KETAN KUMAR SALECHA,ICHALKARANJI vs. ITO, WARD-1, ICHALKARANJI, ICHALKARANJI

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ITA 2632/PUN/2025Status: DisposedITAT Pune27 July 2026AY 2022-2318 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal found merit in the assessee's argument that the Assessing Officer erred by summing up all credit entries in a running account without considering the debit side. The Tribunal also noted that the loan transactions were routed through banking channels and supported by documentation.

What were the facts?

The Assessing Officer made additions to the assessee's income, including a difference between GST turnover and declared turnover, and a large sum treated as unexplained credit from a related party. The assessee argued that the turnover difference was due to interest income and the loan account was a running account, not a single credit.

What were the issues?

Whether the addition of the gross credit entries in a running loan account under Section 68 is justified, and whether the difference between GST turnover and declared turnover was correctly treated as undisclosed income.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

Before: SHRI R. K. PANDA & Ms. ASTHA CHANDRA

For Appellant: Shri Pramod S Shingte
For Respondent: Shri Vishwas S. Mundhe, CIT-DR

PER R.K. PANDA, VP:

This appeal filed by the assessee is directed against the order dated 12.09.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2022-23. 2. Facts of the case, in brief, are that the assessee is an individual engaged in the business of wholesale trading of cloth. He filed his return of income on 20.12.2022 declaring total income of Rs.13,54,520/-. The case was selected for scrutiny under "CASS" for the following reasons :

(a) High Liabilities as compared to low income. (b) Substantial loans given by the assessee as per form 3CD of debtors in comparison to GTI, and (c) Large squared up loans during the year "during the period under consideration.

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3.

Accordingly, statutory notice u/s.143(2) was issued. Subsequently, notice u/s.142(1) along with a questionnaire was issued and served on the assessee in response to which the assessee filed the requisite details. During the course of assessment proceedings, the Assessing Officer noted that the total turnover as per GST return is at Rs.49,29,21,956/- whereas in the return of income filed the assessee has declared turnover amounting to Rs.48,84,97,456/-. In absence of any explanation to his satisfaction, the Assessing Officer made addition of Rs.44,24,500/- to the total income of the assessee as undisclosed business income.

4.

The Assessing Officer further observed from the Audit report for the year under consideration that huge squared up loans have been shown. He observed that from one of the party namely M/s. Mataji Exports (proprietor Shalin Kumar A. Salecha) squared up loan at Rs.35,69,46,856/- has been shown. On being questioned by the Assessing Officer, the assessee submitted the ledger account and income tax return of the lender. On perusal of the income tax return, the Assessing Officer noted that the income of the lender is only Rs.30,03,560/-. He further noted that the loan given during the year is followed by an immediate debit entry. In many instances, the amount is not debited towards purchasers claimed. He therefore held that the source of the loan received during the year, which was squared up during the year only, was not matching with the business profile of the assessee. He further noted from the bank statement that the assessee has taken loans on a particular date and on the same date the amount is again debited to the lender’s account. Therefore, the transactions appear to be suspicious. He,

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therefore, issued a show cause notice to the assessee asking him to explain as to why the same should not be brought to tax as unexplained credit since the creditworthiness of the lender and the genuineness of the transaction remain unsubstantiated. The assessee in response to the same submitted that the transactions are genuine and enclosed the ledger account, ITR copy and Audit report of M/s. Mataji Exports which is the proprietorship concern of Mr. Shalin Kumar Salecha.

4.

1 However, the Assessing Officer was not satisfied with the explanation given by the assessee and made addition of Rs.35,69,46,856/- by observing as under :

“The submissions filed by the assessee have been duly considered. It is noticed that the assessee has not furnished any documents to substantiate the creditworthiness of the lender. The audit report of Mr. Shalin Kumar Salecha for the A.Y 2021-22 and A.Y 2022- 23 clearly reveals that he earned net profit of Rs. 9,52,160/- and Rs. 11,85,100/- only in these years. The balance sheet of the Mr. Shalin Kumar Salecha as on 31.03.2021 shows debit balance of Rs. 2,98,993/-. As such, he lacked sufficient capital to fund the loans during the F.Y 2021-22. The assessee has claimed to have taken loans to the extent of Rs. 35,69,46,856/-, hence the onus is on the assessee to not only substantiate the genuineness of transactions claimed but also creditworthiness of the lender. The balance sheet of the assessee as on 31.03.2021 does not reveal the creditworthiness to fund loans to the extent of Rs. 35.69 crores. Actually the lender has excess of liability over assets. It is also noticed that Mr. Shalin Kumar Salecha and the assessee are related parties and hence both the entities have shown the transactions in their books of accounts. However, no documents have been submitted by the assessee which could explain the sources of the funds credited in the books in the nature of loans from Mr. Shalin Kumar Salecha. The documents submitted by the assessee failed to establish the genuinity of the transactions as well as creditworthiness of the lender. In these circumstances, the genuineness of the transaction and creditworthiness of the lender remained unsubstantiated. Accordingly, as proposed, the unsecured loan claimed of Rs. 35,69,46,856/-, from Mr. Shalin Kumar Salecha, is treated as unexplained credits and brought to tax as income under the provisions of Section 68 of the Act.

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4.

2 In appeal, the ld.CIT(A)/NFAC upheld both the additions made by the Assessing Officer.

5.

Aggrieved with such order of the ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:

“1. On the facts and circumstances of the case and in law the learned Assessing Officer, is not justified in making addition of Rs.44,24,500/- on account of undisclosed income, being difference between turnover reported in GST return and Income Tax Return, without appreciating the reconciliation submitted, with the explanation that such difference is already offered for taxation and therefore gravely erred in treating the same as suppressed turnover. The action is incorrect because such difference is reconcilable and necessary explanation was also offered before lower authorities. The addition on this account may please be deleted.

2.

On the facts and circumstances of the case and in law the learned Assessing Officer is not justified in making addition of Rs.35,69,46,856/- u/s 68 of the IT Act, 1961, being aggregate of all the credit entries in the loan account taken from MATAJI EXPORTS, without appreciating the facts of the case and the submission made in this behalf, especially when the account is operated as running account and consists of regular debits/credits in the account throughout the year, and at no point of time such huge credit is appearing the account. The addition of Rs.35,69,46,856/- may please be deleted. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the interest of principle of natural justice.

6.

So far as Ground of appeal No.1 is concerned, the Ld. Counsel for the assessee submitted that addition of Rs.44,24,500/- made by the Assessing Officer is on account of difference in the sales declared in the GST return and the total turnover declared in the profit and loss account. He submitted that the assessee carries on wholesale cloth trading extending credit period of 4 to 6 months and charges interest on late payment from Debtors. He submitted that the amount of 5 Ketan Kumar Salecha

Rs.31,45,400/- has been received during A.Y. 2022-23 towards interest on late payment which is not on account of sale and such interest has been separately credited in the profit and loss account as “Interest on late payment” and shown in the income tax return in Schedule BP at A-P&L Item No.14(iv). Referring to page 84 of the paper book, he submitted that the assessee has declared interest income of Rs.34,59,817/- under the head interest income. Referring to page 160 of the paper book, he drew the attention of the Bench to the ledger account of interest on sales for the period 01.04.2021 to 31.03.2022 showing interest income of Rs.31,45,400/-. Referring to page 161 of the paper book, he drew the attention of the Bench to the ledger account of other interest for the year ending as on 31.03.2022 which amounts to Rs.3,14,417/-. Referring to page 13 of the paper book, he drew the attention of the Bench to the interest income of Rs.50,63,015/- shown for A.Y. 2021-22. Referring to pages 162 and 163 of the paper book, he drew the attention of the Bench to the interest on sales on late payment at Rs.39,09,000/- and other interest received at Rs.11,54,015/- totaling to Rs.50,63,015/-. Referring to page 163 of the paper book, he drew the attention of the Bench to the following details :

Interest on sales late payment 39,09,000 Interest received 11,54,015 Total Interest 50,63,015 Shown in IT return for A.Y. 2021-22 50,63,015 Out of this shown for GSTR-1 in A.Y. 21,15,000 2021-22 Balance amount shown in GST return in 17,94,000 next year A.Y. 2022-23 Total 39,09,000

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7.

The ld. Counsel for the assessee drew the attention of the Bench to the reconciliation of the sales as per GST return and sales as per Profit and Loss Account which is as under:

Particulars Amount Sales as per Trading Account 48,84,97,456 Add: Interest on late payment (AY 2022- 31,45,400 23) shown in GST Add: Net timing difference (AY 2021-22 12,79,100 interest spilling into AY 2022-23 GST less AY 2022-23 interest spilling to AY 2023-24) Total= Turnover as per GST Return 49,29,956 Difference Nil

8.

He submitted that amount of Rs.17,94,000/- in the previous table includes the amount of Rs.12,79,100/-. He further submitted that the Assessing Officer himself has granted TDS credit on the interest received at Rs.31,45,400/- which conclusively establishes that the interest income was disclosed and accepted as taxable income. Therefore, once the Assessing Officer grants TDS credit towards the interest income, he cannot treat the same as undisclosed turnover which is contrary to the facts of the case. He accordingly submitted that the addition made by the Assessing Officer and sustained by ld.CIT(A)/NFAC be deleted.

9.

The Ld. DR on the other hand heavily relied on the order of the Assessing Officer and ld. CIT(A) / NFAC.

10.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and ld. CIT(A) / NFAC and the paper book filed on 7 Ketan Kumar Salecha

behalf of the assessee. We find the Assessing Officer in the instant case made addition of Rs.44,24,500/- being undisclosed income on account of difference in the turnover reflected in the GST return and the turnover reflected in the profit and loss account. We find although the assessee during the course of assessment proceedings tried to reconcile the same by stating that the same is on account of interest on late payment and filed the detailed reconciliation, however, the Assessing Officer did not accept the same and made the addition which has been upheld by ld.CIT(A). It is the submission of the ld. Counsel for the assessee that assessee has received interest on late payment at Rs.31,45,400/- and proportionate interest on net timing difference at Rs.12,79,000/-. It is his submission that once these are considered there will be no difference in the turnover as per GST return and the sales as per Trading account.

11.

We find some force in the above arguments of the ld. Counsel for the assessee. A perusal of the return of income filed by the assessee for A.Y. 2021-22 shows that at Item No.14, the assessee has declared interest income of Rs.50,63,015/-. Similarly, perusal of return for A.Y. 2022-23 shows that assessee has declared interest income of Rs.34,59,817/-. Perusal of page 160 of the paper book shows that assessee has declared interest on sales at Rs.31,45,400/-. Similarly, perusal of page 161 of the paper book shows the details of interest income at Rs.3,14,417/-. Thus, the interest income of Rs.31,45,400/- + Rs.3,14,417/- which comes to Rs.34,59,817/- has been duly declared in the income tax return. We find the Assessing Officer himself has granted TDS credit on the interest received at Rs.31,45,400/- which conclusively establishes that the interest

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income was disclosed and accepted as taxable income. Further, the assessee has reconciled the difference between the turnover as per GST return at Rs.49,29,21,956/- and sales as per Trading account at Rs.48,84,97,456/- and the balance amount of Rs.31,45,400/- and Rs.12,79,100/- was explained to be on account of interest on late payment and the net interest on timing difference on account of spilling of interest of A.Y. 2021-22. We, therefore, are of the considered opinion that ld.CIT(A)/NFAC was not justified in sustaining the addition made by the Assessing Officer on account of wrong appreciation of facts and without understanding the Accounting principles. The order of ld.CIT(A)/NFAC is accordingly set aside and the Assessing Officer is directed to delete the addition of Rs.44,24,500/-. The first grounds raised by the assessee is accordingly allowed.

12.

So far as Ground No.2 raised by the assessee challenging the addition of Rs.35,69,46,856/- is concerned, ld. Counsel for the assessee submitted that the Assessing Officer invoked section 68 of the Act by taking the aggregate of credit entries appearing in the running loan account of M/s. Mataji Exports, proprietorship concern of Mr. Shalin Kumar Salecha, who is the brother of the assessee and treating gross figure of Rs.35,6,46,856/- as unexplained cash credit. He submitted that this is a fundamental accounting error and a legal misapplication of section 68 of the Income Tax Act. He submitted that M/s. Mataji Exports has a turnover of Rs.494 crore during A.Y. 2020-21, Rs.486 crore during A.Y. 2021-22 and Rs.456 crore during A.Y. 2022-23. The loan account is a running/current account. These funds are borrowed and repaid multiple times during the year

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which is akin to a cash credit/OD facility. There was no single credit of Rs.35.69 crore on any day during the year. He submitted that the closing balance as on 31.03.2022 was only Rs.25,00,694/-. He submitted that the assessee has paid interest of Rs.19,10,340/- on which TDS of Rs.1,91,034/- was deducted which conclusively demonstrates that these are genuine commercial borrowings and not accommodation entries. Further, all transactions are routed through proper banking channel and not a single rupee was transacted in cash. Assessee has proved the Identity and creditworthiness of the loan creditor and genuineness of the transactions by producing PAN, ITR and Audited accounts of M/s. Mataji Exports for three years, bank statement of M/s. Mataji Exports showing each debit and credit entry, ledger confirmation, Auditor’s certificates etc. The Assessing Officer has summed all credit entries in a running account and treated the aggregate as unexplained income which is contrary to Accounting principles. He submitted that the provision is inapplicable to a running account where credits are continuously offset by debits/repayments. He submitted that for A.Y. 2022-23, i.e. transactions prior to the amendment in Finance Act 2023, there is no requirement to explain the source of source for loan transactions. Relying on various decisions, he submitted that the order of ld.CIT(A)/NFAC sustaining the addition of Rs.35,69,46,856/- u/s.68 of the Act be deleted.

13.

The ld. Departmental Representative on the other hand heavily relied on the order of the Assessing Officer and ld.CIT(A)/NFAC.

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14.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and ld.CIT(A)/NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case invoked the provisions of section 68 of the Act on the ground that assessee was unable to establish the creditworthiness of the lender and the genuineness of the unsecured loan amounting to Rs.35,69,46,856/- from Mr. Shalin Kumar Salecha. We find ld.CIT(A)/NFAC upheld the action of the Assessing Officer. It is the submission of ld. Counsel for the assessee that M/s. Mataji Exports which is the proprietorship concern of Mr. Shalin Kumar Salecha is an income tax assessee with turnover of more than Rs.400 crore for the three consecutive years from A.Y. 2020-21 to A.Y. 2022-23. Further, the loan account is a running account/current account where funds are borrowed and repaid multiple times during the year which is akin to a cash credit/OD facility and all the transactions were routed through proper banking channels. It is also his submission that addition of the entire Receipts side without considering the Payments side is a fundamental error by the Assessing Officer which has been upheld by ld.CIT(A)/NFAC.

15.

We find force in the above arguments of the ld. Counsel for the assessee. A perusal of the confirmation letter issued by the assessee to M/s. Mataji Exports shows that the assessee has continuously taken loans and repaid thereof either on the same day or next day or few days later and it is a running account. For the sake of clarity, we reproduce the confirmation letter, copy of which is placed at pages 145 to 150 of the paper book which is as under :

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12 Ketan Kumar Salecha

13 Ketan Kumar Salecha

14 Ketan Kumar Salecha

15 Ketan Kumar Salecha

16 Ketan Kumar Salecha

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16.

A perusal of the same shows that the Assessing Officer has added the entire amount of credits for the whole year amounting to Rs.35,69,46,856/- without due application of mind regarding the Payments side and without understanding that it is a running account for the whole year. The opening balance is Rs.75,11,516 (CR) and the closing balance is Rs.25,00,694 (DR). We therefore find merit in the argument of ld. Counsel for the assessee that the approach of the Assessing Officer in summing of credit entries of running account and treating the credit as unexplained income u/s.68 is wholly contrary to the Accounting principles. Since the Assessing Officer without due application of mind has made the addition of the entire Receipts side of the running account and the ld.CIT(A)/NFAC without understanding the facts of the case properly has upheld the addition made by the Assessing Officer, therefore, we set aside the order of ld.CIT(A)/NFAC and direct the Assessing Officer to delete the addition. The second ground raised by the assessee is accordingly allowed.

17.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 27th July, 2026. (ASTHA CHANDRA) VICE PRESIDENT पुणे Pune; दिन ांक Dated : 27th July, 2026 Satish

Satish Kumar Madishetty 18 Ketan Kumar Salecha

आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; प्रत्यर्थी / The Respondent

2.3.

The concerned Pr.CIT, Pune

4.

DR, ITAT, ‘A’ Bench, Pune ग र्ड फ ईल / Guard file. 5. आदेशानुसार/ BY ORDER, ////

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