DCIT CIRCLE 1(1)(1), MUMBAI, MUMBAI vs. AASHRAYA BUILDTECH PRIVATE LIMITED, MUMBAI

The brief facts of the case are that the assessee filed the return by declaring loss of Rs.22,39,718/-. The assessee’s case was reopened and assessee filed the return is in compliance to the notice u/sec. 148 of the Act by declaring loss of Rs.21,40,327/-. The assessee’s case was reassessed by the Ld. AO and confirmed the additions (i). related to amount to Rs.29,88,21,250/- u/sec. 68 of the Act treating the unsecured loan received from M/s. Teej Impex Pvt. Ltd. and M/s. Piyali Trading Company Pvt. Ltd. as unexplained cash credit (ii). addition of working Rs.61,28,088/- on account estimated profit the 20% of total customer advances amount of Rs.3,06,40,440/- received during the year. (iii). disallowance of Rs.13,10,692/- towards various administrative and project related expenses for want of adequate supporting evidence. The assessment was completed finally, by determining total income amount to Rs.30,41,99,503/- as against the return loan amount to Rs.21,40,527/- resulting in total addition of Rs.30,62,60,030/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). the Ld. CIT(A) rejected the addition made by the Ld. AO.

The Ld. DR argued contended that the Ld. CIT(A) had specifically made the objection that there is a lack of verification during the assessment proceeding;. The Ld. DR invited our attention in impugned assessment order page 25, relevant paragraphs are reproduced as below: “M/s TeejImpex Private Limited submitted its response on 12/05/2023 and failed to provide complete details along with documentary evidence w.r.t source of unsecured loans given to the assessee during the year. It also failed to submit complete loan agreement with the assessee as huge amount of loans are involved. It also failed to provide complete ITR along with acknowledgement for A.Y. 2013-14 and 2014-15. It merely furnished its previous response. It must be noted here that M/s TeejImpex Private Limited is a consistently loss making entity as can be observed from its Audit Report. It has shown Losses of INR (-) 12,66,09,564/- for A.Y 2014-15 and losses of INR (-) 11,34,13,426/- for A.Y 2015-16 in its Audit Report. Further, it has shown negative reserves and surplus consistently. It has shown reserves and surplus of INR (-) 60,26,91,687/- for A.Y 2014-15 and reserves and surplus of INR (-) 71,62,07,157/- for A.Y 2015-16 in its Audit Report. M/s TeejImpex Private Limited submitted that the unsecured loan given to the assessee during A.Y. 2015-16 was fully repaid by F.Y. 2021-22 and submitted a copy of Ledger account. M/s TeejImpex Private Limited failed to furnish the highlighted bank account statement indicating the re-payment of loan amount given to the assessee. • M/s Piyali Trading Company Private Limited submitted its response on 22.05.2023 and sought 10-15 days more time to collect the information/documents related to the case. It failed to provide complete details along with documentary evidence w.r.t source of unsecured loans given to the assessee during the year. It also failed to submit complete loan agreement with the assessee as huge amount of loans are involved. It also failed to provide complete ITR along with acknowledgement for A.Y. 2013-14 and 2014-15. • This unit also sent a notice u/s 142(1) to the assessee on 09.05.2023 and asked it to furnish complete schedule of repayment of loans/interest paid to M/s Piyali Trading Company and M/s TeejImpex Pvt Ltd along with necessary documentary evidence. The assessee furnished 3 its reply on 12.05.2023 and stated that it had fully repaid the loan taken from M/s TeejImpexPvt Ltd in the F.Y 2021-22 and attached a copy of ledger. The assessee failed to furnish the highlighted bank account statement indicating the re-payment of loan amount taken from M/s Piyali Trading Company. It further stated that loan taken from M/s Piyali Trading Company is outstanding till date. Both M/s Piyali Trading Company Private Limited and M/s TeejImpex Private Limited have failed to prove their creditworthiness to grant such huge loans as they have filed ITRs of very low amount. Hence, the genuineness of these transactions is also not proved. • From the above, it is clear that the parties do not have the creditworthiness to give such huge loans to the assessee as the parties are filing ITRs of considerably very low amount / return of loss and have negative reserves and surplus. • Hence, in the absence of creditworthiness of the parties and genuineness of the loan transaction, an amount of Rs. 29,88,21,250/- is considered as unexplained cash credits u/s 68 of the Act.” (Addition: Rs. 29,88,21,250/-)

The Ld. DR further argued that the Ld. AO had estimated the profit earned from the advance received from the customer. The assessee had business of real estate development and undertook a project of construction and development of plotted ownership OSCAR at Indore. Further it is noticed that the assessee company has shown inventory of Rs.30,06,20,783/-. The assessee had made the advance amount to Rs.306,40,440/-. The Ld. AO had rejected the 25% of advance received from customer after considering the expenses incurred by the assessee on purchase of land and expenses incurred on construction. So, amount to Rs.61,28,088/- added back with the total income of the assessee. Further, the Ld. DR contended that in business of any justification and documentary evidence amount to Rs.13,10,692/- is hereby disallowed and is considered with the total income of the assessee related to the marketing expenses. But the Ld. CIT(A) without giving reasonable opportunity to the Ld. AO had allowed the appeal of the assessee. Whereas the pure verification is not able to complete due to absence of the assessee without any remand proceeding. The Ld. CIT(A) had allowed the appeal of the assessee is erroneous & gross violation of natural justice.

