MIHIR BIPIN PAREKH,MUMBAI vs. DCIT 19(1), MUMBAI

PER SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER: This appeal is filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-NFAC, Delhi [“Ld. CIT(A)”], dated 17.03.2026 for the assessment year 2020-21 in sustaining the addition/disallowance made by the Assessing Officer in respect of unsecured loans and interest.

“1) On the facts and circumstances of case and in law, the Ld. CIT has erred in confirming the Assessment Order passed by the Ld. AO under section 143(3) r.w.s. 144B of Income Tax Act which is passed against the principal of natural justice. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs. 8,19,64,000/- (being unsecured loans from various parties) taken as unexplained cash credit under section 68 r.w.s 115BBE of the Income Tax Act, 1961 despite relevant documents being submitted in order to substantiate the claim. 3) On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the application of Section 115BBE (taxation of unexplained credits at a higher rate) without establishing that the amount was undisclosed income. Further the Ld. AO has mechanically invoked Section 68 r.w.s. 115BBE of the Income Tax Act, 1961 without Pointing out specific deficiencies in the submitted documents. Disproving the authenticity of evidence through independent inquiry (e.g., issuing notices to the lender u/s 131). The order is vitiated by suspicion and non-application of mind, warranting quashing of the impugned addition. 4) On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs. 1,10,51,870/- being interest paid on the said loans treating them as unexplained income under section 36(1)(iii). 5) On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs. 5,50,99,917/- (being net aggregate addition to sundry creditors) taken as unsubstantiated creditors and other liabilities despite relevant documents being submitted in order to substantiate the claim. 6) On the facts and in the circumstances of the case and in law, the Ld. CIT erred in confirming the order passed by the Ld. AO although the assessee has discharged its onus of proving the identity, genuineness and creditworthiness of the lenders and creditors. 7) On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of unsecured loans and sundry creditors without considering the fact that the assessees sales have gone up by 63 percent and the debtors have also increased by 119 percent. 8) On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs. 3,10,111/- being disallowance made of exempt income under section 14A on the sole base that no expenditure had been disallowed by the assessee.

9) On the facts and in the circumstances of the case and in law, the Ld. CIT erred in upholding initiation of penalty proceeding under section under section 274 r.w.s. 271AAC & 270A of the Income Tax Act 1961.” 3. Briefly stated, the facts are that the assessee, an individual carrying on the business of wholesale trading of industrial chemicals through the proprietary concern, M/s M.B. Sales Corporation, filed a return of income on 14.02.2021 declaring income of Rs. 67,19,350/-. The case of the assessee was selected for limited scrutiny for verification of higher creditors/liabilities, increase in unsecured loans and deduction claimed under Chapter VI-A. In the course of the assessment proceedings, the Assessing Officer called for complete particulars relating to unsecured loans, creditors, utilization of funds, and deduction claimed. The assessee furnished documentary evidences in support of every transaction, in respect of 87 creditors as appearing in the assessment order. The assessee furnished the following documents in the course of the assessment proceedings in respect of the said loan creditors: confirmations, PAN, Aadhaar, income tax returns, bank statements, ledger accounts, confirmation statements of unsecured loans, Form 16A, Form 26AS, and other supporting financial records. The documents which were furnished before the Assessing Officer were also furnished in the form of a paper book. It appears that just before completion of the assessment proceedings, another so-called notice was issued and while the assessee attempted to comply with the said notice, which was received on the date of compliance, the assessee could not upload its replies. The Assessing Officer completed the assessment by making the following additions:

 addition under section 68 of the Act in respect of unsecured loans at Rs. 8,19,64,000/-,  disallowance of interest on the said loans at Rs. 1,10,51,870/-,  addition towards sundry creditors at Rs. 5,50,99,917/-,  and disallowance under section 14A at Rs. 3,10,111/-.

 every loan has been received through banking channels;  every transaction is recorded in the regular books of account; confirmations have been furnished;  interest has been regularly paid;  tax has been deducted wherever applicable;  Form 16A and Form 26AS support the payment of interest.

“ADDITION OF UNEXPLAINED UNSECURED LOANS FOR CLAIM AT RS.8,19,64,000/- At the outset, the Appellant respectfully submits that the addition of Rs. 8,19,64,000/- made by the learned Assessing Officer under section 68 of the Income-tax Act, 1961 and confirmed by the learned Commissioner of Income Tax (Appeals) is contrary to the facts available on record, contrary to the documentary evidence furnished during the assessment as well as appellate proceedings and contrary to the settled principles governing section 68 of the Act. The impugned addition has been sustained without properly appreciating the voluminous documentary evidence furnished by the Appellant and merely on the basis of suspicion, presumptions and surmises, which cannot constitute the foundation for invoking the provisions of section 68. The Appellant respectfully submits that during the relevant previous year he was carrying on the business of wholesale trading in industrial chemicals through his proprietary concern M/s. M.B. Sales Corporation. The books of account were regularly maintained in the ordinary course of business and were duly auditedunder section 44AB of the Act. The return of income was filed declaring total income of Rs.67,19,350/- and the same was selected for limited scrutiny, inter alia, on account of increase in unsecured loans. During the course of assessment proceedings, the learned Assessing Officer called upon the Appellant to furnish complete details in support of the unsecured loans reflected in the books of account. The Appellant, in due compliance with the notices issued, furnished complete documentary evidence in support of the unsecured loans including confirmations from the lenders, copies of Permanent Account Numbers, Income Tax Returns, Aadhaar Cards, bank statements, ledger confirmations, Form No.16A evidencing deduction of tax at source on interest paid and Form No.26AS wherever applicable. The Appellant had also furnished complete statement of unsecured loans together with the details of receipts and repayments through banking channels. The aforesaid documentary evidence clearly established the identity of the lenders, their creditworthiness and the genuineness of the transactions. It is respectfully submitted that despite the Appellant having furnished complete primary evidence in support of the loans, the learned Assessing Officer proceeded to disregard the same without recording any finding that the documents furnished by the Appellant were false, fabricated or unreliable. The learned Assessing Officer has not disputed that the transactions were carried out through regular banking channels. Similarly, the learned Assessing Officer has not disputed the existence or identity of the lenders. The books of account maintained by the Appellant have also not been rejected under section 145 of the Act. The addition has therefore been made without dislodging the documentary evidence placed on record by the Appellant. The Appellant respectfully submits that the settled legal position under section 68 requires the assessee to establish only three ingredients, namely, the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. Once these three ingredients are established by furnishing primary documentary evidence, the initial burden cast upon the assessee stands fully discharged. Thereafter, the burden shifts upon the Revenue to rebut such evidence by making proper enquiries and by bringing cogent material on record demonstrating that the evidence furnished by the assessee is not genuine. In the present case, the Appellant has discharged the burden cast upon him byproducing all the primary documents necessary for establishing the three essential ingredients contemplated under section 68. However, the learned Assessing Officer has failed to discharge the corresponding burden cast upon the Revenue. It is respectfully submitted that the learned Assessing Officer has rejected the explanation of the Appellant mainly on the grounds that certain lenders had comparatively low returned income, in certain cases immediate credits were noticed in the bank accounts before issuance of cheques, in some cases the Income Tax Return or bank statement was allegedly not available and in some cases the Assessing Officer observed that the creditworthiness of the lenders was not satisfactorily established. It is submitted that none of these observations, either individually or collectively, justify the addition made under section 68 of the Act. The learned Assessing Officer has failed to appreciate that the identity of every lender stood fully established from the copies of PAN, Aadhaar Card, Income Tax Returns, confirmations and other documents furnished by the Appellant. The existence of the lenders has never been disputed. No finding has been recorded that any of the lenders was fictitious or non-existent. Once the identity of the lenders is duly established by Government issued documents and statutory records, the first condition contemplated under section 68 stands fully satisfied.

Similarly, the creditworthiness of the lenders stood established from the bank statements, Income Tax Returns, confirmations and other financial records furnished during the course of assessment proceedings. The learned Assessing Officer has proceeded on the erroneous assumption that the taxable income declared by a lender is the sole criterion for determining his financial capacity. Such an approach is fundamentally misconceived. A person's capacity to advance a loan cannot be determined merely on the basis of income declared during a particular assessment year. Financial capacity depends upon accumulated savings, capital, investments, borrowings, business receipts, sale proceeds of assets and several other financial resources. Merely because the income disclosed by a lender is comparatively low cannot automatically lead to the conclusion that the lender lacked the capacity to advance the loan. The learned Assessing Officer has not undertaken any enquiry whatsoever toestablish that the funds advanced by the lenders actually belonged to the Appellant or represented his unaccounted income. The learned Assessing Officer has also laid considerable emphasis upon the fact that in certain bank accounts credits were noticed immediately before issuance of cheques to the Appellant. The Appellant respectfully submits that such an observation merely raises suspicion and cannot constitute legal evidence for making an addition under section 68. Before drawing any adverse inference, it was incumbent upon the learned Assessing Officer to enquire into the source of such deposits appearing in the bank accounts of the respective lenders. No such enquiry has been undertaken. The learned Assessing Officer has neither issued notices under section 133(6) to verify the explanation of the lenders nor exercised powers under section 131 to summon the concerned parties. In the absence of any independent enquiry, the mere existence of credits in the bank account immediately before issuance of cheque cannot justify an inference that the loans represented unexplained income of the Appellant. The Appellant further submits that the genuineness of the transactions stands conclusively established from the undisputed fact that every transaction has been routed through normal banking channels. The loans are duly reflected in the books of account of the Appellant as well as the lenders. Confirmations have been furnished by the respective parties. Interest has been regularly paid on such borrowings after deduction of tax at source wherever applicable. The deduction of tax at source is duly evidenced from Form No.16A and the corresponding credit is reflected in the Form No.26AS of the respective lenders. The interest income has also been disclosed by the lenders in their respective returns of income wherever applicable. These undisputed facts clearly establish the genuineness of the transactions and completely negate the allegation that the impugned loans represent accommodation entries or unexplained cash credits.

The Appellant respectfully submits that the learned Assessing Officer has completely failed to carry out any meaningful enquiry before invoking section 68. No material has been brought on record to demonstrate that the monies advanced by the lenders actually emanated from the Appellant. There is no finding in the assessment order that the confirmations furnished by the Appellant were false. There is no allegation that the bank statements produced weremanipulated. There is no finding that the Permanent Account Numbers or Income Tax Returns furnished by the lenders were incorrect. The addition has thus been made merely because the learned Assessing Officer entertained certain doubts regarding the financial capacity of some of the lenders. It is respectfully submitted that suspicion, however strong, cannot substitute legal proof and cannot constitute the basis for invoking section 68 of the Act. The Appellant further submits that the learned Commissioner of Income Tax (Appeals), while confirming the addition, has merely affirmed the conclusions reached by the learned Assessing Officer without independently examining the voluminous documentary evidence placed on record. The appellate order does not contain any independent discussion regarding the documentary evidence furnished in respect of each lender nor does it record any finding as to why such evidence is insufficient to discharge the burden cast upon the Appellant under section 68. The learned Commissioner of Income Tax (Appeals) has therefore failed to appreciate the evidence in its proper perspective and has confirmed the addition without assigning cogent reasons. It is respectfully submitted that the Paper Book filed before this Hon'ble Tribunal contains complete documentary evidence in respect of every lender including confirmations, Income Tax Returns, Permanent Account Numbers, Aadhaar Cards, bank statements, ledger confirmations, Form No.16A and Form No.26AS wherever applicable. The said documentary evidence conclusively establishes the identity of the lenders, their creditworthiness and the genuineness of the transactions. In the absence of any material brought on record by the Revenue to rebut the said documentary evidence, the addition made under section 68 cannot be sustained. In view of the aforesaid facts and circumstances, it is respectfully submitted that the Appellant had duly discharged the burden cast upon him under section 68 of the Act by producing complete documentary evidence in support of the unsecured loans. The learned Assessing Officer has failed to disprove the evidence so furnished and has proceeded merely on the basis of conjectures and suspicion without conducting any independent enquiry. The addition of Rs.8,19,64,000/- made under section 68 and sustained by the learned Commissioner of Income Tax (Appeals) is therefore wholly unsustainable both on facts and in law and deserves to be deleted in its entirety.Section 68 of the Act reads as under :

"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year : Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." It is settled position that to prove the genuineness of the transaction, the burden lies on the assessee and to discharge the onus, the assessee must prove the following: I. Identity of the Creditor II. Capacity of the Creditor III. Genuineness of the Transaction The Appellant has duly discharged the primary onus cast under Section 68 of the Act It is respectfully submitted that the Appellant has discharged the initial burden cast upon him under section 68 of the Income-tax Act, 1961 by furnishing complete, cogent and contemporaneous documentary evidence in supporteach of the unsecured loan transactions. The documentary evidence placed on record clearly establishes the identity of the lenders, their financial capacity to advance the loans and the genuineness of the transactions. The additions have been. made despite the availability of complete supporting evidence and without bringing any contrary material on record to discredit the same.

Identity of the Lenders stands fully established The identity of each of the lenders stands conclusively established from the documentary evidence furnished during the assessment proceedings as well as placed before this Hon'ble Tribunal. The lenders are identifiable persons whose Permanent Account Numbers, Income-tax Return acknowledgements, identity documents, confirmations and other relevant particulars were furnished before the learned Assessing Officer. The existence of the lenders has never been disputed by the Revenue and there is no finding in the assessment order that any of the lenders is fictitious, non-existent or untraceable. Thus, the first requirement contemplated under section 68 stands fully satisfied. Creditworthiness of the Lenders has been satisfactorily established The Appellant further submits that the financial capacity of the lenders to advance the loans has also been duly established through the documentary evidence placed on record. The loans have been advanced through normal banking channels and are duly supported by the respective bank statements, financial particulars and other supporting records of the lenders. The learned Assessing Officer has not brought any material on record to demonstrate that the lenders lacked the financial capacity to advance the respective loans or that the funds actually belonged to the Appellant. The observations made in the assessment order are based merely on presumptions regarding the financial position of certain lenders and not on any independent enquiry or investigation. Such presumptions cannot override the documentary evidence furnished by the Appellant. Genuineness of the Transactions stands duly proved The genuineness of the loan transactions is also beyond dispute. Every transaction has been carried out through recognised banking channels and has been duly recorded in the regular books of account maintained by theAppellant. The transactions are supported by confirmations, ledger accounts and corresponding banking records. Interest has been regularly paid to the respective lenders after deduction of tax at source wherever applicable, further evidencing the commercial nature and genuineness of the borrowings. There is no material whatsoever to suggest that the transactions were sham, fictitious or accommodation entries. The learned Assessing Officer has also not established any direct or indirect nexus between the funds advanced by the lenders and the Appellant's own undisclosed income. Burden shifted upon the Revenue Having furnished complete documentary evidence establishing the identity of the lenders, their creditworthiness and the genuineness of the transactions, the Appellant had discharged the primary onus cast upon him under section 68 of the Act. Thereafter, the burden shifted upon the learned Assessing Officer to disprove the evidence by conducting appropriate enquiries and bringing cogent material on record to establish that the explanation offered by the Appellant was incorrect or unsatisfactory. However, no such exercise has been undertaken. The learned Assessing Officer has neither conducted any meaningful enquiry nor brought any positive evidence on record to rebut the documentary evidence furnished by the Appellant. In the absence of any material disproving the explanation offered by the Appellant, the addition made under section 68 is based merely on suspicion and conjectures and therefore deserves to be deleted. The assessee had duly furnished all the required details wth respect to the transactions as mentioned in the above table and From the perusal of the above, the assessee has discharged its primary onus by providing information regarding the, i. Identity of the creditor (Permanent Account Number (PAN)/CIN No/Income Tax Return Acknowledgment.) ii. Creditworthiness/ capacity of the creditor (Copy of Audited Balance Sheet of the Lender Company/ Relevant Bank Statement/ Copy of Ledger Account.)iii. Genuineness of the transaction (Transaction through Account Payee Chq/Bank Statement of the Appellant and Lender Companies/ Loan Confirmation). Thus no addition of receipts of unsecured loan if identity, creditworthiness and genuineness of same proved. If Assessee proved identity, creditworthiness as well as genuineness of transactions then the Assessee had discharged its primary onus on providing complete details in respect of loan transactions and if AO failed to carry out any fruitful investigation then no addition could be made towards unexplained unsecured loans. Further we would also like to discuss the following The assessee took genuine loan for business. During the course of assessment proceedings, all credible evidences were furnished before the Ld. AO establishing the case of the appellant on merits. However, till the conclusion of the assessment proceedings the Ld AO has not been able to discredit any of the evidences brought on record The addition was made without any iota of evidences discrediting the evidence furnished by the appellant. Hence, all the details as required by the Ld.AO for establishing the identity/existence of the lender, creditworthiness and financial capacity of the lenders, genuineness of the transactions were duly filed. By filing all these documents, the appellant has satisfactorily discharged the onus cast upon him.

We further wish to state that the amount received as loan was duly supported by documents, and the Ld AO has not doubted the identity and existence of the lenders. The acceptance of loans and the repayment of loans are through banking channels only. The addition has been made without considering the supporting documents submitted by the assessee. In order to establish the receipt of cash credit as required under Section 68, the appellant must satisfy three important conditions, namely; i. Identity of the creditor; ii. Genuineness of the transactions; and iii. Financial capacity of the person giving the cash credit to the appellant, i.e., the creditworthiness of the creditor. However, the onus of the appellant is limited to the extent of proving the source from which he received the cash credit. The creditworthiness of the creditor has to be judged vis-à-vis the transaction which had taken place between the appellant and the creditor, and it is not the burden of the appellant to find out the source of creditworthy capacity in order to prove the genuineness of the transaction. Reliance is placed on:- As held by the Hon. Gauhati High Court in the case of C.I.T. v. Smt. Sangha mitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Apex Court in the case of C.I.T. v. Orissa Corporation P. Ltd. reported in (1986) 159 ITR 78 (SC) wherein it is held as under: "Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case."

In view of all these facts, what is required is to prove 3 things as held by the Courts in case of Cash Credits u/s. 68 of the I.T. Act, 1961. In the case of appellant, Identity of the person is proved beyond doubt as the lender have been borne on the Register of Income Tax Department as its permanent account number is filed before the Assessing Officer and is regularly filing its Return of Income. Capacity of the person is also proved beyond doubt as the lender had given the loans through Banking Channel and the repayment is also made through Banking Channel. Besides, Copy of Bank statement of both the parties are also available as it has been produced by the appellant before the A.O. The Genuineness of the transaction is proved by producing the loan confirmations from the above party, as also the ledger extracts. There was nothing proved against the appellant by the Ld A.O. It is incumbent on the Ld. AO to act judiciously in appreciating the explanation and evidence placed before him by the appellant. An approach of not considering the material and evidence would vitiate assessment proceedings. Any rejection of an explanation by Ld. AO is an inference drawn basically from the facts and does not involve any legal principle. The appellant submits that the Ld. AO is cast upon with great deal of accountability while rejecting the explanations offered by the assessee and deciding to make additions of genuine loans. He is duty bound to bring in outweighing evidence and material to the contrary to substantiate an addition. No arbitrary approach of rejecting appellant's explanation is allowed under the law. As per the rule of evidence the burden of showing that the apparent was not real is on the person who claims it to be so. Accordingly, it is for the revenue to disprove explanation offered by an appellant which is apparently consistent with the facts of the case. No easy going would be available for the Ld. AO in rejecting appellant's explanation, unless contrary evidence that can outweigh the material and evidence supplied by the appellant is brought on record. It is further submitted that if the parties had received the summons but did not appear, the appellant could not be blamed CIT v U M Shah, proprietor, Shrenik Trading Co (1973) 90 ITR 396 (Bom) / ITO vs. Mayur Agarwal (2010) 133 TTJ 1 (Agra) TM. The AO has further failed to prove that the loans are nothing but income in the hands of appellant. The appellant further submits that loans are not chargeable to tax as they are repaid to lenders from time to time as can be seen from the ledgers and hence cannot be taxed, It is respectfully submitted that the Ld. AO had not even expressed that he is not satisfied with the evidences produced by the assessee. Besides, the Ld. AO did not make any type of enquires, as various tribunals have held that receiving information from the DIT(Inv.) is only a starting point for enquiries to be held; and not the final conclusion. In this case what the A.O. has done is only making an addition on the basis of an information received without making any further enquiries. In the case of C.I.T. v. Varinder Rawley (2014) 366 ITR 232 (P&H), the Court held that "where the assessee shows that the entries regarding credit in a third party's account were in fact received from third and are genuine, in that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to the assessee", particularly in a case where no summons u/s.131 is issued against the third party. The Court further held as under: "Held, dismissing the appeal, that the assessee received the amount by way of an account payee cheque. The amount was returned by way of an account payee cheque. The transactions were reflected in the bank accounts of the assessee as well as of the Creditor. The Creditor was an income-tax assessee. Its permanent account number card was placed on record. The assessee had sufficiently discharged the burden which lay upon it to explain the nature and source of the credit entry appearing in its accounts and the burden clearly shifted to the Department to prove to the contrary to hold that in spite of the assessee'sexplaination, the entries could still be held to represent the assessee's income. The Assessing Officer failed to invoke the provisions under Section 131 of the Act, the Tribunals had rightly concluded that it was sufficient to delete the addition." Besides, the Hon'ble Bombay High Court in the case of Orient Trading Co. Ltd.v. C.Ι.Τ. (1963) 49 ITR 723 (Bom) (Para 9) which has been referred by the P&H High Court in the aforesaid decision, had held so.Besides in the case of C.I.T.v. Kamalaben Sureshchandra (2014) 367 ITR 692 (Guj), the Hon'ble Gujurat High Court held that deletion by the CIT (A) was based on appreciation of evidence on record, and hence such decision has to be upheld by the Court. Besides, the Gujurat High court in the case of C.I.T.v Sachitel Communication Pvt. Ltd.(2014) 227 Taxman 219 (Mag) (Guj) held that "Where the assessee proved the identity of the Creditor and capacity to pay and that payment was made through the Banking Channel, no addition could be made as unexplained Cash Credits." The Hon'ble Gujurat High Court in the case of C.I.T. v. Patel Ramniklal Hirji (204) 222 Taxman 15 (Mag) held as under: "The addition on the basis that four depositors furnished requisite details to prove their identity and showed the place of their residence. The loan was received through account payee cheques. Copies of Bank Statements was given and the details of PAN were available. All the materials duly proved the genuineness of the transaction of loan as well as creditworthiness of the depositers. Hence, the addition u/s.68 cannot be made"

We respectfully submit that the appellant's case is identical to this case and all the facts of the above cases are also identical. Also the appellant has repaid the loan taken in subsequent years by account payee cheque. In the case of C.I.T.v. JaikumarBakliwal (2014) 366 ITR 217 (Raj), the Hon'ble High Court held in the head notes as under: (which is identical to the facts of appellant's case)"Three things are required to be proved by the recipient of money, i.e. (1) identity of the creditors; (2) capacity of the creditor to advance money; and (3) genuineness of the transaction. Held, dismissing the appeal, that all cash creditors were assessed to income-tax and they proved a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer and their statements under Section 131 of the Income-tax Act, 1961, were also recorded on oath. There was no clinching evidence and the AO has further failed to prove that the loans are nothing but income in the hands of appellant." In the case of NEMI CHAND KOTHARI v. C.Ι.Τ. (2003) 264 ITR 254 (Gauhati) it was held by the Gauhati High Court as under: "A person may have funds from any source and an assesse, on such information received, may take a loan from such a person. It is not the business of the assesse to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the Creditor, by way of cheque in the form of loan and in such a case, if the creditors fails to satisfy as to how he had actually received the said amount and happened to keep it in the bank, the said amount cannot be treated as income of the assessee from undisclosed sources." "Held, (i) that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Office to prove the contrary. The failure on the part of the creditors to show that their Sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or where owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub- creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources." (ii) that no assessment could be made contrary to the provisions of law. In the instant case, the very basis for making the assessment was under challenge. If the assessment was based on a completely erroneous view of law, such findings could not be regarded as mere findings of facts, but must be treated as substantial questions of law. Therefore, the question raised in the appeal was a substantial question of law because it went to the very root of the assessment made. The aforesaid view has been also considered and fortified and favourably referred to by the Allahabad High Court in the case of C.I.Τ. v. Shalimar Buildwell Pvt. Ltd. (2014)220 Taxman 138 (All.) It is also submitted that in the following cases also the identical situation is involved. 1. Shyam R. Pawar v. D.C.I.T., ITA/5585/MUM/2011(Mum ITAT) 2. C.I.T. v. Shyam R. Pawar, ITXA/1568 to 1571 of 2012 (Bom)(HC) 3. C.I.T. v. Sudeep Goenka, (2013) 214 Taxman 0418 (All) (HC) The Hon. Rajasthan High Court in the case of C.I.T. v. A. Lalpuria Construction P. Ltd. (2013) 215 Taxman 12 (Mag) (Raj) have held that in the case of Accommodation entry - without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s.68. It is further held that: "The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s.68 on account of alleged accommodation entries." Besides, in the case of C.I.T. v Kamalaben Sureshchandra Bhatti (2014) 367 ITR 692 (Guj) also, the High Court's held that addition u/s.68 is unwarranted. The assessee places reliance on a catena of judicial precedents rendered by the Hon'ble Supreme Court, various Hon'ble High Courts, and coordinate benches of the Hon'ble Income Tax Appellate Tribunal, which have consistently laid down the settled legal position governing additions under section 68 of the Income Tax Act, 1961. The consistent ratio emerging from these decisions is that where the assessee has discharged its initial onus by establishing the identity of the creditor, creditworthiness, and genuineness of the transaction through cogent documentary evidence such as PAN details, income-tax returns, audited financial statements, confirmations, and bank statements evidencing transactions through banking channels, no addition can be sustained merely on suspicion, conjectures, or on the basis that the creditor is a loss-making entity. It is further held that once the assessee discharges the primary burden cast upon it under section 68, the onus shifts to the Assessing Officer to bring on record positive material to disprove the evidences furnished, and additions cannot be made merely for want of further enquiry or on the basis of statements recorded at the back of the assessee without granting an opportunity of cross- examination. The courts have also consistently held that the assessee is not required to prove the "source of source" and that failure of the Assessing Officer to conduct independent enquiries or issue summons under section 131 cannot be a ground to draw adverse inference against the assessee. In addition, it has been held that consequential disallowances such as interest expenditure or allied expenses cannot survive once the principal addition under section 68 is deleted. The detailed compilation of all judicial precedents relied upon, along with relevant extracts, is enclosed herewith as Annexure–1 (page 1 to page 9), and the same may be read as part and parcel of this submission. Mere suspicion, no matter howsoever strong, is not sufficient to treat the unsecured loans as unexplained. Reliance is placed on the following judgments: Case Details Held: Babulal C. Borana v. ITO The Assessee has recorded the transaction relating (2006) 282 ITR 251 to 50 M.Ts. of HDPE in the regularly maintained (Bom.)(HC) books of account and the Assessee has offered explanation regarding the nature and source of investment but the same was not accepted. However, books of account were not rejected. Identity of vendor was disclosed, source of investment was explained. Held, amounts could not be added as unexplained investment only because the vendor denied the transaction. The Court held that though the Assessee’s contention that he had no bank account was found to be false, the disallowance was not justified. And the fact that Sales Tax was not paid by the party who sold the goods does not affect the genuineness of transaction. ACIT v. Kishan Lal Jewels The Assessee while furnishing necessary information (P.) Ltd. (2012) 147 TTJ regarding the transactions and the aforesaid parties 308 (Del.) (Trib.) like purchase bills issued against goods purchased, sales-tax registration numbers of the parties, PANs, their confirmations and Bank statements showing the debit of the amount paid through Account payee Cheques to them in account of Assessee and credited in the Bank Account of sellers, had discharged its primary onus, thereafter the onus shifted on the department to rebut the same. Addition u/sec. 68 was held to be not justified. Dy. CIT v. Kirtlal During assessment proceedings, Assessing Officer Kalidas Jewellers (P.) Ltd. found that for some of purchase effected by (2012) 54 SOT 529 Assessee, no details or address of vendors were (Chennai) (Trib.) available in purchase vouchers. The non-genuine and an addition was made on that account. Since purchases were recorded in books of account of Assessee and were also shown in its stock, in such circumstances merely because those purchases did not carry full addresses of vendors, could not be a reason to treat the said purchases as unexplained. Therefore, impugned addition made by Assessing Officer was to be deleted. The Assessee also relies on the following judicial pronouncements which are relevant in deciding the matter and considering the same on the basis of merits: (i) To prove the prima facie identity of creditors; (ii) Variation on basis of inference drawn on previous year treated no explanation about the nature & source of such gross receipt; (iii) PAN does further recognition to established the identity of Loan parties; Ref. SN. Observation Case Details 1 Suspicious cannot take DCIT v. Shri Rajeev G. Kalathil, (Mum) (Trib) place the evidence ITA No. 6727/M/2012 dt.20/8/2014; K.P. Varghese v. ITO, (1981) 131 ITR 579 (SC); CIT v. Roman & Co., (1968): 67 ITR 11 (SC). 2 Payments were made by Mather & Platt (India) Ltd. vs CIT 168 ITR 493 account payee cheques. Cal; ITO V/s Kashmir Ind. Palace 99 Taxmann This fact would over (Chd) (Nag) shadow all other short coming. 3 When Quantity tallied, No Balaji Textile Industries (P) Ltd. v. ITO (1994) addition can be made as on 49 ITD 177 (Bom); DCIT v. Adinath Industries (2001): 252 ITR 476 (Guj)

till 31st March of Financial periods 4 Addition cannot be made ITO V/s Permanand [2008 25 SOT 11]; CIT V/s without evidence : M K Bros. [163 ITR 249]; CIT v. Kashiram Textile Mills P Ltd. [2006]; 284 ITR 61 (GUJ) Saraswathi Oil Traders V. CIT [2000]: 254 ITR 259 (SC),174 CTR 108 (SC) 5 AO relied on third party Kishan Chand Chella Ram v. CIT [1980] 125 information without ITR 713 (SC) Marneedi Satyam V/s crossexamination. Hence, Masimukkula Venkataswami [AIR 1949 Mad can’t be relied : 689] : ITO V/s Permanand [2008 25 SOT 11] 6 AO failed to discharge his ITO V/s Permanand [2008 25 SOT 11] DCIT v. duty to prove the Shri Rajeev G. Kalathil, (Mum) (Trib) (ITA No. transaction as alleged 6727/M/2012 dt.20/8/2014. illegal gratification: 7 Transaction duly CIT V/s M K Bros. [163 ITR 249] ITO V/s supported by the evidence, Kanchanwala Gems 122 TTJ 854 no evidence that cash received back. Addition cannot be made: 8 Identity, Source of payment Babulal C Borana V/s ITO [282 ITR 251] explained, Bank payment, Books of account accepted, Then addition of book entries cannot be take place: 9 Issue is also decided by the Shri Ganpatraj A Sanghavi V/s ACIT I.T.A. Hon’ble Jurisdictional No.2826/Mum/2013 Tribunal in case of Ganpatraj Sanghi:

Additions made on basis of statement of scrutiny of complete information Assessment and without granting opportunity of cross examination to appellant was not valid as it amounted to violation of natural justice and against the law. The appellant strongly states that confrontation and cross examination the witnesses during the assessment proceedings is a must.

However, this statement has not been supplied to the appellant and hence this in violation of fundamental rules of justice. This has also been upheld by various judicial pronouncements. Protective Assessment v/s. Regular/ Substantive Underreporting Assessment: Where there is doubt or ambiguity about the real entity in whose hands a particular income is to be assessed the A.O. is entitled to have recourse to make protective assessment in the case of one and regular assessment in the case of the other. There is no statutory mandate to make protective assessment. It is the settled law that where there is doubt or ambiguity about the real entity in whose hands a particular income is not be assessed the A.O. is entitled to have recourse to making protective assessment. (Banyan & Berry v/s C.I.T. (1996) 222 ITR 831 (Guj). I.T.O. v/s Bachu Lal Kapoor (1966) 60 ITR (S.C.). There can be protective assessment under Chapter XIVB. (Unique Hotel v/s Asst. C.I.T. (2000) 108 Taxman 254 (Chd) (Mag). Where an assessment is intended to be protective, it must be expressly mention in the order. CIT v/s Khalid Mehdi (1987) 165 ITR 685 (AP) Protective assessment is permissible but protective recovery is not. i) Jagannath Bawri v/s C.I.T. (1998) 234 ITR 464, 471 (Gauh) ii) Sunil Kumar v/s C.I.T. (1983) 139 ITR 880 (Bom). C.I.T. v/s Cochin Co. P. Ltd. (1976) 104 ITR 655 (Ker). iv) P. K. Trading Co. v/s I.T.O. (1970) 78 ITR 427 (Cal). There cannot be protective order of penalty, as held in the following judicial pronouncement i) C.I.T. v/s Behari Lal Pyare Lal (1983) 141 ITR 32 (Punj) ii) C.I.T. v/s Super Steel Sales Co. (1989) 178 ITR 451, 452 (Cal). The Principles of Natural Justice have been grossly violated. The alleged statements of the owners of the said concerns not provided to the Assessee, if any recorded. The AO is a quasi-judicial authority. He must exercise an independent mind while framing an assessment. While doing so, he must act in the best interest of the Assessee. Any documents or material or evidence which the AO wishes to rely on for the purpose of making an assessment must be provided to the Assessee so that the Assessee can present an argument against the same, if any, thus giving a reasonable opportunity of being heard. The Assessment Order thus is bad in law and requires to be quashed. Thus, based on above discussion and judicial precedents no addition can be made as no on unexplained unsecured loans was received by the Assessee and it is upon the revenue to prove that on explained income. Therefore, the above addition your Goodself made by the AO is not justified and same is required to be deleted.” 13. On the other hand, the learned DR made the following submissions.

“Ground No.2 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the addition of Rs. 8,19,64,000/- being unsecured loans from various parties treated as unexplained cash credits under section 68 read with section 115BBE of the Income-tax Act, 1961, despite the appellant having submitted relevant documents in support of its claim. 1. During the course of the assessment proceedings, the Assessing Officer examined the outstanding unsecured loans aggregating to Rs. 30,62,85,617/- as reflected in the balance sheet. The assessee was called upon to establish the identity of the lenders, their creditworthiness and the genuineness of the loan transactions. In response, the assessee furnished replies dated 04.01.2022, 19.01.2022 and 04.02.2022 along with certain documentary evidence in support of the unsecured loans. Upon verification of the replies and documents so furnished, the Assessing Officer observed that the assessee had obtained unsecured loans from various persons. However, in respect of 87 lenders, the assessee failed to discharge the primary onus cast upon it under section 68 of the Income-tax Act, 1961, by satisfactorily establishing the identity and creditworthiness of the lenders as well as the genuineness of the loan transactions. Accordingly, the Assessing Officer treated the unsecured loans aggregating to Rs. 8,19,64,000/- as unexplained cash credits under section 68 of the Act. 2. The assessee has filed a voluminous Paper Book, received on 13.07.2026, claiming that all the documentary evidence contained therein had been produced before the Learned Assessing Officer and the Learned CIT (A). However, on a careful examination of the said Paper Book, it is observed that several documents are incomplete, inconsistent, or insufficient to establish the identity, creditworthiness of the lenders and the genuineness of the loan transactions. In particular, the source of funds in the hands of certain lenders remains unsubstantiated. The specific deficiencies noticed are tabulated with some examples below for the kind consideration of the Hon’ble Tribunal.

Sr. Name of Lender Loan PB Revenue's Observation / No. (PAN) Amount Page Deficiency (Rs.) No. 1 Rakesh R. Shah 5,00,000 75 The Income Tax Return (AAHPS4928A) Acknowledgment placed at Paper Book page 75 reflects a total income of Rs 3,31,760/- only. The disclosed income does not by itself establish the lender's financial capacity to advance a loan of Rs 5,00,000/-. The Assessing Officer further observed that the lender's bank account reflected credits of Rs 2,00,000/- from M/s Siddhesh Prop Pvt. Ltd. on 20.04.2019 and Rs 3,33,828/- on 03.10.2019 (Cheque No. 460151) immediately prior to the loan transaction. The source of these antecedent credits has not been satisfactorily explained. Accordingly, the creditworthiness of the lender and the source of funds remain unsubstantiated. 2 Nita M. Parikh 2,50,000 PB Pg. The assessee has furnished the (PAN: 86, 90- ITR acknowledgement and only AFDPP5570J) 92 selected extracts of the bank statement. The ITR at PB Pg. 86 reflects a total income of Rs 3,90,340/-. However, the complete bank statement has not been furnished. The bank statement placed on record comprises only partial extracts (PB Pages 90-92) which do not enable verification of the complete flow of funds, the source of credits immediately preceding the loan transaction, or the overall financial capacity of the lender. Accordingly, the assessee has failed to satisfactorily establish the creditworthiness of the lender as required under section 68 of the Income-tax Act, 1961. 0 Lalit Kumar P. 5,50,000 PB Pg. The ITR acknowledgement Mehta HUF 151 placed at PB Page 151 reflects a (PAN: total income of Rs 3,82,420/- AAAHL1426R) only. The disclosed income, by itself, does not satisfactorily establish the financial capacity of the lender to advance a loan of Rs 5,50,000/-. Further, as observed by the Assessing Officer, credits were reflected in the lender's bank account immediately prior to the transfer of funds to the assessee. The source of the antecedent credits has not been satisfactorily explained. Accordingly, the creditworthiness of the lender and the source of funds remain unsubstantiated for the purposes of section 68 of the Income-tax Act, 1961. 3 Kishor P. Gujar 11,50,000 PB Pg. The assessee has furnished the HUF 276- Not a complete ITR but only (PAN: 277, form with no income AAKHK9755L) 282- details./Statement of Income at 283 PB Pages 276-277, reflecting a total income of approximately Rs 4,57,910/-. However, only extracts of the bank statement have been placed on record at PB Pages 282-283, and the complete bank statement has not been furnished. In the absence of the complete bank statement, the source of funds, movement of transactions and availability of funds immediately preceding the loan transaction cannot be independently verified. Accordingly, the assessee has failed to satisfactorily establish the creditworthiness of the lender as required under section 68 of the Income-tax Act, 1961. 9 Ramniktal K. 5,50,000 PB Pg. The bank statement of the lender Furia 335 was not furnished. On (PAN: examination of the Paper Book, AAIPE7786L) it is noticed that the assessee has furnished only the ITR acknowledgement at PB Page 335, reflecting a total income of Rs 3,88,430/-. Further, only selected extracts of the bank statement have been placed on record and not the complete bank statement. In the absence of the complete bank statement, the source of funds, movement of transactions and availability of funds immediately preceding the loan transaction cannot be independently verified. The ITR alone does not establish the lender's financial capacity to advance the loan. Accordingly, the deficiency pointed out by the Assessing Officer remains uncontroverted, and the assessee has failed to satisfactorily establish the creditworthiness of the lender under section 68 of the Income- tax Act, 1961. 4 Omax 14,00,000 PB Pg. The Assessing Officer had International 392 observed that the assessee had (PAN: failed to furnish the Income Tax AAJHMM2197R) Return and other supporting documents to establish the identity, genuineness and creditworthiness of the lender. Upon examination of the Paper Book, it is noticed that PB Page 392 contains the ITR acknowledgement of Shri MihirBipin Parekh, the proprietor of Omax International. The said ITR reflects a total income of Rs. 4,98,750/- only. Mere furnishing of the proprietor's ITR acknowledgement does not, by itself, establish the financial capacity to advance a loan of Rs. 14,00,000/-. Further, no complete bank statement or other supporting documents have been furnished to substantiate the creditworthiness of the lender or the genuineness of the transaction. Accordingly, the deficiency pointed out by the Assessing Officer continues to subsist, and the assessee has failed to discharge the onus cast upon it under section 68 of the Income-tax Act, 1961. 1 Simran Jain 10,00,000 PB Pg. The Assessing Officer had (PAN: 859 & observed that the complete bank KBXPS6317C) 864 statement of the lender was not furnished. Upon examination of the Paper Book, it is noticed that only the ITR Verification Form and Computation of Income have been furnished. As per the computation at PB Page 859, the lender has disclosed salary income of Rs. 3,50,000/- per annum along with certain other income; however, the total disclosed income does not prima facie establish the financial capacity to advance a loan of Rs. 10,00,000/-. Further, only extracts of the bank statement have been furnished. The extract of bank statement at PB Page 864 reflects an opening balance of Rs 1,72,534/- on 01.05.2019 and a closing balance of Rs 52,535/- on 31.05.2019. The loan of Rs. 10,00,000/- was advanced on 06.05.2019; however, the source of the funds immediately preceding the said transaction has not been explained, as the complete bank statement has not been furnished. Accordingly, the creditworthiness of the lender and the source of funds remain unsubstantiated, and the deficiency pointed out by the Assessing Officer continues to subsist under section 68 of the Income-tax Act, 1961.

“The Appellant respectfully submits this Rejoinder to the Written Submission filed on behalf of the Revenue. The submissions made by the learned CIT (DR) neither deal with nor rebut the comprehensive documentary evidence placed on record by the Appellant. The Revenue has substantially reiterated the observations contained in the Assessment Order and the order of the learned CIT(A) without examining the complete factual material available before this Hon’ble Tribunal. The Appellant therefore respectfully submits the following rejoinder. ➢ SUBMISSION WITH RESPECT TO UNSECURED LOANS : The learned Assessing Officer as well as the learned CIT(A) have proceeded on the assumption that the unsecured loans appearing in the books of account during the relevant previous year constitute unexplained cash credits. The said approach proceeds on an isolated examination of the transactions pertaining only to the year under consideration, without appreciating the complete history and subsequent movement of the loan accounts. The Appellant respectfully submits that the genuineness of the impugned borrowings cannot be examined by confining the enquiry to a single financial year while ignoring the continuing course of dealings between the Appellant and the respective lenders.

In order to facilitate a complete appreciation of the factual position, the Appellant has placed before this Hon’ble Tribunal a comprehensive Statement of Loans Showing All Details in respect of 87 lenders, covering the period from Financial Year 2019-20 up to Financial Year 2025-26. The statement has been prepared from the regular books of account maintained in the ordinary course of business and traces the complete movement of every individual loan account over successive financial years. It contains, in respect of each lender, the opening balance, fresh loans received during the year, repayments effected, closing outstanding balance, interest credited or paid, tax deducted at source wherever applicable, and the corresponding movement of the loan account over subsequent years. The aforesaid statement clearly demonstrates that the impugned borrowings are not isolated credits introduced only during the relevant previous year. On the contrary, a substantial number of the balances represent opening balances brought forward from earlier years, while many of the fresh borrowings continued to remain outstanding in subsequent years and were thereafter either repaid through normal banking channels or continued as business borrowings in the regular course of dealings. The statement further evidences that the Appellant has maintained a long-standing borrowing relationship with several of the lenders over multiple financial years, thereby establishing the continuity and commercial reality of the transactions. Such long-term and continuing financial dealings are wholly inconsistent with the allegation that the impugned credits represent accommodation entries or unexplained income of the Appellant. The statement further establishes that interest has been regularly credited or paid on the borrowings in accordance with the contractual understanding between the parties. Wherever applicable, tax has been deducted at source on such interest payments, Form No. 16A has been issued and the corresponding credits are reflected in Form No. 26AS of the respective lenders. The Appellant has already placed on record, in respect of each lender wherever applicable, the confirmations, PAN, Aadhaar Card, Income-tax Return, bank statements, ledger confirmations, Form No. 16A and Form No. 26AS. The continuity of the borrowings, coupled with the regular servicing of the loans through payment of interest and deduction of tax at source, conclusively establishes that the transactions were genuine commercial borrowings recorded in the ordinary course of business. The Revenue has not disputed that the loans were received through banking channels. Neither has the Revenue disputed the subsequent repayments made through banking channels wherever such repayments have taken place. Similarly, there is no finding that the interest credited by the Appellant has not been received by the lenders or that the tax deducted at source has not been deposited with the Government. These undisputed facts constitute strong corroborative evidence establishing the genuineness of the borrowing transactions and completely negate the allegation that the impugned credits represented the unexplained money of the Appellant. It is respectfully submitted that the learned Assessing Officer has examined certain transactions in isolation without appreciating the entire accounting trail placed on record. The subsequent conduct of the parties, namely the continued subsistence of the borrowings, regular payment of interest, deduction of tax at source and eventual repayment through banking channels, constitutes relevant evidence corroborating the genuineness of the original loan transactions. These subsequent events do not create the genuineness of the loans but rather reinforce and corroborate the primary documentary evidence already furnished by the Appellant in support of the three ingredients contemplated under section 68, namely, the identity of the lenders, their creditworthiness and the genuineness of the transactions. Accordingly, when the original documentary evidence is read together with the complete year-wise movement of the loan accounts from Financial Year 2019-20 to Financial Year 2025-26, the allegation that the impugned unsecured loans constitute unexplained cash credits becomes wholly untenable. The comprehensive accounting trail demonstrates that the borrowings were genuine business liabilities duly recorded in the regular books of account and not unexplained credits liable to be taxed under section 68 of the Act. THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS : The parties in question along with the list of documents enclosed in the paperbook are as follows : 3 RAKESH R SHAH 75 a ITR 76 b PAN COPY 77 c ADHAR COPY 78 d LEDGER CONFIRMATION 79-81 e BANK STATEMENT 82-83 f FORM 16 A 82-83 g FORM 26AS 84-85 4 NITA M PARIKH a ITR 86 b PAN COPY 87 c ADHAR COPY 88 d LEDGER CONFIRMATION 89 e BANK STATEMENT 90-92 f FORM 16 A 93-94 g FORM 26AS 95 10 LALITKUMAR P MEHTA HUF a ITR 151 b PAN COPY 152 c ADHAR COPY 153 d LEDGER CONFIRMATION 154 e BANK STATEMENT 155-158 f FORM 15 G 159-160 g DEATH CERTIFICATE 161 23 KISHOR P GUJAR HUF a ITR ACKNOWLEDGEMENT 275 b STATEMENT OF INCOME 276-277 c PAN COPY 278 d ADHAR COPY 279 e LEDGER CONFIRMATION 280 f BANK STATEMENT 281-283 g FORM 16 A 284-285 h FORM 26AS 286 29 RAMNIKLAL K FURIA a ITR 335 b PAN COPY 336 c ADHAR COPY 337 d LEDGER CONFIRMATION 338 e BANK STATEMENT 339-340 g FORM 16 A 341-342 h FORM 26AS 343 34 OMAX INTERNATIONAL Prop. MIHIR PAREKH HUF a ITR 392 b PAN COPY 393 c LEDGER CONFIRMATION 394 d BANK STATEMENT 395-396 e FORM 16 A 397-398 g FORM 26AS 399-402 81 SIMRAN JAIN a ITR ACKNOWLEDGEMENT 858 b STATEMENT OF INCOME 859-860 c PAN COPY 861 d ADHAR COPY 862 e LEDGER CONFIRMATION 863 f BANK STATEMENT 864-865 g FORM 16 A 866-867 h FORM 26AS 868

