R M BHUTHER AND CO,MUMBAI vs. DCIT(CEN) 5(1), MUMBAI

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ITA 2236/MUM/2026Status: DisposedITAT Mumbai19 August 2026AY 2016-1726 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal deleted the addition of ₹14,38,00,000 under section 68, finding that the assessee had provided sufficient evidence for the unsecured loans. Consequently, the disallowance of interest related to these loans was also deleted. The Tribunal directed the Assessing Officer to recompute the business loss and allow its set-off against the capital gain from the property sale.

What were the facts?

The assessee, a builder and developer, received unsecured loans totaling ₹14,38,00,000 from thirteen parties. The Assessing Officer treated these as unexplained cash credits under section 68, disallowing the loans and related interest. The assessee also sold a property, resulting in a capital gain.

What were the issues?

Whether the unsecured loans received by the assessee were genuine and whether the business loss could be set off against capital gains.

Which sections of the Income-tax Act were involved?

Section 68,Section 71(2),Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH

Before: SHRI AMIT SHUKLA & SHRI ARUN KHODPIA

For Appellant: Shri Vimal Punmiya
For Respondent: Shri Sandeep Lakra, CIT DR
Hearing: 29/07/2026Pronounced: 19/08/2026

आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid two appeals have been preferred by the assessee against two separate orders of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, both pertaining to Assessment Year 2016-17. Though the appeals arise from two different reassessment proceedings, the factual substratum is interconnected and certain issues arising in the second appeal are consequentially dependent upon the adjudication of the first. They were, therefore, heard together and

2 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., are being disposed of by this consolidated order. The assessee is a partnership firm engaged in the business of builders and developers. It had filed its return of income for the year under consideration on 17.10.2016 declaring total income of ₹18,02,870. The return was selected for scrutiny and assessment under section 143(3) of the Income-tax Act, 1961 was completed on 14.12.2018 accepting the returned income. Thereafter, the assessment came to be reopened and the first reassessment was completed under section 143(3) read with section 147 on 23.03.2022 determining the total income at ₹14,56,02,870, principally on account of an addition of ₹14,38,00,000 under section 68 in respect of unsecured loans received by the assessee from thirteen parties. It is this addition which constitutes the principal subject matter of ITA No.2235/Mum/2026. The subsequent reassessment, which has given rise to ITA No.2236/Mum/2026, involves, inter alia, disallowance of interest relatable to two of the very same loans, an ad hoc disallowance of business expenditure and certain issues arising from sale of an immovable property. We shall first take up ITA No.2235/Mum/2026 because the finding therein has a direct bearing upon one of the substantive issues arising in the second appeal.

2.

In the first reassessment proceedings, the Assessing Officer examined unsecured loans aggregating to ₹14,38,00,000 received by the assessee during the relevant previous year from thirteen corporate entities. The assessee’s case before the Assessing Officer was that these were genuine business borrowings, duly recorded

3 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., in its regular books of account and received through normal banking channels. In support thereof, the assessee furnished, inter alia, confirmations from the lenders, their ledger accounts, bank statements reflecting the loan transactions, audited financial statements and income-tax particulars, besides other supporting documents. The assessee thus sought to establish the identity of the respective creditors, their financial capacity and the genuineness of the transactions. The Assessing Officer, however, was not satisfied with the explanation and proceeded to treat the entire amount of ₹14,38,00,000 as unexplained cash credit under section 68, essentially holding that the assessee had failed to establish the genuineness of the transactions and the creditworthiness of the entities concerned. The reassessment consequently resulted in the following computation: Particulars Amount (₹) Income assessed in the original assessment u/s 18,02,870 143(3) dated 14.12.2018 Addition towards unsecured loans u/s 68 14,38,00,000 Total income determined in 14,56,02,870 reassessment The addition, therefore, represents virtually the entire variation between the income originally assessed and the income determined pursuant to reassessment.

3.

Since the addition has been made in respect of thirteen separate creditors, and the documentary evidence has also been furnished creditor-wise, it would be apposite to first place the entire loan

4 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., matrix in perspective. The details emerging from the record are as under: Sr. Name of the lender Amount of No. loan (₹) 1 Ajinath Steel Pvt. Ltd. 90,00,000 2 Bahubali Properties Ltd. 4,75,00,000 3 Blue Chip India Ltd. 35,00,000 4 CMS Finvest Ltd. 1,00,00,000 5 Gleam Finance Pvt. Ltd. 13,00,000 6 Gulzar Hire Purchase 1,95,00,000 Private Limited 7 Herald Commerce Ltd. 1,00,00,000 8 Kamalpur Finance Ltd. 1,00,00,000 9 Rangbarshi Projects Pvt. 50,00,000 Ltd. 10 Shrersht Builders Pvt. Ltd. 80,00,000 11 Shri Mahsati Investment 55,00,000 Ltd. 12 S.S. Commoseale Pvt. Ltd. 1,05,00,000 13 Amluckie Investment Co. 40,00,000 Ltd. Total 14,38,00,000

3.1. Thus, the addition is not founded upon one composite credit but comprises thirteen identified loan transactions of varying amounts. The largest loan is ₹4.75 crore from Bahubali Properties Ltd., followed by ₹1.95 crore from Gulzar Hire Purchase Private Limited; the remaining loans range between ₹13 lakh and ₹1.05 crore. This distinction assumes relevance because an addition under section 68 necessarily has to be examined with reference to the evidence concerning the particular credit appearing in the books and the explanation tendered in respect thereof.

5 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., 4. The assessee’s explanation before the Assessing Officer, as emerging from the material placed before us, was not confined to a bare assertion regarding the genuineness of these loans. Its case was that the relevant documentary trail had been placed on record. The documents stated to have been furnished included party-wise details, ledger accounts of the lenders in the assessee’s books, loan confirmations duly signed by the parties, bank statements highlighting the amounts received from the respective lenders, audited financial statements and, wherever available, acknowledgements of returns of income. The assessee categorised these documents with reference to the three ingredients ordinarily examined under section 68. For identity, reliance was placed upon PAN/CIN and income-tax particulars of the creditors; for creditworthiness, reliance was placed upon audited balance sheets, relevant bank statements and ledger accounts; and for genuineness, reliance was placed upon the movement of funds through banking channels, corresponding bank entries and confirmations of the loan accounts. It was further asserted that the loans were temporary business borrowings and that repayments were also made through banking channels. The paper- book references in the written submissions indicate that the supporting material concerning the lenders was placed at pages 34 to 369.

5.

The Assessing Officer nevertheless rejected the explanation and held that the assessee had failed to prove the genuineness and creditworthiness of the transactions and the entities. His ultimate conclusion, as extracted in the assessee’s written submissions,

6 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., was that the onus to establish creditworthiness and genuineness remained upon the assessee and had not been discharged and, consequently, the entire sum of ₹14,38,00,000 was liable to be treated as unexplained income under section 68. The assessee carried the matter in appeal and specifically challenged this conclusion on the ground that the documentary evidence had not been disproved by any corresponding enquiry; that no specific defect had been identified in the confirmations, financial statements, bank accounts and other documents furnished; and that the addition rested substantially upon information received by the Department concerning alleged accommodation-entry providers. The assessee also raised the grievance that the material and statements sought to be used against it had not been effectively confronted and that the opportunity of cross- examination sought by it had not been afforded. The learned CIT(A)/NFAC, however, dismissed the appeal vide order dated 31.12.2025 and sustained the addition. Aggrieved thereby, the assessee is now in appeal before us.

5.1. The question which, therefore, requires examination in this appeal is not merely whether the assessee had produced a set of documents in support of the impugned credits, but whether, tested against the requirements of section 68 and the material actually brought on record by the Revenue, such evidence was sufficient to discharge the initial burden resting upon the assessee; and, if so, whether there existed cogent material or enquiry on the part of the Assessing Officer capable of displacing that evidentiary foundation. It is in this backdrop that we shall

7 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., now advert to the rival submissions and thereafter examine, in a consolidated evidentiary matrix, the material relating to identity, creditworthiness and genuineness of the impugned loan transactions.

