PASWARA IMPEX LTD,NEW DELHI vs. DCIT, CIRCLE-2, MEERUT

PER MANISH AGARWAL, AM: This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [ld. CIT(A)] dated 08.12.2022 u/s 250 of the Income Tax Act, 1961 (“the Act” in short) arising out of the assessment order passed u/s 143(1) of the Act dated 29.12.2017 for Assessment Year 2015-16.

2 ITA No.243/Del/2023 Paswara Impex Limited vs. DCIT along with questionnaire were issued from time to time. The AO observed that during the year under appeal, assessee has received unsecured loans of Rs. 3,61,95,000/- out of which the loan of Rs. 2,00,00,000/- was received from M/s Nishyam Hotels Pvt. Ltd. for which the assessee submits that during the year under appeal a cheuqe of Rs. 2,00,00,000/- was received from the said company for which an entry was made in the books of accounts by crediting the account of the lender and corresponding debit entry was made in the bank account. Unfortunately, the said cheque was not cashed in subsequent year and the entry was reversed. As the cheuqe was deposited on 30.03.2015 in the bank, and an entry was made in the books which was reversed in next financial year on 02.04.2015, which fact was admitted by the AO however, by observing that since an entry was made in the books of account with a view to make certain adjustments, and accordingly he treated the said amount as unexplained credits in the books of account of the assessee and made the addition of the same.

3 ITA No.243/Del/2023 Paswara Impex Limited vs. DCIT cheque received was made in the books of accounts on 30.03.2015 of Cheque No.136642 in the ledger account of M/s Nishyant Hotels Pvt. Ltd. ignoring the fact that no real funds were received and the said cheque was remained in the Bank reconciliation statements and receivable. It is further observed that the said entry was reversed on 02.04.2015 and, accordingly, it was the claim of the assessee that actual funds were never received by the assessee as the cheque was never enchased. When no real funds were received which fact is verifiable from the bank account of the assessee. there is no occasion to make any addition of the amount of Rs. 2.00 corers of the said cheque u/s 68 of the Act as unexplained cash credits. Before going further, we refer the provisions of section 68 which reads as under: Section 68 in The Income Tax Act, 1961 68. Cash credits. 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, in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year. Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a)the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b)such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.

4 ITA No.243/Del/2023 Paswara Impex Limited vs. DCIT 6. As it could be seen, provisions of section 68 are applicable where the amount is received or credited in the books of account. For invoking the provisions of section 68 of the Act, the AO has to establish that the funds are actually received and credited in the books of accounts of the assessee. In the instant case, though the credit entry of cheque received has been made, however, there was no physical receipts of funds from the bank account of the lender company to the bank account of the assessee company. Once no funds were credited / received by the assessee, the provisions of section 68 of the Act could not be invoked. Identical issued was come up for consideration before the coordinate bench of Delhi benches of Tribunal in the case of DCIT vs. M/s. Glass Tech India in ITA No.6241/Del/2017 wherein vide order dated 25.03.2022, the Co-ordinate Bench has confirmed the order of Ld. CIT(A) deleting the addition made. The relevant observations as contained in para 6 to 10 of the order which are as under.

“6. Now giving thoughtful consideration to the arguments and going through the matter on record and to understand the scope of section 68 of the Act, the judgment of Hon'ble Rajasthan High Court in CIT v. Kishorilal Santoshilal [1995] 216 ITR 9 is relevant where in Hon'ble High Court has held in para 11 "on the basis of the language used under Section 68 and the various decisions of different High Courts and the Apex court, the only conclusion which could be arrived at is: (i) that there is no distinction between the cash credit entry existing in the books of the firm whether it is of a partner or of a third party, (ii) that the burden to prove the identity, capacity and genuineness has to be on the assessee, (iii) if the cash credit is not satisfactorily explained the Income-tax Officer is justified to treat it as income from "undisclosed sources", (iv) the firm has to establish that the amount was actually given by the lender, (v) the genuineness and regularity, in the maintenance of the account has to be taken into consideration by the taxing authorities, (vi) if the explanation is not supported by any documentary or other evidence, then the deeming fiction credited by Section 68 can be invoked.

5 ITA No.243/Del/2023 Paswara Impex Limited vs. DCIT 6.1 Then particularly in case of fictitious entries where there is no actual flow of cash, the Coordinate Bench in ITO Vs Zexus Air Services Pvt. Ltd. (ITAT Delhi) Appeal Number: ITA No.2608/Del/2018 vide order dated 23/04/2021 has observed; "12.1 We find, the Delhi Bench of the Tribunal in the case of ACIT vs. Shri Suren Goyal (ITA No.1767/Del/2011, order dated 1st December, 2011; has held that where the assessee has received loan of Rs.20 lakhs from his father through a journal entry in the books of account and there was no physical transfer of money from the account of his father, addition of the same u/s 68 of the Act is not justified and accordingly the Tribunal dismissed the appeal filed by the Revenue against the order of the CIT(A) deleting the addition made by the AO u/s 68 of the IT Act on account of the journal entry. 13. We find the Kolkata Bench of the Tribunal in the case of ITO vs. Bhagawat Marcom Pvt. Ltd., reported in 178 ITD 684 while deciding somewhat similar case has held that where the assessee company, during the year under consideration issued shares at premium to certain companies in lieu of shares held by the said companies and the said transactions were entered in the books of account of the assessee company by way of journal entries and it did not involve any credit to cash account, therefore, the amount of entry could not be treated as unexplained cash credit u/s 68 of the IT Act. 13.1 We find, the Jaipur Bench of the Tribunal in the case of ACIT vs. Mahendra Kumar Agrawal 23 taxmann.com 285 has held that in provisions of section 68, the words used are "where any sum is found credited in the books of an assessee." In this connection, the word 'sum' is of paramount importance. The words "any sum" cannot be taken as parallel to "any entry." The provisions of section 68 are deeming provisions and therefore, onus is on the Department to prove that any sum was credited to the books of the assessee." 7. Thus, what can be concluded is that it is not just entry of cash credit in the books of accounts that would create liability of explanation from the assessee, but there should be an actual flow of funds. Once the flow of funds is established then the question of explanation from the assessee actually arises. Where the books of accounts on its own establish that the entry was fictitious and sham for window dressing, then as such the initial burden on the revenue is not discharged to shift onus on the assessee to explain further identity, capacity and genuineness of the source. 8. It can be seen in present case that the Ld. AO had observed from the books of accounts that the entry was fictitious and was reversed immediately in next FY on 1/4/2014, without any actual cash flow. But Ld. AO was carried away by morality of accounting practices by holding that there is no concept like notional entries in the preparation of books of accounts and to which more pragmatic view was taken by the Ld. FAA by accepting the plea of assessee and observing in para 11 of its order that" the entire story is one of series of entries passed with a view of shoring up its current ratio for showing the same to the bank for better interest on loans raised."

6 ITA No.243/Del/2023 Paswara Impex Limited vs. DCIT 9. Even otherwise the onus on the assessee was discharged with the explanation that there was no actual flow of funds and that explanation being factual could not have been rebutted on deemed fiction. Thus Ld. FAA was correct in following the ratio laid by Hon'ble Calcutta High Court in Jatia Investment Co. Ltd. V. CIT(1994) 206 ITR 718 (Cal), that fictitious entry not backed up by funds may not be taxable as "Cash Credit". 10. Then Ld. FAA has also taken into consideration the fact that the entries were not from strangers but from the partners by way of introduction of capital so the correct course would have been to bring the capital introduced to tax in the hands of the partners as their unexplained income.”

Order pronounced in the open Court on 29.06.2026.

Sd/- Sd/- (SATBEER SINGH GODARA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:29.06.2026. *PK, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI