CHOLA AKSHAYAM DEVELOPERS,CHENNAI vs. ITO, NCW-22(1), TAMBARAM

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ITA 4073/CHNY/2025Status: DisposedITAT Chennai07 August 2026AY 2018-198 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that while the initial burden is on the assessee to prove identity, creditworthiness, and genuineness, the lower authorities did not conduct a comprehensive verification of the substantial primary evidence submitted. The Tribunal found that the assessee possessed further crucial documentary evidence like bank statements that needed examination.

What were the facts?

The assessee, a partnership firm, declared Nil income for AY 2018-19. The Assessing Officer (AO) added Rs. 3,76,50,000/- on account of unexplained cash credits from partners' capital and loans, as the assessee failed to substantiate the identity, genuineness, and creditworthiness of the lenders.

What were the issues?

Whether the addition made under Section 68 for unexplained cash credits is sustainable when the assessee has provided substantial primary evidence but failed to establish a complete trail of funds and creditworthiness to the satisfaction of the revenue authorities.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA

For Respondent: Shri. Banoth Akhil Ram Naik, JCIT
Hearing: 16.07.2026Pronounced: 07.08.2026

आदेश /O R D E R

PER S.R. RAGHUNATHA, AM :

This appeal has been preferred by the assessee against the order passed by the Learned Commissioner of Income Tax, Appeal, CIT(Appeals), National Faceless Appeal Centre, Delhi, [hereinafter referred to as “the Ld. CIT(A)”], dated 31.07.2025, arising from the assessment order dated 23.03.2021 for the Assessment Year (AY) 2018-19 passed by the Assessing Officer, National e- Assessment Centre, Delhi [hereinafter referred to as “the AO”], u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

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2.

The brief facts of the case emanating from the records are that the assessee is a partnership firm, incorporated by a partnership deed executed on 01.05.2017 with two partners Mr.T.Sivakumar and Mr.R.Ramesh with a profit sharing ratio of 45:55. For the AY 2018-19, the assessee filed its return of income on 31.10.2018 by declaring Nil income. The return of income was selected for scrutiny under CASS to verify the issue of introduction of large capital or share capital in the year of incorporation. Accordingly, the AO issued statutory notices and in response the assessee furnished certain details and documents. On perusal of the submissions made by the assessee, the AO found that from the balance sheet the partners have invested Rs.20 lakh towards capital and also given a loan of Rs.3,56,50,000/- during the financial year 2017-18 and asked the assessee to substantiate the identity, genuineness and creditworthiness of the creditors. The assessee filed certain details in response to the notices issued by the AO, however, the AO was not convinced with the submissions made by the assessee and concluded the assessment by making an addition of Rs.3,76,50,000/- on account of unexplained cash credits u/s.68 of the Act by passing an order u/s.143(3) of the Act dated 23.03.2021. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee submitted that the partners of the firm have invested in the partnership firm by way of capital as well as loan to the extent of Rs.3,76,50,000/- out of the borrowings and their past savings. During the course of assessment, the assessee had already submitted the details of borrowings along with the ledger extracts and confirmation letters from the lenders, bank account statement and ITR copies for the last three financial years. Further, the assessee had also furnished the loan confirmation from Mr.Vikram Kumar Bagmar in support of the borrowings mad by Mr.T.Sivakumar, partner, to the tune of Rs.2.25 crores along with the ITR copies for the AYs 2017-18 to 2019-20. In respect of loan borrowed by Mr.R.Ramesh, partners, the assessee filed the ITR f the partner alone.

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4.

The assessee during the appellate proceedings also furnished the same documents in support of the grounds of appeal filed. Since the assessee failed to prove the genuineness of the transaction along with the documentary evidences by showing the bank account statement and creditworthiness of the lenders, the ld.CIT(A) confirmed the order of the AO by passing an order dated 31.07.2025 by holding as under:-

