PAYAL VIKRAM SHETH,MUMBAI vs. COMMISSIONER OF INCOME-TAX (APPEALS) , DELHI

आदेश / ORDER PERMAKARAND VASANT MAHADEOKAR: The present appeal filed by the assessee is against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as "CIT(A)"] under section 250 of the Income-tax Act, 1961[hereinafter referred to as "the Act"] dated 15/10/2025 arising out of the assessment order passed under section 143(3) read with section 144B of the Act dated 26/02/2024 for Assessment Year 2022–23. The assessee has also filed a Stay Application seeking stay of recovery of the outstanding demand arising from the aforesaid appellate order. Since the appeal and the stay application arise out of the same assessment order and involve common issues, both were heard together and are being disposed of by this consolidated order.

Brief Facts of the Case 2. The assessee filed return of income on 26/07/2022 declaring a loss of Rs. 7,73,810/-. The case was selected for scrutiny to examine the source of loans advanced. During the

3 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth course of assessment proceedings, the Assessing Officer observed that the assessee had advanced substantial loans to various parties and was required to explain the source of such funds. In response, the assessee submitted that loans were received from the following persons: i. Shri VikramSureshbhaiSheth ii. Smt. ManjubenSureshbhaiSheth

2.1 To verify the genuineness and creditworthiness, the Assessing Officer issued notices under section 133(6) to the said parties. The assessee furnished details of loans received along with confirmations. Bank statements evidencing receipt of funds through banking channels were submitted. It was contended that the identity, creditworthiness and genuineness of the lender stood established. With respect to interest income, the assessee explained that gross interest received was Rs. 12,71,727/- and after reducing interest paid of Rs. 3,50,867/-, net interest income was Rs. 9,20,860/-.

2.2 The Assessing Officer, after examining the material on record, recorded that as per the ITR of the VikramSheth, total funds available were Rs. 4,60,22,451/- in the form of Investments in Government securities: Rs. 3,98,18,001/-, Cash in hand: Rs. 21,65,012/- and Bank balance: Rs. 40,39,438/-. It was further observed that the lender had not advanced loans to any other party during the year. The Assessing Officer concluded that the lender did not have sufficient surplus funds to advance

4 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth the loan. Accordingly, the creditworthiness of the lender was held to be not proved and the amount of Rs. 2,83,00,000/- was added under section 68.

2.3 Regarding the addition on account of interest, the Assessing Officer noted that the assessee had declared interest income of Rs. 9,25,128/- in the return. However, as per details, interest received was Rs. 12,71,727/- and difference of Rs. 3,50,867/- was claimed as interest paid. The Assessing Officer further noted that no such claim was made in the return of income. Accordingly, the difference of Rs. 3,50,867/- was added to income.

2.4 Thus, total additions of Rs. 2,41,50,867/- were made and assessed income was determined at Rs. 2,49,24,677/-.

5 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth financial capacity of the creditor, and on detailed examination of the lender’s financial position, it was found that after considering investments, cash in hand and bank balances, the creditor did not have adequate surplus funds to advance the loan of Rs. 2,83,00,000/-. The CIT(A) placed reliance on some judicial precedents to hold that the test of human probabilities and surrounding circumstances must be applied and that mere routing of funds through banking channels is not conclusive. It was also concluded that the assessee had failed to establish the creditworthiness and genuineness of the transaction. Accordingly, the addition made by the Assessing Officer under section 68 was upheld and the ground of appeal was dismissed. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal: i. That on the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC erred in confirming the addition of ₹2,83,00,000/- u/s 68 despite the assessee furnishing complete documentary evidence including (i)the lender’s bank statement showing availability of funds, (ii) bank-to-bank transfer of loan, (iii) written loan confirmation, and (iv) the lender’s direct response to notice u/s 133(6) unequivocally confirming having advanced the loan. ii. That the Ld. CIT(A) erred in ignoring the legal effect of the lender’s statutory 133(6) confirmation. Once the identity of the creditor, creditworthiness through bank records, and genuineness of the transaction through banking channel are established, the addition u/s 68 cannot survive as held by the Hon’ble Supreme Court in Orissa Corporation and Lovely Exports. iii. That the Ld. CIT(A) erred on facts and in law in sustaining the addition merely on the basis of selective interpretation of the lender’s ITR schedules without calling for or examining the lender’s full financial statements, capital account, loan schedules or source of iv.

6 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth bank inflows, thereby rendering the finding arbitrary, perverse and contrary to settled judicial principles. v. That the Ld. CIT(A) failed to appreciate that the bank statement constitutes primary and conclusive evidence of creditworthiness and genuineness, and once the source of the source is visible in banking records, the burden shifts to the AO to disprove the evidence—which has not been done. vi. That the Ld. CIT(A) erred in confirming the disallowance of interest of ₹3,50,867/- paid/accrued to Ms. ManjubenSheth, despite the assessee producing (i) interest ledger, (ii) ledger confirmation, and (iii) written confirmation from Ms. ManjubenSheth acknowledging the accrual of interest income and offering such income to tax on accrual basis. vii. That the Ld. CIT(A) failed to appreciate that the assessee follows the mercantile system of accounting regularly accepted by the Department, and therefore interest accrued and acknowledged by the payee cannot be disallowed merely because the physical payment occurred subsequently. viii. That the assessment order is bad in law and void ab initio as it violates Section 144B and principles of natural justice; the adverse inferences regarding (i) the lender’s ITR format, (ii) alleged lack of creditworthiness, and (iii) interest claim were never confronted to the assessee through a show-cause notice. ix. That the appellate order passed u/s 250 is invalid and void ab initio as it violates Section 250(6), being non-speaking, unreasoned, and passed without recording points for determination or independent findings; the order merely reproduces the assessment order without judicial application of mind. x. That the assessment order is without jurisdiction as the AO failed to undertake proper enquiry despite having statutory powers u/s 131, 133(6) and 142(1), especially when the lender’s bank statement and 133(6) confirmations were on record. The mandatory jurisdictional requirements of Section 68 were not satisfied. xi. That the initiation of penalty proceedings u/s 270A and 271AAC is illegal, arbitrary and without jurisdiction as the underlying additions are unsustainable both on facts and in law. When the quantum additions fail, the penalty proceedings automatically collapse. xii. The appellant craves leave to add, alter, modify or withdraw any grounds of appeal during the hearing of the matter.

7 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth 4. During the course of hearing, none appeared on behalf of the assessee despite notice. Accordingly, the appeal was heard ex parte qua the assessee and is being disposed of on the basis of material available on record. The learned Departmental Representative reiterated the findings recorded in the assessment order and relied upon the order of the lower authorities.

5.1 In this regard, we find that the addition has been made primarily on the basis of figures reflected in the Income Tax Return of the lender. In our considered view, the Income Tax Return reflects the financial position as on the closing date of the year and does not, by itself, capture the flow of funds during the year. The availability of funds at a particular point of time, particularly at the year-end, cannot conclusively determine the capacity of the lender to advance funds during the year unless the bank statements, fund flow and timing of transactions are examined. Therefore, drawing an adverse inference solely on the basis of closing figures in the Income Tax Return, without examining the underlying bank transactions and movement of funds, does not constitute a complete or conclusive enquiry.

8 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth 5.2 Further, it is noticed that the assessee has placed on record confirmation of the lender, bank statements evidencing transfer of funds through banking channels and also pointed out that the lender has responded to notice issued under section 133(6) of the Act. The Assessing Officer, however, has not undertaken any detailed verification of the fund trail or examined whether the advances were made out of available funds at the relevant point of time.

5.3 Another relevant aspect which emerges from the record is that the lenders are stated to be Smt. ManjubenSureshbhaiSheth and Shri VikramSureshbhaiSheth, whereas the assessee is Smt. PayalVikramSheth. The similarity in names prima facie suggests a possible family relationship, which assumes significance while examining the nature and source of the transactions. However, neither the Assessing Officer nor the learned CIT(A) has brought any material on record to examine or establish the relationship between the parties, nor has any enquiry been conducted as to whether the transactions are between related persons, which may have a bearing on the appreciation of the evidence and surrounding circumstances.

5.4 With regard to the addition on account of interest of Rs. 3,50,867/-, it is observed that the assessee has explained the difference by stating that interest received was net of interest paid and has also claimed that supporting ledger and confirmation were furnished. The Assessing Officer has rejected the

9 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth explanation on the ground that no such claim was reflected in the return of income, without verifying the accounting treatment or the evidences placed on record. This issue also requires proper verification of books of account, method of accounting and supporting documents.

5.5 In the totality of facts and circumstances, we are of the considered view that the assessment in the present case has been framed without carrying out complete and proper verification of relevant facts and evidences. The additions have been made on the basis of partial examination and presumptions, without conducting necessary enquiries such as verification of bank statements, fund flow, timing of transactions, and relationship between the parties.

10 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth verifying the claim of interest payment in accordance with iv. the method of accounting followed by the assessee; and affording adequate opportunity of being heard to the v. assessee. The assessee is also directed to cooperate and furnish all necessary evidences in support of its claim.

Adjudication of Stay Application 8. Since the impugned assessment order has been set aside and the matter has been restored to the file of the Assessing Officer for fresh adjudication, the demand arising therefrom does not survive at this stage. In absence of any subsisting demand, there remains nothing to be stayed.

Order pronounced in the open court on 07.05.2026.

Sd/- Sd/- (ANIKESH BANERJEE) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 07/05/2026 Z.U, PS

11 ITA No. 8847/Mum/2025 & S.A. No. 19/Mum/2026 PayalVikramSheth आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई/ DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai