/- made u/s.68 is accordingly directed to be deleted.

Since the additions made u/s.68 of the Act do not survive, the consequential taxation thereof u/s.115BBE of the Act also does not survive. The grounds raised by the assessee are accordingly allowed.

In the result, the appeal of the assessee is allowed.