H J INDUSTRIES (INDIA) PVT LTD,SURAT vs. DCIT, CIRCLE 1(1)(1), SURAT

PDF · subscribers
ITA 1250/SRT/2025Status: DisposedITAT Surat06 July 2026AY 2013-1418 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal deleted the additions of Rs. 44,50,000 and Rs. 35,00,000, holding that the assessee had established the source and genuineness of the loans and share application money. The issue of unabsorbed depreciation was remanded for examination.

What were the facts?

The assessee challenged additions made by the Assessing Officer under Section 68 for share application money and unsecured loans, totaling Rs. 44,50,000 and Rs. 35,00,000 respectively. The assessee also sought set-off of unabsorbed depreciation.

What were the issues?

Whether the additions made under Section 68 for loans and share application money were justified, and whether set-off of unabsorbed depreciation should be allowed.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Surat Bench, Surat,

Before: Dr. Arjun Lal Saini & Shri T. R. Senthil Kumar

For Appellant: Shri Suresh K Kabra, Ld. AR
For Respondent: Shri Ajay Uke, Ld. Sr. DR
Hearing: 27/04/2026

आयकर अपीलीय अिधकरण, सूरत �यायपीठ, सूरत । In The Income Tax Appellate Tribunal Surat Bench, Surat, Before Dr. Arjun Lal Saini, Accountant Member And Shri T. R. Senthil Kumar, Judicial Member आयकरअपीलसं./ITA No. 1250/Srt/2025 [ �नधा�रणवष�/Assessment Year: 2013-14 ] H J Industries (India) Private Limited, DCIT, Circle 1(1)(1), Block No.477/1, Plot No. C-5, Vs. Room No.108, Income Tax Gujarat ECO Textiles Park, Office, Aayakar Bhavan, Baleshwar, Palsana, Surat, Majura Gate, Surat, Gujarat-394315. Gujarat 395002. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AACCH4136R (अपीलाथ�/Assessee) (��यथ�/Respondent)

Assessee by : Shri Suresh K Kabra, Ld. AR Respondent by : Shri Ajay Uke, Ld. Sr. DR Date of Hearing : 27/04/2026 06/07/2026 Date of Pronouncement :

ORDER Per, Dr. Arjun Lal Saini, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year 2013- 14, is directed against the order under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi, dated 29.10.2025, which in turn arises out of an order passed by the Assessing Officer u/s 143(3) of the Act, on 31.03.2026. 2. The grounds of appeal raised by the assessee are as follows: “1. The Ld CIT (A)-NFAC has erred and was not just and proper on the facts of and in case the law in making addition u/s 68 of Rs.44,50,000/-. Share Application Money.

2.

The CIT(A)-NFAC has erred and was not just and proper on the facts of the case and in law in making addition u/s 68 of Rs 35,00,000/-. Share Application Money. 3. The CIT (A)-NFAC has erred and was not just and proper on the facts of the case and in law is not allowing the Setoff Loss of unabsorbed Depreciation u/s 115BBE.:”

3.

The relevant material facts, as culled out from the material on record, are as follows. There are two substantive grounds raised by the assessee. In first ground, the assessee had challenged the action of the assessing officer in making an addition of Rs. 44,50,000/-, as bogus loans received from M/s Radha Madhav Textile (Mr. Navin Agarwal) and M/s Vishwa Fashion Pvt Ltd, u/s 68 of the Income Tax Act, 1961 stating that the assessee had established the source of such loan. In the second ground the assessee has also raised the issue of the addition of Rs. 35,00,000/-, u/s 68 as bogus share premium capital infused stating that he had established the identity, creditworthiness and genuineness of the subscriber. 4. The relevant material facts, in brief, as culled out from the material on record, are as follows. During the assessment proceedings, assessing officer had noticed that the assessee -company had received an unsecured loan of Rs. 44,50,000/- from Mr. Navin Agarwal related to M/s Radha Madhav Textiles and M/s Vishwa Fashion Pvt. Ltd of Rs. 20 lakhs and 24.5 lakhs respectively. Further, assessing officer noticed that there were credit entries in the form of cash deposits in the Bank Account of these entities just before the furtherance of loan to the assessee. Hence, he conducted investigation by issue of notice u/s 133(6) to the respective banks and found that the entire loan was forwarded by Mr. Navin Agarwal related to M/s Radha Madhav Textiles and M/s Vishwa Fashion Pvt Ltd after making a cash deposit in their Bank Account immediately preceding the transaction. Hence, the assessing officer confronted the assessee about this fact and his finding that why

