DCIT, CENTRAL CIRCLE, BILASPUR, BILASPUR vs. SHYAM KISHOR GUPTA, KANKER

आदेश / O R D E R Per Avdhesh Kumar Mishra, AM: This appeal for Assessment Year (‘AY’) 2022-23 filed by the Revenue is directed against the order dated 02.03.2026 of Commissioner of Income Tax (Appeals), [‘CIT(A)’], Raipur-3, Raipur, passed under section 250 of the Income Tax Act, 1961 (‘Act’).

2.1. In nutshell, the Revenue has challenged the deletion of following additions by the Ld. CIT(A): (i) Rs.3,50,00,000/- under section 68 of the Act; (ii) Unsecured loan of Rs.27,00,000/- from Smt. Kaushilya Devi Gupta under section 68 of the Act. (iii) Deletion of unsecured loan of Rs.20,80,000/- from M/s Shivnath Tractors.

Again as per the bank statement of M/s Shivnath Capital Pvt Ltd it is seen that on 25-03-2022 a sum of Rs.2,50,00,000/- in 5 transactions was transferred from M/s Shivnath Tractors and Rs.1,00,00,000/- was transferred from M/s Shivnath Automobiles Pvt Ltd. The assessee is a partner in M/s Shivnath Tractors and director in M/s Shivnath Automobiles Pvt. Ltd.

From the above transactions it is quite clear that the assessee is enrouting his unaccounted money which were generated from the unsecured loan taken from his relatives and friends which are also his own unaccounted money transferred to him through banking cannel. Hence, the unsecured loan taken from M/s Shivnath capital Pvt. Ltd is nothing but unaccounted 4 money of the assessee which needs to be added in the total income. Therefore, an amount of Rs.3,50,00,000/- is added to the total income of the assessee treated as unexplained cash credit u/s 68 and taxed in accordance to section 115BBE.

7.3. The assessee has taken interest free unsecured loan of Rs.27,00,000/- from Kaushilya devi Gupta who is his real 'Mami in relation. On perusal of bank account of Smt Kaushilya Devi Gupta it is seen that Smt Kaushilya Devi Gupta has given Interest free loan of Rs.8,96,000/- to the assesee from her Agriculture Cash credit Account maintained at AXIS Bank with A/c No. 921030036387392 and Rs. 18,04,000/- from her Kishan Samartha Account maintained at AXIS Bank with A/c No. 921030036387389. The balance after giving of loan in the Agriculture Cash credit Account Smt Kaushilya Devi Gupta was (-) Rs. 9,11,338/- and in Kishan Samartha Account was (-) Rs. 18,38,800/-.

In both the account maintained by Smt Kaushilya Devi Gupta are meant for agricultural activities where a person has to avail the scheme of the Bank to utilize its credit facilities to use in agricultural activities and she has to pay interest on that amount. But in the instant case she has withdrawn and given the amount as interest free unsecured loans by violating the scheme of the Bank. This clearly indicates that the assessee is manipulating the accounts of his relative and taking the unsecured loan to introduced his unaccounted money to his business by coloring it as accounted interest free unsecured loan from relative.

Hence, the unsecured loan taken from Smt Kaushilya Devi Gupta is nothing but unaccounted money of the assesee which needs to be added in the total income.

Therefore, an amount of Rs.27,00,000/- is added to the total income of the assessee treated as unexplained cash credit u/s 68 and taxed in accordance to section 115BBE.” 4. Further, the Ld. AO also taxed the sum of Rs.20,80,000/-, received by the assessee from M/s Shivnath Tractors for repaying the assessee’s loan taken from M/s Shivnath Krishak, observing as under:

“7.4 On perusal of the above bank it is seen that in the bank account of the assessee on 25-02-2022 Rs.20,80,000/- was deposited from Shivnath Tractors and the same was Transfer to Shivnath Krishak for repayment of loan on the very same day. From the above transaction it seems that the assessee has transferred his own unaccounted money from his own firm through banking channel and repaid the loan.

In this regard, vide show cause notice dated 13/03/2024, the assessee was show cause as to why the amount of Rs.20,80,000/- should not be treated as unexplained cash credit in his hand.

In response to the show cause notice, the assessee has submitted the following:- ……… ………

On perusal of the bank statement, it is seen that on 25-03-2022, Rs.20,80,000/- was transferred from Shivnath Tractors where the assessee is a partner and on the same day Rs.20,80,000/- was transferred to Shivnath Krishak showing as repayment of loan. The assessee is making transactions on 25-03-2022, on the last week of the March for introducing its unaccounted money generated through using unsecured loan taken from his relatives and friend which are also not real.

