RAJESH MEHTA,SAHARANPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I, DEHRADUN

PER SATBEER SINGH GODARA, JM: The instant batch of seven appeals involving four assessees herein, namely, Sh. Rajesh Methta, M/s. M.B. Honey Trading Co., M/s. Shree Nath Honey Trading Co. and M/s. M.B. Exim Pvt. Ltd. All other relevant details thereof stand tabulated as under: Sl. Appeal No. Appellant Respondent Order Appealed against No. 1-2 ITA No. Sh. Rajesh DCIT, CIT(A)-3, Noida’s order dated 188/DDN/2026 Mehta, Central Circle-I, 06.02.2026 passed in case for AY: 2023-24 Saharanpur Dehradun No. CIT(Appeals) Noida- With 3/10044/2022-23, 2 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

IT(SS)A No. involving proceedings under 241/DDN/2026 Section 143(3) of the Act. 3-4 ITA No. M/s. M.B. DCIT, Central CIT(A)-3, Noida’s order dated 191/DDN/2026 Honey Circle-I, 06.02.2026 passed in case for AY: 2023-24 Trading Co., Dehradun No. CIT(Appeals) Noida- With Saharanpur 3/10045/2022-23, IT(SS)A No. involving proceedings under 238/DDN/2026 Section 143(3) of the Act. 5-6 ITA No. M/s. Shree DCIT, Central CIT(A)-3, Noida’s order dated 190/DDN/2026 Nath Honey Circle -I, 06.02.2026 passed in case for AY: 2023-24 Trading Co. Dehradun No. CIT(Appeals) Noida- With 3/10045/2022-23, IT(SS)A No. involving proceedings under 242/DDN/2026 Section 143(3) of the Act. 7 ITA No. M/s. M.B. DCIT, Central CIT(A)-3, Noida’s order dated 189/DDN/2026 Exim Pvt. Ltd, Circle, Meerut 03.12.2025 passed in case Saharanpur No. CIT(Appeals) Kanpur- 4/10835/2018-19, involving proceedings under Section 153A r.w.s. 143(3) of the Act. Heard both the parties at length. Case files perused.

appeals involving four assessees (supra) emanate from the learned

departmental authorities’ search action in question dated

24.11.2022 finally culminating in the Assessing Officer’s as many

assessments framed on 30.03.2025. We make it clear that the sole

substantive issue canvassed herein is that of cessation or

remission of the outstanding liability(ies) in their hands under

section 41(1) of the Act; be it in the assessee’s or the Revenue’s

above cross appeals, wherein the Assessing Officer had added the

same; which in turn, stands partly restricted in the CIT(A)’s

identical lower appellate discussion. It is in this factual backdrop

of section 41(1) issue that there is hardly any issue between the 3 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

parties that the same involves varying sums added in the assessees’ hands. Both the parties at this stage invite our attention to the learned CIT(A)’s detailed discussion under challenge in “lead” case of the first and foremost assessee Sh. Rajesh Mehta in ITA No.188/DDN/2026; reading as under: “6. In the light of the above submissions and documents filed by the AR during the course of appellate proceedings and findings of the AO in the assessment order, the various grounds of appeal are adjudicated as below: 6.1 Ground of Appeal No. 1 is general in nature, requiring no specific comments, in view of the detailed adjudication in the succeeding grounds. 6.2 Ground of Appeal No. 2 In the said ground of appeal, the appellant has stated that adequate opportunity of hearing was not provided during the assessment proceedings. Perusal of the assessment order reveals that the contentions of the appellant have been duly discussed in the assessment order. Also, during the course of appellate proceedings, the detailed submissions of the appellant have been taken on record, hence this ground of appeal is dismissed. 6.3 Grounds of Appeal Nos. 3 to 6: In these grounds of appeal, the AR has contested the various addition made by the AO in the assessment order. The issues in the appeal are discussed para-wise as under: (1) Addition u/s 41(1) of Rs. 3,53,08,112/- The facts relating to this issue have already been discussed above in the body of the order. The appellant has reiterated the submissions filed before the AO during the appellate proceedings. The appellant has inter-alia stated that the addition of Rs. 3,53,08,112/- u/s 41(1) made by the AO is solely based on the statement recorded during the search proceedings. The appellant has also stated that the sum total of the credit balances as per the list of the creditors reproduced in the assessment order is Rs. 3,32,98,711/- against Rs. 3,53,08,112/- calculated by the AO. The appellant has not clarified as to how the above calculation has been arrived at. Accordingly, the calculation of the AO with respect to impugned creditors of Rs. 3,53,08,112/- shall prevail and discussion, if any, shall be made on the figure of balance of creditors as mentioned by the AO in the assessment order. The appellant has further stated that soon after the search, the appellant firm in continuation of the earlier statement, recorded u/s 132(4), 4 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