6.

Before us, the learned counsel for the assessee submitted that the addition of ₹14,38,00,000 has been sustained without examining the documentary evidence in its correct perspective. He submitted that the assessee had furnished, in respect of the loan creditors, their confirmations, PAN and income-tax particulars, ledger accounts, audited financial statements and relevant bank statements showing movement of funds through banking channels. The loans were duly reflected in the regular books of account and, according to him, the transactions did not terminate with the receipt of money, inasmuch as the loans were subsequently repaid through banking channels and interest was also paid thereon. His principal contention was that once these primary documents were furnished, the Assessing Officer could not brush them aside merely by relying upon general information emanating from the Investigation Wing or statements allegedly recorded in the course of investigation concerning certain entry operators, without establishing any live nexus between such material and the particular loans received by the assessee. It was further submitted that neither the statements nor the underlying adverse material were effectively confronted to the assessee and, despite a specific request, no opportunity of cross-examination was afforded. According to him, no enquiry was undertaken from the respective lenders so as to demonstrate that the confirmations,

8 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., financial statements or bank records furnished by the assessee were false or that the money ostensibly advanced by them had in fact emanated from the assessee. He, therefore, submitted that the assessee had discharged the initial burden cast upon it under section 68 and the addition rested upon an inference which had not been supported by any transaction-specific investigation. In support, reliance was placed upon the decisions referred to in the written submissions, including CIT v. Orissa Corporation (P.) Ltd. (1986) 159 ITR 78 (SC), Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Gau.), CIT v. Rohini Builders (2002) 256 ITR 360 (Guj.) and other decisions noticed therein.

7.

The learned DR, on the other hand, strongly relied upon the orders of the Assessing Officer and the learned CIT(A). He submitted that mere production of PAN, confirmations and movement of money through banking channels does not, by itself, establish a genuine loan transaction for the purposes of section 68. The assessee was required to satisfactorily establish not only the identity of the lenders but also their actual financial capacity to advance the respective amounts and the genuineness of the transactions. According to him, the information available with the Department indicated that accommodation entries were being routed through concerns which ostensibly carried out transactions through banking channels and, therefore, the documentary form of a transaction could not be regarded as conclusive. He accordingly submitted that the surrounding circumstances, financial profile of the creditors and information gathered by the Investigation Wing were relevant considerations and that the

9 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., Assessing Officer was justified in examining the transactions beyond their ostensible documentation. His contention, in substance, was that the assessee had failed to satisfactorily discharge the burden resting upon it under section 68 and, therefore, the addition sustained by the learned CIT(A) did not call for interference.

8.

We have heard the rival submissions and have carefully considered the material placed on record. Section 68, insofar as relevant, provides that where any sum is found credited in the books of an assessee maintained for any previous year and the assessee either offers no explanation about the nature and source thereof or the explanation offered is not found satisfactory by the Assessing Officer, the sum so credited may be charged to income- tax as the income of that previous year. Thus, the statutory enquiry is directed to the nature and source of the particular credit appearing in the books. In the case of a loan, the assessee has to place credible material establishing the identity of the creditor, his capacity to advance the amount and the genuineness of the transaction. Equally, however, the opinion of the Assessing Officer as to the unsatisfactory nature of the explanation cannot remain detached from the evidence placed before him. Once primary evidence bearing upon all three ingredients is produced, such evidence has to be examined on its own intrinsic worth and, if it is to be discarded, there must be material or enquiry which reasonably displaces it. The enquiry under section 68 is therefore essentially evidentiary: neither the mere production of papers can invariably sanctify a transaction, nor can the papers be rendered

10 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., meaningless merely because some general adverse information exists concerning a creditor or a group of persons. The decisive question remains whether, upon consideration of the evidence as a whole, the explanation regarding the credit appearing in the assessee’s books is satisfactorily established.

