JAGDAMBA TEXTILES PVT LTD,MUMBAI vs. DCIT, CIRCLE 4(2)(1), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “F” BENCH, MUMBAI BEFORE SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No. 8326, 8327 & 8328/MUM/2025 (AY:2014-15, 2015-16 & 2016-17) Jagdamba Textiles Pvt. Ltd., vs. Commissioner of Income Tax 601, Kakad Market, 306, (Appeals), National Faceless Appeal Kalbadevi Road, Mumbai- Centre (NFAC), 400002. DCIT Circle 4 (2) (1), Aayakar Bhavan, Mumbai-400037. PAN/GIR No: AABCJ1996Q (Appellant) (Respondent) Assessee by Shri Dharmvir D. Yadav Revenue by Shri Vikas Chandra (SR DR) Date of Hearing 22.04.2026 Date of Pronouncement 29.04.2026 O R D E R PER BIJYANANDA PRUSETH, AM:

These appeals filed by the assessee emanates from the orderS passed under section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre [in

short, ‘CIT(A)’], dated 06.10.2025 for the assessment years (AYs) 2014-15, 2015-

16 and 2016-17. Since facts and grounds are similar, with consent of both parties, the appeals were clubbed, heard together and a common order is passed for the sake of convenience and brevity. ITA No.8326/Mum/2025 (AY 2014-15) is taken as a “lead case”. 2. The grounds of appeal raised by the assessee in ITA No. 8326/Mum/2025

are as under:

“1. On facts and circumstances of the case, the Hon'ble CIT(A) erred in confirming the addition of Rs.1,92,39,659/- u/s 68, despite the appellant having established identity, creditworthiness and genuineness of the loan transactions through bank records and statutory filings. 2. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that non-traceability of lenders at physical addresses negated genuineness, without rebutting the documentary evidences on record. 3. On facts and circumstances of the case, the Hon'ble CIT(A) erred in disregarding audited financial statements, MCA records, ITR acknowledgments and confirmations of lenders, and in not providing any basis to conclude that the financial capacity was insufficient. 4. On facts and circumstances of the case, the Hon'ble CIT(A) erred in confirming disallowance of interest of Rs.26,10,184/-, despite the same being paid through banking channels and subjected to TDS. 5. On facts and circumstances of the case, the Hon'ble CIT(A) erred in sustaining disallowance of interest on opening balances of loans accepted in earlier years of Rs.11,19,033/-, when no reopening or adverse inference was made in those years. 6. The appellant craves leave to add, amend, modify, cancel and / or substitute any of the grounds of the appeal.”

Additional Grounds: 1. On facts and circumstances of the case and in Law, the Hon'ble CIT(A) erred in confirming the addition on account of Loans of Rs.1,92,39,659/- taken during the year by the Assessee Company u/s 68, completely ignoring the evidence w.r.t. repayment of loans in the same years and in subsequent years. 2. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that lenders have no creditworthiness without making any inquiries into their source of income and also despite the fact that the Ld.AO did not find any cash deposit entries in the bank accounts of lender companies. 3. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that non-traceability of lenders at physical addresses negated identity of the lender companies by totally disregarding the MCA Records, ITR Filed and Audited Financial accounts and without rebutting any of these documentary evidences on record.”

are as under:

“1. On facts and circumstances of the case, the Hon'ble CIT(A) erred in confirming the addition of Rs.2,05,77,987/- u/s 68, despite the appellant having established identity, creditworthiness and genuineness of the loan transactions through bank records and statutory filings. 2. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that non-traceability of lenders at physical addresses negated genuineness, without rebutting the documentary evidences on record.

Additional Ground: “1. On facts and circumstances of the case and in Law, the Hon'ble CIT(A) erred in confirming the addition on account of Loans of Rs.2,05,77,987/- taken during the year by the Assessee Company u/s 68, completely ignoring the evidence w.r.t. repayment of loans in the same years and in subsequent years. 2. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that lenders have no creditworthiness without making any inquiries into their source of income and also despite the fact that the Ld.AO did not find any cash deposit entries in the bank accounts of lender companies. 3. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that non-traceability of lenders at physical addresses negated identity of the lender companies by totally disregarding the MCA Records, ITR Filed and Audited Financial accounts and without rebutting any of these documentary evidences on record.”

are as under:

“1. On facts and circumstances of the case, the Hon'ble CIT(A) erred in confirming the addition of Rs.1,51,00,000/- u/s 68, despite the appellant having established identity, creditworthiness and genuineness of the loan transactions through bank records and statutory filings. 2. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that non-traceability of lenders at physical addresses negated genuineness, without rebutting the documentary evidences on record. 3. On facts and circumstances of the case, the Hon'ble CIT(A) erred in disregarding audited financial statements, MCA records, ITR acknowledgments and confirmations of lenders, and in not providing any basis to conclude that the financial capacity was insufficient. 3

Additional Grounds: 1 On facts and circumstances of the case and in Law, the Hon'ble CIT(A) erred in confirming the addition on account of Loans of Rs.1,51,00,000/- taken during the year by the Assessee Company u/s 68, completely ignoring the evidence w.r.t. repayment of loans in the same years and in subsequent years. 2. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that lenders have no creditworthiness without making any inquiries into their source of income and also despite the fact that the Ld.AO did not find any cash deposit entries in the bank accounts of lender companies. 3. On facts and circumstances of the case, the Hon'ble CIT(A) erred in law in holding that non-traceability of lenders at physical addresses negated identity of the lender companies by totally disregarding the MCA Records, ITR Filed and Audited Financial accounts and without rebutting any of these documentary evidences on record.”

following the decision of Hon’ble Supreme Court in case of NTPC Ltd. vs. CIT

(1998) 229 ITR 383 (SC), the additional grounds in all appeals are allowed and will

be duly considered at appropriate place in the order.

ITA No.8326/Mum/2025 (AY 2014-15):

the AY 2014-15 on 30.09.2014 declaring total income at Rs.32,07,240/-. The case

was selected for scrutiny and various notices were issued calling for the

explanation and details form the assessee. It was found by the AO that the assessee had taken unsecured loans of Rs.1,92,39,659/- during the year from 9 parties and had paid interest of Rs.26,10,184/-. The AO issued commission to the DDIT (Inv.), Kolkata for the verification of the loan parties. The DDIT submitted that the parties could not be traced at the given addresses. On receiving the commission report, the assessee submitted the new addresses of the companies. Again, a new commission was sent to the DDIT (Inv.) to verify the parties on the new address. The DDIT (Inv.) sent an Inspector for verification of the lenders, who reported that the building was in dilapidated condition and the tenants in the building had never known the companies. The result of the inquiry was confronted with the assessee. In response, the assessee submitted the confirmations of loan accounts of the five parties along with their acknowledgment of ITRs, bank statements and the balance sheets. It was also submitted that letters were sent to the five parties by the assessee and the said letters were duly delivered to them. The AO did not accept reply of the assessee on the ground that having registered office and filing ITR does not prove that the companies are not engaged in providing bogus loan entries. Further, the ADIT (Inv.) sent the ITR of the loan parties which revealed that the said parties have high reserve and surplus but such high amount was only because of the share premium and not due to profit earned during the year. In fact, the companies have very low income in their profit and loss account. The AO has tabulated the reserve and surplus, share premium reserve and income of the year in tabular form at para 3.6 of the assessment order. The AO also observed that mere receipt of payment through electronic means is not a final proof of genuineness of the 5 transaction. Accordingly, he treated the unsecured loans as unexplained cash credit u/s 68 of the Act. He also disallowed the interest of Rs.26,10,184/- on these loans. Accordingly, the AO added bogus loan and interest of Rs.2,18,49,843/- to the returned income. 7. Aggrieved by the order of the AO, the assessee filed appeal before the CIT(A). During the appellate proceedings, the appellant filed written submission along with relevant documents. The submission of the assessee has been reproduced by the CIT(A) in the appellate order. The assessee had given loan confirmation, PAN card, bank statement, balance sheet for the year ended on 31.03.2014 and acknowledgment of return filed and profile on MCA of the creditors. It was also submitted that the loans were refunded either in the same year or the subsequent years. The assessee also contended that the companies had sufficient reserves and surplus, which was utilized for giving loans and advances. It was argued that the AO has not enquired into the assessment of the said companies. The assessment of the companies has been completed without making any addition. It was submitted that the assessee has discharged the primary onus in regard to the identity and creditworthiness of the lenders as well as genuineness of the transactions of all lenders. It was further submitted that the assessee had paid interest on the loans taken by it and has deducted TDS on interest wherever applicable. However, the CIT(A) did not accept the submission of the appellant and concurred with the findings of the AO. He observed that mere filing of the documents such as ITRs, confirmation letters etc. does not absolve the assessee from discharging the primary onus u/s 68 of the Act. The 6 assessee must establish the identity and creditworthiness of the creditor and the genuineness of the transactions. In view of the above, he upheld addition of the loan amount of Rs.1,92,39,859/- as unexplained cash credit u/s 68 of the Act. Since the transactions were non-genuine, the interest expenses of Rs.26,10,184/- on it was also disallowed. 8. Aggrieved by the order of CIT(A), the assessee has filed appeal before the Tribunal. The Ld. AR of the appellant has filed two paper books and relied various decisions on all related issues of his submission. He submitted that the assessee had furnished before the AO as well as CIT(A) the followings documents to discharge the primary onus u/s 68 of the Act: (i) loan confirmations, (ii) PAN details of lenders, (iii) bank statements of lenders showing the credits without cash deposits before advancing loans, (iv) balance sheet of lenders showing sufficient funds to advance loan, (v) ledger account of lender parties, (vi) TDS deducted, (vii) acknowledgement of ITRs and other documentary evidence establishing the identity, genuineness, and creditworthiness of the lender companies, (viii) postal acknowledgements of letters sent to these lenders by assessee through speed post after the ITI's Report. The Ld. AR argued that the same were not countered by the AO or the CIT(A). 8.1 The Ld. AR submitted that the conclusion of the AO that the lender companies did not exist at their given addresses was based solely upon a vague and non-specific Inspector's report. which is insufficient to sustain an addition u/s 68 of the Act. On the contrary, the following facts conclusively establish the identity of all lender companies: (i) Letters and notices issued by the assessee to 7 all nine lender entities were duly served by the postal authorities Copies of the RPAD acknowledgements were furnished before both the AO and the CIT(A); (ii) All nine lender companies held valid PAN cards and had duly filed their income tax returns for the AYs under consideration; and (iii) All lender companies, with the exception of one, continue to remain active and traceable on the Ministry of Corporate Affairs (MCA) website further corroborating their existence as duly incorporated legal entities. The name of Xersus Sales Pvt. Ltd. was struck off after 2017, after the impugned AYs in the appeal. In view of the foregoing, the identity of all nine lender companies stands conclusively established, and the AO's reliance on a general and unsubstantiated Inspector's report to the contrary is wholly untenable in law and on facts. 8.2 Regarding the creditworthiness of the lenders, the Ld. AR submitted the "source of source" inquiry not permissible in case of loans for the subject AYs. The AO has questioned the creditworthiness of the lender companies by pointing to their high reserves and surplus alongside relatively low declared income, thereby, in effect, doubting the source of funds utilized for advancing the loans. The Ld. AR submitted that the proviso introduced to Section 68 of the Act, w.e.f 01.04.2013, empowers the AO to examine the "source of source” only in respect of sums credited as share application money, share capital, share premium. This proviso does not extend to loans or other forms of borrowing for the years under consideration. Subsequently, w.e.f. 1.04.2023, AO has also been empowered to verify the “source of source” in respect of all credits including unsecured loans. This subsequent amendment is prospective in nature and not applicable to 8 present appeals for AYs 2014-15, 2015-16 & 2016-17. The Ld. AR further submitted that the balance sheets of all nine lender companies were duly furnished before the AO and the CIT(A), clearly evidencing the availability of sufficient funds in the form of reserves and surplus to advance the loans to the assessee. The AO himself acknowledged this position in paragraph 3.6 of the assessment order Having admitted the existence of adequate funds, the AO's subsequent conclusion that the lender companies lacked creditworthiness is contradictory and self-defeating. The Ld. AR also submitted that the AO held that the lender companies lacked creditworthiness solely on the ground that their income for the current year was meagre. For lending purpose, the relevant consideration is the availability of funds, and not the quantum of income earned during the year. The Ld. AR explained that in all nine lender companies, the reserve & surplus was accumulated in preceding years and not during the current year. So, the finding that low income and lending from the reserve & surplus amounts to lack of creditworthiness is flawed. The Ld. AR also stated that there was no fresh cash deposits prior to advancement of loans. This is a significant indicator that there is no routing of assessee's funds through these lender companies. In view of the above, the AO's finding that the lender companies lacked creditworthiness is both factually incorrect and legally unsustainable. 8.3 Regarding the genuineness of the transactions, the Ld. AR on submitted that the same is established beyond doubt because all loan receipts, interest payments and loan repayments were effected only through bank accounts. TDS was duly deducted on interest payments. Copies of the bank statements were 9 duly filed before both the AO and the CIT(A). Neither the AO nor the CIT(A) in their respective orders have recorded any adverse finding with respect to the bank documents placed on record. 8.4 The Ld. AR submitted that the repayment of loans has been totally ignored by the AO. A substantial portion of the loans accepted during the year were repaid during the same year and in subsequent years through banking channels. The repayment of loans through banking channels is a strong and cogent indicator of the genuineness of the underlying transactions, and its disregard by the AO renders the addition unsustainable. The Ld. AR relied on the following decisions to argue that loan transactions supported by documentary evidence and followed by repayment cannot be added u/s 68 of the Act. He submitted that in case of Ayachi Chandrashekhar Narsangji (42 taxmann.com 251), the Hon'ble Gujrat High Court held that repayment of loans is a conclusive indicator of the genuineness of the transactions. In case of PCIT v Ambe Tradecorp Pvt. Ltd. (145 taxmann.com 27), Hon’ble Gujarat High Court held that where the assessee furnishes necessary material to prove the identity of the lenders and the loan is repaid in the subsequent year, the ingredients of creditworthiness and genuineness are deemed to be satisfied, and accordingly, no addition u/s 68 can be made. In case of PCIT v. Ojas Tarmake Pvt. Ltd (156 taxmann.com 75), the Hon'ble Court held that where an unsecured loan is repaid within the same year through banking channels, an addition u/s 68 is wholly unwarranted. 8.5 Regarding reliance of the AO on the Inspector’s report, the Ld. AR submitted that the said report was vague and non-specific. The report does not 10 mention the date and time of visit of the premises by the Inspector. The Inspector has not enclosed photograph of the visited premises. He has also not given the details of the person with whom he made the enquiry. On the other hand, there were service of notices by postal authorities to all 9 lenders. All the lenders have PAN and they have filed returns of income. Further, the status of the lender companies except one, continues to remain active and traceable in the Ministry of Corporate Affairs (MCA) website. The Ld. AR relied on the following decisions in favour of assessee on the issue of Inspector’s report: (i) CIT vs. M/s Cavinkare Pvt. Ltd. (2019) 263 Taxman 740 (Mad.), (ii) DCIT vs. Shree Thirumalai Marketing in ITA No.139/Mum/2025, (iii) DCIT vs. Sunrise Metallic in ITA No.3628/Mum/2017, (iv) Shri Ganpatraj A. Sanghvi in ITA No.2826/Mum/2013, (v) Shri Ramila Parvin Shah in ITA No.5246/Mum/2013 and (vi) Abans Enterprises vs. ACIT in ITA No.3498/Mum/2024. He submitted that the inspector’s report cannot supersede the approval from various authorities such as Income-tax Department, Postal Authorities, MCA etc. The Inspector’s report cannot be conclusive proof for the identity of a company. In conclusion, the Ld. AR submitted that all three ingredients of section 68 have been satisfied to escape the mischief of the provisions of section 68 of the Act. 9. On the other hand, the Ld. CIT DR for the revenue supported the order of lower authorities. He submitted that the AO has rightly relied upon the report of the Inspector, which states that the lenders companies could not be found at the given addresses. He also submitted that the income of the lenders was meagre so as to justify the huge loan advanced by them. The appellant has not been able to 11 establish the identity and creditworthiness of lenders as well as genuineness of the transactions. 10. We have heard both parties and perused the materials on record. We have also deliberated on the decisions relied upon by the Ld. AR. There is no dispute regarding the fact that the assessee had received unsecured loans of Rs.6,00,0000/-, Rs.8,50,000/-, Rs.11,50,000/-, Rs.38,36,793/-, Rs.36,50,000, Rs.48,00,000, Rs.21,00,000, Rs.23,52,866/- and Rs.Nil (Op. Bal. Rs.10,21,896/-) during the year from Zeegan Vincom Pvt. Ltd., Vorica Traders Pvt. Ltd., Xenoro Commercial Pvt. Ltd., Fendra Infrastructure Pvt. Ltd., Allevant Commercial Pvt. Ltd., Xersus Sales Pvt. Ltd., Orchid Merchandise Pvt. Ltd., Narvadita Realcon Pvt. Ltd. and Antrix Tradecom Pvt. Ltd. respectively. Thus, the total unsecured loans received by the assessee during the year was Rs.1,92,39,659/-, on which the assessee had paid interest of Rs.26,10,184/-. The assessee had also deducted TDS on such interest payments. The assessee had filed (i) loan confirmations of all lenders, (ii) return of income of lenders for AYs 2014-15, 2015-16 and 2016-17 (iii) audited financial statements including balance sheet of lenders, (iv) PAN cards of lenders, (v) bank statement of lenders showing credits (and no cash deposit) before advancing of loans, (vi) ITRs of lenders etc. The identity of the lender companies has been established in view of the active status in the MCA portal, PAN and return of income, service of notice by postal authorities etc. 10.1 Regarding genuineness of the transactions, we find that all loans were received through banking channels. The interest on such loans as well as re- payments were made through bank accounts. TDS was also duly deducted on the 12 interest payments. We also find that substantial portion of the loan accepted during the year was repaid during the same year and in subsequent years through banking channels. The appellant submitted the details about the repayment before the AO and CIT(A), but no findings in this regard was given by them. 10.2 As regards the creditworthiness of the lenders, the low income of the lenders in the year under consideration per se cannot be the criteria regarding creditworthiness of the party. What is relevant is the availability of fund and not the income earned during the year. It is seen from the balance sheets that the lenders had adequate funds to justify the loans advanced to the appellant. The quantum of substantial reserves and surplus was on account of share premium received in the earlier years and not in the year under consideration. Be that as it may, the undisputed fact is that the lenders had adequate funds to advance the impugned unsecured loans to the appellant. Regarding the source of source, the proviso introduced to section 68 of the Act is effective from 01.04.2013 and empowers the AO to enquire and verify in respect of the sums credited as share application money, share capital and share premium. The proviso does not extend to loans or borrowings during the year under consideration. The Act has been subsequently amended w.e.f. 01.04.2023 to verify the source of source of all credits including unsecured loans. The amendment is prospective in nature and hence not applicable for the subject AYs 2014-15, 2015-16 and 2016-17. In view of the above facts, the Ld. AR submitted that the appellant has duly explained creditworthiness of the lender companies.

10.3 It is clear from the facts discussed above that the appellant had furnished all primary details and had discharged the onus cast upon it. As a result, the burden had shifted to the AO to disprove the contention of the appellant, which the AO failed to do. During the appellate proceedings, though all these details were available before the CIT(A), he has ignored the primary details and concurred with the findings of the AO. Neither the AO nor the CIT(A) had tried to rebut any of the above documents with cogent material. The only reason for making the addition was the Inspector’s report and that the income of the lender companies was low. The Ld. AR has successfully rebutted the observations of the lower authorities by proper explanation and relevant evidences, which are discussed at para 8.5 and 8.2 of this order. The Ld. CIT-DR has not been able to rebut the contention of the appellant. Hence, the appellant has satisfactorily established the identity and creditworthiness of the lenders as well as the genuineness of the transaction. 11. The Ld. AR also submitted that the facts of the instant appeal are fully covered by the decisions of various Hon’ble High Courts and Tribunals. The Hon’ble Bombay High Court in case of CIT vs. Haresh D. Mehta (2017) 86 taxmann.com 22 (Bom.) has held that where assessee proved loan transactions from various parties by producing details like copy of PAN card, copy of return of income, balance sheet and copy of bank accounts of creditors, Tribunal was justified in deleting addition made by AO u/s 68 of the Act in respect of said transactions. In the case of PCIT vs. Gopal Heritage Pvt. Ltd. (2021) 133 taxmann.com 173 (Guj.), the Hon’ble Court deleted the addition by holding that 14 where assessee had taken unsecured loans from some persons and the AO made addition u/s 68 on ground that assessee had not been able to prove immediate source of cash-in-hands of party, since all ingredients contemplated u/s 68 had been buy satisfied on aspect of identity of creditors, genuineness of transactions and their creditworthiness, said addition was to be deleted. The Hon’ble Gujarat High Court in CIT vs. Ranchhod Jivabhai Nakhava (2012), 21 taxmann.com 159 (Guj.) held that addition u/s 68 of the Act cannot be made solely on suspicion. When the assessee proves the identity of creditors, genuineness of transactions and creditworthiness via account pay cheques/confirmations, the AO must verify this evidence, and not just reject it. In this case, copy of ITRs, balance sheet, PAN, active status in MCA, ledger confirmations, bank statements of lenders etc. have been filed before the lower authorities. There was sufficient fund in the bank accounts and no cash was deposited before issue of cheque to the appellant. The AO and CIT (A) have simply ignored these details and added the impugned loans without verifying the details as mandated in the decisions cited supra. Therefore, the addition made u/s 68 is liable to be deleted. 12. The Ld. AR has also submitted that substantial portion of the loans were

repaid either during the same year or in the subsequent years. The details are

given in the written submission, which have not been controverted by the

revenue. Under similar facts and circumstances, various Hon’ble Courts have held

that addition u/s 68 of the Act cannot be made. The Hon’ble Gujrat High Court in case of Ayachi Chandrashekhar Narsangji (supra) held that repayment of loans is

a conclusive indicator of the genuineness of the transactions. In case of Ambe

Tradecorp Pvt. Ltd. (supra), the Hon'ble Court held that where the assessee

furnishes necessary material to prove the identity of the lenders and the loan is

repaid in the subsequent year, the ingredients of creditworthiness and

genuineness are deemed to be satisfied, and accordingly, no addition u/s 68 can

be made. Further, in case of Ojas Tarmake Pvt. Ltd (supra), it was held that where

an unsecured loan is repaid within the same year through banking channels, an

addition under Section 68 is wholly unwarranted.

supra, we find that the appellant has satisfactorily explained the nature and

source of the unsecured loans received from all nine lenders. The appellant has

duly discharged the onus cast on it u/s 68 of the Act and has satisfactorily

explained the identity and creditworthiness of the lender companies as well as

genuineness of the transactions. Hence, the AO is directed to delete the addition

made u/s 68 of the Act.

paid on such loan cannot be disallowed. The appellant has also deducted TDS on

the impugned interest payments. The AO is, accordingly directed to delete the

addition made on account of the interest expenses.

No.8326/Mum/2025 decided above. Hence, following the reasons given above,

these appeals are also allowed.

Order is pronounced on 29.04.2026.

Sd/- Sd/-

(SANDEEP SINGH KARHAIL) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER

*Aniket Chand; Sr. PS MUMBAI Date: 29.04.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File

By Order

Assistant Registrar ITAT, MUMBAI