INCOME TAX OFFICER , MUMBAI vs. AQUAFIT PIPING SYSTEMS I PRIVATE LIMITED, MUMBAI

The brief facts of the case are that a search and seizure action u/s. 132 of the Act was carried out in the case of “One World Group” of the cases on 06.11.2019. It was found that various “One World Group” entities have shown purchase and sales and the entities controlled and managed by the Rajesh G. Mehta who is controlling and operating many paper concern. The assessee is beneficiary of bogus loan entry to the tune of Rs. 48,24,740/- from M/s. Aneri Fincap Limited, the concern operated by Rajesh G. Mehta during the A.Y. 2018- 19. The information was received by the Ld. AO and the notice u/s. 148 was duly issue. Against the notice u/s. 148, the assessee filed the return by declaring income nil. During the assessment proceeding, the Ld. AO found that the assessee had received the loan from bogus entity amount to Rs. 45lacs. Consequently, the Ld. AO calculated the interest expenses on unexplained expenditure u/s. 69C amount to Rs. 2,58,904/- related to the bogus loan entry. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the additions. Being aggrieved, the revenue filed an appeal before us.

The Ld. DR argued and contended that the assessee had the beneficiary of the bogus loan entries amount to Rs. 45lacs. As per the statement from Shri Rajesh G. Mehta and Smt. Urvi Jain both admitted that M/s. Aneri Fincap Limited (AFL) was involved in providing the accommodation entries. But the Ld. CIT(A) without considering the genuineness of the loan transactions, the identity and the creditworthiness of M/s. AFL had deleted the addition which is unjustified. The Ld. DR further contended that the identical issue related to M/s. AFL was already decided by The Coordinate Bench of ITAT, Mumbai in the case of Bajaj International Reality Pvt. Ltd. V. CIT, ITA No. 5320/Mum/2025, date of pronouncement 12.03.2026 for A.Y. 2018-19. The relevant observations of the bench in para no. 4 to 4.2 is reproduced as below: “4. In ground No. 1.1 and 1.2, the assessee is aggrieved with invoking of section 69A of the Act instead of section 68 of the Act. The primary contention of the assessee is that section 69A has been wrongly invoked since the loan was duly recorded in the books of account. The Id Counsel for assessee submitted that in the case loan of Rs.20,52,866/- from M/s AneriFincap Ltd. was appearing in the books of accounts of the assessee and therefore, provisions of section 69A of the Act were not applicable. It is submitted that section 69A applies only where the assessee is found to be the owner of money not recorded in the books. The Revenue, on the other hand, contends that both the Assessing Officer as well as the Ld. CIT(A) has considered and informed the assessee to justify the loan received from M/s Aneri Fincap Ltd., thus, the substance of the addition pertains to unexplained credit and therefore falls within section 68, and mere misquotation of a statutory provision does not vitiate the addition, when the assessee was also aware of the fact that provision of section 68 of the Act are relevant and the Assessing Officer has also raised the queries treating the amount in dispute received from M/s Aneri Fincap Ltd. as unsecured loan. 4.1 Having considered the submissions of the parties, we are of the opinion that the Assessing Officer and the Ld. CIT(A) has clearly brought on record that loan of Rs.20,52,866/- shown to be received from M/s Aneri Fincap Ltd. was merely accommodation entry, in view of statement of Shri Rajesh G. Mehta and therefore, clearly said loan was liable to be examined u/s 68 of the Act and not u/s 69A of the Act. The section 69A is relevant only when assessee is found to be owner of money, bullion etc. which is not recorded in the books of accounts. Therefore, the Assessing Officer and Ld. CIT(A) has wrongly applied section 69A of the Act. 4.2 While we find merit in the Assessee's technical contention that Section 68 is the appropriate provision for sums credited in books, it is a settled principle of law that the mere mention of a wrong section does not vitiate an assessment so long as the power to tax exists or the ingredients of the correct provision are satisfied and the Assessee was fully cognizant of the nature of the inquiry. In the case entire enquiry by the Assessing Officer revolved around the genuineness, identity and creditworthiness of the lender squarely falling within section 68. The assessee was fully aware of the nature of enquiry and responded accordingly. Consequently, we uphold the addition under the canopy of Section 68 of the Act, rejecting the plea to delete the addition on a mere technicality. The ground Nos. 1.1 and 1.2 of the assessee of the assessee are accordingly dismissed.”