Identity of the Lenders duly Established It is respectfully submitted that the identity of the impugned lenders, namely Shri Rakesh R. Shah, Smt. Nita M. Parikh, Shri Lalitkumar P. Mehta (HUF), Shri Kishor P. Gujar (HUF), Shri Ramniklal K. Furia, Omax International Proprietor Mihir Parekh (HUF) and Simran Jain, stands conclusively established from the documentary evidence forming part of the Paper Book. In respect of each of the aforesaid lenders, the Appellant has furnished copies of the Permanent Account Number (PAN), Aadhaar Card, Income-tax Return or Statement of Income, as applicable, together with duly signed ledger confirmations. The existence and identity of the lenders are therefore evidenced from statutory documents issued by Government authorities as well as contemporaneous records maintained in the ordinary course of business. Neither the learned Assessing Officer nor the learned CIT(A) has recorded any finding that any of the aforesaid persons or entities are fictitious, non-existent or incapable of being identified. In the absence of any such finding, the first requirement contemplated under section 68 stands fully satisfied. Creditworthiness of the Lenders duly Established The Appellant further submits that the financial capacity of the aforesaid lenders has also been established through cogent documentary evidence placed on record. The Appellant has furnished copies of the Income-tax Returns or Statements of Income, bank statements reflecting the movement of funds, ledger confirmations and other supporting documents evidencing the financial affairs of the respective lenders. The transactions have been routed through regular banking channels and the bank statements demonstrate the availability of funds at the time of advancing the loans. Wherever interest has been credited or paid, the Appellant has also furnished Form No. 16A, Form No. 26AS and, wherever applicable, declarations in Form No. 15G/15H, thereby establishing that the transactions formed part of regular financial dealings between the parties. The Revenue has proceeded merely on the basis that, in certain cases, the returned income of the lenders was comparatively low. However, it is settled law that the financial capacity of a creditor cannot be determined solely on the basis of the income disclosed for a particular assessment year. Creditworthiness has to be examined with reference to the overall financial position of the creditor, including accumulated capital, savings, investments, business receipts and banking transactions. The Revenue has neither examined these aspects nor brought any contrary material on record to demonstrate that the funds advanced actually belonged to the Appellant. Accordingly, the allegation regarding lack of creditworthiness is wholly without factual foundation. Genuineness of the Loan Transactions Established The genuineness of the transactions also stands fully established from the documentary evidence available on record. The loans have been received through normal banking channels, duly recorded in the regular books of account of the Appellant and are supported by ledger confirmations furnished by the respective lenders. Wherever applicable, interest has been regularly credited or paid after deduction of tax at source and the corresponding Form No. 16A and Form No. 26AS have been placed on record. Furthermore, the Appellant has placed before this Hon'ble Tribunal a comprehensive year-wise statement tracing the movement of the loan accounts from Financial Year 2019-20 to Financial Year 2025-26, demonstrating the continuity of the borrowings, subsequent repayments through banking channels and the regular servicing of the loans. These contemporaneous records clearly establish that the impugned loans are genuine commercial borrowings entered into during the ordinary course of business and not accommodation entries or unexplained cash credits. Significantly, the learned Assessing Officer has not disputed the banking transactions, the ledger accounts, the confirmations or the payment of interest. No material has been brought on record to establish that the documentary evidence furnished by the Appellant is false or fabricated. Consequently, the genuineness of the transactions stands fully proved. At the outset, it is respectfully submitted that the entire approach adopted by the learned Departmental Representative proceeds on an erroneous understanding of the scope of section 68 of the Act. It is now well settled that the obligation cast upon an assessee under section 68 is confined to establishing the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. The assessee is not ordinarily required to establish the "source of the source", unless the statute specifically so provides. In the present case, the Appellant has discharged the entire burden cast upon him under section 68 by furnishing confirmations, PAN, Aadhaar Cards, Income-tax Returns/Statements of Income, ledger confirmations and complete bank statements of each of the impugned lenders. Therefore, the learned Assessing Officer could not have insisted upon the Appellant proving the origin of every credit appearing in the bank account of the respective lenders. Without prejudice to the aforesaid legal position, the Appellant has also placed on record the complete bank statements of all the impugned lenders as part of the Paper Book. The said bank statements clearly reflect the availability of funds with the respective lenders at the time of advancing the loans and also disclose the immediate source from which such funds were available in their respective bank accounts. Thus, apart from establishing the identity of the lenders, their creditworthiness and the genuineness of the transactions, the Appellant has also furnished contemporaneous banking records which enable verification of the flow of funds preceding the advancement of each loan. The bank statements, read together with the Income-tax Returns, PAN details, ledger confirmations, confirmations of account, Form No. 16A, Form No. 26AS and other supporting documents, present a complete factual record in respect of each lender and provide a transparent audit trail of the transactions. It is respectfully submitted that the aforesaid documentary evidence has been furnished only with a view to facilitate a comprehensive appreciation of the factual matrix by this Hon'ble Tribunal. The bank statements enable verification not only of the receipt of the loan amounts by the Appellant through normal banking channels but also of the availability of funds in the respective bank accounts of the lenders immediately preceding the advancement of the loans. The documentary record, therefore, provides a complete and continuous trail of the transactions and fully supports the Appellant's contention that the impugned borrowings are genuine commercial transactions duly recorded in the regular books of account. In view of the aforesaid documentary evidence, the Appellant has discharged the complete burden cast upon him under section 68 in respect of the aforesaid lenders by establishing their identity, creditworthiness and the genuineness of the transactions through contemporaneous documentary records. Once such primary evidence was produced, the burden shifted upon the Revenue to disprove the same by conducting independent enquiries or by bringing cogent adverse material on record. Admittedly, neither the learned Assessing Officer nor the learned CIT(A) has demonstrated that any of the documents furnished by the Appellant are incorrect, fabricated or unreliable. The impugned addition has thus been sustained merely on suspicion and conjectures without dislodging the documentary evidence available on record and is therefore liable to be deleted. INTEREST EXPENDITURE ON UNSECURED LOANS Without prejudice to the submissions made challenging the addition under section 68 of the Act, the Appellant respectfully submits that the disallowance of interest amounting to Rs.1,10,51,870/- under section 36(1)(iii) is also unsustainable both on facts as well as in law. The impugned interest expenditure represents the contractual cost incurred by the Appellant on unsecured borrowings availed in the ordinary course of carrying on the business. The borrowings formed part of the regular working capital and financing arrangements of the proprietary concern and were utilised for the purposes of the business carried on by the Appellant. The learned Assessing Officer has not recorded any finding that the borrowed funds were diverted towards non-business purposes or utilised for any personal or capital purposes. The disallowance has been made solely because the corresponding unsecured loans have been treated as unexplained under section 68 of the Act. In order to demonstrate the genuineness of the interest expenditure, the Appellant has placed on record comprehensive documentary evidence in respect of every lender forming part of the impugned addition. The Paper Book contains the ledger confirmation of each lender, the corresponding bank statements, Income-tax Returns or Statements of Income, PAN details, Form No. 16A, Form No. 26AS and other supporting records, wherever applicable. These documents establish that the interest has been regularly credited or paid to the respective lenders in accordance with the agreed terms of borrowing and that tax has been duly deducted at source wherever required under the provisions of the Act. The corresponding TDS certificates and Form No.26AS further corroborate the accounting entries recorded in the books of account and demonstrate that the interest transactions have been duly reflected in the statutory records maintained under the Income-tax Act. Further, the Appellant has also placed on record a comprehensive year-wise statement of unsecured loans covering the Financial Years 2019-20 to 2025-26, which traces the complete movement of every loan account over successive years. The statement clearly demonstrates that the borrowings were continuing business liabilities, regularly serviced by payment of interest and, wherever applicable, subsequently repaid through normal banking channels. The continuity of the loan accounts and the regular servicing of the borrowings through payment of interest constitute strong corroborative evidence of the commercial nature and genuineness of the transactions. The documentary evidence therefore establishes that the interest expenditure was not an isolated accounting entry but formed part of genuine and continuing borrowing arrangements maintained in the ordinary course of business. It is respectfully submitted that the allowability of interest under section 36(1)(iii) has to be examined with reference to whether the capital was borrowed for the purposes of the business and whether the interest liability was genuinely incurred. The documentary evidence placed on record clearly establishes both these requirements. The Appellant has maintained regular books of account, the interest expenditure has been duly accounted for therein, tax has been deducted at source wherever applicable and the corresponding payments and credits are fully supported by contemporaneous documentary records. The genuineness of the expenditure is therefore established by the regular course of accounting followed by the Appellant as well as the statutory compliances undertaken in respect of the said interest. It is further submitted that once the Appellant has established the genuineness of the borrowings, the corresponding interest expenditure incurred thereon cannot be disallowed. The disallowance made by the learned Assessing Officer is entirely consequential to the addition under section 68 and does not rest upon any independent finding regarding the utilisation of funds or the genuineness of the expenditure itself. Therefore, upon deletion of the addition under section 68, the consequential disallowance of interest under section 36(1)(iii) also deserves to be deleted in its entirety. Further, The Department, in its Written Submission, has sought to question the genuineness of the interest expenditure on the same reasoning adopted in respect of the principal loan amounts. It is respectfully submitted that the documentary 40 evidence relating to the interest transactions stands on an even stronger footing. Apart from the books of account and ledger confirmations, the Appellant has produced statutory documents such as Form No.16A and Form No.26AS, evidencing deduction of tax at source and corresponding reporting under the provisions of the Act. These statutory records, read together with the bank statements and the year-wise movement of the loan accounts, provide an independent and contemporaneous corroboration of the interest transactions and reinforce the genuineness of the borrowings as well as the expenditure incurred thereon. Revenue's Reliance on CIT v. Focus Exports (P.) Ltd. completely misplaced : The learned Departmental Representative has placed reliance upon the decision of the Hon'ble Delhi High Court in CIT v. Focus Exports (P.) Ltd. [2014] 51 taxmann.com 46 (Delhi). It is respectfully submitted that the said decision is clearly distinguishable on facts and does not advance the case of the Revenue. Firstly, the said decision pertained to the receipt of share application money by a private limited company, whereas the present appeal concerns unsecured loans received by a proprietary concern in the ordinary course of its business. The factual matrix, the nature of the transactions and the surrounding circumstances are fundamentally different. The observations made by the Hon'ble High Court have to be appreciated in the context of the facts before it and cannot be mechanically applied to every case arising under section 68 of the Act. Secondly, in Focus Exports, the assessee had admittedly failed to cooperate during the assessment proceedings, resulting in a best judgment assessment under sections 144/147. The Hon'ble High Court specifically noted that the assessee had failed to furnish complete particulars, had not provided PAN and addresses of all the parties, had not complied with summons issued under section 131 and had virtually obstructed the enquiry conducted by the Assessing Officer. These findings constituted one of the principal reasons for restoring the addition under section 68. The facts of the present case stand on an entirely different footing. The Appellant has actively participated in the assessment as well as appellate proceedings and has placed on record comprehensive documentary evidence in support of every impugned loan. The Paper Book contains confirmations, PAN, Aadhaar Cards, Income-tax Returns or Statements of Income, bank statements, ledger confirmations, Form No.16A, Form No.26AS and a comprehensive statement tracing the movement of each loan account from Financial Year 2019- 20 to Financial Year 2025-26. Thus, far from withholding information, the Appellant has furnished a complete documentary trail in respect of every lender. Thirdly, the Hon'ble High Court in Focus Exports also attached considerable significance to the fact that the bank statements revealed immediate cash deposits or transfer entries immediately preceding the issue of cheques, coupled with investigation material regarding accommodation entry operators and statements recorded during investigation. The Court specifically observed that these surrounding circumstances established a link between the assessee and known accommodation entry providers. It was these additional incriminating facts which led the Court to uphold the addition under section 68. No such facts exist in the present case. There is no investigation report, no statement of any alleged entry operator, no material linking any of the lenders with accommodation entry activities and no finding that the monies advanced to the Appellant represented the Appellant's own unaccounted funds routed back through the lenders. On the contrary, the Appellant has placed on record the complete bank statements of all the lenders, which transparently disclose the flow of funds, together with all the supporting statutory and financial documents evidencing the identity, creditworthiness and genuineness of the transactions. Lastly, the Hon'ble Delhi High Court itself recognised that the applicability of section 68 depends upon the facts and surrounding circumstances of each individual case and that the sufficiency of the explanation has to be examined with reference to the evidence available on record. The present case is supported by extensive contemporaneous documentary evidence and a complete accounting trail extending over several financial years. Consequently, the factual foundation on which the decision in Focus Exports (P.) Ltd. was rendered is entirely absent in the present appeal. Accordingly, the reliance placed thereon by the Revenue is misplaced and the said decision is wholly distinguishable on facts. Revenue's Reliance on PCIT v. NRA Iron & Steel (P.) Ltd. completely misplaced : The learned Departmental Representative has further placed reliance upon the judgment of the Hon'ble Supreme Court in PCIT v. NRA Iron & Steel (P.) Ltd. [(2019) 412 ITR 161 (SC)]. It is respectfully submitted that the reliance is wholly misplaced since the said judgment was rendered in an entirely different factual background and does not apply to the facts of the present case. At the outset, it is pertinent to note that the aforesaid decision concerned share capital and share premium received by a private limited company, where the Hon'ble Supreme Court held that a higher degree of scrutiny was warranted having regard to the peculiar facts of that case. The present appeal, on the other hand, concerns unsecured loans received by a proprietary concern during the ordinary course of business. The nature of the transactions, the relationship between the parties and the surrounding circumstances are therefore fundamentally different. More importantly, the decision in NRA Iron & Steel (P.) Ltd. turned entirely on the results of independent investigations carried out by the Assessing Officer. The Assessing Officer had conducted field enquiries at Mumbai, Kolkata and Guwahati, issued summons, verified the physical existence of the investor companies and discovered that several of them were non-existent at the given addresses, while others neither appeared nor produced the requisite evidence. The Supreme Court specifically noticed that the field enquiries had revealed that the alleged investor companies lacked creditworthiness and that the entire transaction lacked credibility. It was on these exceptional facts that the addition under section 68 was ultimately sustained. The factual position in the present case is entirely different. The Appellant has furnished complete documentary evidence in respect of every lender, including confirmations, PAN, Aadhaar, Income-tax Returns or Statements of Income, bank statements, ledger accounts, Form No.16A, Form No.26AS and a comprehensive statement tracing the movement of every loan account from Financial Year 2019- 20 to Financial Year 2025-26. The complete postal addresses of all the lenders have also been furnished. Despite the availability of all these particulars, neither the learned Assessing Officer nor the learned CIT(A) has recorded any finding that any of the lenders was non-existent, fictitious or untraceable. No field enquiry, survey or independent investigation has brought any adverse material on record against any of the lenders. Thus, the very factual foundation on which the Hon'ble Supreme Court rendered its decision in NRA Iron & Steel (P.) Ltd. is absent in the present case. The Hon'ble Supreme Court has also recognised that once the assessee submits documents relating to identity, genuineness of the transaction and creditworthiness, the Assessing Officer must conduct an enquiry before invoking section 68. In the present case, the Appellant has produced extensive documentary evidence in support of all the three ingredients. However, no independent material has been brought on record to discredit the evidence produced by the Appellant or to establish that the monies advanced by the lenders actually belonged to the Appellant. Consequently, the present case falls within the very principle recognised by the Hon'ble Supreme Court that documentary evidence furnished by the assessee must be examined through proper enquiry before an adverse inference can be drawn. The Revenue's reliance on the observations relating to creditworthiness is equally misplaced. In NRA Iron & Steel (P.) Ltd., the Supreme Court found that several investor companies had disclosed negligible or nil taxable income, had invested substantial amounts at an unjustified premium, failed to explain the source of the investment and, in several cases, were found to be non-existent. In the present case, the Appellant has voluntarily placed on record the complete bank statements of all the lenders, clearly demonstrating the availability of funds at the time of advancing the loans. The documentary record also evidences the subsequent payment of interest, deduction of tax at source, repayment of loans and continuity of the lending relationship over several financial years. These contemporaneous documents establish genuine commercial transactions and distinguish the present case from the facts considered by the Hon'ble Supreme Court. It is therefore respectfully submitted that the judgment in PCIT v. NRA Iron & Steel (P.) Ltd. was rendered in the backdrop of overwhelming adverse material unearthed during independent investigations, including findings that the alleged investor companies were non-existent and lacked financial capacity. Since no such adverse material or investigative findings exist in the present case, and the Appellant has placed on record comprehensive documentary evidence 43 substantiating the identity of the lenders, the genuineness of the transactions and their financial capacity, the said judgment is clearly distinguishable on facts and does not assist the case of the Revenue.” 15. We have heard the rival contentions, perused the orders of the authorities below and the submissions made before the Assessing Officer and the evidences produced before us. It is observed that in the course of the assessment proceedings, the Assessing Officer called for complete details of unsecured loans, creditors, utilization of funds and deduction claimed. The assessee furnished confirmations, PAN, Aadhaar, ITR, bank statements, ledger accounts, confirmation statements of unsecured loans, Form 16A, Form 26AS, etc. to prove the genuineness of the trade creditors. However, the Assessing Officer treated sundry creditors to the extent of Rs. 8,19,64,000/- as unexplained credit on the ground that the assessee has not produced certain documents like ITR, complete bank statements, creditors have shown meagre income in the return, and there were certain credits in the bank account of the creditors immediately prior to transfer to the assessee's account. Thus, the Assessing Officer concluded that the genuineness, identity and creditworthiness of the creditors were not proved by the assessee and accordingly the said amount was added as unexplained credit. Consequently interest paid by the assessee at Rs. 1,10,51,870/- on the said loans was also disallowed.

“ADDITION OF RS. 5,50,99,917/- (BEING NET AGGREGATE ADDITION TO SUNDRY CREDITORS) TAKEN AS UNSUBSTANTIATED CREDITORS * The Appellant respectfully submits that the addition of Rs.5,50,99,917/- made by the learned Assessing Officer on account of sundry creditors and confirmed by the learned Commissioner of Income Tax (Appeals) is wholly arbitrary, contrary to the facts on record and legally unsustainable. The impugned addition has been made without appreciating the true nature of the outstanding liabilities appearing in the books of account and without bringing any material on record to establish that the said liabilities were either fictitious or non-genuine. * At the outset, it is respectfully submitted that the impugned amount represents outstanding balances payable to various trade creditors arising in the ordinary course of the Appellant's business of wholesale trading in industrial chemicals. These liabilities represent amounts payable against purchases of goods effected during the normal course of business and are duly reflected in the regular books of account maintained by the Appellant. The books of account have been duly audited and no defects whatsoever have been pointed out therein. The learned Assessing Officer has not rejected the books of account under section 145 of the Act nor has he disputed the purchases, sales or quantitative records maintained by the Appellant. Therefore, once the books of account are accepted, the outstanding trade creditors appearing therein cannot be selectively disregarded without any cogent material. * The Appellant respectfully submits that during the assessment proceedings, complete details relating to the sundry creditors were furnished before the learned Assessing Officer. The Appellant had furnished party-wise details of creditors, ledger accounts, confirmations, purchase invoices, bank statements where called for and other documentary evidence establishing that the liabilities represented genuine business transactions. The outstanding balances were duly reconciled with the books of account and were carried forward from the regular business transactions undertaken by the Appellant. Despite the aforesaid documentary evidence being available on record, the learned Assessing Officer proceeded to treat the liabilities as unsubstantiated merely on the basis of certain perceived deficiencies without undertaking any independent enquiry. * It is respectfully submitted that the learned Assessing Officer has failed to appreciate that the existence of a trade creditor is intrinsically linked with the corresponding purchases. The Revenue has accepted the purchases made by the Appellant. The sales declared by the Appellant have also been accepted. The gross turnover as well as the trading results have not been disturbed. Once the purchases giving rise to the trade creditors have been accepted as genuine, the corresponding outstanding liability cannot simultaneously be held to be non-genuine. Such an approach results in an inherent contradiction in the assessment order. * The learned Assessing Officer has nowhere alleged that the purchases recorded by the Appellant were bogus or that no goods were received from the respective suppliers. There is also no finding that the payments made in subsequent years have been disallowed or that the liabilities have ceased to exist. In the absence of any such finding, the addition merely because the balances remained outstanding at the end of the financial year is wholly unjustified. * The Appellant further submits that the learned Assessing Officer has not conducted any enquiry whatsoever to verify the genuineness of the creditors. No notices under section 133(6) were issued to the majority of the creditors. No summons under section 131 were issued requiring their attendance. No adverse material collected from any creditor has been confronted to the Appellant. The impugned addition has therefore been made merely on assumptions without carrying out the minimum enquiry expected before drawing an adverse inference. It is a settled principle that when the assessee furnishes primary documentary evidence, the Assessing Officer is duty bound to examine the same and, if necessary, conduct further investigation before rejecting the explanation. In the present case, no such exercise has been undertaken. * It is respectfully submitted that the learned Assessing Officer has also failed to appreciate the distinction between trade creditors and cash credits. Trade creditors arise out of commercial transactions involving purchase of goods and are supported by purchase invoices, ledger accounts, goods received, stock records and corresponding sales. Such liabilities cannot be equated with unexplained cash credits merely because they remain outstanding at the end of the accounting year. The existence of outstanding trade liabilities is a normal incident of every trading business, particularly in industries where purchases are made on credit. * The Appellant respectfully submits that the entire business activity of the Appellant has been accepted by the Revenue. The turnover exceeding Rs.60 crores has not been disputed. The trading results have not been disturbed. The books of account have not been rejected. The quantitative details of purchases and sales have not been found to be incorrect. In such circumstances, the addition of outstanding trade creditors, without rejecting the corresponding purchases, is self- contradictory and unsustainable. * It is further submitted that the learned Assessing Officer has not brought any evidence on record to demonstrate that the liabilities had ceased to exist or that the creditors had waived their claims. There is no finding that the liabilities were written back by the Appellant or that they had become the income of the Appellant under any provision of the Act. On the contrary, the liabilities continued to remain payable in the books of account and many of them were subsequently discharged during the normal course of business. Therefore, there was no justification for treating the same as income of the Appellant. * The learned Commissioner of Income Tax (Appeals), while confirming the addition, has also failed to independently appreciate the documentary evidence furnished by the Appellant. The appellate order merely affirms the findings recorded by the learned Assessing Officer without examining whether the liabilities represented genuine trade transactions arising in the ordinary course of business. No independent findings have been recorded regarding the confirmations, ledger accounts or other evidence furnished by the Appellant. The confirmation of the addition without proper appreciation of the evidence is therefore unsustainable. * The Appellant respectfully submits that the Paper Book filed before this Hon'ble Tribunal contains complete documentary evidence substantiating the genuineness of the outstanding trade creditors. The books of account, audited financial statements, purchase records, ledger accounts and other supporting documents clearly establish that the impugned liabilities represent genuine business creditors and not unexplained income of the Appellant. In the absence of any material brought on record by the Revenue to establish otherwise, the addition cannot be sustained. * It is also respectfully submitted that the learned Assessing Officer has not identified any specific creditor whose liability has been proved to be fictitious or non-existent. The addition has been made on a broad and generalized basis without recording any definite finding against individual creditors. Such an approach is contrary to the settled principles of assessment and violates the requirement that additions must be founded upon cogent evidence rather than general suspicion. * In view of the aforesaid facts and circumstances, it is respectfully submitted that the outstanding liabilities of Rs.5,50,99,917/- represent genuine trade creditors arising out of regular business transactions duly recorded in the audited books of account. The learned Assessing Officer has neither rejected the books of account nor disputed the purchases giving rise to such liabilities. No independent enquiry has been conducted and no material has been brought on record to establish that the liabilities are fictitious or represent the undisclosed income of the Appellant. The impugned addition is therefore wholly unjustified and deserves to be deleted in its entirety. Accordingly, it is respectfully prayed that the addition of Rs.5,50,99,917/- sustained by the learned Commissioner of Income Tax (Appeals) be deleted and the appeal of the Appellant be allowed. Xxxxxx

Further, Acceptance of Purchases and Corresponding Trade Creditors It is respectfully submitted that the impugned addition represents trade creditors arising in the ordinary course of the Appellant's business. The Assessing Officer has nowhere disputed the purchases effected by the Appellant, nor has he held that the purchases are bogus or inflated. The quantitative records, turnover, trading results and audited financial statements have all been accepted. Once the purchases giving rise to the trade creditors have been accepted as genuine, the corresponding trade liabilities appearing in the books cannot be selectively treated as unexplained or non-genuine in the absence of any independent material demonstrating that such liabilities are fictitious. The existence of trade creditors is merely the accounting consequence of accepted business purchases and therefore, without disturbing the purchases themselves, the corresponding creditors could not have been disallowed. Trade Credit is an Integral Incident of Business The Appellant is engaged in wholesale trading of industrial chemicals involving substantial turnover running into more than Rs.60 Crores. In such line of business, purchases are ordinarily made on credit and substantial trade creditors constitute normal working capital requirements. The mere existence of outstanding trade creditors at the end of the year cannot, by itself, give rise to any adverse inference unless the Department establishes that the liabilities are fictitious or have ceased to exist. No such material has been brought on record in the present case. The Appellant had furnished complete documentary evidences in respect of the trade creditors including ledger accounts, confirmations, purchase invoices, bank statements wherever applicable, audited financial statements and other supporting documents. These evidences establish not only the identity of the creditors but also the genuineness of the underlying purchase transactions. Neither the Assessing Officer nor the learned CIT(A) has recorded any finding that these documents are fabricated, false or unreliable. The documentary evidences have merely been disregarded without assigning cogent reasons. A substantial portion of the impugned trade creditors represents continuing business parties whose opening balances stood accepted in the earlier assessment years. The Assessing Officer has neither disputed the opening balances nor established that any liability had ceased to exist during the relevant previous year. Therefore, without disturbing the accepted opening balances or demonstrating cessation of liability, the aggregate outstanding creditors could not have been treated as unexplained merely because confirmations or further particulars were considered insufficient. The impugned trade creditors merely represent liabilities disclosed in the balance sheet and not receipts constituting income. Unless the Revenue demonstrates that such liabilities are fictitious, ceased or represent unexplained credits within the meaning of law, the same cannot automatically be treated as taxable income.

During the relevant previous year the Appellant's business turnover had substantially increased. Consequently, purchases, debtors, inventory and working capital requirements also increased. The increase in trade creditors is therefore a natural commercial consequence of increased business activity and cannot, in isolation, be regarded as an adverse circumstance. The learned CIT(A), while confirming the addition, has merely affirmed the conclusions of the Assessing Officer without independently appreciating the documentary evidences placed on record. The appellate order does not identify any specific creditor whose identity was not established or any document found to be false. The confirmation of the addition is therefore based on general observations rather than a creditor-wise examination of the evidences furnished by the Appellant. In view of the aforesaid facts, it is respectfully submitted that the impugned addition has been made merely on suspicion and without any independent enquiry. The purchases giving rise to the trade creditors have been accepted, the books of account have not been rejected, the liabilities continue to be reflected in the audited financial statements, and complete documentary evidences have been furnished. In the absence of any material establishing that the liabilities are fictitious or non-genuine, the addition of Rs.5,50,99,917/- deserves to be deleted in its entirety. Thus, based on above discussion and judicial precedents no addition can be made as no on money/credit was received by the assessee on Sundry Creditors and it is upon the revenue to prove that on money/credit was received. It is respectfully submitted that the legal issue arising in the present appeal is no longer res integra and stands settled by a consistent line of judicial precedents, wherein it has been categorically held that no addition under section 68 of the Income Tax Act, 1961 can be sustained once the assessee discharges its initial onus by establishing the identity of the creditor, creditworthiness, and genuineness of the transaction through cogent documentary evidence such as confirmations, PAN and income-tax particulars, audited financial statements, and bank statements evidencing transactions through normal banking channels. It is further settled that adverse inference cannot be drawn merely on account of non-response by third parties to notices or summons, nor can additions be made on the basis of suspicion, investigation reports, or third-party statements without independent enquiry and rebuttal of the evidences furnished. The assessee is not required to prove the source of the source, and once the primary burden is discharged, the onus shifts to the Assessing Officer. The detailed judicial precedents relied upon in support of the above settled legal position are enclosed separately as Annexure- 3 (page 14 to page 16), and may be read as an integral part of this submission.”

“1. The assessee has contended that it had discharged the onus of proving the identity, genuineness and creditworthiness of the lenders and creditors and, therefore, the Learned CIT (A) erred in confirming the addition made by the Assessing Officer. The said contention is contrary to the facts available on record. 2. During the assessment proceedings, the Assessing Officer examined the details of sundry creditors shown by the assessee. As recorded in Para 4.3.3 of the Assessment Order (Pages 15-16), the assessee had shown an outstanding credit balance of Rs. 14,01,83,503/- and advances to creditors of Rs.1,72,35,913/-, resulting in net sundry creditors of Rs. 12,29,47,589/- as on 31.03.2020. 3. The Assessing Officer specifically called upon the assessee to furnish complete details of the creditors, including their addresses, ledger accounts and confirmations. However, the assessee failed to furnish the complete addresses of the creditors, copies of ledger accounts and confirmations from the major creditors. The Assessing Officer also noted that the assessee had stated that it did not enjoy any credit facility from its suppliers. Therefore, in the absence of any supporting documentary evidence establishing the genuineness of the outstanding liabilities, the Assessing Officer treated Rs.5,50,99,917/- as unsubstantiated creditors and other liabilities and made the addition. (Assessment Order, Para 4.3.3, Pages 15- 16). 4. The Learned CIT (A), after examining the assessment records and the submissions of the assessee, upheld the findings of the Assessing Officer. The Learned CIT(A) observed that the assessee had failed to establish the genuineness of the creditors by producing supporting documentary evidence. It was further held that no material was produced to rebut the findings of the Assessing Officer. Accordingly, the addition of Rs.5,50,99,917/- was confirmed. (CIT(A)'s Order, Para 5.5, Page 34 of 35). 5. Reliance is placed on the judgment of the Hon'ble Madras High Court in NEPC India Ltd. v. ACIT [(2021) 130 taxmann.com 490 (Mad.)], wherein it was held that the initial burden lies upon the assessee to establish the genuineness of the creditors by furnishing complete particulars and supporting documents. Mere furnishing of a list of creditorsis not sufficient. Where the assessee fails to produce confirmations, addresses and other relevant documentary evidence, the Assessing Officer is justified in drawing an adverse inference. 6. In the present case also, the assessee failed to discharge the primary onus cast upon it. Despite sufficient opportunities, it failed to furnish complete addresses, ledger accounts and confirmations of the major creditors. Mere disclosure of creditors in the books of account does not establish the genuineness of the liabilities. In the absence of satisfactory evidence, the Assessing Officer rightly treated the amount of Rs.5,50,99,917/- as unsubstantiated creditors, and the Learned CIT(A) has rightly confirmed the addition. 7. In view of the above facts, the findings of the Assessing Officer and the Learned CIT (A) are fully supported by the material available on record as well as the settled legal position. Therefore, the ground raised by the assessee deserves to be dismissed.” 25. In rebuttal, the learned counsel for the assessee submitted as under:-

“WITH RESPECT TO THE TRADE CREDITORS The Appellant respectfully submits that the impugned addition of Rs.5,50,99,917/- does not represent the total outstanding trade creditors reflected in the books of account but represents the net increase in the trade creditors during the relevant previous year, being the difference between the opening balances and the closing balances of the respective creditor accounts. The said increase has arisen entirely in the ordinary course of carrying on the Appellant's business and represents liabilities generated from regular commercial transactions undertaken during the year. The increase in the trade creditors is therefore a direct consequence of the business operations carried on by the Appellant and forms part of the normal working capital cycle of the business. In order to facilitate a complete appreciation of the movement of the aforesaid trade creditors, the Appellant has placed on record the ledger accounts of each of the creditors together with a comprehensive reconciliation statement explaining the subsequent movement of the balances forming part of the impugned addition. The ledger accounts clearly demonstrate the opening balances, transactions undertaken during the year, purchases, payments, adjustments and the resultant closing balances. Consequently, the reconciliation enables verification of the precise transactions which resulted in the net increase in the creditor balances during the relevant previous year. Further, wherever the increase in the trade creditors was subsequently settled by payment, the corresponding ledger accounts together with the relevant payment details have also been enclosed. Similarly, wherever the balances forming part of the increase were subsequently adjusted through journal entries, debit notes or reconciliation of reciprocal accounts, the corresponding subsequent ledger accounts and supporting accounting records have also been furnished. Thus, every component of the impugned increase has been correlated with its subsequent accounting treatment, thereby providing a complete and continuous accounting trail from the original transaction giving rise to the liability to its eventual settlement, adjustment or continuation in the books of account. It is respectfully submitted that in several instances the Appellant had both purchase and sale transactions with the same party or the concerned group entity. Upon reconciliation of the reciprocal accounts, where the sales exceeded the purchases or vice versa, the corresponding debit and credit balances were adjusted through journal entries in accordance with accepted accounting principles and only the net balance was thereafter carried forward in the appropriate ledger account. To facilitate complete verification of such accounting treatment, the Appellant has enclosed not only the ledger account of the original creditor but also the subsequent ledger account wherever the balance has been transferred or adjusted. The reconciliation statement, read together with the corresponding ledger accounts, clearly establishes that such entries merely represent accounting adjustments arising from reconciliation of mutual business transactions and do not affect the genuineness of the underlying trade liabilities. The aforesaid documentary record demonstrates that the impugned addition represents nothing more than the net movement in the trade creditors during the relevant previous year, every component of which is fully supported by contemporaneous books of account, ledger accounts and the subsequent accounting trail placed on record. The reconciliation thus enables this Hon'ble Tribunal to verify the origin of the increase, the corresponding accounting entries and the subsequent treatment of the liability in the books of account, thereby substantiating the genuineness of the trade creditors forming part of the impugned addition. Further, in order to demonstrate the underlying commercial nature of the transactions giving rise to the impugned trade creditors, the Appellant has also placed on record sample purchase invoices together with the corresponding sample sales invoices. These documents clearly establish the trading cycle of the Appellant's business, namely that the goods purchased from the respective suppliers were subsequently sold in the ordinary course of business. The sample invoices, read in conjunction with the ledger accounts and creditor-wise reconciliation, corroborate that the trade creditors have arisen from genuine purchases undertaken for the purposes of the business and not from any unexplained or non-genuine transactions. The documentary evidence thus provides a complete factual nexus between the purchases, the corresponding sales and the resultant trade liabilities recorded in the books of account. The sample purchase and sales invoices are not being relied upon in isolation but are intended to demonstrate the normal business pattern consistently followed by the Appellant. The documentary record establishes that the purchases giving rise to the trade creditors formed part of the regular trading activity of the Appellant, whereby the goods so purchased were subsequently sold in the ordinary course of business.

The trade creditors are therefore an integral part of the accepted trading operations and represent genuine business liabilities arising from actual commercial transactions. Further, the Appellant has also furnished a comprehensive creditor-wise statement containing the names, complete postal addresses and Permanent Account Number (PAN) of each of the trade creditors forming part of the impugned addition. The said particulars enable complete identification and verification of every creditor and establish that the liabilities relate to identifiable business entities. The creditor-wise details, read together with the corresponding ledger accounts, purchase invoices, reconciliation statements and other supporting documents forming part of the Paper Book, provide a complete factual record in respect of each trade creditor and substantiate the genuineness of the outstanding liabilities. In addition to the ledger accounts and reconciliation statements, the Appellant has furnished a comprehensive creditor-wise statement containing the names, complete postal addresses and Permanent Account Number (PAN) of each of the trade creditors. Further, sample purchase invoices and corresponding sample sales invoices have also been placed on record to demonstrate the actual nature of the trading transactions giving rise to the impugned liabilities. These documents collectively establish the complete identity of the creditors, the commercial transactions from which the liabilities originated and the nexus between the purchases and the subsequent sales effected by the Appellant in the ordinary course of business. The creditor-wise details, together with the documentary evidence forming part of the Paper Book, provide a complete and transparent evidentiary trail in respect of the trade creditors forming part of the impugned addition. Statement Explaining the Movement and Settlement of Trade Creditors SN Particulars Outstanding Amt Payment Date 1 Arshiya Logistics 15005.75 15050.00 17.04.2020 Services Limited 2 Asian Chemtech 93270238.00 Transferred to Pvt Ltd (Pur A/c) Sales A/c 3 Asiatic Trading Co 1300000.00 Transferred to Loan & Advance A/c 4 B M Parekh & Co 66611.00 Debit Note Attached 5 Brother CISA 3406805.41 3487941.00 18.05.2020 (Pty) Ltd 6 Canara Bank A/c 167733.66 41954.00 01.04.2021 125779.66 01.04.2021 7 Dineshchandrasen 160127.54 49900.00 07.04.2020 (2018 - 19) 100.00 07.04.2020 50100.00 23.04.2020 SN Particulars Outstanding Amt Payment Date 57816.00 18.05.2020 50000.00 25.05.2020 8 D M Anandwala & 31251.00 Transferred to Co Audit Fees 9 Epic Global 1200.00 Paid in Cash 05.04.2021 Services Private Limited 10 GK Consultancy 22000.00 31000.00 18.07.2020 11 Knack Packaging 103385.00 Outstanding Pvt Ltd 12 Kotak Mahindra 171100.00 171100.00 01.04.2021 Bank A/c 13 Mahavir 31243233.00 Transfered to Expochem Ltd Sales A/c (Pur) 14 Milton Sales 2770136.00 1933740.00 27.08.2020 Corporation - Commission A/c 836396.00 08.08.2022 15 MSC 14159.16 Outstanding Mediterranean Shipping Company S.A 16 Navkar 1500.00 Transfer to Trupti Corporation Ltd Transport Service 17 Oshochem Ind 471954.00 1769957.34 16.02.2021 Corporation - Commission A/c 18 Partho Beads 826875.00 Outstanding 19 Perma Shipping 34136.00 Outstanding Line India Pvt Ltd 20 Plating Materials 490800.00 1092600.00 27.07.2022 Mfg Co.-Expenses 21 P.P.I Softech 131050.50 Outstanding 22 Sohil Warehousing 393074.00 63720.00 11.05.2020 31860.00 21.07.2020 14160.00 28.07.2020 71862.00 28.07.2020 31860.00 24.08.2020 31860.00 09.09.2020 7080.00 09.09.2020 102129.00 09.09.2020 78258.00 14.09.2020 23 Trupti Transport 423306.00 100000.00 26.06.2020 Service SN Particulars Outstanding Amt Payment Date 106697.00 23.09.2020 253306.00 08.10.2020 24 Unitex 4596630.14 4596630.00 06.07.2022 Corporation - Commission A/c 25 Unitex 51773.00 51773.00 25.08.2020 Corporation (Pur A/c) 26 VDH & Co. 98780.00 2000.00 18.07.2020 41300.00 21.09.2020 52480.00 21.09.2020 27 Vichare Express & 2065.00 2065.00 23.12.2020 Logistics Pvt.Ltd Grand Total 140264929.16

Note: In regards to Purchases of Asian Chemtech Pvt Ltd & Mahavir Expochem Ltd, we are having Sales for the same party so the credit balance is transferred to Sales A/c for which sales ledger for both the parties has been enclosed as sales is higher than purchase. Further, we have filed the complete details with respect to the creditors in the paperbook - 1 from page 945 to 1611 and paperbook to as follows:

DETAILS WITH RESPECT TO THE PAYMENT MADE TO THE CREDITORS IN SUBSEQUENT YEARS SN Particulars PAGE NUMBER 1 Arshiya Logistics Services Limited 1618 2 Asian Chemtech Pvt Ltd (Pur A/c) and sales 1619-1624 3 Asiatic Trading Co 1625-1626 4 B M Parekh & Co 1627-1630 5 Brother CISA (Pty) Ltd 1631 6 Canara Bank A/c 1632-1648 7 Dineshchandrasen (2018 - 19) 1649-1652 8 D M Anandwala & Co 1653-1654 9 Epic Global Services Private Limited 1655 10 GK Consultancy 1656 11 Knack Packaging Pvt Ltd 1657-1658 12 Kotak Mahindra Bank A/c 1659 13 Mahavir Expochem Ltd (Pur) 1660-1661 14 Milton Sales Corporation - Commission A/c 1662 15 MSC Mediterranean Shipping Company S.A 1663-1665 16 Navkar Corporation Ltd 1666-1668 17 Oshochem Ind Corporation - Commission A/c 1669 SN Particulars PAGE NUMBER 18 Partho Beads 1670-1671 19 Perma Shipping Line India Pvt Ltd 1672-1673 20 Plating Materials Mfg Co.-Expenses 1674 21 P.P.I Softech 1675-1676 22 Sohil Warehousing 1677-1679 23 Trupti Transport Service 1680-1682 24 Unitex Corporation - Commission A/c 1683 25 Unitex Corporation (Pur A/c) 1684 26 VDH & Co. 1685 27 Vichare Express & Logistics Pvt.Ltd 1686 Revenue's Reliance on NEPC India Ltd. v. ACIT completely misplaced: The learned Departmental Representative has also relied upon the judgment of the Hon'ble Madras High Court in NEPC India Ltd. v. ACIT [(2021) 130 taxmann.com 490 (Mad.)]. It is respectfully submitted that the reliance placed on the said decision is entirely misplaced as the judgment was rendered in the context of the validity of reassessment proceedings initiated under sections 147 and 148 of the Act and not while adjudicating the merits of an addition under section 68. The controversy before the Hon'ble High Court was confined to whether the Assessing Officer had validly formed a "reason to believe" that income had escaped assessment on account of the assessee's failure to disclose complete particulars during the original assessment proceedings. The Court was not called upon to decide whether the additions proposed under section 68 were ultimately sustainable on merits. Further, the factual foundation of the said decision is entirely different from the present case. In NEPC India Ltd., the assessee had admittedly failed to furnish the complete particulars called for by the Assessing Officer during the original assessment proceedings. In respect of the alleged trade advances, the assessee had merely furnished a list of parties without providing their addresses or establishing that the advances had arisen out of purchases made in the normal course of business. Likewise, in respect of the unsecured loans, the assessee had failed to furnish loan confirmations, addresses and PAN details of the lenders. It was in these circumstances that the Hon'ble High Court held that the Assessing Officer had valid reasons to reopen the completed assessment. The facts of the present case stand on an entirely different footing. The Appellant has furnished complete particulars of every lender and every trade creditor, including their names, complete postal addresses, PAN details, confirmations, ledger accounts, bank statements, Income-tax Returns or Statements of Income, Form No.16A, Form No.26AS and other supporting documentary evidence. In respect of the trade creditors, the Appellant has also furnished creditor-wise reconciliation statements, subsequent ledger accounts, sample purchase invoices and corresponding sample sales invoices demonstrating that the liabilities have arisen from genuine trading transactions undertaken in the ordinary course of business. Thus, the very deficiencies which formed the basis of the decision in NEPC India Ltd. are absent in the present case. It is further pertinent to note that the Hon'ble High Court itself proceeded on the finding that the assessee had not furnished complete information and supporting documents during the original assessment proceedings and, therefore, the Assessing Officer had reason to believe that income had escaped assessment. The present case is not one of reopening under sections 147 and 148 but an appeal on the merits of additions made under section 68 after the Appellant has placed comprehensive documentary evidence on record substantiating the identity of the parties, the genuineness of the transactions and the commercial nature of the underlying business dealings. Consequently, the ratio of the said judgment has no application to the facts of the present appeal. Accordingly, it is respectfully submitted that the decision in NEPC India Ltd. v. ACIT does not support the case of the Revenue and is clearly distinguishable both on facts and in law. In view of the aforesaid facts and the documentary evidence placed on record, it is respectfully submitted that the Appellant has comprehensively substantiated the impugned increase in the trade creditors by furnishing, inter alia, the names, addresses and PAN of all the creditors, ledger accounts, creditor-wise reconciliation statements, sample purchase and corresponding sales invoices, subsequent ledger accounts, payment details and supporting accounting records. The documentary evidence, when read as a whole, establishes the complete identity of the creditors, the genuineness of the underlying commercial transactions, the accounting treatment accorded thereto and the subsequent movement of the liabilities. The increase in the trade creditors is thus fully explained and represents genuine business liabilities arising in the ordinary course of the Appellant's trading activities. It is, therefore, most respectfully submitted that the addition of Rs.5,50,99,917/-, being the net increase in the trade creditors during the relevant previous year, is wholly unsustainable on the facts of the case and deserves to be deleted in its entirety. ” 26. We have heard the rival submissions, perused the orders of the authorities below and the materials placed before us. On perusal of the assessment order, it is noticed that the Assessing Officer treated the difference between opening and closing of sundry creditors as unexplained credits, observing that the assessee has not provided any details to establish the genuineness of the creditors. The addition was sustained by the learned CIT(A).

Order pronounced in the open Court on 19/08/2026 2.

Sd/- Sd/- CHALLA NAGENDRA PRASAD MAKARAND VASANT MAHADEOKAR JUDICIAL MEMBER ACCOUNTANT MEMBER

MUMBAI, DATED: /08/2026 Prabhat Copy to: MIHIR BIPIN PAREKH, 9 RUBY MANSION, FORJETT CROSS STREET, GOWALIA, GRANT ROAD S.O, 1 MUMBAI 400007, MUMBAI-400007, MAHARASHTRA

DCIT 19(1), ROOM NO.506, PIRAMAL CHAMBERS, 2 PAREL, MUMBAI - 400012, MUMBAI-400012, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE