MANEKCHAND PANACHAND TRADING INVESTMENT COMPANY PVT LTD,MUMBAI vs. DCIT CIRCLE 5(2)(1), MUMBAI

At the outset, we noticed that the Ld. AR had filed an application for the admission of additional grounds, which are reproduced hereinbelow:

After having heard the counsels for both parties, we find that the same are legal in nature and go to the root of the case. Therefore, following the principles laid down by the Hon’ble Supreme Court in the cases of The Jute Corporation of India Ltd. Vs. CIT, 187 ITR 688 and NTPC Vs. CIT, 229 ITR 383, and also considering the facts of the present case, we allow the application for raising the additional grounds and, consequently, the said grounds are admitted to be heard on merits.

Additional Ground No. 1 raised by the assessee relates to challenging the order of the Ld. CIT(A) in not disposing of the ground of appeal raised by the assessee challenging the disallowance made under section 14A of the Act.

After having considered the facts of the case, we notice that the Ld. CIT(A) failed to adjudicate this ground, although the assessee had raised it before him. Therefore, considering the said circumstances, we restore this issue back to the file of the Ld. CIT(A) to decide the same in accordance with law. The assessee will also be at liberty to advance further arguments to substantiate its claim, and the Ld. CIT(A) shall adjudicate the same in accordance with law after providing a due opportunity of being heard to the assessee.

Before parting, we want to make it clear that our decision to restore the matter back to the file of the CIT(A) on the above two additional grounds shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the CIT(A) independently in accordance with law.

Needless to mention, the Ld. CIT(A) shall provide an adequate opportunity of hearing to the assessee. The assessee shall not seek any adjournment on frivolous grounds and shall remain cooperative during the course of the proceedings.

Ground Nos. 1 to 3 raised by the assessee are interrelated and interconnected, and they relates to challenging the order of the Ld. CIT(A) in sustaining the addition of Rs.4,50,37,577 under Section 68 of the Act.

In this regard, we have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we noticed that the case of the assessee was selected for scrutiny for the reason “large increase in unsecured loans”, as it was noticed from the balance sheet of the assessee that during the year under consideration, the assessee had taken fresh unsecured loans. Consequently, in order to verify their genuineness, the Assessing Officer (AO) carried out verifications and sought the required documents from the assessee. Since the assessee could not prove the nature and source of the said amount, and could not substantiate the same, the addition under Section 68 of the Act was made.

Before we proceed further, it is necessary to evaluate the decision of the Ld. CIT(A). While adjudicating this addition, the operative part of the order of the Ld. CIT(A) is contained in Para D to Para E at Pages 3 to 6, and the same is reproduced hereinbelow:

After having heard the counsel for both the parties at length and perusing the material placed on record, we find that in order to prove the identity, creditworthiness, and genuineness of the loan transactions, the assessee had raised the arguments that he had placed on record confirmation letters of the lenders and that payments were made through account payee cheques. Whereas, in our view, Section 68 of the Act codifies that if any cash credit is found in the books of account of the assessee, and no explanation about the nature and source thereof is given, or the explanation given is not found satisfactory, then, in that eventuality, the same will be charged to income tax as income from undisclosed sources.

It is not unknown that in order to avoid payment of tax, an amount is credited in the books of account in such a manner which may not disclose its true nature or source. On a plain reading of Section 68, when a sum is found credited in the books of the assessee, then irrespective of the color or nature sought to be given to the sum received by the assessee, the ITO has the jurisdiction to inquire from the assessee about the nature and source of the said amount. When an explanation in regard thereto is given by the

In this particular case, the AO had made discreet inquiries to ascertain the truthfulness of the assessee’s claim regarding the nature and source of the credit in the books of account, but the assessee did not furnish complete documentary evidence, including the fund flow statement, lender-wise financials, and other primary evidence necessary for verifying creditworthiness and genuineness. It has been specifically mentioned by the Revenue Authorities that the assessee has not provided a consistent and lender-wise explanation reconciling the inflow of funds with the demonstrated financial capacity of each creditor at the time when the loan was advanced. In our view, the statutory test requires reliable evidence of the lenders' identity, their financial standing on the relevant dates, and the bona fide nature of the transactions. Subsequent payments, repayments, or references to litigation made by the assessee cannot substitute or serve as proof of funds available at the time of the credit.

The assessee has also not furnished a coherent reconciliation of the amounts reflected in its books vis-à-vis the figures referred to in the

It is also important to mention here that although the assessee had placed on record certain documents, in view of those documents, the Ld. CIT(A) also sought a remand report from the AO twice. Thus, there are two remand reports on record: the first dated 11.09.2019 and the second dated 11.09.2025 (Paper Book-II: Pages 15-22 and 24-33).

After carefully perusing the above remand reports, we find that the details furnished by the assessee were incomplete, insufficient, and non- verifiable in respect of the key parameters under Section 68 of the Act. Thus, the assessee failed to discharge the initial onus of proving the genuineness of the transactions. In our view, regarding the documents placed on record by the assessee, although the assessee had filed confirmation letters in some cases, the onus on the assessee is not discharged merely by filing a confirmation letter, as held in the following cases:

In the remand reports, the AO has highlighted the shortcomings in the documents placed on record by the assessee. For example, although it is claimed that the loan has been repaid, no proof of repayment has been submitted by the assessee. Furthermore, in some cases, although loans were found to have been extended, they were without certain basic terms, such as interest, etc.

Be that as it may, as a clear picture is not emerging either from the remand reports or from the arguments of the assessee, we are of the view that the matter needs a fresh look by the Ld. CIT(A). Therefore, we restore these grounds to the file of the Ld. CIT(A) for a fresh decision. The assessee will be at liberty to file further documents to substantiate its claim or as may be called for by the Ld. CIT(A).

Before parting, we wish to make it clear that our decision to restore the matter back to the file of the Ld. CIT(A) shall in no way be construed as an expression of opinion on the merits of the dispute, which shall be adjudicated by the Ld. CIT(A) independently and in accordance with the law.

Needless to mention, the Ld. CIT(A) shall provide an adequate opportunity of being heard to the assessee. The assessee shall not seek any adjournment on frivolous grounds and shall remain cooperative during the course of the proceedings.

In the result, appeal filed by the Assessee stands allowed for statistical purposes.