The Ld. DR invited our attention in Statement of oath of Shri Rajech G. Mehta dated 08/11/2019. The relevant portion of the statement of Shri Rajesh Mehta recorded under section 131 of the Act on 08.11.2019, during the course of search proceedings under section 132 in the case of One World Group, may be reproduced in the order as under:

On the contrary, the Ld. AR argued and filed a paper book comprising pages 1 to 140. The Ld. AR contended that the confirmation of accounts made by M/s. AFL of assessee A.Y. 2018-19 and 2019-20, the financial statement, the bank statement and TDS certificate issued by the assessee related to deduction of TDS from interest payment to M/s. AFL are duly enclosed in the APB. The Ld. AR contended that all the relevant documents are duly submitted before the revenue authorities which are also annexed in the APB before the bench.

The Ld. AR contended that the identical issue is already decided by The Coordinate Bench of ITAT, Mumbai in the case of Satish Sawarmal Saraf vs ACIT ITA No. 5540/Mum/2025, date of pronouncement 13.11.2025 for A.Y. 2018-19. The relevant paragraph no. 6 of page 4 of the ITAT order is reproduced as below: “We have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records we noticed that it is an undisputed fact that the assessee had availed loan from M/s AFL and in order to prove the said transaction as genuine, the assessee has placed on record documents with regard to the identity of 6 M/s AFL by placing on record PAN Card and Confirmation of Accounts, MOA and AOA as well as registration certificate issued by RBI. These documents clearly establish the identity of M/s AFL. With regard to Credit-worthiness of M/s AFL the assessee had placed on record the ITR filed by M/s AFL for A.Y. 2018-19 wherein an income of Rs. 67,25,587/ is offered to tax. As per the audited financial statements M/s AFL has earned revenue of Rs. 22.16 crores in F.Y. 2017-18 relevant to A.Y. 2018-19. Further, M/s AFL has a long term non current borrowing of approximately Rs. 913 crores as well as equity of approximately Rs. 5 crores. Furthermore, M/s AFL had fixed deposits of Rs. 8 crores as on 31.03.2018. All these figures go on to show the Financial Strength of AFL These figures are multiple times the amount of loan advanced of Rs. 25 lakhs by M/s AFL to the assessee which proves the credit-worthiness of AFL without an iota of doubt. With regard to Genuineness of transaction assessee has placed on record that assessee had obtained a temporary loan from AFL which is a non-banking financial company ("NBFC") regulated by the Reserve Bank of India. The payment is done through banking channels and the loan amount is completely repaid within a period of 113 days. Assessee is a director in Panache Academy and Salon Private Ltd. ('Panache") and some urgent funds were required to meet working capital requirements in Panache and accordingly loan was obtained from AFL by the assessee which was immediately transferred to Panache. AFL is engaged in the business of lending and the same is clearly reflected in the balance sheet of AFL where total loans obtained by AFL is approximately 913 crores and total loans advanced by AFL 7 is approximately 899 crores. In the light of the above, genuineness of the transaction is also established.”

