DEPUTY COMMISSIONER OF INCOME TAX, KOLKATA vs. SGS SILK MILLS PVT LTD, KOLKATA

ITA 2216/KOL/2025Status: DisposedITAT Kolkata30 September 2026AY 2012-137 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal found no infirmity in the order of the CIT(A). The assessee is a company engaged in manufacturing and trading of fabrics. The AO had disallowed unsecured loans and interest thereon amounting to Rs. 80,32,513/- under Section 68. The Tribunal noted that the lender companies were registered under the Companies Act, 1956, possessed PANs, were regular income tax return filers, and all transactions were conducted through banking channels and duly accounted for. The creditworthiness of the lenders was established by their balance sheets, showing substantial net worth (Alka Diamond Industries Ltd: Rs. 17,74,85,531/-, Duke Business P. Ltd: Rs. 1,11,24,16,204/-, and Olive Overseas P. Ltd: Rs. 6,27,16,78,62/-). The Tribunal considered the facts and the CIT(A)'s order and concluded that the addition made by the AO was not sustainable. The ratio decidendi is that when an assessee provides sufficient documentary evidence to establish the identity, creditworthiness, and genuineness of the transaction for unsecured loans, and the AO fails to bring contrary evidence on record, the addition under Section 68 is not justified. The appeal of the Revenue was dismissed.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2012-13, which condoned a delay of 206 days in filing the appeal. The assessee, SGS Silk Mills Pvt Ltd, had declared a total income of Rs. 35,77,963/-. The Assessing Officer (AO) proposed to add unsecured loans of Rs. 10,00,000/-, Rs. 27,00,000/-, and Rs. 39,50,000/- from Alka Diamond Industries Ltd, Duke Business P. Ltd, and Olive Overseas P. Ltd, respectively, along with the interest paid thereon, totaling Rs. 80,75,840/-. The AO based this addition on information from DGIT (Inv.), Kolkata, alleging the lenders were paper companies controlled by an entry operator, Shri Praveen Kumar Jain, and the transactions were accommodation entries. The CIT(A) allowed the assessee's appeal, deleting the addition.

What were the issues?

1. Whether the CIT(A) erred in facts and law by allowing the assessee's appeal and deleting the addition of Rs. 80,75,840/- under Section 68 of the Income Tax Act, 1961, solely based on the assessee's contentions without verification? (Question of fact and law) 2. Whether the CIT(A) erred in facts and law by allowing the assessee's appeal and deleting the addition of Rs. 80,75,840/- under Section 68, ignoring the AO's findings and the investigation wing's report that the lender companies were shell companies operated by Shri Praveen Jain? (Question of fact and law) Assessee's contentions (supported by Ld. AR): The assessee furnished all particulars requested by the AO. The lender companies are registered under the Companies Act, have PANs, file income tax returns, and all transactions were through banking channels. The net worth of the lenders is substantial (over Rs. 17 crore for Alka Diamond Industries Ltd). The CIT(A) considered documentary evidence and granted relief, which should not be interfered with. Revenue's contentions (grounds of appeal): The CIT(A) erred in allowing the appeal based on the assessee's submissions without verification. The CIT(A) ignored the AO's findings and the investigation report regarding the lender companies being shell entities. The CIT(A) failed to appreciate judicial principles laid down in Pr. CIT vs. Swati Bajaj, Sumati Dayal vs. CIT, and CIT vs. Durga Prasad More. The appeal is filed under exceptional clause 'h' of CBDT Circular No. 5/2024.

Which sections of the Income-tax Act were involved?

Section 68,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, KOLKATA

Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey

Per Pradip Kumar Choubey, Judicial Member:

This appeal filed by the revenue is directed against the order dated 04.12.2024 of the Office of the National Faceless Appeal Centre (NFAC), Delhi passed under Section 143(3) of the Assessment Year 2012-13 of the Income- Tax Act, 1961 (hereinafter referred to as “the Act”).

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