submitted a revised statement of surrender vide letter dated 29.03.2023 to the office of DDIT (Inv.) on 31.03.2023. As per appellant, the surrendered value of creditors was updated to Rs. 26.47 crores (out of Rs. 31.69 crores of total surrender) instead of earlier figure of Rs. 62.69 crores in the four concerns of the assessee group. Further, as per appellant, the tax liability on this updated amount was duly computed and deposited. The appellant further stated that the AO disregarded the third-party confirmations from the creditors submitted by the assessee which were alleged to unverified by the AO. The appellant further stated that the AO himself issued notices u/s 133(6) to various parties but the confirmations filed by the said creditors and the revised statement of surrender were arbitrarily rejected without proper justification. The appellant further stated that the revision in the surrender amount was on account of the fact that credit balances to the extent of Rs. 15,91,54,405/- were on account of inter-group transactions in all four concerns of the assessee group. The appellant further stated that confirmations to the extent of Rs. 20.50 crores from various creditors of the different firms of the assessee group were also submitted to the AO vide reply dated 31.01.2025 and 19.03.2025. The appellant further stated that notices u/s 133(6) were issued to various parties by the AO himself, in response to which, confirmations were filed by the said entities. The appellant has submitted that with lot of effort, the assessee has been able to arrange the notices u/s 133(6) issued by the AO to various parties along with the copies of their replies as there is no mention of the said enquiry by the AO in the assessment order. The appellant has further stated that the inter-group credit balances could not have been added by the AO as majority of the group concerns have been assessed by the same AO during the said assessment year and disallowance of credit balance would simultaneously entail writing off of the debit balances in the corresponding group company/firm. During the appellate proceedings vide issue of notice dated 10.11.2025, the appellant was directed to reconcile the purchases made from the impugned reditors with the entries in the stock register. The appellant filed the response with respect to the above query. The appellant has further stated that once the creditors are inter-group companies or the credit balances have been duly verified by the AO at the time of assessment proceedings, the balances of the said creditors cannot be added u/s 41(1) of the Income Tax Act, 1961. Opportunity to the AO In view of the above submissions of the appellant, the clarificatory information called by this office and the contention of the appellant that enquiries u/s 133(6) were conducted by the AO with various creditors (who confirmed the credit balances), an opportunity was afforded to the AO vide email dated 02.12.2025 wherein, it was stated as under (in all the four concerns of the assessee group): 5 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