The Ld. AR respectfully relied on the order of The Coordinate Bench of ITAT, Mumbai in the case of M/s. Kalpana Ramesh Jain vs. DCIT, ITA No. 4598/Mum/2025, date of pronouncement 18.05.2026 for A.Y. 2018-19. The identical issue was duly considered by the Bench and allowed the appeal of the assessee. In both the orders of The Coordinate Bench of ITAT, Mumbai has accepted the creditworthiness of M/s. AFL. The genuineness of the transactions and the identity of the loan creditors are duly accepted in the orders of the Bench and also by the Ld. CIT(A). 9. The Ld. AR respectfully relied on the order of Ld. CIT(A) and the relevant paragraphs in page 51 to 54 of the impugned appellate order are reproduced as below: “Decision Ground No. 3 and 4 Assessee’s submission in this case has been carefully considered. In this case, on the basis of information received during search operation in case of “One World Group”, addition of Rs.45,00,000/- has been made u/s 68 on account of non-genuine loan received from Aneri Fincap Limited and addition of Rs.2,58,904/- u/s. 69C on account of unexplained interest expenditure on this loan. On the basis of detailed submissions made by the assessee following conclusions can be drawn:- Decision The AO has made addition of Rs.45,00,000/- loan taken by assessee from M/s. Aneri Fincap Limited on the ground that these loans were not genuine. However, during appellant and assessment proceedings, assessee kept on submitting details and judicial pronouncements to justify that these were genuine loans taken by assessee for business purpose, on which due interest have been paid after deducting TDS and these loans of Rs.45,00,000/- were being repaid next year itself. In order to established identity and creditworthiness of the lender, assessee has submitted that Aneri Fincap Ltd., from whom loan has been taken was a RBI registered NBFC, was a listed company on recognized stock exchange i.e. Bombay Stock Exchange and having paid up capital and reserve and surplus of more than 5 crores and having loan book of over 900 crores. Moreover, assessee company has taken this loan for their business needs, as reproduced from his submission. “ 4.21 The assessee has not yet started its business as mentioned in Its main object clause. It has bought industrial land from the government authority, l.e., Karanataka Industrial Area Development Board (KIADB) for its future project for manufacture of pipes. Since there is no income, the assessee has to either get loans from its internal sources like, loan from its directors & their family members, or from NBFCs. Since the assessee didn't fall in the criteria listed by banks, it had to ask either the directors & their family members or approach NBFC for loan. The directors were in the process of raising funds for the acquisition of the land but it was taking time to finalise. Therefore, the assessee, in urgent need of funds for temporary period, approached Aneri Fincap Ltd. which was a big name in NBFC category fund providers.” Further, during the course of assessment proceeding assess has submitted the financial statement and annual report of M/s Aneri Fincap Ltd., in order to establish the identity, creditworthiness and genuineness of loan transaction. Further, assessee has also submitted banking statements in order to prove that all the transaction has done through banking channels. Assessee company has not only duly paid interest on the loan through banking channel but also deducted TDS as per provisions of IT Act. Assessee has submitted a number of case laws given by various courts asreproduced above, in which assessee’s stand has been upheld that it has discharge its onus to prove the identity, creditworthiness and genuineness of the loan transaction. Furthermore, most importantly, assessee has also repaid the loan in next financial year 2018-19 i.e AY 2019-20. This repayment itself is sufficient evidence to prove the genuineness of the loan transaction. This facts of repayment has been duly accepted by department also in scrutiny assessment of AY 2019-20 in assessment order passed u/s 147. In this regard assessee has also has put reliance on judicial pronouncement given by jurisdictional Mumbai ITAT in case of Dilsa Distributors Combines vs ITO- 11(1)(1), in ITA No. 5849/Mumbai/2011, where the Hon’ble ITAT has held that where loan taken by the assessee has been repaid, no addition is sustainable. In this regard reliance has also been put on following case laws:- 1. Hon’ble HIGH COURT OF GUJARAT in case of Principal Commissioner of Income-tax v.AmbeTradecorp (P.) Ltd. [2022] 145 taxmann.com 27 (Gujarat) has held that where assessee took loan from two parties and assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid in subsequent year, no addition under section 68 could be made on account of such loan”. 2. Hon’ble HIGH COURT OF GUJARAT in the case of Commissioner of Income- tax, Rajkot-I v. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) held that “Where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit” 3. Hon’ble Mumbai ITAT in case of DCIT vs Hetal Nitin Shah [2024] 159 taxmann.com 1618 (Mumbai - Trib.), has held that “Where assessee had taken loan from two parties, since assessee had discharged its initial onus by showing identity and creditworthiness of lenders along with genuineness of transaction by producing confirmation, Ledger, bank statement of lender and income tax returns and assessee had also produced evidence of repayment of loan, impugned addition under section 68 made on account of loan amount received by assessee was not justified” From all the above judicial pronouncements and factual analysis, it is evident that assessee has sufficiently prove the identity, creditworthiness and genuineness of this loan transaction and discharge his onus. Accordingly, AO is hereby directed to delete the addition of Rs45,00,000/- made u/s. 68 of the IT Act and of corresponding interest of Rs.2,58,904/- u/s. 69C of the IT Act and give relief to the assessee. Accordingly, these grounds of appeal of the assessee are hereby allowed.” Since assessee got relief on merit, all other grounds of appeal became academic in nature and hence need not to be adjudicated. Hence, these grounds of appeal are hereby dismissed. In the result, the appeal is hereby partly allowed.”

