DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI vs. WHITE LOTUS STRUCTURES LIMITED, CHENNAI

ITA No.3488/Chny/2025 for Assessment Year 2014-15: Brief facts of the case are that the assessee company is engaged in the business of construction of properties, roads and allied infrastructure activities. It filed its return of income on 29.09.2014 declaring a loss of Rs.14,00,520/-. Pursuant to a search conducted u/s. 132 on 16.10.2019 in the cases of Golden Shelters Pvt. Ltd.

During appellate proceedings, the assessee furnished additional evidence under Rule 46A comprising ledger accounts, confirmations, bank statements, income tax returns and financial statements of Shri N.K.V. Krishna. The matter was remanded to the AO. In the remand report, the AO accepted that the opening balance of Rs.15,71,91,422/- and closing balance of Rs.34,97,43,670/- were

The ld. Departmental Representative (DR) for the revenue submitted that the CIT(A) erred in deleting the addition solely on the basis of a remand report which was vague and lacked proper verification. It was argued that the search proceedings had revealed that Shri N.K.V. Krishna had admitted introducing unaccounted money into various group concerns through loans, advances and share application money. It was further submitted that the balance sheet of Shri N.K.V. Krishna did not disclose loans and advances commensurate with the amounts allegedly advanced to the assessee. The AO, in the remand proceedings, merely accepted the documents furnished by the assessee without conducting any meaningful enquiry regarding the actual source of funds, financial capacity of the lender or the nexus between the funds available and the advances made. According to the Revenue, mere production of bank statements, confirmations and income-tax returns could not by itself establish creditworthiness, particularly when the search material indicated accommodation entries and circulation of unaccounted funds.

The ld.AR for the assessee submitted that the assessment year was unabated and therefore no addition could be made u/s. 153A in the absence of incriminating material. It was further submitted that neither the seized pen drive nor the statements relied upon by the AO specifically referred to the impugned transactions. On merits, the ld.AR for the assessee contended that the loans were received from Shri N.K.V. Krishna through banking channels and were duly supported by ledger accounts, confirmations, bank statements, income-tax returns and financial statements. It was argued that the requirements of section 68 stood fully satisfied.

We have considered the rival submissions and perused the material available on record. The CIT(A) deleted the addition solely on the strength of the remand report furnished by the Assessing Officer. However, a careful reading of the remand report shows that the AO merely recorded that the transactions were reflected in the books of account and that bank statements, confirmations and income-tax returns had been furnished. The report does not contain any meaningful examination of the financial capacity of Shri N.K.V. Krishna to advance such substantial sums. We find that the remand report is conspicuously silent on several crucial aspects. No enquiry was conducted regarding the actual source of funds available with Shri N.K.V. Krishna. No verification was made of the lender's capital position, cash flow, balance sheet strength or availability of funds on the dates of advancing the loans. The AO also failed to examine whether the lender possessed sufficient independent resources to advance amounts running into several crores.

Significantly, the search proceedings had unearthed material indicating that unaccounted cash belonging to Shri N.K.V. Krishna was being introduced into group entities through loans, advances and share application money. The remand report does not deal with these findings nor does it reconcile the seized material with the explanation subsequently offered by the assessee.

The Revenue has specifically pointed out that the balance sheet of Shri N.K.V. Krishna reflected loans and advances of only a limited amount and did not support advances of the magnitude claimed by the assessee. This aspect has neither been investigated by the AO in remand proceedings nor examined by the CIT(A). The remand report therefore cannot be regarded as a proper verification contemplated under law. The findings recorded therein are general, cryptic and unsupported by any independent enquiry. The ld.CIT(A) accepted the remand report mechanically without examining whether the lender's creditworthiness had in fact been established.

The Tribunal is of the considered view that the assessee cannot be regarded as having discharged the burden imposed u/s.68 of the Income Tax Act, 1961 merely by furnishing confirmation letters, bank statements, and income-tax returns, particularly in a case arising from search proceedings involving allegations of circulation of unaccounted funds through group concerns. During the assessment proceedings, the assessee was called upon to explain the nature and source of credits aggregating to Rs.34,82,99,678/-. Since no satisfactory response was furnished to the show-cause

We note that the AO did not explain how these documents, by themselves, demonstrated the financial capacity of the lenders. Mere filing of confirmation letters and income-tax return acknowledgements cannot be treated as sufficient proof of creditworthiness. The responsibility rests upon the lender to establish not only the source of the funds advanced but also the genuineness of the transaction. Therefore, before accepting the

In the present case, the ld.CIT(A) failed to independently verify whether the conditions prescribed u/s.68 of the Act had been fulfilled. Consequently, the appellate order lacks adequate reasoning. Furthermore, the assessee also failed to place before us any material establishing the identity of the creditors, their creditworthiness, or the genuineness of the transactions, and instead relied solely upon the remand report. Accordingly, the we set aside the order of the ld.CIT(A), restores the addition made by the AO. Hence, appeal of the Revenue is allowed.

ITA No.3489/Chny/2025 for Assessment Year 2015-16: For Assessment Year 2015-16, the assessee filed its return declaring a loss of Rs.16,07,752/-. Following search proceedings, an assessment u/s. 153A read with Section 143(3) was completed on 30.09.2021. During assessment, the AO observed an increase in current liabilities amounting to Rs.33,08,76,190/-. As the assessee

In appeal, the assessee filed additional evidence under Rule 46A, leading to a remand of the matter to the AO. In the remand proceedings, the AO acknowledged that loans aggregating to Rs.32,93,70,000/- had been received from Shri N.K.V. Krishna through banking channels and were duly reflected in the books of account. Relying primarily upon this remand report, the ld.CIT(A) held that the identity of the lender, his creditworthiness, and the genuineness of the transactions had been established, and therefore deleted the addition.

We find that the facts and issues involved for AY 2015-16 are materially similar to those considered for AY 2014-15. The remand report suffers from the same shortcomings, as it contains no substantive enquiry into the lender’s financial capability or the actual source of the funds. It merely records the existence of banking transactions and supporting documents without conducting any independent verification. Further, the implications of the search materials and statements recorded during the search were not examined.