PMS EXPORTS PRIVATE LIMITED ,MUMBAI vs. DCIT, CENTRAL CIRCLE 2(2), MUMBAI

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ITA 6725/MUM/2025Status: DisposedITAT Mumbai12 May 2026AY 2012-139 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the assessee's claim of these entities being group concerns, with common shareholders and directors, was raised for the first time before it. This fact changes the dynamics of the transactions, making it plausible for group entities to provide short-term finance. Therefore, the matter was set aside for fresh examination.

What were the facts?

The assessee received unsecured loans from two companies, API Industries Pvt. Ltd. and Gujarat Packaging, to fund purchases from other entities. The Assessing Officer (AO) added these amounts as unexplained credits, finding the explanation of the transactions unconvincing and lacking commercial prudence.

What were the issues?

Whether the unsecured loans received by the assessee from two companies were genuine and explained, considering the nature of the transactions and the creditworthiness of the lenders.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI “C” BENCH : MUMBAI

Before: SHRI VIKRAM SINGH YADAV & SHRI RAHUL CHAUDHARY

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “C” BENCH : MUMBAI

BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER

ITA No. 6725/Mum/2025 Assessment Year : 2012-13 PMS Exports Private Limited, Deputy Commissioner of C/o. Shyam C. Agrawal & Co., Income Tax, A-505, Eco Heights, vs. Central Circle-2(2), Shree Nityanand Chs. Ltd., Pratishtha Bhavan, Nityanand Nagar No.1, M.K. Road, Near Sanjeevani Hospital, Mumbai-400020. Sahar Road, Andheri (E), Mumbai-400069. PAN : AACCP0702H (Appellant) (Respondent) For Assessee : Shri S.C. Agrawal For Revenue : Shri V.S. Mahajan Date of Hearing : 20-04-2026 Date of Pronouncement : 12-05-2026 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-48, Mumbai [„Ld.CIT(A)‟], dated 13-08-2025, pertaining to Assessment Year (AY) 2012-13.

2.

Briefly stated, facts of the case are that during the course of assessment proceedings, the Assessing officer observed that the assessee has taken unsecured loans of Rs. 1,95,00,000/- from M/s. API Industries

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Pvt. Ltd., and Rs. 1,66,68,454/- from M/s. Gujarat Packaging and the assessee was asked to explain the nature and source of these transactions and a show cause dt. 23-03-2015 was issued. In response, the assessee filed documentation in terms of ledger accounts, return of income, confirmations and PAN details of the aforesaid two parties. The submissions so filed by the assessee were considered, but not found acceptable to the AO. As per the AO, the assessee has not brought any information taken on record explaining the exact nature of the transaction and why the debt was credited at first place. Further, the assessee has not provided any proof in respect of payments made to third parties by the persons against whom unsecured loan is shown in the books of the assessee. The source of the amount of unsecured loan brought into remain un-proved and, therefore, in absence of discharge of the necessary onus in terms of section 68 of the Act, the AO made an addition of Rs. 3,61,68,454/- as un-explained credit in hands of the assessee.

3.

Being aggrieved, the assessee carried the matter in appeal before the Ld.CIT(A) and it was submitted that the assessee in its regular course of business purchases goods from various parties for the purposes of manufacturing/processing and for further sale. There are numerous transactions of purchases and payments towards such purchases during a year. Sometimes, if immediate liquidity is not available, the obligation to make payments to the suppliers is discharged by availing temporary financial assistance from other concerns, who make direct payments to the suppliers for and on behalf of the assessee and also submitted that this is very regular, customary, common and prevalent trade practice in the market and which the assessee has been doing in its regular course of its business since last many years. During the year, among others, the assessee sought such temporary finance/loan facilities from two concerns,

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namely, M/s. API Industries Pvt. Ltd., and M/s. Gujarat Packaging. The submissions so filed by the assessee were sent to the AO, seeking the necessary remand report.

4.

The AO in his remand report stated that the assessee has reiterated the submissions which were made during the original assessment proceedings. It was contended by the assessee that the identity of the creditors was established by providing PAN details and confirmation of creditworthiness was established by filing their financial statements and genuineness of the transaction was also proved as the payments were made directly to the suppliers of the assessee. However, a deeper analysis of the facts reveals that the assessee has failed to discharge its onus in terms of identity and creditworthiness of the creditor companies and the genuineness of the transactions are not proved. The financial statement of the creditor companies show that they themselves are heavily dependent on loans and advances and do not have the independent financial capacity to advance such huge sum to the assessee and the entire arrangement of one entity making payments to the suppliers of another entity and treating it as unsecured loan, without any formal agreement or security, lacks commercial prudence and appears to be a structured arrangement to route funds and the assessee has failed to establish any commercial nexus or rationale for such transactions and, therefore, the additions made in the assessment order are justified and should be sustained.

5.

In its rejoinder, regarding loan of Rs. 1,95,00,000/- from M/s.API Industries Pvt. Ltd., the assessee has submitted that the said company is assessed to Income Tax and its PAN is AAICA7479A. On 04-11-2011 amount of Rs. 1,30,00,000/- has been transferred through SBI Mumbai, CC A/c No. 31379092526 to VHCL Industries Ltd., Cheque No.907832 on

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behalf of the assessee. It was submitted that on 05-11-2011, an amount of Rs. 65,00,000/- has been transferred through SBI Mumbai, CC A/c No. 31379092526 to VHCL Industries Ltd, Cheque No.907832 on behalf of the assessee. The assessee‟s Books of Accounts are audited as well as the Books of Accounts of M/s.API Industries Pvt. Ltd., are also audited. Further it was submitted that the interest of Rs. 14,79,863/- is provided in the Accounts and TDS of Rs. 1,47,896/- is deducted at source and the assessee proved the identity and creditworthiness of M/s.API Industries Pvt. Ltd. and the genuineness of the transaction is also proved.

6.

As far as the loan of Rs. 1,66,68,454/- from Gujarat Packaging, it was submitted that the said firm is assessed to income tax and its PAN is "AABFG7935 M". On 24-10-2011, an amount of Rs. 55,85,396/- has been debited as per our debit note of LC/81 for old machinery for U.S. $110600 for document retirement charge paid on behalf of the assessee to Heming Stone Machinery Co. Ltd. On 09-11-2011, an amount of Rs. 25,00,000/- has been transferred through SBI CC A/c No. 31981606515 to VHCL Industries Ltd., Cheque No. 574424 on behalf of the assessee. On 15-11- 2011 amount of Rs. 75,00,000/- has been transferred through SBI, CC A/c. No. 31981606515 to VHCL Industries Ltd, Cheque No. 606979 on behalf of the assessee. The assessee‟s Books of Accounts as well as the Books of Accounts of Gujarat Packaging were also audited. It was further submitted that the interest of Rs.9,47,819/- is provided in the Accounts and tax (TDS) of Rs.94,782/- is deducted at source.

7.

It was further submitted that during the course of assessment proceedings, the assessee had discharged its preliminary onus by filing duly signed confirmations by both the concerns, which also depicted the respective P.A.Ns. issued by the Department. Both the concerns are

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regularly filing return of income and, in their accounts, they have shown this transaction correspondingly. In none of the concern's case this transactions is doubted or is held to be unexplained. Apart from that, the assessee also filed ledger account of these parties as well as of the supplier, besides filing details of these concerns with their addresses. In fact, the assessee had paid interest to both these concerns for availing the finance facilities. It was submitted that not only tax was duly deducted with respect to these interest, but also the interest expenses are fully allowed by the AO.

8.

The Ld.CIT(A) after considering the submissions of the assessee and the remand report submitted by the AO noted that while the appellant had established the identity, the other two crucial conditions i.e., creditworthiness and genuineness need to be examined and, thereafter the Ld.CIT(A) referred to the financial statement of both the entities and held that these two entities are highly leveraged and the financial position of both the lenders clearly indicate that they did not have financial strength of their own to make these advances and the assessee‟s argument that filing of ITRs and Balance Sheets proves creditworthiness is misplaced and the Balance Sheets, in fact prove the contrary as they show the lack of independent financial capacity. Further, referring to genuineness of the transaction, the Ld.CIT(A) stated that the assessee‟s explanation for the nature of transaction is that it is a „prevalent trade practice‟ for lenders to make direct payments to the assessee‟s suppliers and held that this explanation is found to be unconvincing and defies normal business logic. It was held by the Ld.CIT(A) that both the lending parties are based in Bhavnagar, Gujarat, while the assessee is based in Mumbai and the assessee has not established any compelling business relationship or commercial rationale that would obligate these Gujarat based entities to

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finance the purchases of a Mumbai based company by paying its suppliers directly. Further, the transactions are claimed to be temporary loans, yet they are for very large amounts and are not supported by any formal loan agreements, documentation specifying terms of repayment, or any security. The mere provision of interest does not by itself establish the genuineness of a transaction of this nature. It was held that the circuitous manner of the transaction, where funds move from the lender not to the borrower, but directly to a third party (the borrower‟s supplier), raises a strong suspicion that the transaction is not a simple loan, but some sort of an accommodation entry. The assessee has failed to prove the commercial prudence of such an arrangement. Accordingly it was held that the assessee has failed to discharge the onus cast upon it by section 68 of the Act. The explanation offered regarding the nature and source of the credits is not satisfactory. The creditworthiness of the lenders is not established and the genuineness of the transaction is highly doubtful. The findings of the AO were confirmed and addition of Rs. 3,61,68,454/- u/s. 68 of the Act was sustained.

9.

Against the said order and the findings of the Ld.CIT(A), the assessee is in appeal before us.

10.

During the course of hearing, the Ld.AR submitted that this is a case where the assessee has made purchases from VHCL Industries Ltd., and Heming Store Machinery Co. and given that the assessee did not have the requisite funds at the relevant point of time, it has borrowed funds from its group entities, namely, M/s. API Industries Pvt. Ltd., and M/s. Gujarat Packaging. It was submitted that both these are group concerns and as evident from the financial statements of the assessee-company, these two entities have common shareholders and directors. It was submitted that

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these transactions are duly reflected in the respective Books of Account, which have been duly audited and no adverse findings has been recorded by the statutory auditors. Further, the assessee has filed the ledger confirmations, bank statements as well as the fact that the assessee has paid interest of 15% on these loans and advances and the TDS has been duly deducted and deposited and the loan account has been subsequently, repaid in the financial year 2012-13 relevant to AY. 2014-15. It was further submitted that the assessee has also filed ledger confirmations whereby the payment have been directly to suppliers on behalf of the assessee-company. It was submitted that the assessee has paid interest for availing these loan facility which has been duly allowed by the AO. It was further submitted that these parties are regular income tax assessees, have been filing returns regularly, no adverse findings has been recorded by the AO in their respective tax assessments. It was accordingly submitted that the assessee has discharged the necessary onus in terms of section 68 of the Act and the documentary evidences have been duly submitted with the lower authorities which they have failed to appreciate. It was accordingly submitted that necessary relief be provided to the assessee.

11.

Per contra, the Ld. DR is heard, who has relied on the orders passed by the lower authorities.

12.

We have heard the rival contentions and perused the material available on record. We find that it is a case where the assessee claims to have made certain purchases from VHCL Industries and Heming Store machinery Co. and for such purchases, the payments have been made to these suppliers directly by API Industries Private Limited and Gujarat Packaging. The assessee has thus claimed purchases from VHCL

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Industries and Heming Store machinery Co. and corresponding advances from API Industries Private Limited and Gujarat Packaging. There is however no enquiry or verification regarding the explanation of the assessee that these advances are against the purchases so undertaken by the assessee. The whole focus of the Assessing officer has been limited to examining the transactions with API Industries Private Limited and Gujarat Packaging. Consequentially, the focus of the assessee was also to submit documentation in support of advances so shown in the books of the assessee which however has not found favour with the AO and Ld. CIT(A) in terms of establishing the creditworthiness and genuineness of the transaction. Though the assessee has submitted before the AO/Ld. CIT(A) that it is customary to avail short term finance facility from other concerns to fund the purchases and the payments have been made directly to the suppliers, it is for the first time that the assessee has submitted before us that these concerns are assessee‟s own group concern having common shareholders/directors and not any third party concerns in order to address the suspicion so raised by the Ld.CIT(A) in terms of commercial prudence of such an arrangement. The fact that these are group concerns thus changes the whole dynamics of the transactions and prima facie, we believe that within group concerns, as part of meeting short term liquidity, it is not uncommon that the finances are availed from other group concerns at mutually acceptable terms and conditions. It is also the claim of the assessee that the borrowings so made have been made at commercial rate of interest and have been repaid subsequently. In light of the same, we believe that the matter needs to be examined a fresh taking into consideration the both legs of the transaction of purchases and funding thereof from the group concerns and accordingly, we deem it appropriate to set-aside the matter to the file of the Ld.CIT(A) to examine

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the matter afresh as per law after providing reasonable opportunity to the assessee.

13.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 12-05-2026.

Sd/- Sd/- [RAHUL CHAUDHARY] [VIKRAM SINGH YADAV] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 12-05-2026 TNMM

Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file

By Order

Dy./Asst. Registrar I.T.A.T, Mumbai

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