Page 2 of 18

the aforementioned dubious loan should not be treated as unexplained cash credits within the meaning of Section 68 of the Income Tax Act, 1961. In response, the assessee submitted that it was not the business of the assessee to find out the source of the creditor. Hence, the Ld. assessing officer concluded that the assessee had failed to establish the triple markers of Section 68 i.e. identity and creditworthiness of the creditors and the genuineness of the transaction. Accordingly, he added Rs. 44,50,000/- as unexplained cash credits within the meaning of Section 68 of the Income Tax Act, 1961. 5. Further, during the course of assessment proceedings, the assessing officer observed that the assessee had received share application money of Rs.1,33,59,000/- from seven entities. Out of these, in case of three entities, that is, M/s Prabha Distributor Pvt. Ltd., M/s Hi-Tech Choice Trading Pvt. Ltd. and Shri. Vijay Kumar, no shares were issued and the share application money was pending for allotment of Rs. 10,00,000/-, 25,00,000/- and 18,00,000/- respectively. The assessing officer noticed that before crediting these share application money to the assessee, there were credit entries of the same amount in the Bank Accounts of the assessee and that there was no sufficient balance in the Bank Account before the credit was received in their account. The assessing officer noted that the funds were moving through various accounts on the same day and all the companies and their bank accounts had the identical patterns wherein the money was deposited and transferred immediately so that the balance before and after the transaction was negligible. Therefore, he confronted the assessee with regard to applicability of Section 68 on the credit of this amount as share application money u/s 68 of the Income Tax Act, 1961. He further conducted the enquiries by issuing Commission u/s 131 to the Assessing Officers of M/s Prabha Distributors Pvt Ltd and M/s Hi- Tech Choice Processors Pvt. Ltd to conduct an enquiry regarding the identity and

Page 3 of 18

creditworthiness of these parties and to verify the genuineness of their transactions with the assessee. In response, the Assessing Officer of M/s Prabha Distributors Pvt Ltd informed that the assessee could not located at the given address. The Assessing Officer of M/s Hi-tech Choice Processors Pvt Ltd could locate the party but could not elicit any response. When confronted with these facts, the assessee argued that both of these companies were converted to limited liability partnerships and had shifted their base out of Kolkata to Surat and that the assessee was unable to get any conformation from such entities. Hence, the assessing officer concluded that the assessee has been manipulated the Department as regards the production of documents certifying the identity of creditworthiness of both these parties and regarding the establishment of genuineness of transaction with these two parties. Hence it is held that the assessee's claim of taking a loan of Rs. 10,00,000/- and 25,00,000/- respectively from M/s Prabha Distributors Pvt Ltd and M/s Hi-tech Choice Processors Pvt Ltd is bogus and accordingly he added the entire amount of Rs. 35,00,000/- claimed to have been received by the assessee as share application money from these two parties as unexplained cash credits to the books of the assessee u/s 68 of the Income Tax Act, 1961. 6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A), who has confirmed the action of the assessing officer. The assessee argued before ld. CIT(A) that M/s Radha Madhav Textiles, M/s Vishwa Fashion Pvt. Ltd, M/s Prabha Distributors and M/s Hi-Tech Trading Pvt. Ltd are registered company and payments were made through banking channels, Name, address, PAN Number, Balance Sheet and profit and loss account were produced before the assessing officer, hence the assessee has discharged the burden. However, learned CIT (A) noticed that enquiries conducted by the assessing officer has resulted in finding that they have advanced the loans or share

Page 4 of 18

subscription after introduction or deposit of cash in their bank accounts. The plea that proving "source of source" is not mandatory but cannot dilute the primary onus to establish creditworthiness. Therefore, to come clean, it is mandatory for the assessee to have established the identity and creditworthiness of the subscriber and the genuineness of the transaction. In view of the above facts, the ld.CIT(A) noticed that assessee has not been able to discharge the onus cast upon it to establish the identity and creditworthiness of the subscribers/ lenders and the genuineness of the transactions. Since all the three tests regarding the addition u/s 68 has failed, therefore, it was held by ld.CIT(A) that assessing officer has rightfully invoked the provisions of Section 68 while making an addition of the bogus infusion of share capital of Rs.35,00,000/- and bogus unsecured loan of Rs. 44,50,000/- from dabba trading companies. 7. The Ld. CIT(A) also noticed that assessee has raised the issue of disallowance of set up of the unabsorbed depreciation loss against the disallowance made u/s 68 r.w.s. 115BBE of the Income Tax Act, 1961. In this regard, Ld. CIT (A) noticed that assessing officer has made an addition under Section 68 of the Income-tax Act, 1961, on account of unexplained cash credits. The assessee has contended that the addition so made should be eligible for adjustment against unabsorbed depreciation and brought-forward business losses. In this regard, it is necessary to examine the applicability and implications of Section 115BBE of the Act. Section 115BBE was introduced by the Finance Act, 2012 with effect from AY 2013-14 to provide a special mechanism for taxation of income deemed under Sections 68, 69, 69A, 69B, 69C and 69D of the Act. The legislative intent was to impose a higher rate of tax on income representing unexplained money, investment, or expenditure, which lacks verifiable source. The Sub-section (1) of Section 115BBE mandates that such income shall be taxed at a flat rate, originally @ 30%

Page 5 of 18

and subsequently enhanced to 60% by the Taxation Laws (Second Amendment) Act, 2016. The Sub-section (2) expressly provides that no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed in computing income referred to in sub-section (1)(a). Consequently, when an addition is made under Section 68 and brought within the ambit of Section 115BBE, the income so determined assumes the character of deemed income, distinct from regular business or professional income. The statutory bar contained in Section 115BBE(2) prohibits an assessee from claiming any deduction or set-off against such income, including the adjustment of unabsorbed depreciation under Section 32(2) or carried-forward business losses under Section 72 of the Act. The language employed in Section 115BBE(2) is overriding and begins with a non-obstante clause, thereby superseding all other provisions that might otherwise permit such set-off. In light of the above legal position and the plain statutory wording of Section 115BBE(2), the assessee's contention seeking adjustment of unabsorbed depreciation or brought-forward losses against the income added under Section 68 cannot be accepted. The assessing officer has correctly applied the provisions of Section 115BBE in taxing the addition at the prescribed rate without permitting any set-off or deduction. Accordingly, the ground raised by the assessee on this issue was dismissed by ld.CIT(A).

8.

Aggrieved by the order of the CIT(A), the assessee is in appeal before this Tribunal.

9.

We have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee

Page 6 of 18

argued about the addition of Rs.35,00,000/- and addition of Rs.44,50,000/- as income u/s 68 of the Act, which is unjustified. The ld.Counsel stated that during the course of assessment proceedings, the assessee had submitted detailed reply and also submitted the details of “source of source" and supporting documents as under: ((vide para 2 (1) and 2 (2) on page No. 6 of the Assessment Order):

However, the Assessing Officer rejected the submission by "choose and pack", and made the addition in the hands of the assessee, which is not tenable in the eye of law. The assessee submitted individual-wise details before Ld. CIT(A), which are as follows:

(a) NAVIN AGARWAL: In the matter of unsecured loan of Rs. 20,00,000/- from the lender, it is submitted that (i) The LOAN is accepted by A/c Payee Cheque through proper Banking Channel. The copy of Bank a/c of LENDER is enclosed herewith (Pg # 10 of PB). (ii) The Lender is assessed to Tax under PAN AASPA1517A at Gorakhpur (UP). The copy of ITR-V, Statement of Computation of Total Income and Personal Statement of Assets of the Lender for the AY 2013-14 are enclosed herewith (Pg # 6/7-9/11 of PB). Page 7 of 18 (iii) The contra confirmation from the LENDER is available on record (Pg # 1 of PB).

(iv) The LOAN is sourced from the REPAYMENT of LOAN given by the lender to M/s Shree Radha Madhav Textiles (Prop: Devi Dayal Agarwal-AASPA15190) received by the Lender by A/c payee cheque in his Bank a/c. The Bank a/c of SHREE RADHA MADHAV TEXTLES ( vide 3 of PB). To prove genuineness the genuineness and nature & source of the cash deposit by Shree Radha Madhav Textiles (the "Source of source"), an AFFIDAVIT of Shree Devi Dayal Agarwal, the proprietor of Shree Radha Madhav Textiles is enclosed herewith (Pg # 4-5 PB).

(v) The Lender is not proved to be bogus or name lender entity. The credit worthiness is well proved as the fund that has been given as LOAN to the assessee was already parked and invested with Shree Radha Madhav Textiles in earlier years. The Ledger a/c cum confirmation by Shree Radha Madhav Textiles in the case of Lender shows an Opening Balance of Rs.27,41,850/-. The Lender had received Interest from Shree Radha Madhav Textiles and TDS is made. All these are evident form the 2 of PB). Ledger A/c (Pg # 2 of PB).

vi) There is no issue of dispute with regard to identity of the Lender.

vii) The genuineness of the transaction is proved by the nature of transaction being through Banking Channel, The Income from Interest is duly shown by the Lender in his ITR filed. Further the Lender had received repayment of loan from earlier investments and the same is transferred to the assessee company. There is no or absurdity or abnormality in the nature of the transaction SO as to disturb question the genuineness. Simply by saying that the assessee could not prove the genuineness, without pointing out the abnormality in the transaction, the observation of Ld Assessing Officer has not legs to stand.

viii) The CREDITWORTHINESS is also proved by way of submission of the contra confirmation and source of the funds given as loan to the assessee. The personal statement of affairs of the Lender is also submitted herewith (Pg # of PB). From the statements your honour will find that the Lender is having own Capital of Rs.74,39,455/- as on 31/03/2013. With this net worth how can a person be tagged and titled as Bogus or un-creditworthy.

ix) The Loan a/c stands repaid in full in the FY 2013-14 and 2014-15. The ledger a/c copy of lender along with Bank Statement of the assessee for the FY 2013-14 and 2014-15 is submitted herewith (Pg # 112-114/115-116of PB).

b) VISHWA FASHIONS PVT LTD: In the matter of unsecured loan of Rs.24,50,000/- from the lender, it is submitted that i) The LOAN is accepted by A/c Payee Cheque through proper Banking Channel. The copy PRIME COOP BANK LTD LENDER is enclosed of PB). of Bank a/c with The in the name of the herewith (Pg #13-15 of PB).

ii) The Lender is assessed to Tax with Circle 2(2), SURAT under PAN AAACV8012E. The copy of ITR-V, Statement of Computation of Total Income and Audited Statement of account for the AY 2013-14 are enclosed herewith (Pg #55/56/57-60 of PB).

iii) The contra confirmation from the LENDER is available on record (Pg # 12 of PB).

iv) The LOAN is sourced from own funds the company. The CASH BOOK of the LENDER COMPANY has been submitted during the assessment proceedings before the Assessing Officer (Pg # 16-39 of PB). The Bank Account of the Lender Company with the OBC Bank and the Prime Coop Bank a Rs were also submitted (Pg #40-54/13-150 PB). The Lender Company is engaged into business and has Turnover of 4,70,68,154/- as per the Audited Statement of account. The funds are generated from the business transaction done by the Lender Company. The audited statements of account were submitted before the Ld of PB). Assessing Officer (Pg #57-60).

v) The Lender is not proved to be bogus or name lender entity. The Lender Company is into business having a Net worth of Rs 1,00,35,135/-; Long Term borrowings of Rs.2,12,58,479/- and FIXED ASSETS of Rs 2,34,48,192/- as per the audited statements of account as at 31/03/2012. This is the worth of the Lender Company.

vi) The Lender Company is not in any kind of list of Tainted Companies as per the Departments data base.

vii) There is no issue of dispute with regard to identity of the Lender.

viii) The genuineness of the transaction is proved by the nature of transaction being through Banking Channel, The Income from Interest is duly shown by the Lender in it's ITR filed. There is no absurdity or abnormality the nature transaction so as to disturb or question the genuineness. Simply by saying that the assessee could not prove the genuineness, without pointing out the abnormality in the transaction, the observation of the Ld Assessing Officer has not legs to stand.

ix) The CREDITWORTHINESS is also proved by way of submission of the contra confirmation and source of the funds given as loan to the assessee. From the Audited statements of account your honour will find that the Lender is having sufficient own funds for advancing LOAN to the assessee. With this net worth how can a person be tagged and titled as Bogus or un-creditworthy.

11.

The Ld. Assessing Officer had simply stated that the transactions seem to be non- genuine and therefore does not pass the test of triple marker. At para 4.4 and 4.5, it is mentioned by the Ld. Assessing Officer as under: The cash book submitted by the assesse of Vishwa Fashion pvt. Ltd who directly credited the account of the assessee in the form of unsecured loan, does not appear to be genuine because on the same day there is a withdrawal and deposit of cash from accounts and it is of repetitive nature. RESPONSE OF THE APPELLANT The cash book is of the LENDER. The LENDER is a regular assessee duly identified as a Pvt Ltd Company. The Ld Assessing Officer has not doubted on the transaction. He has the apprehension on cash deposit in Bank and Cash withdrawal from Bank by the lender. The issue of cash deposit and withdrawal from Bank is privy to the lender. The Lender has not been charged as a paper company or shell company without any means. It is well evident from the AUDITED STATEMENTS OF ACCOUNT of the lender company that it is into business and sizeable turnover is taking place (around 4.71 crore). The assessee has charged that there is simultaneous deposit as well as withdrawal on the same day and the same is repetitive. If that was so serious, the Ld. Assessing Officer ought to have pointed out the dates and the instances but he did not. The reason is obvious because there is only one instance of such nature on 09/08/2012 and there is no repetition. Except this there is no such instance in the OBC Bank a/c (Pg # of PB). The transaction with the ASSESSEE is on 01/08/2012 and the transaction is from PRIME COOP BANK a/c. Thus the Ld. Assessing Officer had grossly erred and is mistaken in considering the transaction as NON-GENUINE, only for the reason as mentioned in the Assessment order. The assessee had submitted the source of the funds i.e. the Company. The source of source is also made known to him by submitting the cash book of the lender. There is no information or reason before the Ld Assessing Officer to doubt the transaction the Lender. If he has developed certain doubts about the transactions of the Lender, he is well within his authority to inform the Ld Assessing Officer of the LENDER, who is nearby in SURAT itself. In the case of Radha Madhav Textile (who credited money to Navin Agarwal, who in turn deposited in the assessee account as unsecured loan), assessee company had not submitted any detail and mentioned in the submission that "it is not required to provide detail of source of the source". The only responsibility of assessee to prove the source from where he has received the credit. RESPONSE OF THE APPELLANT In this matter the allegation of the Ld Assessing Officer is factually misplaced. The assessee had duly submitted all details regarding the source of source in case of NAVEEN AGRAWAL (Lender). The Lender was having balance of UNSECURED LOAN given to one Shree Radha Madhav Textiles. Out of the balance of Unsecured loan, the Lender had withdrawn out of the Unsecured loan and had given the loan to the assessee company. In this case going one step ahead, the source of source is also submitted. ((Pg # 1-5 of PB). The source of source of the Lender is again a regular assessee and details of his PAN was submitted. assessee has failed to It is well settled that Identity, Creditworthiness and Genuineness of Transaction are the Triple Markers' of analysis of eases falling in the ambit of bogus cash credits. In view of all the above, it is held that the offer any satisfactory, explanation and evidence for the creditworthiness of the so called unsecured loan giver, The transactions are non-genuine as the source of cash deposit is not at all explained. The cash deposited should be explainable, should be from sources on which due taxes have been paid etc. However, even after been given due opportunities, the assessee had failed to substantiate the. Genuineness of the transactions in relation to above mentioned loan givers and at the same time failed to prove their creditworthiness also. RESPONSE OF THE APPELLANT The Ld. Assessing Officer had alleged that the triple marker test is not fulfilled. He had concluded that the transactions are non-genuine based on his observation of failure of the triple marker. In this matter, the assessee had submitted sufficient evidences to prove the triple marker. It is submitted that the PROVISO to sec 68 is not applicable to case of LOANS accepted during the year. Though the assessee had submitted the details with sufficient evidences. An AFFIDAVIT of the proprietor of the firm SHREE RADHA MADHAV TEXTILES is also submitted for the nature of the business of the said assessee (Pg # 4-5 of PB). 12. The reasoning of the Ld. Assessing Officer has no basis except theoretical analysis. The assessee had submitted sufficient details so as to satisfy the conditions of section 68. 13. JUDICIAL PRONOUNCEMENTS: The assessee relies on the following judicial pronouncements: CIT v. Sachitel Communications (P.) Ltd 51 Taxmann.com 205 (GUJ) Where assessee proved identity of creditor, its capacity and further transaction, was made through bank, any addition as unexplained unsecured loans would be unsustainable. CIT v. Nipuan Auto (P.) Ltd........ 361 ITR 155 (Delhi)

II. Section 69 of the Income-tax Act, 1961 Unexplained investments Assessment year 2006-07 (Unsecured loans) Two directors of to assessee-company advanced unsecured loans assessee One of them had produced his bank statement along with return to justify his creditworthiness but other partner did not produce any document Whether addition as unexplained investment on account of partner who had produced relevant books had to be deleted and as regards other partner was to be upheld Held, yes [Para 7] [Partly in favour of assessee] DCIT vs ROHINI BUILDERS 182 CTR 373 (GUJ) ITO vs SMT PRATIMA ASHAR 107 ΤΑΧΜΑΝN.COM 135 (Mum-T) PENDURTHI CHANDRASEKHAR vs DCIT 407 ITR 179 (Andhra & Telangana HC) ACIT vs VIKRANT PURI 47 ITR (T) 708 (Delhi-T) Under the circumstances of the case and the submissions made along with the supporting evidences, it is prayed that the addition of Rs.44,50,000/- as unexplained is unwarranted deserves to be deleted. GROUND #2 SHARE APPLICATION MONEY RECEIVED considered as UNEXPLAINED (Rs.35,00,000/-) “14. During the year the assessee had received Share Application Money of Rs 35,00,000/- (As on the date of assessment the same is REFUNDED back) from the following Investors among others, which has been considered as unexplained u/s 68 of the Act: M/s Prabha Distributors Pvt Ltd (presently converted into 10,00,000/- LLP with regd. office at SURAT.... Date of conversion is 30/03/2015) M/s Hi Choice Trading Pvt Ltd at (presently converted into 25,00,000/- LLP with regd. office SURAT.... Date of conversion is 28/10/2014) 35,00,000/- 15. The facts of the above investor companies as per the records in the file are as under:a) HI CHOICE TRADING PVT LTD:

i) The a/c confirmation copy from the Share applicant is enclosed herewith (Pg. # 85 of PB).

ii) The Company is originally registered Kolkata ROC as Pvt Ltd Company. the company The is enclosed profile of herewith (Pg # 93 of PB).

iii) The assessee company had transacted with the company on 16/08/2012, when share application money of Rs 25 lakh was received by a/c payee cheque of Bank of Baroda, Textile Market Branch, SURAT. The Bank a/c statement is enclosed herewith (Pg # 88 of PB). The fund in the Bank was received from M/s Siddhi Vinayak Knots & Prints Pvt Ltd, by transfer cheque and the same is apparent from the Bank statement.

iv) M/s Siddhi Vinayak Knots & Prints Pvt Ltd of SURAT had returned loan of Rs 25 lakh to the investor company and the same fund was invested by the investor company with the assessee company. The copy of account of the investor company (Hi Choice) in the books of Siddhi Vinayak Knots & Prints Pvt Ltd is enclosed herewith (Pg # 89 of PB). The Bank a/c (Bank of Baroda) of Siddhi Vinayak Knots & Prints Pvt Ltd is also enclosed herewith (Pg # 90-91 of PB). M/s Siddhi Vinayak Knots & Prints Pvt Ltd holds PAN AAMCS4421L and is assessed at SURAT.

v) The transactions are made in SURAT city and not at Kolkata. Both the parties hail from SURAT.

vi) No shares were issued to the investor company and the share application money of Rs 25 lakh was returned back on 25/09/2014 by a/c payee cheques. The copy of ledger a/c of repayment is enclosed herewith (Pg 87 of PB). The Bank a/c of the investor company in which the repayment is received is also enclosed herewith (Pg# 92 of PB).

vii) As on the date of assessment, there was NIL outstanding and the whole of the Share Application money was repaid.

viii) Later on 28/10/2014, the Company HI CHOICE TRADING was converted into LLP with registered office address at SURAT. The profile of the LLP is enclosed herewith (Pg # 94 of PB).

ix) Thus the Investor company / LLP is live and presently having office at SURAT.

x) The investor company is regularly assessed to tax and the ITR along with Computation of Total Income is enclosed herewith (Pg 95/9 of PB). The copy of the Latest ITR-V for AY 2018-19 is also enclosed herewith (Pg # 110 of PB). The lender had shown an income of Rs.9,35,443/- for the year.

xi) The audited statements of account of the investor company for the year ended on 31/03/2013 is enclosed herewith (Pg 97-109 of PB).

b) PRABHA TRADING PVT LTD: 1) The a/c confirmation copy from the Share applicant is enclosed herewith (Pg# 61 of PB).

ii) The Company is originally registered with Kolkata ROC as Pvt Ltd Company. The profile of the company is enclosed herewith (Pg # 67 of PB).

iii) The assessee company had transacted with the company on 17/05/2012, when share application money of Rs 10 lakh was received by a/c payee cheque of Bank of India. The Bank a/c statement is enclosed herewith (Pg # 64 of PB). The fund in the Bank was received from M/s Everlasting Commercial Pvt Ltd, by a/c payee cheque and the same is apparent from the Bank statement. The Bank statement of Everlasting Commercial P Ltd is enclosed herewith (Pg # 84 of PB).

iv) No shares were issued to the investor company and the share application money of Rs 10 lakh was returned back on 25/09/2014 by a/c payee cheque. The copy of ledger a/c of repayment is enclosed herewith (Pg # 63 of PB). The Bank a/c of the investor company in which the repayment is received is also enclosed herewith (Pg 65 of PB).

Page 15 of 18

v) As on the date of assessment, there was NIL outstanding and the whole of the Share Application money was repaid. vi) Later on 30/03/2015, the Company PRABHA TRADING was converted into LLP with registered office address at SURAT. The profile of the LLP is enclosed herewith (Pg # 66 of PB). vii) Thus the Investor company / LLP is live and presently having office at SURAT. viii) The investor company is regularly assessed to tax and the ITR is enclosed herewith (Pg # 68 of PB). The copy of the latest ITR-V for AY 2018-19 is also enclosed herewith (Pg # of PB). The Lender had shown an income of Rs.91,94,609/- for the year. 111 ix) The audited statements of account of the investor company for the year ended on 31/03/2013 is eSnclosed herewith (Pg # 69-83of PB).

10.

On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

11.

We note that according to section 68 of the Income Tax Act, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. It is well known that provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the Page 16 of 18

assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the assessing officer, the same shall be deemed to be the income of the company under section 68 of the Act. However, we note that the amended provisions of section 68, is not applicable to the assessee -company under consideration, for loan transaction for the assessment year 2013-14. We note that in respect of addition of Rs. 44,50,000/-, as loans received from M/s Radha Madhav Textile (Mr. Navin Agarwal) and M/s Vishwa Fashion Pvt Ltd, u/s 68 of the Income Tax Act, 1961, the assessee had established the source of such loan by producing sufficient documentary evidences, such as, confirmation, bank statement, balance sheet, profit, and loss account, name and address and PAN of the parties, hence, addition is hereby deleted.

12.

About addition of Rs.35,00,000/-, u/s 68 of the Act, as share premium capital infused. The assessee had established the identity, creditworthiness and genuineness of the subscriber. We note that all the share applicants are (i) income tax assessee’s, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the assessing officer found deposit in cash before issuing cheques to the assessee- company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve. The Hon'ble High Court of Delhi in the case of CIT v/s. Steller Investment Ltd 192 ITR 287 has held that;

Page 17 of 18

“If it be assumed that the subscribers to the increased share capital were not genuine, even then under no circumstances could the amount of share capital be regarded as undisclosed income of the assessee. It may be there were some bogus shareholders and the money may have been provided by some other persons. It would have been more sensible to re-open the assessments of the person alleged to have advanced the money. How this amount of increased share capital could be assessed in the hands of the company itself was beyond understanding.” The Hon'ble Supreme Court has agreed with this view, in above case and dismissed the SLP of Revenue in CIT v/s Stellar Investment Ltd in 251 ITR 263 (SC). Based on the above facts and precedents applicable to these facts, as narrated above, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made by assessing officer of Rs. 35,00,000/-, is deleted.

13.

Regarding allowing the Setoff Loss of unabsorbed Depreciation u/s 115BBE of the Act, we direct the assessing officer, to examine the facts, and if the assessee deserve for set off of unabsorbed depreciation u/s 115BBE of the Act, may be provided in accordance with law.

14.

In the result, appeal of the assessee is allowed.

Order is pronounced in the open Court on 06/07/2026.

Sd/- Sd/- [ Shri T. R. Senthil Kumar ] [ Dr. Arjun Lal Saini ] �याियक सद�य/Judicial Member लेखा सद�य/Accountant Member //True Copy// Surat िदनांक/ Date: 06/07/2026 Copy of the order forwarded to :  The assessee  The Respondent  CIT  The CIT(A) By order  DR, ITAT, SURAT  Guard File Sr. Private Secretary ITAT, Surat

Page 18 of 18

More judgments on Section 68

All 29,931 judgments and leading authorities on Section 68 →

Recent GST High Court judgments

Search GST case law →