9.

In the present case, the documentary case set up by the assessee may be conveniently appreciated through the following evidentiary matrix, which brings together the material relied upon before the lower authorities and the nature of the enquiry required under section 68:

Test u/s 68 Evidence furnished Finding

PAN/CIN, tax Lenders identified through Identity particulars, documentary evidence and confirmations confirmations. Net worth and financial Audited financials, capacity demonstrated Creditworthiness bank through audited records and statements, ledgers banking trail. Transactions supported by Confirmations, ledger Genuineness confirmations, ledger accounts, banking trail accounts and banking trail. Subsequent repayment Repayment through through banking channels Subsequent banks; interest, and payment of interest, conduct wherever wherever applicable, applicable support the transactions.

11 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., No material adverse finding Revenue Investigation Wing sufficient to disprove the material information documentary evidence furnished.

Evidence furnished Position emerging from record PAN/CIN, tax particulars, Lenders are identified confirmations entities; identity not specifically disproved Audited financials, bank No lender-wise finding statements, ledgers demonstrating lack of financial capacity Confirmations, ledger Transactions recorded accounts, banking trail through banking channels; no contrary trail established Repayment through Supports continuity of banks; interest, wherever loan transactions applicable Investigation Wing No transaction-specific information material shown connecting assessee’s funds with impugned credits 9.1. The above table is not intended to treat any document as conclusive by itself. Its significance lies in the fact that the assessee’s explanation was capable of objective verification. The record specifically states that party-wise summaries, ledger accounts, confirmations, bank statements, audited reports and income-tax particulars were furnished. Therefore, the enquiry could not stop merely at stating that the assessee had failed to prove creditworthiness and genuineness; the material furnished had to be tested and the deficiencies, if any, brought out with reference to the particular creditors and transactions.

12 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co.,

10.

Viewed from this perspective, the first noticeable feature is that the identity of the thirteen lenders was not a matter resting upon oral assertion alone. They were identified entities for whom PAN/income-tax particulars, confirmations and corporate/financial records were stated to have been furnished. The second and more important aspect concerns creditworthiness. Creditworthiness cannot be established merely by the fact that money has travelled through a bank account; but, conversely, where audited financial statements and bank statements are furnished, the question of financial capacity has to be tested with reference to those records and the amount of the particular transaction. The assessment finding extracted in the record is essentially that the assessee “failed to prove the genuineness and creditworthiness of transactions and entities” and that the onus upon it had not been discharged. What is conspicuously absent from the material placed before us is a lender-wise examination demonstrating, for example, that a particular creditor did not possess the funds reflected in its accounts; that its bank statement did not support the loan; that its confirmation was false; that its financial statements were fabricated; or that the money credited immediately before advancing the loan could be traced back to the assessee. This distinction is material. An adverse conclusion regarding creditworthiness has to emerge from an examination of the creditor’s financial capacity qua the amount advanced; it cannot substitute for such examination.

13 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., 11. The same position emerges while examining genuineness. The assessee’s case is that the loans were received through account- payee banking channels, were entered in the books of account of the respective parties and were subsequently repaid through banking channels. These circumstances do not, standing alone, immunise a transaction from scrutiny, because even an accommodation entry can assume the outward form of a banking transaction. But once the assessee has produced the corresponding bank statements, confirmations and ledger accounts, the enquiry necessarily moves to the next stage: whether there is material showing that the ostensible banking trail was merely a façade. Here, the Assessing Officer appears to have placed substantial reliance upon information received by the Investigation Wing and the allegation that certain concerns were engaged in providing accommodation entries. However, the existence of such information can legitimately trigger a deeper enquiry; it cannot, without correlation to the particular transaction, automatically establish that every transaction undertaken by an identified entity is fictitious. There has to be some connecting material between the general information and the credit appearing in the assessee’s books. If a statement of a third person constituted the foundation of such connection, and the statement was proposed to be used as substantive material against the assessee, elementary fairness required that the relevant material be confronted so that the assessee could meet it. The assessee has specifically asserted that it sought cross- examination and that the request was not acceded to. Nothing in the material placed before us shows that any lender denied having

14 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., advanced the loan or that any lender’s books or bank records contradicted the documents furnished by the assessee.

