JOINT COMMISSIONER OF INCOME TAX, OSD, CENTRAL CIRCLE I, NOIDA, NOIDA vs. LM MACHINOTECH LLP, NOIDA

Heard and perused the record. The appeals were heard together as they involved common question of facts and law arising out of unsecured loan and raised from M/s Dolf Leasing Ltd. and corresponding interest paid thereon. Facts in brief are that in consequence to proceedings u/s 132 of the Act in case of Ace & Kurle Group on 28.07.2021 and Ace & Rudra Group on 04.01.2022, the assesse’s case was also subject matter of the warrant. No incriminating evidence were found during the search and the AO had made addition for unsecured loan from M/s Dolf Leasing Ltd. u/s 68 and thereupon u/s 69C. Ld. CIT(A) has deleted the same for which department is in appeal in both the assessment years involved and as for completeness the relevant findings of ld. CIT(A) in the consolidated order for the two assessment years are reproduced below:

It is seen that the appellant has raised an unsecured loan of Rs.22,90,00,000/- from M/s Dolf Leasing Ltd., a duly registered Non-Banking Finance Company. (NBFC) during the year under consideration. The AO questioned the genuineness of the loan received u/s 68 and interest paid of Rs.4,38,608/- under section 69C.

The financials of M/s Dolf Leasing Ltd. have been examined. The said financial statements are also available on open source. The appellant has submitted that the financial statements of M/s. Dolf Leasing Ltd. were submitted to the AO during the course of assessment proceedings in the case of a group company i.e. ACE Infracity Developers Pvt. Ltd. in AY 2020-21 vide reply dated 19.02.2024 (Acknowledgment Number 116662751190224) and the assessment proceedings in the present case were pending. Hence, as per appellant, the AO had complete financial details of the lender available with his office. It is further seen that the lender has declared share capital and reserves amounting to 762 crores for the assessment year under consideration and long-term borrowings of Rs. 77 crores supported by noncurrent investments worth 251.45 crores, including 49.25 crores invested in mutual funds as on 31.03.2019. The company's total revenue of 74.5 crores and taxable income of Rs1.45 crores further corroborates its financial strength. The said entity has also shown investment in CDs to the extent of Rs. 5 crores. The profit & loss account shows profit from mutual funds and expenses like salary, general expenses, legal & professional charges etc. debited to the Profit & loss account 4. The AD's observation in the assessment order that "no documents were submitted" has been challenged by the appellant to be factually incorrect. As per appellant, ITR and bank account statement of the lender were furnished before the AO vide reply dated 13.01.2024. Further, as per appellant, the audited financial statements of the lender were available with the AO as furnished during the course of assessment proceedings in the case of a group concern l.e. M/s. ACE Infracity Developers Pvt. Ltd. for AY 2020-21 vide reply dated 19.02.2024. 5. The AR submitted that the existence of company as doubted by the AO does not hold water as the summons of the investigation wing were duly served on the company at same address, The AR pointed out that the report of the inspector relied upon by the A questioning existence of said company and making addition of unsecured loan is incorrect as the report lacks verifiable details such as names, contact information and identities of individuals Interviewed regarding non-existence of the said company.

As additions with respect to loans received from the said lender were also made by the AO in group concerns namely ACE Infracity Developers Pvt. Ltd. in AY 2019-20 to AY 2021-22 and to reach a factual conclusion regarding existence of said lender entities, enquiry under section 250(4) of the Income-tax Act, 1961 was initiated by this office in the cases of ACE Infracity Developers Pt. Ltd. for AY 2019-20 & AY 2021-22 by appointing a team of officials as already discussed above.

Subsequently, the officials submitted a detailed report enclosing photographs, video recordings, and other evidences establishing the existence and functioning of the said companies, It was also observed that the companies were found operating at the stated addresses, and copies of the Aadhaar cards and IDs of employees working therein were also part of the report. The said evidences were shared with the AO in the interest of natural justice vide email dated 17.09.2025 during the appeal proceedings in the cases of ACE Infracity Developers Pvt. Ltd. but no objections have been received even till the date of finalization of present appeals. The results of the said enquiry are equally applicable to the facts of the present case:

The AO has stated that as per post search findings, the said entity is a dummy entity but the AO has not given any detailed reasons as to how the said finding has been arrived at and no documentary evidence has been placed on record barring the allegation that the said entity does not exist at the mentioned address. The Assessing Officer has alleged that M/s Dolf Leasing Limited and other related entities were operating from the same address and, therefore, doubted the very existence of the lender company. In this regard, the Authorized Representative (AR) submitted that the addresses of these companies are, in fact, distinct, and even where a common address exists, the entities are sister concerns, and there is no bar under law for sister concerns to operate from the same office premises. This Issue has, in any case, lost its relevance in view of the detailed enquiry conducted by this office under section 250(4) of the Act, wherein the existence of the companies were duly verified and established through on- site inspection, photographs, and video recordings. Accordingly, the observation of the Assessing Officer on this aspect is not sustainable. The AO has not made any analysis of the financials of the said entity viz a viz its audited financial statements. The financials of the entity have been discussed thoroughly in para 3 above and the presence of the company has been established during the field enquiry report which has not been controverted by the АО.

The appellant has also placed the ledger account on record showing that the entire loan of 2.9 crores was repaid even before the search action. The three essential conditions envisaged under section 68 of the Income-tax Act, namely identity of the creditor, creditworthiness of the creditor, and genuineness of the transaction, stand duly satisfied in the present case. The appellant has furnished all relevant documentary evidences, including ITR, bank statements, and audited financial statements etc. of the lender, to substantiate the source and genuineness of the unsecured loan received. 10. In light of the above, it is held that the appellant has fully discharged the onus cast under section 68 and that the AO has failed to provide any material contradicting the genuineness or financial capacity of the lender. Therefore, based on the documentary evidence, enquiry conducted and the appellant's submissions, it is held that the loan of Rs.2,90,00,000/- and the related interest of Rs.4,38,608/- cannot be added to the income of the assessee. The addition made by the AO under sections 68 and 69C is therefore factually and legally unsustainable. Accordingly, the addition is deleted on this issue.

It is seen that the appellant has raised an unsecured loan of Rs.1,10,00,000/- from M/s Dolf Leasing Ltd., a duly registered Non-Banking Financial Company (NBFC) during the year under consideration. The AO questioned the genuineness of the loan received u/s 68 and interest paid of Rs.17,30,741/- under section 69C.

The financials of M/s Dolf Leasing Ltd. have been examined. The lender has declared share capital and reserves amounting to 62 crores for the assessment year under consideration and long-term borrowings of Rs. 77 crores supported by non-current investments worth Rs.32.57 crores. The company's total revenue of 6.1 crores and profit before tax of Rs. 2.76 crores further corroborate its financial strength. The profit & loss account shows expenses like financial cost, employee benefit expenses, commission paid, SEBI filing charges, electricity expenses, legal & professional charges and general expenses etc.

The AO's observation in the assessment order that "no documents were submitted" has been challenged by the appellant to be factually incorrect. As per appellant, all necessary documents were furnished during the assessment proceedings, including ITR and bank statements which were filed vide reply dated 13.01.2024 before the AO. Also, as per AR, the audited financials of M/s. Dolf Leasing Ltd. for AY 2019- 20 & AY 2020-21 were available with the AO as furnished during the assessment proceedings of group entity M/s. ACE Infracity Developers Pvt. Ltd. for AY 2020-21 vide reply dated 19.02.2024.

The AR submitted that the existence of company as doubted by the AO does not hold water as the summons of the investigation wing were duly served on the company at same address. The AR pointed out that the report of the Inspector relied upon by the AO questioning existence of said company and making addition of unsecured loan is incorrect as the report lacks verifiable details such as names, contact information and identities of individuals interviewed regarding non-existence of the said company. 6. As additions with respect to loans received from the said lender were also made by the AO in group concerns namely ACE Infracity Developers Pvt. Ltd. in AY 2019-20 to AY 2021-22 and to reach a factual conclusion regarding existence of said lender entities, enquiry under section 250(4) of the Income-tax Act, 1961 was initiated by this office in the cases of ACE Infracity Developers Pt. Ltd. for AY 2019-20 & AY 2021-22 by appointing a team of officials as already discussed above. 7. Subsequently, the officials submitted a detailed report enclosing photographs, video recordings, and other evidences establishing the existence and functioning of the said companies. It was also observed that the companies were found operating at the stated addresses, and copies of the Aadhaar cards and IDs of employees working therein were also part of the report. The said evidences were shared with the AO in the interest of natural justice vide email dated 17.09.2025 during the appeal proceedings in the cases of ACE Infracity Developers Pvt. Ltd. but no objections have been received even till the date of finalization of present appeals. The results of the said enquiry are equally applicable to the facts of the present case. 8. The AO has stated that as per post search findings, the said entity is a dummy entity but the AO has not given any detailed reasons as to how the said finding has been arrived at and no documentary evidence has been placed on record barring the allegation that the said entity does not exist at the mentioned address. The Assessing Officer has alleged that M/s Dolf Leasing Limited and other related entities were operating from the same address and, therefore, doubted the very existence of the lender company. In this regard, the Authorized Representative (AR) submitted that the addresses of these companies are, in fact, distinct, and even where a common address exists, the entities are sister concerns, and there is no bar under law for sister concerns to operate from the same office premises. This issue has, in any case, lost its relevance in view of the detailed enquiry conducted by this office under section 250(4) of the Act, wherein the existence of the companies were duly verified and established through on- site inspection, photographs, and video recordings. Accordingly, the observation of the Assessing Officer on this aspect is not sustainable. The AO has not made any analysis of the financials of the said entity viz a viz its audited financial statements. The financials of the entity have been discussed thoroughly in para 3 above and the presence of the company has been established during the field enquiry report which has not been controverted by the АО. 9. The three essential conditions envisaged under section 68 of the Income tax Act, namely identity of the creditor, creditworthiness of the creditor, and genuineness of the transaction, stand duly satisfied in the present case. The appellant has furnished all relevant documentary evidences, including bank statements, income-tax returns, and audited financial statements of the lender, to substantiate the source and genuineness of the unsecured loan received. 10. In light of the above, it is held that the appellant has fully discharged the onus cast under section 68 and that the AO has failed to provide any material contradicting the genuineness or financial capacity of the lender. Therefore, based on the documentary evidence, enquiry conducted and the appellant's submissions, it is held that the loan of Rs.1,10,00,000/-and the related interest of Rs.17,30,741/- cannot be added to the income of the assessee. The addition made by the AO under sections 68 and 69C is therefore factually and legally unsustainable. Accordingly, the addition is deleted on this issue. M/s Dolf Leasing Ltd. Interest Amount: Rs.9,60,240/- and M/s. Manikaran Mercantile Pvt. Ltd. Interest amount Rs. 2,95,485/-for AY 2021-22 The appellant has stated that no interest whatsoever has been debited to the profit & loss account. As per appellant, the observations of the AO while making the above disallowance are factually incorrect for the reason that though the interest was credited to the ledger accounts of the respective parties but the same was not claimed as expenditure in the profit & loss account. Further, as per appellant, the credit of the interest was reversed as per the ledger accounts of both the entities. The relevant page of the interest account maintained by the appellant company is scanned below for ready reference:

Though, Ld. DR has heavily relied the impugned findings of ld. AO and asserted specially that creditworthiness of M/s Dolf Leasing Ltd. was not established and additional evidences were relied without opportunity to the AO. However, we find that no additional evidence were taken on record rather inquiry was made by ld. CIT(A) by invoking provision of Section 250(4) of the Act and based upon further verification and evidences the identity and existence of the lender company was found to be genuine and no material has been brought on record to rebut the said factual conclusion drawn by ld. CIT(A).

Then, we find that all the basic documents like PAN, bank statement audited financial statements, loan confirmation from Dolf Leasing Limited were there before ld. CIT(A). The lender has NBFC and RBI certificate and made available at page 28 of the paper book. There is nothing to show that any of the statutory authority regulating the conduct of NBFC has made any inquiry or given any findings against said company to be a paper company.

The share capital along with reserves and revenue including current investments sufficiently show the creditworthiness. In fact, for AY: 2020-21 the attention has been drawn to the paper book that mutual funds dis-investment aggregating to over Rs.18 crores were available as surplus with the lender company.

Then, in the case of group of company Ace Infracity Developers Pvt. Ltd. a coordinate Bench has taken into consideration the genuineness and credibility of M/s Dolf Leasing Ltd. and vide ITA No. 8184 & 8438/Del/2025 for AY: 2019- 20 & 2021-22 vide order dated 17.04.2026 the appeal of department was dismissed and of the assesse were allowed. In said case assesse had received loan of Rs.3 crores from Dolf Leasing Ltd. for which interest of Rs.9,35,250/- was paid in AY; 2019-20 and amount of Rs.25 lakhs were received in AY; 2021-22 and ld. CIT(A) had similarly relied the inquiry outcome by invoking powers u/s 250(4) of the Act.

In the light of aforesaid discussion, we find no reasons to interfere in the conclusions drawn by the ld. CIT(A). The grounds raised thus have no substance. The appeals are accordingly dismissed.