We have heard the rival submissions and perused the material available on record. The controversy, so far as relevant for the present grounds, is confined to whether the assessee has discharged the initial onus cast upon it under section 68 of the Act in respect of the identity and creditworthiness of M/s Aneri Fincap Ltd. and the genuineness of the loan transaction of Rs.45,00,000/-. The Ld. CIT(A), after examining the documentary evidence, recorded a categorical finding that the assessee had discharged such onus. The Ld. CIT(A) noticed, inter alia, that the lender was an RBI-registered NBFC and a listed company; that it had paid-up capital and reserves and surplus exceeding Rs.5 crores and a loan book exceeding Rs.900 crores; and that the assessee had furnished the financial statements, annual report and bank statements of the lender. The Ld. CIT(A) further noticed that the loan transaction was routed through banking channels, interest was paid after deduction of tax at source and the loan itself was repaid in the succeeding financial year. On this factual foundation, the Ld. CIT(A) held that the assessee had sufficiently established the identity and creditworthiness of the lender as well as the genuineness of the transaction.

It is also relevant that the assessment record itself acknowledges that the assessee had furnished, inter alia, the ITR of M/s Aneri Fincap Ltd., its bank statement, confirmation, balance sheet, profit and loss account and other supporting documents. Thus, the finding of the Ld. CIT(A) regarding discharge of the primary evidentiary burden is founded upon material placed before the revenue authorities and is not merely based upon the fact that the transaction was routed through banking channels.

We have also considered the three Coordinate Bench decisions placed before us. Since all three concern loans from M/s Aneri Fincap Ltd. for A.Y. 2018-19, their factual findings concerning identity, creditworthiness and genuineness require comparison. The position emerging from the respective orders may be summarized as under:

A significant factual aspect emerging from the above statement of Shri Rajesh G. Mehta is that, while Aneri Fincap Ltd. appears amongst the companies referred to in the statement, the answer concerning the alleged accommodation entries specifically refers to “One World Group, Urvil Jani and Pittie Group”. The assessee in the present appeal, Aquafit Piping Systems I Pvt. Ltd., is not named in the reproduced answer as a recipient/beneficiary of any bogus loan or accommodation entry. Further, the answer to Question No.10 principally refers to bogus sales and purchases not backed by movement of material or services; the answer concerning persons/entities receiving bogus entries does not specifically identify the impugned loan transaction of the present assessee.

The distinction from Bajaj International Realty Pvt. Ltd. (supra) is therefore factual and material. In that case, despite bank account details, ledger, repayment particulars and financial statements being referred to, the Coordinate Bench specifically recorded that the assessee had not brought substantive material demonstrating the financial capacity of the lender independent of the alleged entry operations and further recorded that even before the Tribunal no documentary evidence supporting creditworthiness had been filed. On that factual premise, the Bench held that the assessee had failed to demonstrate creditworthiness.

The factual matrix presently before us stands on a different footing and is closer, on the limited issue under consideration, to Kalpana Ramesh Jain (supra) and Satish Sawarmal Saraf (supra). In Kalpana Ramesh Jain, the Coordinate Bench noted that the loan was received from the same lender through banking channels and was duly recorded in the books. In Satish Sawarmal Saraf, the Coordinate Bench specifically recorded that the assessee had produced documentary evidence concerning identity and creditworthiness of M/s Aneri Fincap Ltd. and genuineness of the loan transaction. In the present case, the Ld. CIT(A) has similarly examined the financial capacity of the lender on the basis of its audited financial statements and other contemporaneous records. The lender's substantial capital base and loan portfolio, its status as an RBI-registered NBFC and listed company, movement of funds through banking channels, payment of interest after deduction of TDS and subsequent repayment of the loan constitute the factual matrix on which the Ld. CIT(A) accepted the three ingredients. Significantly, the assessment order itself records the filing of the lender's ITR, bank statement, confirmation and financial statements. Accordingly, Bajaj International Realty Pvt. Ltd. (supra) is distinguishable on the crucial factual aspect of creditworthiness and 14 the supporting evidence available on record. On the limited parameters of identity, creditworthiness and genuineness, the factual findings in Kalpana Ramesh Jain (supra) and Satish Sawarmal Saraf (supra) are more closely comparable with the findings recorded by the Ld. CIT(A) in the present case. We, therefore, find no reason, on these aspects, to interfere with the well- reasoned factual findings of the Ld. CIT(A) deleting the addition of Rs.45,00,000/- made under section 68 of the Act. The consequential addition of Rs.2,58,904/- in respect of interest cannot independently survive once the underlying loan transaction has been accepted by the Ld. CIT(A) on the aforesaid factual findings. The grounds raised by the Revenue are accordingly dismissed.

In the result, the appeal of the revenue bearing ITA No.598/Mum/2026 is dismissed. Order pronounced in the open court on 22nd day of September 2026. Sd/- Sd/- (OM PRAKASH KANT) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 22/09/2026 Soumili, PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI