SHAH BROTHERS,WEST SINGHBHUM vs. ACIT/DCIT, CEN CIR-1, RANCHI

ITA 239/RAN/2026Status: DisposedITAT Ranchi30 September 2026AY 2017-201821 pages
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What were the facts?

The assessee, Shah Brothers, is appealing an order from the Commissioner of Income Tax (Appeals) [CIT(A)] dated March 5, 2026, for Assessment Year 2017-18. The appeal stems from a search and seizure operation conducted on November 4, 2022, in the Shah Group of cases. During the search, incriminating materials were found, leading to the reopening of the assessee's assessment. The Assessing Officer (AO) added ₹4,74,21,634/- to the assessee's total income under Section 68 of the Income Tax Act, 1961, treating unsecured loans received from two group entities, M/s Percy Commercial Ltd. and M/s Altop Commodities Pvt. Ltd., as the assessee's own unaccounted money routed through shell companies. The assessee had provided details to explain the genuineness of these loans, but the AO was not satisfied. The CIT(A) upheld the AO's addition, finding that the assessee failed to produce independent evidence of the creditors' financial standing and operations.

What did the Tribunal hold?

The Tribunal held that the addition of ₹1,11,21,634/- representing interest paid to the creditor companies was unsustainable under Section 68 of the Income Tax Act, 1961. The Tribunal reasoned that interest paid is an expenditure and not a 'sum credited' representing an unexplained receipt, and therefore, cannot be brought within the purview of Section 68. The Tribunal noted that the AO had allowed this interest as a business expenditure, creating an inconsistency. Regarding the principal amount of unsecured loans, the Tribunal found that the assessee had discharged its initial onus by providing details of the creditors, including their identity, addresses, PANs, and confirmations. The Tribunal also noted that the creditor companies were RBI-registered NBFCs, regularly assessed to tax, and had substantial returned income. The Tribunal relied on the Supreme Court's decisions in CIT v. Orissa Corporation (P) Ltd. and CIT v. Lovely Exports (P) Ltd., which state that once the assessee establishes the identity, genuineness, and capacity of the creditors, the onus shifts to the Revenue to prove otherwise. The Tribunal observed that the Revenue had not brought on record any independent material to disprove the genuineness of the loans beyond the AO's belief that the companies were shell entities. The Tribunal did not expressly leave any issue undecided. The operative direction was to delete the addition related to interest.

What were the issues?

1. Whether the addition of ₹4,74,21,634/- under Section 68 of the Income Tax Act, 1961, treating unsecured loans from group entities as unaccounted own money, is justified, considering the assessee's contention that the loans were genuine and the reopening was based on a mere change of opinion? 2. Whether the addition of ₹1,11,21,634/-, representing interest paid on these loans, is sustainable under Section 68 of the Income Tax Act, 1961, when the assessee claims it is an expenditure and not a credit? Assessee's Arguments: - The reassessment was based on a mere change of opinion, as the unsecured loans were examined and accepted in the original assessment under Section 143(3). - No incriminating material was found during the search to justify the reassessment. - The two creditor companies, M/s Altop Commodities Pvt. Ltd. and M/s Percy Commercial Pvt. Ltd., are RBI-registered NBFCs, regularly assessed to tax, with substantial returned income and audited financial statements, thus possessing creditworthiness. - The assessee discharged its initial onus under Section 68 by providing identity, genuineness, and capacity of the creditors, relying on precedents like CIT v. Orissa Corporation (P) Ltd. and CIT v. Lovely Exports (P) Ltd. - The interest component of ₹1,11,21,634/- is an expenditure debited to the profit and loss account and not a 'sum credited' within the ambit of Section 68. - The AO's acceptance of interest paid as a business expenditure creates an internal contradiction with treating the principal as unaccounted money. Revenue's Arguments: - The CIT(A) confirmed the addition, holding that the assessee failed to produce independent evidence of the creditors' source of funds, substantial loan portfolio, recovery statements, interest income pattern, or NBFC business operations. - The CIT(A) found that the non-existence of entities at declared premises, shell entity amalgamations, disproportionate cash deposits, circular bank transactions, and absence of genuine business operations established the loans as accommodation entries. - The CIT(A) relied on the principle of lifting the corporate veil as per McDowell & Co. and the precedence of 'substance' over 'form'.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE,Section 143(3),Section 142(1),Section 148,Section 132,Section 36(1)(iii),Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI

Before: SHRI RATNESH NANDAN SAHAY & SMT. RAJANI GUDURI

For Appellant: Shri R.R. Mittal, A.R
For Respondent: Shri Sanjay Kumar, CIT-DR
Hearing: 03/09/2026Pronounced: 30/09/2026

PER: BENCH

1.

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Patna-3, Patna [in short, the ld. CIT(A)] dated 05/03/2026 for the Assessment Year (AY) 2017-18, wherein the assessee has raised following grounds of appeal:

"

1.

The order of the Commissioner of Income Tax, Appeal, Patna-3 is bad in Law and Facts.

2.

The Learned Commissioner of Income Tax, Appeal, Patna-3 has erred in confirming the addition of Rs. 4,74,21,634/- u/s 68 of the Income Tax Act r.w.s 115BBE considering the unsecured loan received from group entity as unaccounted own money.

3.

The Learned Co

The order continues below.

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