AJAY SERVICE STATION,NEW DELHI vs. INCOME TAX OFFICER WARD 58(7), DELHI, DELHI

PER ANUBHAV SHARMA, JM:

These cross appeals are preferred by the assessee and revenue against

the order dated 06.10.2025 of the Ld. National Faceless Appeal Centre

(NFAC), Delhi (hereinafter referred as Ld. First Appellate Authority or in

short Ld. ‘FAA’) in DIN& Order No.: ITBA/NFAC/S/250/2025-

26/1081483264(1) arising out of the order dated 27.12.2019 u/s 143(3) of the

Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the

ITO, Ward -58(7), Delhi for AY: 2017-18.

total income of Rs.5,53,171/- and the case of the assessee was selected for

scrutiny. During the year assessee was engaged in the business of petrol

pump operations situated at G.T. Road, Shahdara. It comes up upon the

hearing that the case of assessee is that in the present financial year where

partner of the firm Shri Ajay Kumar had retired from the firm and his capital

balance was Rs.3,35,90,369.54/- at the time of retirement. The said balance

was lying in his capital account and was transferred to his unsecured loan

account. As such the unsecured loan outstanding as on 31.03.2016 was

P a g e | 3 ITA Nos. 6504 & 7892/Del/2025 Ajay Service Station (AY: 2017-18) Rs.7,21,51,688/- which rose to Rs.10,52,50,277/- as on 31.03.2017. During

the demonetization period assessee was permitted to accept specified bank

notes of old denominations and assessee had deposited the same in cash sales

and assessee deposited Rs.15,64,900/- in his corporation bank account and

Rs.80,000/- in Punjab National Bank account total thus, being Rs.16,44,900/.

cash deposited during 03.12.2016 to 31.12.2016 and addition of unsecured

loan Rs.3,30,90,589/- was made. Additional evidence were filed by the

assessee in the form of partners capital account before the ld. CIT(A) and

thereupon the impugned order was passed wherein ld. CIT(A) has sustained

the addition on account of unsecured loan u/s 68 of the Act and deleted the

addition on account of cash deposits. Assessee is in appeal against the

addition sustained and department is also in appeal against the order of ld.

CIT(A) wherein it was held that in regard to addition u/s 68 Section 115BBE

is not applicable to the present assessment year as the amendment is

prospective in nature.

115BBE of the Act prospectively is covered against the department by

P a g e | 4 ITA Nos. 6504 & 7892/Del/2025 Ajay Service Station (AY: 2017-18) decision of Hon’ble Madras High Court in S.M.I.L.E. Microfinance Ltd. Vs.

ACIT, (2025) 179 taxmann.com 65 (Madras) and the same could not be

controverted by Ld. DR, therefore, there is substance in the appeal of

department and same is dismissed.

of the paper book assessee has provided copy of application for additional

evidences under Rule 46A filed by the assessee. At page 51 there is extract of

e-proceeding response acknowledgment wherein this application is shown to

be filed by the assessee. We find that in the form of additional evidence,

assessee filed the copy of ledger account of unsecured loan for Assessment

Year 2017-18 as on 31.03.2017 and copies of relevant audited balance sheet

as on 31.03.2017 were filed before ld. CIT(A) alongwith partner’s capital

account statement for AY; 2016-17 & 2017-18. However, in the impugned

order of NFAC we find that remand report for assessing officer was called on

these documents and no verification of the evidences by way of remand

report was received from the assessing officer. There was no adverse

comment upon the same still NFAC has left these evidences out of

consideration with very superfluous discussion which reproduce below:

P a g e | 5 ITA Nos. 6504 & 7892/Del/2025 Ajay Service Station (AY: 2017-18)

“With regard to the addition of Rs. 3,30,98,589 on account of unsecured loans, the appellant has furnished certain ledgers, confirmations, and partial details of the parties. However, on a careful perusal, it is evident that complete documentary evidence has not been provided. The appellant has not filed verifiable bank statements of all the creditors to establish the inflow of funds, nor has independent confirmation been received from them. The explanation that these were brought-forward balances from earlier years remains unsubstantiated in the absence of reconciliation statements and supporting evidence from prior assessments. Merely producing ledger extracts without corroboration does not discharge the onus cast under section 68 to prove identity, creditworthiness, and genuineness of the creditors. The Hon'ble Supreme Court in CIT v. Devi Prasad Vishwanath Prasad (72 ITR 194) and CIT v. Daulat Ram Rawatmull (87 ITR 349) has held that the burden to explain the nature and source of credit lies upon the assessee, and in the absence of credible proof, the addition must be sustained. Accordingly, the explanation furnished by the appellant in respect of unsecured loans is not satisfactory. The Assessing Officer was justified in treating the same as unexplained cash credit under section 68. The addition of Rs. 3,30,98,589 is therefore confirmed.’

before ld. CIT(A) we are of the considered view that as for making an

addition u/s 68 of the Act there should be some credit entries in the books of

account and what we find here is that the capital account balance of one of

the partner Ajay Gupta was converted into unsecured loan on his retirement.

Ld. Counsel has established that this has resulted into reduction of the

partner’s capital account balances. NFAC has paid no attention to this

material and erroneously has sustained the addition. There being merely a

journal entry without any cash involvement and that too on account of capital

account balance on being converted to unsecured loan, the addition u/s 68

could not have been sustained.

P a g e | 6 ITA Nos. 6504 & 7892/Del/2025 Ajay Service Station (AY: 2017-18) 7. We thus, sustain the grounds raised by the assessee in its appeal and

consequently allow the appeal. The impugned addition is deleted.

department is dismissed.

Order pronounced in the open court on 29.04.2026

Sd/- Sd/- (Manish Agarwal) (Anubhav Sharma) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 29.04.2026 Rohit, Sr. PS