12.

The legal position also has to be applied with a degree of balance. In Principal CIT v. NRA Iron & Steel (P.) Ltd. (2019) 412 ITR 161 (SC), the Hon’ble Supreme Court reiterated that the initial legal obligation rests upon the assessee to establish, by cogent evidence, the identity of the creditor, his creditworthiness and the genuineness of the transaction. The decision cannot be read as laying down that PAN, banking channels or corporate existence by themselves invariably discharge that obligation. At the same time, it recognises that once material concerning identity, genuineness and creditworthiness is furnished, the Assessing Officer has to examine the material and conduct the enquiry warranted by the facts. The significance of NRA Iron & Steel lies equally in its factual setting, where the Revenue had undertaken enquiries which yielded affirmative adverse material concerning the investor entities. The principle, therefore, reinforces rather than dispenses with an evidence-based examination. Similarly, the earlier decision of the Hon’ble Supreme Court in CIT v. Orissa Corporation (P.) Ltd. (1986) 159 ITR 78 recognises that where the assessee furnishes the particulars of identified creditors and the Revenue, despite possessing the means to investigate them, does not carry the enquiry to its logical conclusion, the assessee cannot indefinitely be required to establish matters lying beyond the material reasonably within its domain.

15 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., 12.1. In the present case, the assessee did considerably more than furnish the names and PANs of the creditors. The material stated to have been furnished extended to confirmations, ledger accounts, audited financial statements and bank statements. There is no finding before us that these documents were forged or fabricated. Nor is there a lender-wise analysis showing that the financial statements were incapable of supporting the amounts advanced. The banking trail has not been demonstrated to originate from the assessee, nor has any cash trail been brought on record connecting the funds advanced by the lenders with money belonging to the assessee. No creditor is shown to have repudiated the transaction. The Revenue’s case thus rests predominantly upon the inference drawn from investigation information concerning the character of certain entities/persons rather than upon an investigation of the thirteen loan transactions themselves.

12.2. On cumulative consideration of these circumstances, we find that the assessee had placed sufficient primary material on record to require a transaction-specific rebuttal from the Revenue. Once confirmations, tax particulars, financial statements, ledger accounts and banking records were produced, the matter could not be concluded merely by repeating that creditworthiness and genuineness had not been proved. The Assessing Officer was required to demonstrate, from those very records or from independent enquiry, why the apparent transaction was not real. In the absence of such material, the documentary evidence

16 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., furnished by the assessee remains unrebutted on the essential factual aspects.

12.3. Accordingly, on the material presently forming part of the record before us, we are unable to sustain the addition of ₹14,38,00,000 under section 68 merely on the basis adopted by the Assessing Officer and affirmed by the learned CIT(A). The impugned addition is, therefore, directed to be deleted. Grounds relating to the addition under section 68 in ITA No.2235/Mum/2026 are accordingly allowed.

12.4. We shall now proceed to ITA No.2236/Mum/2026, where the subsequent reassessment raises a distinct set of issues; importantly, the disallowance of interest of ₹9,39,288 is founded upon the treatment of two of the aforesaid loans as non-genuine and would, therefore, have to be examined in the light of our finding recorded hereinabove.

13.

We now take up ITA No.2236/Mum/2026. The genesis of this appeal lies in yet another reassessment for the same Assessment Year 2016-17. After completion of the original assessment under section 143(3) dated 14.12.2018 and the earlier reassessment dated 23.03.2022, information was received under the Risk Management Strategy on the Insight Portal and an objection was also raised by the Revenue Audit Party. The audit objection, in substance, was that the assessee had debited expenditure aggregating to ₹1,06,89,918 under various heads, including business promotion, depreciation, miscellaneous and other

17 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., expenses, though according to the Revenue there was no business income or business activity during the relevant year. Separately, information received from DDIT (Investigation)-7(2), Delhi pursuant to search proceedings in the Aludecor Group was referred to in relation to alleged accommodation-entry activity. Two entities appearing in such information, namely, M/s Gulzar Hire Purchase Pvt. Ltd. and M/s Gleam Finance Pvt. Ltd., had advanced loans of ₹1,95,00,000 and ₹13,00,000 respectively to the assessee and these loans formed part of the larger addition of ₹14.38 crore made in the earlier reassessment. The Assessing Officer further noticed that interest of ₹9,39,288 had been paid in relation to the aforesaid borrowings and proposed its disallowance since the underlying loans had already been treated as non- genuine. Proceedings under sections 148A/148 were accordingly initiated and, after considering the replies furnished by the assessee, the reassessment was completed on 23.03.2024.

14.

The subsequent reassessment, therefore, gives rise to four substantive issues for our consideration: (i) disallowance of ₹32,06,980, representing 30% of the aggregate business expenditure of ₹1,06,89,936, made by the Assessing Officer on an ad hoc basis; (ii) disallowance of interest expenditure of ₹9,39,288 on the premise that the underlying loans from M/s Gulzar Hire Purchase Pvt. Ltd. and M/s Gleam Finance Pvt. Ltd. had already been treated as non-genuine in the earlier reassessment; (iii) treatment of the consideration received on sale of Shop No.8 and the resultant gain under the head “Capital Gains”, together with the assessee’s claim for set-off of the current-year business loss

18 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., against such capital gain under section 71(2); and (iv) the assessee’s grievance that the earlier addition of ₹14,38,00,000 under section 68 had again entered the computation in the subsequent reassessment, thereby allegedly resulting in a double addition. The learned CIT(A) sustained the first two disallowances. The disallowance of ₹32,06,980 was confirmed essentially on the ground that nothing contrary to the Assessing Officer’s findings had been brought before him, whereas the interest disallowance was sustained principally because the addition relating to the underlying unsecured loans had already been confirmed in the appeal arising from the earlier reassessment. As regards the alleged duplication of ₹14,38,00,000, the learned CIT(A) held that the amount represented the addition already forming part of the assessed income pursuant to the earlier reassessment and had merely been carried into the subsequent computation; hence, according to him, there was no double addition.

15.

We first deal with the disallowance of ₹32,06,980, representing 30% of the business expenditure of ₹1,06,89,936 debited by the assessee. The Assessing Officer noticed that Shop No.8 was reflected under the head “investment” in the balance sheet and constituted a capital asset and that, apart from its sale for ₹1.25 crore, the assessee had not shown any business or professional income during the year. On this premise, he proceeded to disallow 30% of the expenditure under section 37(1). It is, however, pertinent that during the assessment proceedings the assessee had furnished its explanation concerning the nature and justification of the expenditure. It had submitted a bifurcation

19 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., giving details and nature of the expenses and had referred to the ledger accounts furnished through its earlier response. Its explanation, in substance, was that expenditure incurred by a business could broadly comprise fixed and variable expenditure; while variable expenditure may bear a closer correlation with the level of activity, fixed and establishment expenditure may necessarily continue even in a year in which corresponding business receipts do not arise. It was specifically contended that absence of business receipts during the year did not establish cessation of business and that expenditure incurred for maintaining the business establishment and for prospective business activities continued to retain its business character.

16.

On examining the basis adopted by the Assessing Officer, we find that there is no finding that the assessee’s business had been permanently closed or abandoned. Equally, no particular expenditure has been identified as fictitious, inflated, personal in character or unrelated to the business. No specific voucher, ledger entry or payment has been rejected, nor have the books of account been rejected. Despite this, exactly 30% of the aggregate expenditure has been treated as inadmissible. The assessment order does not disclose why 30%, as distinguished from any other percentage, represented expenditure not incurred for business purposes. The figure of ₹32,06,980 thus emanates from application of a percentage to the aggregate expenditure rather than from identification of expenditure which failed the statutory test of section 37(1).

20 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., 16.1. The mere absence of business receipts during a particular previous year cannot, by itself, be equated with discontinuance of business. There may be a period of commercial inactivity or absence of revenue while the business establishment nevertheless continues to subsist. Expenditure necessarily incurred for preserving such establishment and keeping the business apparatus operational does not lose its business character merely because corresponding receipts have not arisen in that very year. This, of course, does not relieve the assessee of establishing that the expenditure was actually incurred and was for purposes of business. However, where details and ledger accounts have been furnished, the allowability has to be tested with reference to the nature of the expenditure. If any particular expenditure is found unrelated to the business or otherwise inadmissible, the same can certainly be disallowed; but an arbitrary fraction of the aggregate expenditure cannot be rejected without identifying any factual defect corresponding to that fraction.

16.2. The learned CIT(A) confirmed the disallowance principally by observing that no submission had been furnished before him in respect of this ground and nothing contrary to the findings of the Assessing Officer had been brought on record. However, the assessment record itself contains the assessee’s explanation concerning the expenditure and refers to the supporting details and ledger accounts furnished during the assessment proceedings. The evidentiary basis of the disallowance therefore had to be tested from the material already forming part of the assessment record. In these circumstances, an estimated disallowance cannot be

21 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., sustained merely for want of further submissions before the first appellate authority when the assessment order itself does not identify any particular expenditure as inadmissible or furnish any rational basis for the percentage adopted. We accordingly hold that the ad hoc disallowance of ₹32,06,980 is unsustainable and is directed to be deleted.

17.

We next take up the disallowance of interest of ₹9,39,288. This issue has a direct nexus with our finding in ITA No.2235/Mum/2026. The Assessing Officer’s reason for making this disallowance was that the assessee had received loans of ₹1.95 crore from M/s Gulzar Hire Purchase Pvt. Ltd. and ₹13 lakh from M/s Gleam Finance Pvt. Ltd.; these loans had already been treated as bogus in the reassessment order dated 23.03.2022; and consequently interest paid in relation thereto could not be allowed. In response, the assessee furnished the ledger of Gleam Finance Pvt. Ltd. in its books showing the closing balance of ₹13 lakh, the corresponding ledger in the lender’s books along with its audit report and bank statement showing the opening balance, and similar reciprocal ledger and financial/banking material in respect of Gulzar Hire Purchase Pvt. Ltd. Details of interest paid were also furnished. The assessee’s case throughout was that the underlying loans were genuine and stood reflected in the books of both parties and, therefore, the interest payment could not be treated as non- genuine merely because the principal loan had been adversely viewed in the earlier reassessment.

22 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., 17.1. The Assessing Officer has not disallowed the interest upon any independent finding that it was not actually paid, that the expenditure was fictitious or excessive, or that the borrowed funds had been diverted for a non-business purpose. The disallowance followed directly from the treatment accorded to the underlying loans in the earlier reassessment. The learned CIT(A) also proceeded on the same foundation and specifically relied upon the fact that the addition relating to those unsecured loans had already been confirmed by him. Once, however, we have deleted the addition under section 68 in respect of the underlying loan transactions in ITA No.2235/Mum/2026, the substratum on which this interest disallowance rests no longer survives. There being no separate adverse finding concerning the factum, quantum or business purpose of the interest expenditure, the consequential disallowance of ₹9,39,288 is accordingly directed to be deleted.

18.

This brings us to the treatment of the gain arising from sale of Shop No.8. During the reassessment proceedings, the assessee furnished the relevant property documents and explained that Shop No.8 had been sold for a consideration of ₹1,25,00,000 under the sale document dated 19.05.2015. It also furnished the earlier agreement relating to acquisition of rights in the property and explained the apportionment of cost attributable to Shop No.8, which according to the assessee worked out to ₹68,79,640. A statement computing the long-term capital gain was also furnished. Significantly, before us the assessee has not persisted with the contention that the gain of ₹37,62,857 should be

23 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., assessed as business income. In its written submissions, the assessee has specifically accepted that the gain arising from sale of the property may be assessed under the head “Capital Gains”, while maintaining its claim that the current-year business loss should be allowed to be set off against such capital gain. There is, therefore, no subsisting dispute before us regarding the head under which the gain from sale of Shop No.8 is assessable. The treatment of such gain under the head “Capital Gains” is accordingly upheld, subject to its correct computation in accordance with law.

19.

The remaining substantive question is the assessee’s claim for set-off of the current-year business loss against the aforesaid capital gain. The assessee has specifically clarified that the loss sought to be adjusted is not a brought-forward business loss of an earlier assessment year but a loss arising under the head “Profits and gains of business or profession” during the same previous year. Section 71(2) contemplates that where, in respect of an assessment year, the net result of computation under a head of income other than “Capital gains” is a loss and the assessee has income assessable under the head “Capital gains”, such loss may, subject to the provisions of the Chapter, be set off against income assessable for that assessment year under any head, including capital gains. The distinction between a current-year business loss and a brought-forward business loss is material because the latter is governed by the separate regime contained in section 72, whereas the former falls for inter-head adjustment under section

24 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., 71, subject to the statutory restrictions applicable to the particular nature of loss.

19.1. In the present case, consequent to our deletion of the ad hoc business expenditure disallowance of ₹32,06,980 and the interest disallowance of ₹9,39,288, the current-year business result necessarily requires recomputation. The Assessing Officer is therefore directed to first determine the correct amount of current- year business loss after giving effect to our findings hereinabove and thereafter allow its set-off against the income assessable under the head “Capital Gains” in accordance with section 71(2) and other applicable provisions of the Act. The assessee’s acceptance of capital-gain treatment in respect of Shop No.8 cannot result in denial of a statutory inter-head set-off otherwise available to it.

19.2. As regards the grievance of alleged double addition of ₹14,38,00,000, the learned CIT(A) has recorded that this amount represented the addition already made in the earlier reassessment and was taken as part of the assessed income while computing income in the subsequent reassessment rather than being independently added for a second time. In view, however, of our substantive finding in ITA No.2235/Mum/2026 directing deletion of the entire addition of ₹14,38,00,000 under section 68, this controversy no longer survives in any material form. The Assessing Officer shall, while giving effect to this consolidated order, ensure that the said amount does not enter or remain in the computation of total income for Assessment Year 2016-17. The computation in

25 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co., the second reassessment shall accordingly stand modified in conformity with our findings in both the appeals.

20.

In view of our findings hereinabove, the addition of ₹14,38,00,000 under section 68 in ITA No.2235/Mum/2026 is directed to be deleted. Consequently, in ITA No.2236/Mum/2026, the disallowance of ₹9,39,288 towards interest expenditure, which rested upon the treatment of the underlying loans as non-genuine, is also deleted; and the ad hoc disallowance of ₹32,06,980, being 30% of the business expenditure, is likewise deleted for the reasons discussed above. The gain arising from sale of Shop No.8 shall be assessed under the head “Capital Gains”, as accepted by the assessee, and the Assessing Officer shall recompute the current-year business loss after giving effect to this order and allow its eligible set-off against such capital gain in accordance with section 71(2). Interest under sections 234A, 234B, 234C and 234D shall be consequential, while the ground relating to initiation of penalty proceedings under section 271(1)(c) is premature and requires no adjudication at this stage. Accordingly, ITA No.2235/Mum/2026 is allowed and ITA No.2236/Mum/2026 is partly allowed.

21.

In the result, ITA No.2235/Mum/2026 is allowed and ITA No.2236/Mum/2026 is partly allowed.

Order pronounced in the open Court on 19th August, 2026.

Sd/- Sd/- (ARUN KHODPIA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 19/08/2026 KARUNA, sr.ps

26 ITA No.2235 & 2235/Mum/2026 R M Bhuther & Co.,

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER,

(Asstt. Registrar) ITAT, Mumbai

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