“Refer to the subject cited above. Perusal of assessment order reveals that addition has been made on account of alleged unverifiable creditors. The appellant has contested the above addition by stating that major part of the alleged unverifiable creditors are group concerns whose cases have been assessed by the AO during their respective assessment proceedings. Further as per AR, enquiry u/s 133(6) was made by the AO with a number of creditors during the assessment proceedings but the results of enquiry were not discussed in the assessment order. The appellant has arranged the replies filed by various creditors to the AO in response to notices u/s 133(6) issued by the AO in support of its submissions. Further, during the course of appellate proceedings the appellant was directed to submit whether the purchases from the impugned creditors have been entered in the purchase register. The appellant has filed detailed submissions in above regard, copy of which has been forwarded to you through ITBA Portal. The appellant interalia has stated as under: a. Outstanding credits from group concerns could not be treated as unverifiable as the same are inter group transactions. b. Enquiries u/s 133(6) made by the AO reveals that the alleged unverifiable creditors have confirmed the balances. c. The purchases made from the alleged unverifiable creditors have been duly entered in the stock register and the book results have not been tinkered with. It is directed to offer your comments on the above submissions of the appellant in interest of natural justice on or before 08.12.2025, so that the pending appeal can be disposed-off. The AO in response vide email dated 17.12.2025 has submitted as under: In this regard it is submitted that all the notices u/s 133(6) of Income Tax Act, 1961 issued in the case of the above-mentioned assessees were sent through registered post which returned back and remained unserved. Therefore, no compliance was received in this office from the creditors. Unverifiable creditors duly mentioned in the assessment order and the assessee ’s submission in this regard have not been accepted by the then Assessing Officer as per assessment orders. Copy of some returned notice u/s 133(6) attached for your kind consideration.

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

The reply of the AO was shared with the appellant for rejoinder and the response of the appellant has already been reproduced above in the body of the order. Thereafter, another email was sent to the AO vide this office email dated 28.01.2026 by mentioning as under: The response received from your office was shared with the appellants for comments. In the rejoinders the appellants have provided details of various emails vide which the creditors had filed response against notices u/s 133(6) issued by your office. The appellants have also stated that information pertaining to different years had been sought via issue of common notices u/s 133(6). The appellants have further stated that the balances of some of the creditors whose outstanding balances have been added during the year have been accepted by the AO during the assessment proceedings for AY 2022-23. The reply of the appellants is attached for ready reference. It is directed to offer your comments on the above issues on or before 06.02.2026, so that pending appeals can be disposed off. In response to the above, the AO submitted report vide email dated 29.01.2026 by stating as under: “Sub: Submission of Remand Report-Appellate proceedings in the case of M/s MB Exim Pvt. Ltd, PAN: AADCM5631P, M/s Shree Nath Honey Trading Company, PAN: AADFT5057F, M/s M B Honey Trading Company, PAN: ABBFM7677B, M/s MB Natural products Prop. Rajesh Mehta, PAN: AGYPM6772B for AY 2023-24 – Regarding Kindly refer to your mail dated 28.01.2026 on the above cited subject. In this regard, pointwise comments are as under: Point 1: In the rejoinders, the appellants have provided details of various e-mails vide which the creditors had filed response against notices u/s 133(6) issued by your office. The appellants have also stated that information pertaining to different years had been sought via issue of common notices u/s 133(6). Comment: From perusal of the record, it has been observed that all emails(responses) which mentioned by the assessee in said rejoinders were received in this office via official webmail having Id dehradun.dcit.cen.cir@incometax.gov.in on various date. Therefore, it is clarified that compliance regarding 133(6) were received in this office via webmail from the creditors. Copy of some received reply regarding notice u/s 133(6) attached for your kind consideration.

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

Point 2: The appellants have further stated that the balances of some of the creditors whose outstanding balances have been added during the year have been accepted by the AO during the assessment proceedings for AY 2022-23. Comment: From perusal of the record, it has been observed that outstanding (liability) based addition were not made in all four above mentioned assessment proceedings relevant to A.Y. 2022-23. 3. The requisite report is being submitted for your kind information and necessary action. From the report of the AO, it is clear that the AO has acknowledged that the emails from various creditors sent to the AO (which have been obtained by the assessee and further shared with the AO by this office) were actually received in the official webmail Id of the AO on various dates. Also, the AO has acknowledged credit balances of a number of outstanding creditors during the year under consideration were accepted in the assessment proceedings for AY 2022-23. In above facts & circumstances, the following core issues emanate out of the above discussion: (a) Notices issued by the AO u/s 133(6) During the appellate proceedings, the AR has stated that enquiry u/s 133(6) was carried out by the AO with various creditors who confirmed the balances but the same was not discussed in the assessment order. The AR arranged the letters issued u/s 133(6) by the AO and the responses of the impugned creditors and filed the same during the appellate proceedings. During the appellate proceedings, an email was sent to the AO vide office email dated 28.01.2026, wherein, the above fact was brought in the knowledge of the AO and the AO was directed to offer the comments on the above issue. The AO acknowledged that emails have been received from the creditors in compliance to notices u/s 133(6) issued by the AO. In above circumstances, the contentions of the appellant (with supporting documentary evidence) have to be accepted that enquiries were conducted by the AO u/s 133(6) and transactions with the impugned creditors stand confirmed at-least in the cases where the emails received from the said creditors have been acknowledged by the AO. (b) Credit balances due to inter-group transactions A large part of the credit balance in the group concerns including the assessee pertained to inter-group balances i.e. relating to entities 8 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

which are part of the assessee group and assessments of many of them have been framed by the same AO. The credit balances of inter- group companies could not have been added u/s 41(1) as the inter- group companies are verifiable. Moreover, if the assessee had considered the outstanding credits from group entities as income u/s 41(1), the corresponding debit balances in the group entities would have been claimed as ww bad debts. (c) Entities whose assessments have been completed by the same AO The appellant has also stated that assessments for AY 2023-24 in the case of Shree Krishna Enterprises and Shree Krishna & Co. have been completed by the same AO and the returned income has been accepted. As per appellant, the outstanding credit balances from the said concerns have also been added by the AO in the hands of MB Group companies, though the same stood verified during the assessment proceedings of the Shree Krishna Enterprises and Shree Krishna & CO. before the same AO. The appellant also claimed that the said two entities are also group entities of the assessee concern, though no documentary evidence in support of the same was filed. Despite the above fact, it is apparent that the assessments of the said entities have been completed by the same AO for AY 2023-24 and the credit balances from the said entities have been added in the hands of the assessee/group companies of the assessee. (d) Stock Records During the appellate proceedings, the appellant was directed to justify whether the purchases made from the impugned creditors have been entered in the stock register. The appellant filed the relevant details which were shared with the AO vide email dated 02.12.2025. No objections have been received from the AO till the date of finalization of appeal. (e) Application of Section 41(1) Section 41(1) reads as under: Profits chargeable to tax. 41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first- mentioned person) and subsequently during any previous year, (a) the first-mentioned person has obtained whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be 9 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be prof-its and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year. [Explanation 1. For the purposes of this sub-section, the ex-pression “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof” shall include the remission or cessation of any liability by a unilateral act by the first- mentioned person under clause (a) or the successor in business under clause (b) of that sub¬section by way of writing off such liability in his accounts.] Perusal of the above section reveals that to attract the provisions of said section, the following conditions need to be satisfied: a. There has to be a remission or cessation of liability b. There has to be a recovery of loss or any expenditure c. Liability must be a trading liability d. Person has been allowed deduction for the same in any previous year The appellant has stated that the above conditions are not fulfilled in the case of the assessee as the credit balances relating to inter-group transactions and other creditors are duly verifiable. As per appellant, the confirmations were placed on record before the AO during the assessment proceedings. Further, as per appellant, the enquiry conducted by the AO u/s 133(6) during the assessment proceedings resulted in the impugned creditors confirming the balances with the appellant. The appellant stated that there has been no remission or cessation of liabilities which have been added by the AO u/s 41(1). As per appellant, the liabilities which had ceased were duly offered by the assessee in the return of income and the taxes were also paid. The Hon’ble Supreme Court of India in the case of Chief Commissioner of Income-tax vs. Kesaria Tea Co. Ltd. reported at [2002] 122 Taxman 91 (SC), has held as under:

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

“In order to apply section 41(1 ), the following points are to be kept in view: (1) in the course of the assessment for an earlier year, allowance or deduction has been made in respect of trading liability incurred by the assessee; (2) subsequently, a benefit is obtained in respect of such trading liability by way of remission or cessation thereof during the year in which such event occurred; (3) in that situation the value of benefit accruing to the assessee is deemed to be the profit and gains of business which otherwise would not be his income; and (4) such value of benefit is made chargeable to income-tax as the income of the previous year wherein such benefit was obtained.” Further, the Hon’ble Supreme Court of India in the case of Principal Commissioner of Income-tax vs. Soorajmull Nagarmull reported at [2024] 164 taxmann.com 353 (SC) has held as under: “SLP dismissed against order of High Court that where revenue had failed to discharge its burden to establish cessation of trade liability of assessee towards loan creditors, however, assessee fulfilled duty casted upon him to provide evidence that liability existed even at end of relevant assessment year, in absence of any material on record stating that conditions referred under section 41(1) had been satisfied, impugned addition made by Assessing Officer under section 41(1) was to be deleted” Further, the Hon’ble HIGH COURT OF DELHI in the case of Commissioner of Income-tax vs. Hotline Electronics Ltd. reported at [2012] 18 taxmann.com 363 (Delhi) has held as under: “Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 2005-06 - Whether unpaid liabilities cannot be added to assessee's income under section 41(1) merely because they remained unpaid for a sufficiently long time and it is required of revenue authorities to show that liability to pay creditors has ceased or has been remitted by creditors - Held, yes [In favour of assessee]” Further, the Hon’ble HIGH COURT OF GUJARAT in the case of Commissioner of Income-tax-II vs. Nitin S. Garg reported at [2012] 22 taxmann.com 59 (Guj.) has held as under: Merely because creditors were many years old and no interest had been paid on loans, no addition can be made under section 41(1) f.) Balances accepted during assessment proceedings for AY 2022-23 11 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

The appellant has further stated that the credit balances of many entities have been accepted by the AO during the assessment proceedings in the group concerns of the assessee for AY 2022-23. The above fact has been confirmed by the AO vide email dated 28.01.2026. As per appellant, the same means that the said creditors are verifiable and genuine. Hence, in view of the above facts and stated judicial pronouncements, the action of the AO in applying provisions of Section 41(1) to the case of the assessee with respect to liabilities (i.e. creditors who have confirmed their balances as per emails in response to notices of AO u/s 133(6), inter group concern creditors, creditors whose assessments have been framed by the AO himself and the creditors whose balances have been accepted by the AO in the assessment proceedings for AY 2022-23) which have not ceased to exist is found to be unjustified. g.) The issue of surrender The AO has stated that the assessee has not honored the surrender made in various group concerns during the course of statement recorded at the time of search. Perusal of the assessment order and reply of the assessee shows that the assessee had revised the statement of surrender by filing of letter dated 29.03.2023 before DDIT (Inv.). The said letter is scanned below for ready reference:

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

Perusal of the letter filed before the DDIT (Inv.) reveals that the assessee has very clearly stated the reasons for the revision of the surrender in the group concerns. Perusal of the said letter further reveals that out of the total surrender of Rs. 62.69 crores, an amount of Rs. 15,91,54,405/- (in all four concerns of the assessee group) was excluded being credit balances with other group concerns. Further, the appellant has stated in the said letter that after the date of search till the day of filing of the letter of revised surrender, the verification of credit balances was done and the surrender was revised to Rs. 26,47,42,701/- in the various group concerns and an amount of Rs. 2,05,37,662/- was offered to tax in the case of the appellant. From the above facts, it appears that the revised statement of surrender made by the assessee in variance to what was stated at the time of statement recorded during the course of search is based on facts as highlighted by the appellant. The appellant has excluded the amounts on account of inter-company/inter-firm credit balances and the creditors which were duly verified and whose confirmations were also submitted before the AO. Additionally, the AO had also caused enquiries u/s 133(6) which were duly responded by the various creditors from whom receipt of emails has been acknowledged by the AO. (this issue has been discussed above in the body of the order). In above circumstances, once the revision of surrender made in a statement is done based on core evidence, the same cannot be rejected on presumptions. The AO had the right to rebut the evidences produced before him and it appears that the AO did the same by causing enquiries u/s 133(6) with various creditors (some of whom confirmed the transactions with the assessee concern via emails which have been acknowledged by the AO). The issue of causing of enquiries u/s 133(6) by the AO with various creditors and consequent confirmations received by the AO via emails (which has not been discussed in the assessment order) has been raised by the appellant during the appeal proceedings with documentary evidence and the same was shared with the AO for comments, if any. The AO has acknowledged the receipt of emails from various creditors in response to notices u/s 133(6) of the Income Tax Act, 1961. Moreover, a large part of the credit balance pertained to inter-group balances i.e. relating to entities which are part of the assessee group and assessments of many of them have been completed by the same AO. Once, the appellant has submitted enough evidence explaining the reasons for the revision of surrender, the AO could not have summarily rejected the said contentions without bringing on record evidence which disproved the contentions of the assessee. On the above issue, the Hon’ble Supreme Court of India in the case of Principal Commissioner of Income-tax (Central) vs. Dwarka Prasad

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

Aggarwal reported at [2024] 161 taxmann.com 813 (SC) has held as under: “Section 68 of the Income-tax Act, 1961 - Cash credit (Illustrations) - High Court by impugned order held that where Assessing Officer solely based on statements of Directors recorded during a search operation conducted under section 132 on assessee, made addition under section 68 without probing deeper into income-tax returns of creditor companies and without scrutinizing documents furnished by assessee to prove genuineness of such credits, impugned addition was to be set aside - Whether SLP filed by revenue against impugned order was to be dismissed - Held, yes [Para 1] [In favour of assessee]” Further, the Hon’ble High Court of Delhi in the case of Commissioner of Income-tax vs. Sunil Aggarwal reported at [2015] 64 taxmann.com 107 (Delhi), has held as under: “Where assessee during search conducted under section 132 made admission that a sum of Rs. 86 lakhs seized from his employee belonged to him and it represented undisclosed income and subsequently he retracted above admission and offered an explanation that said amount was verifiable from records and books of account and Assessing Officer did not accept explanation and added said amount in income as unexplained cash credit, impugned addition was not justified” Further, the judgment of Hon’ble High Court of Andhra Pradesh in the of Commissioner of Income-tax-II, Hyderabad vs. Naresh Kumar Agarwal reported at [2015] 53 taxmann.com 306 (Andhra Pradesh) has held as under: Where in absence of any incriminating material etc., found from premises of assessee during course of search, statement of assessee recorded under section 132(4) would not have any evidentiary value Further, the judgment of Hon’ble High Court of Madras in the case of Commissioner of Income-tax, Tiruchirappalli v. Smt. S. Jayalakshmi Ammal reported at [2016] 74 taxmann. com 35 Madras) has held as under: Where addition of undisclosed income was made on basis of mere statement given by his son under section 132(4) which was not corroborated by any material evidence, neither such statement would be conclusive evidence, nor any addition could be made. 16 | P a g e

ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

Further, the judgment of Hon’ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax (Central) vs. Naresh Nemchand Shah reported at [2023] 156 taxmann.com 346 (Gujarat) has held as under: “Where pursuant to a survey, unsecured loans taken by assessee from GCSL were deemed non-genuine by Assessing Officer on basis of statement of director of GCSL, since apart from said statement, there was no other evidence against assessee and moreover, assessee had filed evidence in form of confirmation from creditor, audited accounts of creditor and copies of banks accounts to prove genuineness and creditworthiness of creditor which was within parameters of section 68, impugned addition made in that respect to be deleted” Further, in the judgment of Hon’ble HIGH COURT OF CALCUTTA in the case of Principal Commissioner of Income-tax vs. Sreeleathers reported at [2022] 143 taxmann.com 435 (Calcutta) it has been held as under: It was noted that show-cause notice issued on assessee was only in respect of one lender company, namely, FGD - Assessee provided various documents in form of PAN card, income-tax acknowledgement, copy of bank statement, certification of incorporation, master data from register of companies, certificate of incorporation and annual account to prove FGD's identity and creditworthiness and genuineness of transaction - However, Assessing Officer by relying on statement of one AKA, who was alleged operator of such bogus companies, brushed aside these documents on mere ground that they did not absolve assessee from his responsibility of proving nature of transaction - It was noted that statement of AKA was not recorded in presence of assessee nor an opportunity of cross-examination was provided to it - Whether where there was no evidence brought on record by Assessing Officer to connect statement of AKA with loan transaction of assessee, said statement was of little avail and could not be basis of allegations - Held, yes - Whether, further, since assessee had discharged its initial burden by providing documentary evidences and burden had now shifted to Assessing Officer, who failed to bring on record any reason in writing as to why these documents did not establish identity of lender or proved genuineness of transaction, impugned assessment order passed by casually brushing aside these evidences was utterly perverse and liable to be quashed - Held, yes [Paras 4 and 5] [Matter remanded]

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ITA Nos.188, 191, 190 & 189/DDN/2026 & IT(SS) Nos.241, 238, 242/DDN/2026

Further, the Hon’ble High Court of Gujarat in the case of Commissioner of Income-tax vs. Shardaben K. Modi reported at [2013] 35 taxmann.com 264 (Gujarat) has held as under: In absence of any independent material, statement of assessee's son recorded during survey would not form a valid basis for reopening assessment of assessee Further, the Hon’ble High Court of Mumbai in the case of Principal Commissioner of Income-tax vs. Bairagra Builders (P.) Ltd. reported at [2024] 164 taxmann.com 162 (Bombay) has held as under: Section 68 of the Income-tax Act, 1961 - Cash credit (Loans) - Assessment years 2007¬08 and 2012-13 - Assessee-company took unsecured loans from two companies - On basis of statement of one PKJ recorded during search and seizure operation that he had provided accommodation entries to assessee, Assessing Officer treated said loans as fake - Whether since Assessee had submitted all evidence to substantiate loans in question, including confirmation from creditors and loans were taken and repaid through banking channels, Assessing Officer was not justified in treating said unsecured loan as fake and making addition of interest paid on said loan to assessee's income - Held, yes [Para 8] [In favor of assessee] Hence in view of above discussion and stated judicial pronouncements, the revised surrender of the appellant could not have been disregarded by the AO without bringing on record cogent evidence that the creditors are not verifiable. It appears from above that (a) The AO made enquiry u/s 133(6) which was confirmed by some of the creditors via emails as acknowledged by the AO. (b) The creditors who responded by emails to the AO are verifiable as acknowledged by the AO. (c) A large part of the credit balance of the group concerns is on account of intergroup transactions. (d) The credit balances of a number of creditors outstanding during the year have been accepted by the AO during the assessment proceedings for AY 2022-23 which have been completed in March, 2024. (e) There is no remission/cessation of liability as per the provisions of Section 41(1) at-least with respect to inter-group transactions and the creditors who filed their confirmations before the AO via emails and creditors whose balances have been accepted by the AO during assessment proceedings for AY 2022-23. (f) The stock has been duly entered in the stock records

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(g) The confirmations of the creditors filed by the AR during the assessment proceedings which were not confirmed during enquiry by the AO u/s 133(6) cannot be considered as reliable. The perusal of the assessment order and the submissions of the appellant finally reveal the following status as far as the transactions with the various creditors are concerned (tabulated below):

In above circumstances, the transactions with respect to credit balances of the creditors which confirmed the balances in replies sent to the AO via emails against notices u/s 133(6), creditors which have been accepted by the AO during assessment proceedings for AY 2022- 23 vide assessment orders passed in March, 2024, creditors whose assessments have been completed by the same AO for AY 2023-24 and the credit balances of inter-group companies cannot be added as income of the assessee. As far as, the balance creditors are concerned, for which, the confirmations have been suo-moto filed by the appellant, the same cannot be considered to carry similar evidentiary value viz a viz confirmations sent to the AO by other creditors via emails against notices issued u/s 133(6). Moreover, there are some credit balances, for which, no confirmations could be filed by the appellant as well. In above circumstances, the addition made by the AO is sustained to the extent of Rs. 98,81,816/- (as elaborated in table above) and appellant gets relief to the balance amount. (2) Issue of Addition of Rs. 2,45,977/- On the above issue, the appellant has contested the addition of Rs. 2,45,977/- made to the income of the assessee. As per AO, during the course of search, computerized books of accounts were seized. The AO has further reported that examination of the cashbook revealed negative cash balance. The AO considering the negative cash balance dated 06.10.2022 of Rs. 2,45,977/- added the same to the income of the assessee. As per AO, during the course of assessment 19 | P a g e

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proceedings, the assessee could not furnish appropriate reply regarding the said negative cash balances. Further, as per AO, during the assessment proceedings, the assessee stated that, even if, the addition is contemplated the same should not exceed the maximum value of negative cash balance in the running cashbook. During the appellate proceedings, the appellant stated that the negative cash balances was erroneously derived from inaccuracies and mis-sequencing of cash related entries in tally software. As per appellant, there is no negative cash balance in the final audited financial statements of the assessee. The appellant has further stated that without prejudice to the above, addition, if any, could have been made by the AO only to the extent of peak negative cash balance. The contentions of the appellant have been gone through. It appears from above that the assessee had acknowledged the discrepancy in the seized documents and offered the same to tax before the Assessing Officer and during the appellate proceedings. It is further revealed from the assessment order and the submissions of the appellant that the negative cash balance on 06.10.2022 was Rs. 2,45,977/-. No infirmity is found in the order of the AO and the addition made is accordingly sustained.” This is what leaves the assessees as well as the department aggrieved before us in the instant cross appeals. 3. All these assessees and the department reiterate their respective stands against and in support of the impugned addition. That being the case, we sought to ascertain the exact amount of actual cessation or remission of the assessees’ impugned outstanding liabilities which could be held as liable to be added under section 41(1) of the Act. Learned CIT(DR) vehemently submits that they had themselves admitted during the course of search that all these liabilities having undergone cessation or remission; as the case may be, which were subsequently retracted. 20 | P a g e

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And that the Assessing Officer in these peculiar facts had invoked section 41(1) of the Act. Mr. Chatterji’s further case is that not only we ought to uphold the entire impugned additions in all these assessees’ hands but also their case is that the remaining addition(s) is to be deleted carries no merit in absence of corresponding parties not even filing their respective confirmations in assessment proceedings. 4. We are afraid that the Revenue’s identical stand herein seeking to revive the Assessing Officer’s section 41(1) cessation or remission of the impugned outstanding liabilities/additions does not carry any merit. This is for the precise reason that the hon’ble apex court’s landmark decision CIT v. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518(SC) has settled the issue long back that the impugned addition comes into play in case of actual cessation or remission in the corresponding books of account under section 41(1) of the Act than a deemed one as is the Revenue’s case before us. So far as its further stand based on the assessees’ search admission(s) is concerned, we hereby quote the CBDT’s landmark circular dated 10.03.2003 that the same does not carry any

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significance in absence of actual evidence to the very fact. We thus accept the assessees’ instant identical sole substantive ground seeking to delete the remaining section 41(1) cessation of liability/addition component partly upheld in the CIT(A)’s appellate discussion as well in these facts and circumstances. Their instant respective appeals succeed and Revenue’s cross appeal(s) fail in very terms. No other ground or argument has been pressed before us. 5. These four assessees’ appeals ITA Nos.188, 191, 190 & 189/DDN/2026 are allowed and the Revenue’s three cross appeals IT(SS)A Nos. 241, 238 & 242/DDN/2026 are dismissed in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 25th August, 2026 Sd/- Sd/- (AMITABH SHUKLA) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25th August, 2026. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi 22 | P a g e