KAUSHIV ASSOCIATE,VARANASI vs. DC/ACIT, R - 1, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.135/VNS/2024 A.Y.-2018-19 Kaushiv Associate, vs. DC/ACIT-R1, D 57/60-B, Sigra, Varanasi Varanasi PAN: AAFFK4670H (Appellant) (Respondent) Assessee by: Sh. R.K.N. Jaiswal, Advocate Revenue by: Sh. Sabyasachi Chakarborty, Sr. DR Date of hearing: 22.01.2026 Date of pronouncement: 22.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC under section 250 of the Income Tax Act, 1961 dated 1.06.2024, wherein the ld. CIT(A) has dismissed the appeals of the assessee against the orders of the Assessing Officer under section 143(3) for the A.Y. 2018-19, that was passed on 24.04.2021. The grounds of appeal are as under:- “1. Because the authorities below failed to appreciate in the right perspective, the scope and extent of "Creditworthiness"; one of the ingredients as propounded by various judicial authorities, cited by the revenue; the rejection of the explanations supported with bank statements coupled with the confirmatory letter of the lender is unjust. 2. Because prior to 01.04.2023 the appellant was not under obligation to prove source of the sources 3. Because the learned CIT (A) failed to adjudicate over the failure of the A.O. to issue notices to the lender as the onus was shifted to the revenue. The addition of Rs. 15.00 lacs u/s 68 is against the facts and the law applicable thereto. 4. Because the order is bad in law and against the facts of the case.” 1

ITA No.135/VNS/2024 Kaushiv Associate A.Y. 2018-19 2. The facts of the case are that the assessee filed a return of income for the said assessment year on 7.10.2018 declaring income of Rs. 62,13,200/-. The case was taken up for scrutiny and among the grounds was the issue of large squared up loans during the year. During the course of investigations, it was found that the assessee had received unsecured loans from Padma India (of Rs. 4 Lacs) and from Silk India (of Rs. 15 Lacs) and repaid the amount back during the course of the assessment year. The ld. AO noted that M/s Padma India had not filed a return and the assessee had not submitted either a confirmation or bank account from the lender. In the case of Silk India (Sanjeev Kapoor HUF), it was noticed that while that assessee had filed a return, no copy of the bank statement of that assessee had been submitted. Accordingly, the ld. AO issued a show cause notice to the assessee. In response, the assessee filed copy of ITR, bank statement and confirmation of account from Padma, India but failed to file a copy of the bank statement of Silk India. He further records that the assessee failed to justify the creditworthiness of Silk India. He, therefore, issued a show cause notice to the assessee. In response, the assessee submitted a confirmation of account received from M/s Silk India for the loan taken and repayment of the same with interest. It was further submitted that TDS had been deducted, deposited and e-TDS return filed in Form 26Q with regard to the transaction. It also filed a copy of its HDFC bank statement showing the repayment of the loan alongwith interest and it prayed, that no inference be drawn. However, the ld. AO pointed out that the assessee had failed to prove the creditworthiness of the lender and therefore, he added back the amount of Rs. 15 Lacs under section 68 of the Income Tax Act. 3. Aggrieved with the said addition, the assessee went in appeal before the ld. CIT(A). It was submitted that a confirmation had been submitted from the lender, copy of the lender’s bank account was being submitted to 2

ITA No.135/VNS/2024 Kaushiv Associate A.Y. 2018-19 demonstrate that the loan amount had actually been disbursed towards the assessee from the bank; that all procedural formalities prescribed under section 269SS and section 269T had been duly followed; Form No. 16A had been issued by the assessee to the lender verifying that interest was paid on this loan after deducting and depositing tax at source within the prescribed time; the loan had been repaid through banking channels and the assessee had submitted the lender’s aadhar and PAN to the Department. Thus, it failed to understand why the AO was relying on the fact that the said lender M/s Silk India had filed the income tax return of only Rs. 2,18,820/- to treat loan advanced as bogus. The ld. CIT(A) considered the submissions of the assessee and noted that while the assessee had filed a copy of confirmation from the lender, copy of the lender’s bank statement, copy of assessee’s bank statement, copy of income tax returns, copy of computation of income and tax, balance-sheet, profit and loss account of the lender for the F.Y. 2017-18 to justify and confirm the genuineness of the loan advanced, he held that the creditworthiness of the money lender had not been established. He quoted from the decision of the Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel (P.) Ltd (2019 103 taxman.com 48 which stated that identity, creditworthiness and genuineness had to be proved by the assessee to the satisfaction of the Assessing Officer. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under section 68 of the Income Tax Act and investor companies which had filed income tax returns with meagre or nil income had to explain how they invested huge sums of money in the assessee company. Thus, the onus to establish the creditworthiness of investor companies had not been discharged and the entire transaction seemed bogus and lacked credibility. He accordingly held that the mere mention of the PAN of an investor was not sufficient to discharge the onus under section 68 of the Act. Therefore, following the 3

ITA No.135/VNS/2024 Kaushiv Associate A.Y. 2018-19 judgment of the Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel (P.) Ltd (supra), he held the transaction to be unexplained. The confirmation document was rejected relying upon the decision of the Hon’ble Delhi High Court in the case of DCIT vs. Smt. Phoolwati Devi (2009) 314 ITR (AT) 1 (Delhi) and quoting from several other decisions, he held that the assessee had merely attempted to give a cloak of genuineness to an otherwise bogus transaction and therefore, the same was liable to be added back under section 68. Accordingly, he dismissed the appeal of the assessee. 4. The assessee is aggrieved against the dismissal of its appeal and has accordingly come in appeal before us. Sh. R.K.N. Jaiswal, Advocate (hereinafter referred to as the ld. AR) pointed out that the authorities below had failed to appreciate in the right perspective the scope and extent of, “creditworthiness” as one of the ingredients, as propounded by various judicial authorities, while rejecting the explanation supported with bank statements and confirmatory letter of the lender. It was submitted that prior to 1.04.2023, the assessee was not under obligation to prove the source of his source. Therefore, this artificial condition could not be used to foist a tax demand upon the assessee. It was not within the power of the assessee to produce the income tax returns and final accounts before the AO, but he had given the PAN number and the confirmation and the AO could always have issued notices to the lender for obtaining further information. The failure of the AO to obtain further information have not been adjudicated by the ld. CIT(A), who had instead placed the onus entirely on the assessee which was unjust. The ld. AR relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation (P.) Ltd., (1986) 159 ITR (SC) and the Hon’ble Gauhati High Court in the case of Nemi Chand Kothari vs. CIT & Anr (2003) 264 ITR (Gau) in support of his arguments. Copies of these judgments were also filed. The ld. AR submitted that M/s Silk India was a money lender 4

ITA No.135/VNS/2024 Kaushiv Associate A.Y. 2018-19 and that he had submitted before the AO all that was asked of him. As it had been pointed out in the aforesaid judgments that the assessee was not obliged to also disclose the source from where the lender has obtained his money and therefore, this impossible burden could not be placed upon him. He accordingly prayed that the addition made may be deleted. On the other hand, Sh. Sh. Sabyasachi Chakarborty, Sr. DR (hereinafter referred to as the ld. DR) invited our attention to paragraphs 4.2 and 4.3 of the order of the ld. CIT(A) wherein the ld. CIT(A) had recorded a clear finding of fact that before the AO, the assessee had failed to submit the bank statement of Silk India highlighting the payments made to the assessee and also failed to justify the creditworthiness of Silk India. Even during the course of assessment proceedings, the ld. CIT(A), had recorded that from the documents that were placed before him, he was unable to verify the creditworthiness of Silk India. It was for this reason that he had relied upon the latest decision of the Hon’ble Supreme Court in PCIT v. NRA Iron & Steel (P.) Ltd (supra) on the issue of the conditions under section 68. The ld. Sr. DR submitted that the law had evolved considerably since the judgments cited by the assessee were passed and since it was clear as per the judgment of PCIT v. NRA Iron & Steel (P.) Ltd (supra), that the mere mention of an income tax file number of an investor was not sufficient to discharge any onus under section 68 of the Act, the plea of the assessee deserved to be rejected. 5. We have duly considered the facts of the case and the arguments advanced by both parties. It is fairly clear that the assessee had not submitted either the income tax return (and final accounts) or the bank statement of the lender before the AO from which the creditworthiness of the lender to make the loan to the assessee could be established. It is not clear as to whether the income tax returns and audited accounts of Silk India were also submitted before the ld. CIT(A). In para 4.2 of his order, the ld. 5

ITA No.135/VNS/2024 Kaushiv Associate A.Y. 2018-19 CIT(A) records that these were submitted. If that were the case, then they should have been sufficient to determine whether the lending company had the necessary funds to advance the same to the assessee. However, subsequently, in his order, the ld. CIT(A) records that the assessee has simply furnished the income tax PAN number and even the ld. AR in the course of arguments has submitted that this constituted sufficient discharge of his onus. As pointed out by the ld. CIT(A), the Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel (P.) Ltd (supra) have held that this would not constitute sufficient discharge of its onus to prove the creditworthiness of a company which had filed income tax returns with meagre or nil income. It is quite clear that M/s Silk India had filed a return with meagre income. Therefore, the basic documentation to prove that it had the funds to advance to the assessee had to be produced by the assessee to discharge its onus. It is not clear from the arguments advanced by the ld. AR and the order of the ld. CIT(A) whether this was done. Therefore, in the interest of justice to both parties, we deem it appropriate to restore this matter back to the file of the AO to enable the assessee to furnish the necessary documentation before the AO to justify the creditworthiness of the lender and thereafter AO may consider the same and pass a reasoned order in accordance with law. 6. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 22.04.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22/04/2026 Sh

ITA No.135/VNS/2024 Kaushiv Associate A.Y. 2018-19 Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.