Hence, it is clear that the amount repaid by the assessee to Shivnath Krishak which is also a family business concern of the assessee is nothing but its unaccounted money which should be added to its income as unexplained. Therefore, the same is added to his total income of the assessee treated as unexplained cash credit u/s 68 and taxed in accordance to section 115BBE.” 5. Aggrieved, the assesse filed appeal before the Ld. CIT(A), who upheld the addition of Rs.70,00,000/- only and deleted remaining additions. Aggrieved with the impugned order, the Revenue challenged the deletion of additions The relevant finding of the Ld. CIT(A) deleting the above mentioned three additions are as under:

“Findings & Decisions: -

During the course of appeal proceedings, I have carefully perused the assessment order and also considered the submission of the assessee. During the course of appeal proceedings, the assessee has submitted that the loan received from M/s Shivnath Capital Pvt. Ltd. was an unsecured loan advanced by a group company, of which he is a director and shareholder. The assessee contended that he had furnished complete documentary evidence to substantiate the genuineness of the transaction, the identity and creditworthiness of the lender, and the source of funds. These documents included confirmation letters of loan, MCA master data, bank statements, financial statements of the lender and income tax returns filed by the lender for the relevant year.

It was further submitted that the Ld. AO had failed to point out any defect or discrepancy in the documentation submitted and had proceeded solely on the basis of presumption that the funds represented routed unaccounted income. The assessee emphasized that mere timing of credits and debits in bank statements of related entities cannot, by itself, lead to a conclusion of accommodation entries or unaccounted income. The assessee also highlighted that inter-company or inter-group transfers, particularly among entities with common directors or partners, are routine commercial transactions and cannot be treated as suspect without concrete evidence of falsity or accommodation. The assessee further explained that the theory of routed unaccounted income requires proof of two foundational facts, first that unaccounted cash had been deposited by the borrower and second, that the lender's bank account received cash from dubious or unexplained sources prior to issuance of loan to the borrower. In the present case, no such cash transactions were demonstrated by the Ld. AO. There was no evidence of cash deposit in the lender's bank account, no evidence of withdrawal from 7 the assessee, nor any other incriminating material linking the assessee to undisclosed income. The assessee also submitted that the loan had been repaid in subsequent years with interest, further establishing the genuineness of the transaction.

The Ld. AO, in his assessment order, relied on certain extracts from the bank statement of M/s Shivnath Capital Pvt. Ltd. to observe that on the date of receipt of the unsecured loan, corresponding credits were received from other group concerns in which the assessee is a partner or director. The Ld. AO concluded that the loan amount represented the assessee's unaccounted income routed through related entities.

Having considered the material on record, the submissions of the assessee, and the documents filed, it is evident that the assessee has satisfactorily discharged the onus cast upon him u/s 68 of the Act. The identity, creditworthiness, and genuineness of the lender have been substantiated by verifiable documentary evidence. Bank statements demonstrate proper banking transactions, and the financial statements of the lender confirm its ability to advance the loan. No evidence has been brought on record by the Ld. AO to challenge the authenticity of the documents or the financial capacity of the lender.

It is a settled legal principle that once the assessee establishes the identity of the lender, the genuineness of the transaction, and the creditworthiness of the lender, the burden shifts to the Ld. AO to rebut the evidence. In the present case, the Ld. AO has not brought on record any material evidence to demonstrate that the loan transaction was false. fabricated, or in the nature of accommodation entry. The addition appears to be based purely on timing of transactions and relationships between group concerns, which alone cannot form the basis for inclusion of the loan amount in the assessee's income. 8 Further, the allegation of circular or routed transactions lacks any foundation as there is no evidence of cash withdrawals, deposits, or Unaccounted money being involved. The documentary trail clearly establishes the flow of funds and the source of funds in the hands of the lender and in the hands of the assessee. The Ld. AO has not demonstrated any cash trail, unexplained credits, or impropriety in any of the bank accounts involved.

Considering the above, the addition of Rs.3,50,00,000/- made by the Ld. AO is based on presumption and conjecture rather than on any factual or legal basis. The assessee has provided full and credible evidence demonstrating the genuineness of the loan transaction and the financial capacity of the lender. The addition made by the Ld. AO is therefore not sustainable. Accordingly, the appeal filed by the assessee is allowed, and the addition of Rs.3,50,00,000/- made by the Ld. AO on account of alleged unexplained cash credit u/s 68 of the Act is hereby deleted. …… …….. Findings & Decisions: -

During the course of appeal proceedings, I have carefully perused the assessment order, the written submissions of the assessee. I have carefully considered the assessment order, the submissions of the assessee, and the documentary evidence on record. During the course of appeal proceedings, I find that the assessee has clearly established the identity of the lender as Smt. Kaushilya Devi Gupta, his maternal aunt. The confirmation of account, copy of ITR filed by the lender, and other documents provided by the assessee support this.

Further, the Ld. AO himself records that the funds advanced by Smt. Kaushilya Devi Gupta were sourced from her bank accounts, which were 9 maintained under Agricultural Cash Credit and Kishan Samriddhi schemes. The source of funds is, therefore, identified, traceable, and documented. The fact that the lender may have diverted the funds contrary to the internal terms of her bank loan does not convert the transaction into unexplained cash credit in the hands of the assessee. Section 68 of the Act, focuses on the genuineness of the transaction and the source of funds of the lender, both of which are established.

I find that, Smt. Kaushilya Devi Gupta's financial capacity to advance the loan has been substantiated by her bank statements and other documents. No adverse finding has been made by the Ld. AO in this regard. Hence, the statutory burden cast upon the assessee u/s 68 of the Act stands duly discharged. The loan was interest-free, which is common in transactions between close relatives. There is no legal requirement that a loan must carry interest to be considered genuine. Furthermore, the repayment of the loan in the subsequent year further corroborates the genuineness of the transaction.

The Ld. AO has made the addition primarily on the basis that the lender might have violated the terms of her bank loan by diverting funds and that the assessee could be introducing unaccounted income. This reasoning is speculative and extraneous. It ignores the clear documentary evidence produced by the assessee and the settled legal position that if the identity, genuineness of transaction, and source of funds in the hands of the lender are established, no addition can be made u/s 68 of the Act. In view of the above, I find that the addition of Rs.27,00,000/- by the Ld. AO u/s 68 of the Act, is unjustified and not sustainable in law. The assessee has fully discharged the burden of proving the identity of the lender, the genuineness of the transaction, and the source of funds. No addition is warranted on mere conjecture or assumption regarding the use of bank loans by the lender. 10 Considering the facts and circumstances of the case, the addition of Rs.27,00,000/- is hereby deleted and this ground of appeal is hereby allowed. ……… …….. Findings & Decisions: -

I have carefully considered the assessment order, the submissions made by the appellant, the documentary evidences placed on record, and the applicable provisions of law. The sole issue for adjudication under this ground is whether the addition of Rs.20,80,000/- made by the Ld. AO u/s 68 of the Act, in respect of repayment of loan to M/s Shivnath Krishak is sustainable in law and on facts.

From the material available on record, it is observed that on 25.03.2022 the assessee received a sum of Rs.20,80,000/- from M/s Shivnath Tractors, a partnership concern in which he is a partner, and on the very same day transferred the identical amount to M/s Shivnath Krishak towards repayment of an existing unsecured loan. The assessee has furnished the confirmation of account of M/s Shivnath Krishak evidencing that the transaction was effected through normal banking channels. The Ld. AO has not disputed the existence of the loan liability in earlier years nor has he recorded any finding that the books of account of the assessee is incorrect or incomplete. The addition has been made primarily on the presumption that the assessee routed his own unaccounted money through related concerns and that the transaction took place at the end of the financial year.

At this juncture, it is pertinent to examine the scope of section 68 of the Act. The section can be invoked only where a sum is found credited in the books of the assessee for the previous year and the assessee fails to offer a 11 satisfactory explanation about the nature and source thereof. Thus, the foundational requirement for invoking section 68 of the Act is the existence of a credit entry in the books of the assessee during the relevant year. In the present case, the impugned transaction represents repayment of an existing liability and is reflected as a debit in the books of the assessee. What is sought to be taxed is not a fresh introduction of funds but an application of funds towards discharge of a loan. The Ld. AO has not demonstrated that any unexplained credit was introduced in the books of the assessee in relation to this amount. In the absence of a credit entry, the very essential condition for invoking section 68 of the Act, fails.

Even otherwise, the immediate source of the amount stands explained as having been received from M/s Shivnath Tractors through banking channel. The Ld. AO has not brought any independent material on record to establish that the funds originated from undisclosed sources of the assessee. The addition is based on presumption arising from the timing and related-party nature of the transaction. However, it is a settled principle that suspicion, however strong, cannot substitute evidence. No cogent material has been placed on record to prove that the repayment was fictitious or that the earlier loan was non-genuine.

In view of the earlier discussion, I am of the considered view that the addition of Rs.20,80,000/- made u/s 68 of the Act is legally and factually unsustainable. The impugned amount represents repayment of an existing loan liability duly recorded in the books of account and effected through banking channels. Since the essential conditions of section 68 of the Act, are not satisfied, the addition cannot be sustained. Accordingly, the addition of Rs.20,80,000/- is hereby deleted and the ground of appeal is hereby allowed.”

Further, the Ld. AR submitted that the finding of the Ld. CIT(A), on this issue, was well reasoned and the Revenue had not brought any material on the record to contradict the finding of the Ld. CIT(A); therefore, he prayed for upholding the finding of the Ld. CIT(A).

Order pronounced in the open court on 05/10/2026.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (AVDHESH KUMAR MISHRA) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER रायपुर / Raipur; िदनांक Dated 05/10/2026 HKS, PS आदेशकी �ितिलिप अ�ेिषत / Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��थ�/ The Respondent 3. The Pr. CIT, Raipur (C.G.) 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur 5. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, Hem Kumari Digitally signed by Hem Kumari Shrivastava, Shrivastava, PS, //True copy// PS, ITAT, ITAT, Raipur Date: 2026.10.08 Raipur 12:02:30 +05'30' (Private Secretary) आयकर अपीलीय अिधकरण, रायपुर / ITAT, Raipur