“6.12 As such, it is found that in case of the loan received by the assessee firm from Vikram Kumar amounting to Rs. 2,24,00,000, the assessee failed to prove the genuineness of the transaction along with documentary evidence. 6.13 With respect to the loan of Rs.1,42,50,000/-, assessee has not submitted name, address, PAN, confirmation, bank account statement, ITR, documentary evidence to submit genuineness of the transaction, et cetera. Therefore, assessee failed to prove identity, creditworthiness and genuineness of transaction with respect to the loan of Rs.1,42,50,000/-. 6.14 Therefore, considering the facts and circumstance of the case and considering that the assessee has failed to prove the genuineness of transaction with respect to the loan received from Vikram Kumar amounting to Rs. 2,24,00,000. The assessee has failed to prove identity, creditworthiness and genuineness of transaction with respect to the loan of Rs.1,42,50,000/-. 6.15 Therefore, considering the facts and circumstances of the case, submission of the assessee, material available on record and considering absence of documentary evidence to prove genuineness of the loan, the addition made by the assessee amounting to Rs. 3,56,50,000/- (Rs. 2,24,00,000+ Rs.1,42,50,000/-.) is confirmed.” ………………

“6.21 It may be appreciated that when any sum is credited in the books of accounts of an assessee, the assessee must satisfactorily prove the following three aspects to avoid being treated as unexplained cash credit: 1. Identity of the creditor/lender - The assessee must establish the existence of the creditor. 2. Creditworthiness of the creditor/lender - The creditor should have the financial capacity to provide such credit. 3. Genuineness of the transaction - Mere routing through banking channels is not conclusive proof. The assessee should provide supporting documents like loan agreements, confirmation letters, income tax returns of the creditor, and other evidence to establish the genuineness of the transaction. 6.22 Furter, it may be appreciated that the onus casted upon the asseessee to prove identity, creditworthiness and journalists of the transaction. The reliance is placed on the decision of Hon'ble Supreme Court in the case of CIT vs. P. Mohanakala (2007) 291 ITR 278 (SC) where Hon'ble Supreme Court held that mere receipt of money through banking channels does not make a transaction genuine if the assessee fails to explain the source satisfactorily. Further, in the

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case of PCIT vs. NRA Iron & Steel Pvt. Ltd. (2019) 103 taxmann.com 48 (SC) the Hon'ble Supreme Court ruled that mere banking transactions do not prove creditworthiness and genuineness. The onus remains on the assessee to establish these elements with supporting evidence. In the case of CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) Hon'ble Calcutta High Court held that transactions routed through banking channels are not sufficient unless the identity, creditworthiness, and genuineness are also proved. Sl Name of the Capital Amount of loan Total No. partner introduced 1. T.Sivakumar Rs.10,00,000/- Rs.2,14,00,000/- Rs.2,24,00,000/- 2. R.Ramesh Rs.10,00,000/- Rs.1,42,50,000/- Rs.1,52,50,000/- Grand Total Rs.20,00,000/- Rs.3,56,50,000/- Rs.3,76,50,000/-

6.23 Therefore, considering the facts and circumstance of the case, submission of the assessee and material available on record, grounds of appeal contested by the assessee at serial No. 1 to 5 are dismissed.” 5. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee submitted that the ld.CIT(A) has erred in sustaining the addition of the capital introduced by the partners to the extent of Rs.20 lakhs as unexplained credit u/s.68 of the Act without assigning proper reasons and justification. Similarly, he assailed the action of confirming the addition of Rs.3,76,50,000/- as unexplained credit though the assessee has furnished the confirmation letter, PAN, ITR for three years of the lenders / partners. The ld.AR for the assessee prayed for one more opportunity to present the bank pass sheet co-relating the corresponding credits between the lender and the recipient of the loan before the ld.CIT(A) and prove the genuiness of the transaction.

6.

Per contra, the ld.DR submitted that sufficient opportunities have been given by both the authorities to the assessee and the assessee has failed to furnish the documentary evidences in support to prove the genuineness of the transactions and hence prayed for confirming the orders of the authorities by dismissing the appeal of the assessee.

7.

We have heard the rival submissions of both sides, perused the orders of the authorities below and carefully examined the material available on record.

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The short issue arising for our consideration is whether the addition of Rs.3,76,50,000/- made u/s.68 of the Act towards the capital contribution and unsecured loans introduced by the partners of the assessee-firm is sustainable on the facts and circumstances of the case. 8. It is an undisputed fact that the assessee is a partnership firm constituted during the relevant previous year. The credits appearing in the books of the assessee represent capital contribution of Rs.20,00,000/- and loans aggregating to Rs.3,56,50,000/- introduced by its two partners, namely, Shri T.Sivakumar and Shri R.Ramesh. The assessee has consistently maintained before the AO as well as before the ld. CIT(A) that the partners had introduced the funds out of their own borrowings and savings. It is also not in dispute that during the course of assessment proceedings the assessee had furnished, inter alia, confirmations, copies of PAN, income-tax returns of the partners/lenders and certain supporting documents. In particular, with regard to the amount introduced by Shri T.Sivakumar, the assessee had furnished the confirmation of Shri Vikram Kumar Bagmar along with copies of his income-tax returns for the relevant assessment years. However, according to the Revenue authorities, the assessee failed to establish the complete trail of funds through the respective bank accounts and failed to substantiate the creditworthiness of the lenders to their satisfaction. 9. At the outset, we find that the authorities below have primarily proceeded on the premise that the assessee had not produced complete bank statements and corresponding evidence establishing the flow of funds from the lenders to the partners and thereafter from the partners to the assessee-firm. At the same time, it is equally evident from the records that the assessee had placed on record substantial primary evidence such as confirmations, PAN details and copies of income-tax returns of the partners and, in the case of Shri T.Sivakumar, also of the lender from whom the funds were stated to have been borrowed. These documents, in our considered opinion, constitute material evidence which required a comprehensive verification by the lower authorities

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before arriving at a final conclusion regarding the applicability of section 68 of the Act. 10. We further notice that the addition has been sustained mainly on the ground that the assessee failed to establish the identity, creditworthiness and genuineness of the transactions. There can be no quarrel with the settled proposition that the initial burden u/s.68 of the Act lies upon the assessee to establish these three ingredients. However, once the assessee produces prima facie documentary evidence supporting the identity of the contributors, their PAN particulars, income-tax returns and confirmations, the matter necessarily requires an effective verification of such evidence before an adverse inference is drawn. The object of assessment proceedings is to determine the correct taxable income on the basis of complete and proper examination of facts and not merely on technical deficiencies in the production of evidence. 11. In the present case, the ld.AR has categorically submitted before us that the assessee is in possession of the complete bank statements and other supporting documents correlating the movement of funds from the lenders to the partners and thereafter to the assessee-firm and has expressed his willingness to furnish the same before the AO. We find that such documents go to the root of the controversy and are crucial for adjudicating the issue relating to the genuineness of the transactions. In our considered view, if such evidence is available, the same deserves to be examined by the Assessing Officer before any adverse conclusion is reached. 12. We also find merit in the grievance of the assessee that the addition of the partners' capital contribution amounting to Rs.20,00,000/- has been sustained without separately examining the nature and source of the capital introduced by each partner. Likewise, the loans stated to have been advanced by the partners out of borrowed funds require verification with reference to the source available in the hands of the partners and the respective lenders. Such an exercise has admittedly not been undertaken in the manner warranted by law.

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13.

Considering the totality of the facts and circumstances of the case, the nature of the evidence already furnished by the assessee, the additional evidence sought to be produced and in the interest of substantial justice, we are of the considered opinion that the matter deserves to be restored to the file of the AO for examination. The AO shall verify the complete documentary evidence, including the bank statements evidencing the flow of funds, confirmations, income-tax returns, PAN particulars and any other supporting material that may be furnished by the assessee and thereafter adjudicate the issue afresh in accordance with law, after affording adequate opportunity of being heard to the assessee. The assessee is also directed to fully cooperate in the remand proceedings and furnish all documentary evidences as may be called for by the AO without seeking unnecessary adjournments. In the event of failure to do so, the AO shall be at liberty to proceed in accordance with law on the basis of the material available on record. 14. In view of the foregoing discussion, we set aside the orders of the lower authorities on this issue and restore the matter to the file of the AO for fresh adjudication in the light of the observations made hereinabove. Accordingly, the grounds raised by the assessee are allowed. 15. In the result the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the court on 07th August, 2026 at Chennai.

Sd/- Sd/- (मनु कुमार गिरर) (एस. आर. रघुनाथा) (MANU KUMAR GIRI) (S. R. RAGHUNATHA) न्यागिक सदस्य/Judicial Member लेखासदस्य/Accountant Member

चेन्नई/Chennai, धदनांक/Dated, the 07th August, 2026. Devadas

आदेश की प्रधतधलधप अग्रेधर्त/Copy to:

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1.

अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. धवभागीय प्रधतधनधि/DR 5. गार्ा फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.08.11 09:08:01 +05'30'

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