SULTAN TANNERS,KANPUR vs. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-II, KANPUR

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘B’ BENCH, LUCKNOW BEFORE SH. KUL BHARAT, VICE PRESIDENT AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners, vs. Dy. Commissioner of Income Tax, 1, Jajmau, Kanpur Central Circle-II, Kanpur PAN: AADFS2681N (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Advocate Revenue by: Sh. R.R.N. Shukla, Addl CIT DR Date of hearing: 04.02.2026 Date of pronouncement: 30.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M. This is an appeal filed by the assessee against the orders of the ld. CIT(A)-4, Kanpur, passed under section 250 of the Income Tax Act on 26.03.2025, wherein the ld. CIT(A) has dismissed the appeals of the assessee against the order passed by the ld. AO under section 143(3) / 144 of the Income Tax Act on 21.12.2017. The grounds of appeal are as under:- “01. Because the authorities below have erred on facts and in law in upholding the addition of Rs.4,20,00,000/- under section 68 of the Income-tax Act, 1961 as unexplained deposit, which addition is contrary to facts, bad in law be deleted. 02. Because all the three ingredients of section 68 having been fully complied above with evidence, the authorities below have failed to appreciate the same, facts and circumstances of the case as well as the explanations filed thereby have erred in arbitrarily upholding the addition of Rs.4,20,00,000/- under section 68, which addition being contrary to facts, bad in law be deleted. 03. Because the authorities below have failed to appreciate that the entire transaction / deposit has been received by account payee 1

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners cheques being amount transferred from the sister concern through banking channels and all the depositors being family members and are assessed to tax for last several years, the deposits are neither of unexplained, nor undisclosed, the addition Rs.4,20,00,000/- made as well as upheld under section 68 of the Act, is contrary to facts, bad in law be deleted. 04. Because the CIT(A) has failed to appreciate the contents of the submissions filled on 28.01.2025 alongwith the erred in affidavits of the depositors, has thereby upholding the addition of Rs 4,20,00,000/- made by the Assessing Officer under section 68 of the Act, which addition being bad in law be deleted. 05. Because the CIT(A) has erred on facts and in law in following the contents of the remand report without independent analysis of the same, thereby has erred on facts and in law in arbitrarily upholding the addition of Rs.4,20,00,000/- under section 68, which addition being bad in law be deleted. 06. Because the CIT(A) has failed to appreciate the contents of the petition moved under Rule 46A of the Income-tax Rules, 1962, wherein all the necessary evidences in support of the facts of the case, explaining the total credits as received, has thereby erred in upholding the addition of Rs.4,20,00,000/- made by the Assessing Officer under section 68 of the Act, which addition being bad in law be deleted.” 2. The facts of the case are that the assessee filed a return of income for the assessment year 2015-16 showing total income at Nil. The case was picked up for scrutiny. During the course of scrutiny, it was observed that the assessee had raised unsecured loans amounting to Rs. 4.2 Crore from the following persons: -

i. Kashif Alam, Rs. 1 Crore ii. Mariam Maqsood, Rs. 70 Lacs iii. Nishat Ara, Rs. 40 Lacs iv. Saif Alam, Rs. 1 Crore v. Sana Moid, Rs. 70 Lacs vi. Zareen Yakoob, Rs. 40 Lacs

In order to verify the identity and creditworthiness of the lenders and the genuineness of the transaction, the assessee was asked to furnish 2

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners confirmations, copy of ITR and the copy of bank statement of lenders. The assessee filed copies of ITRs and bank statement in respect of Sh. Kashif Alam, Ms. Mariam Maqsood and Ms. Zareen Yakoob. For the remaining, the details were not filed. The ld. AO thereafter issued notices under section 133(6) to the lenders and also recorded the statements of Kashif Alam, Mariam Maqsood and Zareen Yakoob. Sh. Kashif Alam, in his statement, stated that he had not given any loan to M/s Sultan Tanners. However, he had given a loan of Rs. 1 Crores of M/s Model Echoes. Smt. Zareen Yakoob stated that she had given a loan of Rs. 40 Lacs to M/s Sultan Tanners, but she was not able to tell the source from which this amount had been given. Smt. Mariam Maqsood denied any unsecured loan of Rs. 70 to M/s Sultan Tanners. Therefore, the ld. AO asked the assessee to show cause as to why unsecured loans of Rs. 4.2 Crores may not be added back to the income of the assessee in view of the fact, that some lenders had denied giving the loans and other lenders had not turned up for recording of statements. The assessee did not respond to the said show cause notice till the date passing of the order and therefore on 21.12.2017, the ld. AO added back the sum of Rs. 4.2 Crores and computed the income of the assessee at Rs. 4,19,90,500/-. 3. Aggrieved with such additions, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), it was submitted that the assessee firm had received deposit of Rs. 4.2 Crores from family members of the partners, which was detailed in the response. It was submitted that the amounts relating to Kashif Alam and Mariam Maqsood were transferred from M/s Model Echoes Pvt. Ltd. by cheques, wherein both the parties had their accounts. The source of deposits with Model Echoes was the cheques that were received by them from their accounts standing with Model Tanners. The cheques received by them were first deposited in the savings bank

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners account and thereafter cheques were issued by them to Model Echoes Pvt. Ltd. From Model Echoes Pvt. Ltd., the same were transferred to Sultan Tanners. Both persons were regularly assessed to tax and had substantial capital / credit balance in their accounts. As regards, Zareeen Yaqoob, it was submitted that cheques were received from her savings bank account and the deposits in the savings bank account represented transfer of amounts received by her from her accounts standing in different companies / firms. She was assessed to tax for the last several years. Deposits from Nishat Ara, Saif Alam and Sana Moid were also by way of transfer from their savings accounts. The summons issued to them had been complied with, in that their AR had appeared and filed confirmations, but the AO was not satisfied and treated the deposits appearing in their name, as unexplained. No opportunity was given to the assessee to rebut the same. It was further submitted that a detailed reply was filed on 21.12.2017 explaining the source of deposit of Kashif Alam, Mariam Maqsood and Zareen Yakoob but the ld. AO passed the order on the same date, without considering the same and therefore, proper opportunities had not been provided to the assessee. Accordingly, the assessee filed a petition under rule 46A of the Income Tax Rules, 1962 alongwith a host of documents (which have been filed before us in the form of paper book). It was submitted that the Accountant of the assessee firm, on account of lack of knowledge, could not represent the matter properly and did not file the evidences or explanations that were required. It was submitted that he did not understand the nature of the query and furthermore, the ACIT had not provided time for the same. The assessee sought shelter under sub clause (a) of Rule 46A by pointing out that it had filed a detailed submission on 21.12.2017 explaining the genuineness of the credits, which had not been considered by the AO as he passed his assessment order on the same date. Therefore, it was prayed that all these 4

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners additional evidences may kindly be admitted and considered before the passing of the order. In consideration of this petition, the ld. CIT(A) forwarded the fresh evidence that was filed by the assessee to the AO for a remand. The ld. AO submitted a remand report on 8.11.2023, in which he pointed to the fact that three of the lenders had denied the fact of loans in the course of the statements recorded during assessment proceedings while the other three lenders had failed to appear. Further, he pointed out that the confirmation in the cases of Kashif Alam, Mariam Maqsood and Zareen Yakoob was not reliable as the signatures in the same differed from that which was recorded during the appearance of Kashif Alam, Mariam Maqsood and Zareen Yakoob for recording of statement. The ld. AO further noted that amounts had been transferred from one family concern to another repeatedly, making it out to be a case of layering and therefore, the creditworthiness and genuineness of the loans could not be ascertained. Accordingly, he held that the bank accounts of the lenders were used for circulating the fund of group entities and the three limbs of verification of unsecured loan/unexplained credit could not be proved. 4. The ld. CIT(A) considered this remand report of the assessee and after considering the same, he held that the onus to establish and prove the three ingredients of an unsecured loan such as the identity, creditworthiness and genuineness of the transaction lay on the borrower and the assessee had failed to fulfill these conditions before the ld. AO. The lenders have given a statement that either no loan was given to the assessee or they did not know about the unsecured loan given to the assessee. The ld. CIT(A) also noted that in the case of loans from Kashif Alam, Mariam Maqsood and Zareen Yakoob, the ld. AO had held that the money trail had not been established and layering of funds was being done, whereby funds were received from one

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners company and transferred some where else. In the cases of Nishat Ara, Saif Alam and Sana Moid, the ld. CIT(A) noted the comments of the AO that financial statements were not available and therefore, the genuineness of transaction and creditworthiness of the lender was not established. The ld. CIT(A) pointed out that mere filing of confirmation letter and ITR copies were not enough to prove the credit capacity of the creditor. He voiced his belief that loan entries were generally masked to pump black money into banking channel and held that since the assessee had failed to prove the vital ingredients of cash credit therefore, he found no reason to interfere with the additions made by the AO. 5. The assessee is aggrieved at this dismissal of his appeal by the ld. CIT(A) and has accordingly come before us. Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) pointed out that the lenders were all family members of the partners of the assessee firm. The original family concern was M/s Model Tanners were five brothers namely Mahtab Alam, Maqsood Alam, Moin Alam, Margoob Alam and Kashif Alam were partners. There had been a separation and the brothers had taken their share capital and moved out. Among these, Sh. Maqsood Alam and Sh. Moin Alam had invested all their capital in Sultan Tanners. The account entry was that their accounts in the books of Model Tanners were debited, the personal accounts were credited and from their personal accounts, the amounts had been transferred to the concern. It was submitted that a similar route had been followed for loans by the other family members, the ld. AR invited our attention to the submissions made by him before the ld. CIT(A), which were contained on pages 6 to 17 of the appellate order of the ld. CIT(A). It was submitted that the entire money trail, as to how the sums that had been lent to the assessee firm, had moved from the accounts of the lenders in one

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners concern, had moved to their personal accounts and thereafter to M/s Sultan Tanners had been clearly explained. He also invited our attention to the paper book submitted by him which contained affidavits of Mariam Maqsood, Zareen Yakoob and Kashif Alam and the detailed accounts that had been submitted alongwith the petition under Rule 46A. The ld. AR submitted that a perusal of these documents would reveal that the money trail was clearly established and no part of the unsecured loan that was given by the family members to M/s Sultan Tanners were unexplained. The ld. AO had not bothered to properly go through the money trail and had come to a conclusion that it was a case of layering, but it was submitted that no adverse inference could be drawn on account of inter-corporate movements of cash as long as the same was explained and the ld. AO had not bothered to properly examine the audit trail. It was further submitted that too much emphasis was being placed on the statements given by various lenders before the ld. AO. It was not unusual in family concerns that the affairs were managed by the males of the family and the levies would not be aware of exactly how their capital was invested. Further it is also possible that the persons may not have been immediately aware how their capital was invested. What was important was whether the money that was lent to the assessee firm, should be explained in their hands. It was, therefore, prayed that considering these submissions and documents furnished by the assessee firm, the loans should be held to be explained. The ld. AR submitted that he was willing to make a detailed submissions before the AO to allay his doubts and prove that the money was explained in the hands of the lenders. 6. On the other hand, Sh. R.R.N. Shukla, Addl CIT DR (hereinafter referred to as the ld. DR) pointed out that the documents that had been filed by the ld. AR had been examined by the AO during the course of remand

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners proceedings and the creditworthiness and genuineness of transaction is still not proved. In the circumstances, the addition deserved to be confirmed especially because three of the lenders had exhibited ignorance about the source of the loans or the giving of the loans themselves while the others had not made compliance before the ld. AO. 7. We have duly considered the facts of the case and the submission of both parties. We observe that the assessee had filed a petition under Rule 46A before the ld. CIT(A)containing a large number of documents, which if examined properly would be conclusive to demonstrate whether the money that has been lent to the assessee firm was explained in the hands of the lenders or not. It does not appear that the ld. AO had actually gone through these documents and attempted to unravel the audit trail. He has held the same to be a case of layering, ignoring the fact that assessees are entitled to maintain accounts with different firms and companies in which they are partners and re-distribute their capital as and when they deem it appropriate. Unless and until it can be shown that the amounts lent to the assessee firm by the lenders were unexplained in their hands, their creditworthiness cannot be doubted. Furthermore, we agree with the ld. AR, that it is possible that a person having deployed funds in various concerns, could be unmindful of where his or her funds were deployed, if not fully prepared for the question. Ultimately what has to be seen is whether the funds are explained in the creditor’s hands and whether transaction is genuine. The ld. CIT(A) had also failed to note that the AO had not conducted a detailed exercise of examination of these documents, which he had forwarded to him. As examination of these documents are crucial to determine the creditworthiness of the lenders and the genuineness of transaction, we deem it appropriate to restore this matter back to the file of

ITA No.295/LKW/2025 A.Y. 2015-16 Sultan Tanners the AO with a direction to the assessee to submit these documents before the ld. AO and also make due compliance before him to demonstrate the movement of funds and the creditworthiness of the lenders so that his contention that the amounts stand fully explained can be verified by the AO. As the matter stands restored to the file of the ld. AO, the appeal of the assessee is held to be allowed for statistical purposes.

Order pronounced on 30.04.2026 in the open Court. Sd/- Sd/- Sd/- [KUL BHARAT] [NIKHIL CHOUDHARY] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 30/04/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.