The Ld. AR argued and contended that the assesse had duly submitted all the relevant documents related to credit worthiness identity and the genuiness of the transaction. The loans are duly added back with the total income of the assessee without considering the assessee’s submission. Further, related to addition amount to Rs.61,28,088/-, the Ld. AR contended that the assessee had made proper submission before the Ld. AO. He further, stated that the addition related to this expenses, amount to Rs.13,10,692/- is also duly verified by the Ld. AO. So, the Ld. AR fully relied on the order of Ld. CIT(A).

The Ld. AR argued and invited our attention in the findings of the Ld. CIT(A). The relevant observations contended in following paragraphs are reproduced as below:- ” Findings I have carefully considered the assessment order, the submissions of the appellant, and the evidences placed on record. The Assessing Officer has doubted the creditworthiness of the lender companies primarily on the basis of their low income levels and negative reserves. However, a detailed examination of the material on record reveals that the appellant has duly established all the three essential ingredients required under section 68, namely— identity of the creditors, their creditworthiness, and the genuineness of the transactions. Both M/s Teej Impex Pvt. Ltd. and M/s Piyali Trading Company Pvt. Ltd. are (a) duly incorporated companies having valid PANs and regularly filing their income-tax returns. They have responded to notices issued under section 133(6) and have directly confirmed the loan transactions. Their existence and identity are, therefore, beyond dispute. (b) The appellant has furnished complete loan confirmations, audited financial statements, ITR acknowledgments, and bank statements reflecting fund transfers through normal banking channels. Interest on these loans has been paid through account-payee cheques with due deduction of TDS, supported by Form 16A. Further, repayment of the loan from M/s Teej Impex Pvt. Ltd. in a subsequent year stands evidenced from the records. (c) The Assessing Officer has not brought on record any adverse material to controvert these evidences or to suggest that the confirmations filed were incorrect or collusive. No instance of cash deposits or circular routing of funds has been established. The addition, therefore, rests on mere presumption based on the financial strength of the lenders, which is not a conclusive test of creditworthiness. (d) It is further pertinent to note that the entire lending and repayment process forms a complete transactional cycle. The funds were received through verifiable banking channels, interest thereon was regularly serviced with due deduction of tax at source, and the principal amount from one lender was subsequently repaid through account-payee instruments in the following year. This continuity and closure of the transaction substantiate its genuineness and establish that the borrowing was a bona fide financial arrangement and not a colourable device for introduction of unaccounted funds. It is well settled by the Hon’ble Supreme Court in CIT v. Orissa Corporation (P) Ltd. (159 ITR 78) that once the assessee furnishes the names, addresses, and PANs of the creditors and the Department is in a position to verify them, the burden shifts to the Department to prove that the credits are not genuine. Similarly, in CIT v. Lovely Exports (P) Ltd. (216 CTR 195, SC), it was held that when the identities of the lenders are established, the addition cannot be sustained in the hands of the borrower-company. The Hon’ble Bombay High Court in CIT v. Orchid Industries Pvt. Ltd. (88 taxmann.com 502) and the ITAT Mumbai in Agripure Tradeware Pvt. Ltd. v. ITO (ITA No.1690/Mum/2018) have reiterated that low returned income of creditors cannot, by itself, be a ground to doubt their creditworthiness when transactions are through banking channels and supported by TDS on interest. In the present case, all these conditions stand satisfied. The AO has not made any further enquiry to disprove the evidences produced. Considering the documentary trail, subsequent repayment, completion of the transactional cycle, and the judicial precedents cited above, the addition made under section 68 is unsustainable both on facts and in law.

We have heard the rival submissions and perused the material available on record. The principal grievance of the revenue is that the Ld. CIT(A) granted relief to the assessee in respect of the additions made under section 68 of the Act, estimated profit on advances received from customers, and disallowance of expenses, without affording an adequate opportunity to the Ld. AO to examine and verify the evidences relied upon by the assessee. The assessment order itself records certain deficiencies in the documents furnished by the lender companies and the assessee, particularly regarding the source and creditworthiness of the lenders and the supporting banking documents. On the other hand, the Ld. CIT(A), while deleting the addition under section 68 of the Act, recorded that the assessee had furnished loan confirmations, audited financial statements, ITR acknowledgements, bank statements and other supporting documents and, on the basis of such material, concluded that the identity and creditworthiness of the creditors and genuineness of the transactions stood established. Thus, there is an apparent divergence between the observations recorded by the Ld. AO regarding the deficiencies in the evidences and the findings recorded by the Ld. CIT(A) on the basis of the material placed before him. In these circumstances, the evidences relied upon at the appellate stage require proper verification after affording an adequate opportunity to the Ld. AO.

Considering the entirety of the facts and in the interest of natural justice, we set aside the impugned order of the Ld. CIT(A) and restore the issues raised in the revenue’s appeal as well as in the assessee’s Cross- Objection to the file of the Ld. CIT(A) for fresh adjudication in accordance with law. The Ld. CIT(A) shall provide adequate opportunity to the Ld. AO to examine and verify the relevant evidences and, wherever required, call for a remand report. The assessee shall also be afforded a reasonable opportunity of being heard and shall be at liberty to place the relevant documents and submissions in support of its case. We make it clear that we have not expressed any view on the merits of the issues involved. Accordingly, the appeal filed by the revenue as well as the Cross-Objection filed by the assessee are allowed for statistical purposes. 9. In the result, the appeal of the revenue bearing ITA No.447/Mum/2026 & CO No.173/Mum/2026 both are allowed for statistical purpose. Order pronounced in the open court on 14th day of August 2026 Sd/- Sd/- (BIJAYANANDA PRUSETH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 14/08/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI