MANEKCHAND PANACHAND TRADING INVESTMENT CO. PVT LTD ,MUMBAI vs. DCIT CIRCLE-5(2)(1), MUMBAI

The grounds of appeal are as under:

At the outset, it may be stated here that in the course of hearing before the Bench, the ld.AR did not want to press ground nos.1 to 3. Accordingly, these grounds stand dismissed.

Brief facts of the case are that the assessee is a Closely held company engaged in the business of investment and trading in shares and securities.It filed its return of income declaring total income at loss of Rs 180,50,950/-. Thereafter, it filed a revised return of income on P a g e | 3 A.Y. 2017-18 03.01.2019 declaring total income of Nil.During the relevant previous year, it had accepted Unsecured loans aggregating to Rs. 5.28 cr. from the following four parties: Mr. Asit D. Javeri (Promoter & Director) Rs. 2,41,76,827/- Ms. Anuradha Javeri (Promoter Group Member) Rs. 5,50,000/- Ms. Seema Javeri (Wife of Promoter) Rs. 4,10,485/- M/s. Sadhana Nitro Chem Ltd. (Listed company)Rs. 2,77,01,000 4.1 In the course of scrutiny assessment, the assessee furnished evidences including duly signed confirmation letters, PAN details, acknowledgements of income-tax returns, audited Balance sheets and Profit & loss accounts, and bank statements of all four lenders. It was specifically demonstrated that the loans were received through account payee cheques, that the lenders were either promoters or group companies having substantial financial strength, and that the transactions were duly recorded in their books of account.The AO, however, was not satisfied with the explanation and held that the assessee had failed to discharge the onus cast under section 68 of the Act. He observed that the confirmations appeared stereotyped, noted the presence of what he considered circular fund movements and certain bearer cheque entries, and concluded that the creditworthiness of the lenders was not satisfactorily proved. Relying inter alia on the decisions of the Hon’ble Supreme Court in A Govindarajulu Mudaliar v. CIT and P a g e | 4 A.Y. 2017-18 Sumati Dayal v. CIT, the AO treated the entire loan amount of Rs. 5.28 cr. as unexplained cash credit and brought the same to tax.

Aggrieved, the assessee filed appeal before the ld.CIT(A) contesting the addition made. It furnished certain additional evidences also to strengthen its case. The ld.CIT(A) called for a Remand report on such new evidences from the AO. On going through the said report, the appellate authority observed that the AO had substantially reiterated the findings recorded in the original assessment order. He maintained that the confirmations filed by the assessee were in a routine and stereotyped format and, in his view, did not conclusively demonstrate the independent financial capacity of the creditors. The AO also emphasized that the bank statements revealed a pattern of circular fund movements, wherein amounts credited to the accounts of the lenders were shortly thereafter transferred to the assessee as loans. According to the AO, this flow of funds lacked commercial substance and suggested that the transactions were in the nature of accommodation entries rather than genuine advances.

1 In rebuttal, the assessee filed a detailed rejoinder contending that the entire trail of funds had been clearly demonstrated, showing that the promoters had legitimately received funds from M/s. Sadhana

2 However, the ld.CIT(A) observed that the primary onus under section 68 of the Act lay upon the assessee to satisfactorily explain the nature and source of the credit entries, and only after this onus is discharged does the burden shift to the Revenue. The Hon’ble Supreme Court in A. Govindarajulu Mudaliar v. CIT (34 ITR 807) has held that where the explanation offered by the assessee is found unsatisfactory, the tax authorities are entitled to treat the sum credited as income of the assessee. Similarly, in Sumati Dayal v. CIT (214 ITR 801), the Supreme Court emphasized the application of the test of human probabilities in determining the genuineness of transactions. Applying these principles to the present case, the pattern of immediate rotation of funds coupled with the use of bearer instruments gives rise to a strong inference that P a g e | 7 A.Y. 2017-18 the transactions lack real commercial substance and are in the nature of accommodation entries. The argument that any addition, if warranted, should have been made in the hands of the creditors rather than the assessee could not be accepted. The assessee must first prove beyond doubt the identity, creditworthiness, and genuineness of the transactions in its own books before such a burden can shift. In the present case, this burden has not been satisfactorily discharged. Having regard to the totality of the material on record, the adverse findings of the Assessing Officer, and the preponderance of probabilities arising from the fund flow pattern, it was held that the assessee had failed to establish the independent creditworthiness of the lenders and the genuineness of the impugned loan transactions. The addition of Rs. 5,28,38,312/- made under section 68 of the Act was, therefore, sustained in full.

Before us, the ld.AR has reiterated the same contentions as made before the lower authorities. A Paper Book containing 148 pages has also been submitted and we have taken through various pages therein to demonstrate that all possible evidences were duly filed before both the authorities. It is claimed that the assessee had discharged the primary onus by filing all relevant details showing the genuineness of the impugned loans which has also been admitted by the authorities

On careful consideration of all the relevant facts of the case emanating from the records and the rival submissions, we are of the considered view that the addition upheld by the ld.CIT(A) lacks any substance as the assessee has suitably and satisfactorily discharged the onus cast on it in terms of the section 68 of the Act. The AO in a preconceived manner made the addition ignoring the plethora of evidences submitted by the assessee. The ld.CIT(A) also to failed to deal with the issue in judicious manner and upheld the addition without

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 12/05/2026. NARENDER KUMAR CHOUDHRY PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)