JOTHI CHLORATE,KARAIKAL vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, TIRUNELVELI

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ITA 474/CHNY/2026Status: DisposedITAT Chennai16 July 2026AY 2018-196 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the addition made by the AO under Section 68 was justified. The assessee failed to prove the genuineness of the loan transaction and the creditworthiness of the lender.

What were the facts?

The assessee, a partnership firm, received an unsecured loan of Rs. 12,00,000/- from Sri Thirumalai Carbides Pvt. Ltd. The Assessing Officer (AO) made an addition of this amount under Section 68. The lender company was subsequently struck off the roles by the Ministry of Corporate Affairs.

What were the issues?

Whether the addition of an unsecured loan under Section 68 is justified when the lender company is struck off and its genuineness is not established.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & MS PADMAVATHY S

Hearing: 14.07.2026Pronounced: 16.07.2026

आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 13.11.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.

ITA No.474/CHNY/2026 - 2 - Jothi Chlorate 2. The solitary issue that is raised is whether the First Appellate Authority (FAA) is justified in confirming the addition of Rs.12,00,000/- made by the AO u/s.68 of the Act.

3.

Brief facts of the case are as follows: The assessee is a partnership firm. For the assessment year 2018-19, return of income was filed which was selected for scrutiny and notice u/s.143(2) of the Act was issued. During the course of assessment proceedings, it was noticed that assessee firm had received unsecured loan of Rs.12,00,000/- from a company by the name Sri Thirumalai Carbides Pvt. Ltd., Karikal. It was further noticed that the said lender company was struct off the roles by the Ministry of Corporate Affairs (Registrar of Companies, Puducherry). The AO after extracting the condition to be satisfied for applicability of section 68 of the Act, held that the nature and source of credit of Rs.12,00,000/- is not justified since the lender company’s registration has been cancelled by MCA. Hence, it was concluded that the amount shown as loan received by assessee firm from a company whose identity, genuineness and creditworthiness could not be ascertained, thus attracting the provisions of section 68 of the Act.

4.

Aggrieved, the assessee filed appeal before the First Appellate Authority (FAA). Before FAA, it was contended that the lender

ITA No.474/CHNY/2026 - 3 - Jothi Chlorate company’s registration was cancelled by the MCA due to non-filing of returns with the Registrar of Companies. It was stated that the lender company was in operation during the financial year 2017-18 and was doing regular business transactions. It was submitted that the lender company had filed its return of income for the assessment year 2018- 19 on 31.10.2018 by disclosing income of Rs.24.52 lakhs. It was submitted that the lender company had got favorable order from National Company Law Tribunal (NCLT) and the name of the said company was reinstated in MCA currently. Therefore, it was submitted that assessee’s identity has been established which was a sole basis for the AO to make addition u/s.68 of the Act. The FAA however rejected the submissions made by the assessee and held on account of reinstatement of the lender’s name in MCA website, assessee had only provided partial proof as regards the identity of the lender but failed to substantiate the legal requirement to demonstrate the creditworthiness and bonafide nature of the transaction as required u/s.68 of the Act.

5.

Aggrieved, assessee has filed the present appeal before the Tribunal. The Ld. AR submitted that the addition made u/s.68 of the Act is unsustainable, as the assessee has satisfactorily established the identity, creditworthiness and genuineness of the lender, M/s. Sri Thirumalai Carbides Private Limited. It was submitted that the lender is a manufacturing company engaged in the business of manufacturing

ITA No.474/CHNY/2026 - 4 - Jothi Chlorate calcium carbide. Though the company's name was struck off by the Ministry of Corporate Affairs (MCA) for non-filing of statutory returns, it was very much in operation during the financial year 2017-18 and had carried on regular business activities. The Ld. AR submitted that during the relevant financial year, the lender company had advanced and received repayment of loans through normal banking channels, which itself demonstrates that the company was carrying on business. It was further submitted that the lender had filed its return of income for the assessment year 2018-19 on 31.10.2018 declaring a total income of Rs.24.52 lakhs. Further, the company had regularly filed its GST returns, including GSTR-9, evidencing that it was carrying on business during the financial year 2017-18. The Ld. AR further submitted that the lender company has subsequently obtained a favourable order from the National Company Law Tribunal (NCLT), pursuant to which its name has been restored in the records of the MCA and is presently reflected as an active company on the MCA portal. It was therefore contended that the AO was not justified in doubting the identity, creditworthiness and genuineness of the lender merely because its name had been struck off by the MCA at a later point of time. Since the loan transactions were carried out through banking channels and the lender was carrying on business during the relevant period, the ingredients of section 68 stood duly satisfied. Therefore, the Ld.AR contended that the addition made u/s.68 of the Act by treating the loan received from M/s.

ITA No.474/CHNY/2026 - 5 - Jothi Chlorate Sri Thirumalai Carbides Private Limited as unexplained cash credit is liable to be deleted.

6.

The Ld.DR supported the findings of the AO and the FAA.

7.

We have heard rival submissions and perused the material on record. The Assessing Officer has made the addition under section 68 of the Act primarily on the ground that the lender company's name had been struck off from the register maintained by the Registrar of Companies. However, it was brought to the notice of the First Appellate Authority that the lender company's name has since been restored pursuant to the order of the National Company Law Tribunal and is presently reflected as an active company on the MCA portal. Nevertheless, the First Appellate Authority held that the identity, creditworthiness and genuineness of the transaction had not been established.

8.

From the material placed before us, it is evident that the lender company had filed its return of income for the AY 2018-19 declaring a total income of Rs.24.52 lakhs. The company was engaged in the business of manufacturing calcium carbide and had regularly filed its GST returns during the relevant period. The assessee has also produced the lender's bank statements and electricity bills, which

ITA No.474/CHNY/2026 - 6 - Jothi Chlorate establish that the company was carrying on business during the relevant financial year. The electricity bills show monthly power consumption charges exceeding Rs.10 lakhs, demonstrating that the lender was an active manufacturing concern. In such circumstances, its capacity to advance a loan of Rs.12 lakhs cannot be doubted. Further, the loan was received through normal banking channels.

9.

Considering the above facts, we are satisfied that the assessee has established the identity and creditworthiness of the lender as well as the genuineness of the loan transaction. Accordingly, the addition made under section 68 of the Act is deleted. It is ordered accordingly.

10.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 16th July,2026 at Chennai.

Sd/- Sd/- (प�मावती एस) (जॉज� जॉज� के) (PADMAVATHY S) (GEORGE GEORGE K) लेखा सद�य/ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT चे�नई/Chennai, �दनांक/Dated, the 16th July, 2026 RSR, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त /CIT, Madurai 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF. By Order Digitally signed by REKHA REKHA SENTHIL RAJ SENTHIL RAJ Date: 2026.07.17 17:27:08 +05'30'

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