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Facts
The assessee, a partnership firm engaged in yarn texturing, faced additions under Section 68 for unsecured loans and Section 69C for interest on these loans. For AY 2015-16, an addition was also made under Section 69D for alleged Hundi loans, stemming from a search operation.
Held
The Tribunal held that the assessee had discharged its onus under Section 68 by providing substantial evidence of the lenders' identity, capacity, and genuineness. The addition under Section 69D for Hundi loans was not sustainable as the document lacked the essential characteristics of a Hundi.
Key Issues
Whether the additions made on account of unsecured loans and interest thereon under Sections 68 and 69C were justified, and whether the addition for alleged Hundi loans under Section 69D was valid.
Sections Cited
147, 143(3), 153A, 68, 69C, 69D
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Income Tax Appellate Tribunal, MUMBAI “F” BENCH : MUMBAI
Before: SHRI AMIT SHUKLA & SHRI PRABHASH SHANKAR
A.Y. Appellant Respondent IT(SS)A No. 876/Mum/2025 2013-14 Vasupujya Filaments, DCIT, CC-3, Thane 877/Mum/2025 2014-15 Room No. 44, 2nd Floor, Room No. 12, 878/Mum/2025 2015-16 Chandra Bhuvan, A Wing, 879/Mum/2025 2016-17 Kalbadevi Road, 6th Floor, 880/Mum/2025 2017-18 Old Hanuman Lane, Ashar IT Park, 881/Mum/2025 2018-19 Mumbai-400002. Thane West, 882/Mum/2025 2019-20 PAN: AAEFV5541P Maharashtra-400604 883/Mum/2025 2020-21 For Assessee : Ms. Simran Chavan & Shri Ravi Ganatra For Revenue : Shri Vivek Perampurna, CIT-DR Date of Hearing : 23-07-2025 Date of Pronouncement : 25-08-2025 O R D E R PER BENCH : The aforesaid set of eight appeals have been filed by the assessee against the common order dated 27-12-2024, passed by the Learned Commissioner of Income Tax (Appeals), Pune-11 [‗Ld.CIT(A)‘] for the quantum of assessment passed u/s. 147 of the Income Tax Act, 1961 (‗the Act‘) for the A.Y. 2013-14; u/s. 143(3) r.w.s. 153A of the Act for the AYs. 2014-15 to 2019-20; and u/s. 143(3) of the Act for the A.Y. 2020-21.
In all the years, the issue pertains to additions u/s. 68 of the Act on account of unsecured loan taken from various parties and addition u/s. 69C of the Act on account of interest on unsecured loans. In A.Y. 2015-16, addition on account of Hundi loan added u/s. 69D of the Act has also been challenged. The year-wise additions on which the assessee has preferred appeals before this Tribunal is tabulated hereunder:
Vasupujya Filaments (batch appeals)
AY Appeal No Allegation Amount Rs. Addition u/s 68 on account of unsecured loan. 64,00,000 2013-14 876/MUM/2025 Addition u/s 69C on account of interest on 1,18,948 unsecured loans. Addition u/s 68 on account of unsecured loan. 50,00,000 2014-15 877/MUM/2025 Disallowance of 37(1) on account of Interest on 3,51,222 bogus unsecured loans. Addition u/s 68 on account of unsecured loan. 12,50,000 Disallowance of 37(1) on account of Interest on 2015-16 878/MUM/2025 2,26,541 bogus unsecured loans Addition u/s 69D on account of Hundi Loan. 10,00,000 Addition u/s 68 on account of unsecured loan. 4,16,50,000 2016-17 879/MUM/2025 Disallowance of 37(1) on account of Interest on 4,35,204 bogus unsecured loans. Addition u/s 68 on account of unsecured loan. 2,00,00,000 Disallowance of 37(1) on account of Interest on 2017-18 880/MUM/2025 37,88,982 bogus unsecured loans. Disallowance of Carry forward of loss. 1,91,64,522 Disallowance of 37(1) on account of Interest on 34,37,916 bogus unsecured loans. 2018-19 881/MUM/2025 Disallowance of Carry forward of loss. 18,57,659 882/MUM/2025 Disallowance of 37(1) on account of Interest on 2019-20 33,81,185 bogus unsecured loans. 883/MUM/2025 Disallowance of 37(1) on account of Interest on 2020-21 14,67,238 bogus unsecured loans.
Since the findings of the AO and the Ld. CIT (A) were exactly same in all these years, therefore, all the appeals are taken up simultaneously and decided in the consolidated manner.
The brief facts and the background of the case are that the assessee is a partnership firm and was regularly filing the return of income. The assessee-firm is engaged in the business of various kinds of yarn texturing, twisting, processing etc. A search and seizure operation u/s. 132 of the Act was carried out in the business and residential premises of Dodhia Group of 2
Vasupujya Filaments (batch appeals) cases, including the assessee along with other concerns on 27-11-2019. The Learned Assessing Officer observed that, during the course of the search operation, it came to light that the assessee had availed unsecured loans from various parties over different years. The details thereof were proposed to be examined in the assessment order. In this context, the Assessing Officer placed extensive reliance upon the post-search enquiries conducted by the Investigation Wing, Thane, in respect of certain companies alleged to be Kolkata-based entities. The said report recorded that, in some instances, summons under section 131(1)(d) of the Act had been issued and replies were received, while in other cases there was no compliance. The Investigation Wing, however, opined that these entities were nothing but shell companies, whose identity, genuineness of transactions, and financial capacity could not be established.
During the assessment proceedings, the Assessing Officer also referred to statements recorded in the course of the search from individuals such as Shri Minesh Dodhia and Shri Bhadresh Dodhia, wherein they purportedly admitted to providing accommodation entries in the guise of loans. These statements were extensively extracted and relied upon in the assessment order. After referring in detail to the investigation report and the aforesaid statements, the Assessing Officer concluded that all the loans claimed to have been received by the assessee from the said parties were, in essence, bogus and represented mere accommodation entries. On this premise, the Assessing Officer invoked section 68 of the Act to treat the loans as unexplained cash credits, and further added the interest paid thereon under section 69C of the Act as unexplained expenditure.
Vasupujya Filaments (batch appeals)
4. Before us, the Learned counsel for the assessee has stated the facts and the background of the case as culled out from the impugned order and material on record in the following manner:
3. The statement of Shri Bhadresh M. Dodhia was recorded during the course of search on 29.11.2019. Shri Bhadresh M. Dodhia was confronted with pre- search statement of one Shri Sushil Kumar Goyal, based at Kolkata regarding unsecured loans received from various Kolkata based companies. The statements of various Kolkata based entry operators and dummy directors in shell companies as available at that time were confronted with Shri Bhadresh M. Dodhia and he stated that he has no comments to offer in this regard. In general terms, Shri Bhadresh Dodhia accepted that Dodhia Group was having cash available from various sources, which was routed to books of accounts of various entities, through M/s. Vinam Finance Pvt. Ltd. and accepted that amount of Rs.43 crores approximately was routed through the said company. However, as contended by the appellant, no incriminating material was found during the search action in the case of appellant as regards the referred unsecured loans, based on which the above statement can be said to have been given.
In the simultaneous search in the Group, page no. 36 to 38 of bundle no. 3 as found and seized at the residence of Shri Divyesh Dhanani, wherein, details of certain loans taken from various companies, were mentioned. These documents were specifically confronted in question no. 60 of this statement of Shri Bhadresh Dodhia and in response to same, he stated that he is not able to explain the column ‗return‘ as of now.
The appellant contended that the aforesaid statement u/s 132(4) of Shri Bhadresh M Dodhia is without any corroborative incriminating material found during the search and being full of ad-hoc and vague replies, cannot be held as incriminating against the appellant. During the recording of his statement, Shri Bhadresh Dodhia was confronted with the material at pages 37 and 38 of bundle number 3 seized from Shri Divyesh Dhanani (Q. 35), wherein, Shri Bhadresh Dodhia stated that the pages contain the details of Vasupujya Filaments (batch appeals)
loan taken by various entities/ persons of Dodhia Group from various entities. However, Shri Bhadresh Dodhia had not stated that the loans are bogus and taken in lieu of cash particularly by the appellant. Further, during the statement of Shri Divyesh Dhanani (Q.31), he stated that the said seized material was provided to him by Shri Pradeep Dodhia and therefore only Pradeep Dodhia can explain the contents of the seized material. Further, while recording of the statement of Shri Pradeep Dodhia (Q.11), he stated that the seized documents belong to Dodhia Group and its family members (in general) and the contents of these papers may be explained by Shri Bhadresh Dodhia. Therefore, there is no statement brought on record alleging that the appellant has taken alleged bogus loans from entry providers. The appellant further contended that the material seized from Shri Divyesh Dhanani is prima facie in the nature of ‗dumb documents‘, and no cognizance thereof needs to be taken as‗evidence‘, as all the analysis and conclusions drawn by the lower authorities are conjectures that are ‗presumptive‘ or ‗inferential‘ in nature, not borne out from the bare contents of the said seized material, as such.
5. Insofar as the documents submitted during the course of assessment proceedings with regard to addition which has been made by the AO u/s. 68 of the Act, the details of the loans received from various parties along with specific reference to the Paper Book are as under:
Pg No in Total Own Total S Lender Loan Amt Date of Date of Loan Documents submitted before Factual Funds Income No Party (in Rs) Loan Taken Repayment Assessing Officer PB (in Rs) (in Rs) Copy of PAN of lender party. 52 Certificate of Incorporation, Memorandum of Association 53-67 and Articles of Association of lender party. Acknowledgement of Return Frank of Income for AY 2013-14 of 68 1 Mercantile 10,00,000 07.02.2013 29.12.2015 17,61,98,755 8,09,633 lender party. P Limited Audited Financial Statements for the year 69-82 ended on 31st March, 2013 of lender party. Confirmation letter from 83 lender party.
Vasupujya Filaments (batch appeals)
Pg No in Total Own Total S Lender Loan Amt Date of Date of Loan Documents submitted before Factual Funds Income No Party (in Rs) Loan Taken Repayment Assessing Officer PB (in Rs) (in Rs) Copy of ledger account of lender in the books of 84-85 assessee company. Copy of bank statement of assessee company 87 highlighting loan taken. Copy of bank statement of assessee comapany 89 highlighting loan re- payment.
10,00,000 01.02.2013 29.04.2015 Copy of PAN of lender party. 90 Certificate of Incorporation, Memorandum of Association 10,00,000 04.02.2013 30.04.2015 91-102 and Articles of Association of lender party. Audited Financial Statements for the year 10,00,000 06.02.2013 05.05.2015 103-115 ended on 31st March, 2013 of lender party. Confirmation letter from 116 lender party. Copy of ledger account of Lona lender in the books of 2 Mercantile 15,79,21,646 4,17,246 84 assessee company for loan P Limited taken. Copy of ledger account of lender in the books of 117 10,00,000 14.02.2013 06.05.2015 assessee company for repayment of loan. Copy of bank statement of assessee company 86-88 highlighting loan taken. Copy of bank statement of assessee company 118-121 highlighting loan re- payment.
Copy of PAN of lender party. 122 Certificate of Incorporation, Memorandum of Association 123-141 and Articles of Association of lender party. Audited Financial Statements for the year 142-154 ended on 31st March of Season lender party. 3 Multitrade 14,00,000 24.01.2013 25.01.2016 20,98,79,464 5,98,898 Confirmation letter signed P Limited by lender party for loan 155 given. Confirmation letter signed by lender party for 157 repayment of loan. Copy of ledger account of lender in the books of 84 assessee company for loan taken.
Vasupujya Filaments (batch appeals)
Pg No in Total Own Total S Lender Loan Amt Date of Date of Loan Documents submitted before Factual Funds Income No Party (in Rs) Loan Taken Repayment Assessing Officer PB (in Rs) (in Rs) Copy of ledger account of lender in the books of 158 assessee company for re- payment of loan. Copy of bank statement of assessee company 156 highlighting loan taken. Copy of bank statement of assessee company 159 highlighting loan re- payment.
The Details of Loan Taken from M/s Value Added Merchants P Limited for AY 2014-15 along with the documents submitted before the AO to prove the identity, genuineness and creditworthiness, are as under:
Pg No in Total Loan Amt Date of Date of Loan Total Own Documents submitted before Assessing Officer Factual Income (in Rs) Loan Taken Repayment Funds (in Rs) PB (in Rs)
Copy of PAN of lender party. 35 Certificate of Incorporation, Memorandum of Association and Articles of Association of 36-52 lender party. MCA Active Compliant status of lender party. 53-54 Audited Financial Statements for the year 55-67 ended on 31st March, 2014 of lender party.
Acknowledgement of Return of Income for AY 50,00,000 25.10.2013 26.03.2014 68 2014-15 of lender party. 10,92,43,537 90,810 Ledger account of lender party in the books of assessee company for loan taken and loan 69 repayment. Copy of bank statement of assessee company 70 highlighting loan taken.
Copy of bank statement of assessee company 71 highlighting re-payment of loan.
The Details of Loan Taken from M/s Vinam Finance P Limited for AY 2015-16 along with the documents submitted before the AO to prove the identity, genuineness and creditworthiness of loan taken, are as under:
Vasupujya Filaments (batch appeals)
Pg No in Total Loan Amt Date of Date of Loan Total Own Documents submitted before Assessing Officer Factual Income (in Rs) Loan Taken Repayment Funds (in Rs) PB (in Rs)
Copy of PAN of lender party. 32 Certificate of Incorporation, Memorandum of Association and Articles of Association of lender 33-50 party. MCA Active Compliant status of lender party. 51-52 Acknowledgement of Return of Income for AY 53 2015-16 of lender party.
Audited Financial Statements for the year ended 54-64 on 31st March, 2015 of lender party. 12,50,000 27.03.2015 29.12.2015 44,29,61,648 Nil Copy of confirmation letter signed by the lender 65-67 party. Ledger account of lender party in the books of 68 assessee company.
Copy of bank statement of assessee company 69 highlighting loan taken.
Copy of bank statement of assessee company 71 highlighting re-payment of loan.
12. The Details of Loan Taken for AY 2016-17 along with the documents submitted before the AO to prove the identity, genuineness and creditworthiness of loan taken is as under:
Pg No S Documents Total Own Total Lender Loan Amt Date of Loan Date of Loan in N submitted before Funds Income (in Party (in Rs) Taken Repayment Factual o Assessing Officer (in Rs) Rs) PB Copy of PAN of 25,00,000 18.08.2015 04.07.2016 43 lender party. Certificate of Incorporation, Memorandum of 15,00,000 20.08.2015 Association and 44-58 Articles of Association of lender party. Audited Financial Kirteshwari Statements for the 1 Vintrade P 25,89,35,603 5,210 year ended on 31st 59-71 Limited 07.07.2016 March, 2016 of lender party. Copy of confirmation 10,00,000 25.08.2015 letter signed by 72-73 lender party. Ledger account of lender party in the books of assessee 74 company for loan taken.
Vasupujya Filaments (batch appeals)
Pg No S Documents Total Own Total Lender Loan Amt Date of Loan Date of Loan in N submitted before Funds Income (in Party (in Rs) Taken Repayment Factual o Assessing Officer (in Rs) Rs) PB Ledger account of lender party in the books of assessee 77 company for re- payment of loan. Copy of bank statement of assessee company 78-80 highlighting loan taken. Copy of bank statement of assessee company 81-82 highlighting re- payment of loan.
Copy of PAN of 84 lender party. Certificate of Incorporation, Memorandum of Association and 85-101 Articles of Association of lender party. Audited Financial Statements for the 102- year ended on 31st 122 March, 2016. Copy of confirmation letter signed by 123 lender party. Ledger account of SafaltaVin lender party in the 2 may P 25,00,000 17.07.2015 31.07.2017 21,26,43,411 4,785 books of assessee 75 Limited company for loan taken. Ledger account of lender party in the books of assessee 124 company for re- payment of loan. Copy of bank statement of assessee company 125 highlighting loan taken. Copy of bank statement of assessee company 126 highlighting re- payment of loan. Copy of PAN of 7,00,000 27.07.2015 127 lender party. Certificate of Vinam 29.12.2015 Incorporation, 3 Finance P 44,37,97,616 (Part payment) Memorandum of 128- 10,37,775 Limited 23,00,000 28.07.2015 Association and 145 Articles of Association of lender 9
Vasupujya Filaments (batch appeals)
Pg No S Documents Total Own Total Lender Loan Amt Date of Loan Date of Loan in N submitted before Funds Income (in Party (in Rs) Taken Repayment Factual o Assessing Officer (in Rs) Rs) PB party.
MCA Active 146- 22,00,000 29.07.2015 Compliant status of 147 lender party. Acknowledgement of Return of Income for 26,50,000 30.07.2015 148 AY 2016-17 of lender party. 24,00,000 28.08.2015 Audited Financial Statements for the 149- 16,00,000 27.08.2015 year ended on 31st 158 March, 2016. 24,00,000 03.09.2015 Copy of confirmation 159- 5,00,000 04.09.2015 letter signed by 160 lender party. Ledger account of 20,00,000 23.09.2015 lender party in the 75-76 books of assessee 5,00,000 24.09.2015 company. Copy of bank 25,00,000 05.10.2015 statement of 161- 28,00,000 01.01.2016 assessee showing 177 the loan 56,00,000 02.01.2016 transactions.
The Details of Loan Taken from M/s Vinam Finance P Limited for AY 2017-18 along with the documents submitted before the AO to prove the identity, genuineness and creditworthiness of loan taken, are as under:
Pg No in Loan Amt Total Own Total Income (in Documents submitted before Assessing Officer Factual (in Rs) Funds (in Rs) Rs) PB
25,00,000 Copy of PAN of lender party. 32
Certificate of Incorporation, Memorandum of 25,00,000 Association and Articles of Association of lender 33-50 party.
25,00,000 MCA Active Compliant status of lender party. 51-52 44,98,51,776 87,69,680 25,00,000 Acknowledgement of Return of Income for AY 53 2017-18 of lender party. 50,00,000 Audited Financial Statements for the year ended 56-48 on 31st March, 2017. 25,00,000
25,00,000 Copy of confirmation letter signed by lender party. 69-70
Vasupujya Filaments (batch appeals)
Pg No in Loan Amt Total Own Total Income (in Documents submitted before Assessing Officer Factual (in Rs) Funds (in Rs) Rs) PB
Ledger account of lender party in the books of 71 assessee company.
Copy of bank statement of assessee showing the 72-77 loan transactions.
Relying on the above evidences, the Learned counsel for the assessee contended that the identity of the lenders had been established on the basis of the PAN, return of income, account confirmation of above-mentioned parties. The genuineness of the transactions had also been established on the basis of account confirmation & bank statements filed before the Assessing Officer, where all the loans taken from above mentioned parties by account payee cheques are reflected in the bank statements. The creditworthiness of the lenders was established on the basis of balance sheet of above-mentioned parties filed before the Assessing Officer. From the balance sheets, it can be seen that the above parties had surplus funds (in the last column in the tables above), while carrying out their trading business activity & these funds were loaned against interest. The loans were repaid in subsequent year(s) through banking channels. Therefore, the appellant has discharged his onus as required u/s. 68 of the Act. The appellant further contended that the AO has violated the principle of natural justice by not providing the copies of enquiry reports conducted at the back of the appellant and the opportunity of cross examination of so-called accommodation entry operators was not provided by the AO. Further, no incriminating material, say in the form of any cash trail has been found or any statement of so-called entry providers directly naming or insinuating the appellant in particular, has been even quoted during the search or even thereafter through any independent enquiries by the AO, to enable the AO to shift back the onus back onto the appellant. 11
Vasupujya Filaments (batch appeals)
Ld. Counsel submitted that, the Ld. CIT (A) after relying on various case-laws referred to in para 21 to 33 of the appellate order dated 27-12- 2024 and facts of the case upheld the addition u/s. 68 of the Act in respect of these loans. The disallowance of interest on unsecured loans was also consequentially confirmed. The Ld. CIT(A) based his finding on the ground that the creditors were not found existing at the given addresses and the appellant to failed to produce the directors of these companies as required by the Assessing Officer. The assessee submitted that the lenders are MCA active companies and are on compliance record of Income Tax Department through compliances before their respective jurisdictional PAN-AO. If these are not found on their addresses, years after the transactions with the assessee the onus of finding them cannot be foisted onto the assessee. The assessee had further submitted that, the insistence by both the Assessing Officer as well as the Ld. CIT(A) to produce the directors of a third-party legal entity is well beyond the control of anybody much less the appellant. It is on the contrary, well within the powers of the revenue authorities to ensure their attendance, if they so required. Nevertheless, these aspects are not enough to shift the onus back on to the assessee after the assessee had submitted all possible details to discharge the onus and the Assessing Officer neither carried out any independent enquiry through banking channels nor through the lender‘s jurisdictional AOs to disprove any of the documents submitted by the appellant to discharge the onus.
The assessee has brought on record in all the impugned assessment years, AY 2013-14 to AY 2017-18, all the loans which have been treated as unexplained cash credit, have already been repaid much before the initiation of the reassessment proceedings. Such repayment has not been doubted by the Assessing Officer in the year(s) of repayment. Therefore, the alleged addition on account of unsecured loans u/s 68 of the Act deserves to be deleted. The appellant placed reliance on the decision of Mumbai Tribunal in the case of Bhadresh M.Dodhia vs DCIT – CC-3, Thane, ITA No. 12
Vasupujya Filaments (batch appeals)
2218/MUM/2025 (AY: 2013-14), dated 22.07.2025. wherein, in a group case of appellant‘s group and relying upon decision of Hon‘ble Gujarat High Court in case of CIT vs. Ayachi Chandrashekhar Narsangji (2024) 41 taxmann.com 250 (Guj),it was held that the addition under section 68 and interest expenses are not justifiable.
The Ld. DR, on the other hand, referring to the seized material, statement of various persons recorded during the search and the reports of the Investigation Wing, drew our attention to extensive discussion on various case laws cited by the Ld. CI T(A) and relying upon the orders of both the lower authorities, argued for dismissal of these appeals on merits.
10. The Learned counsel contended that case laws cited by the Ld. CIT (A) will come into picture only when there are some adverse facts brought on record against the appellant in the first place and accordingly these are distinguishable in facts of this case and on the contrary, in support of its grounds, the appellant relied upon various judgments of Hon‘ble Supreme Court, Jurisdictional High Court and Jurisdictional Tribunal as under: i) Decision of Hon‘ble Supreme Court in the case of PCIT vs. Hi-Tech Residency Pvt. Ltd. (2018) 257 Taxman 335(SC).
ii) Decision of Hon‘ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC). iii) Decision of Hon‘ble Supreme Court in the case of CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC). iv) Judgment of Hon‘ble Supreme Court in the case of Commissioner of Income Tax, Orissa Vs Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC). v) Decision of the Hon‘ble Supreme Court in the case of Earth Metal Electric Pvt. Ltd., vs. CIT dated 30th July, 2010 in No.21073 of 1999. 13
Vasupujya Filaments (batch appeals) vi) Decision of Bombay High Court in the case of Principal Commissioner of Income-tax-2, Thane v. Shree Rajlakshmi Textile Park (P.) Ltd. [2020] 113 taxmann.com 2 (Bombay) . vii) Decision of Bombay High Court in the case of Commissioner of Income tax vs. Orchid Industries (P.) Ltd. [2017] 88 taxmann.com 502 (Bombay). viii) Decision of Bombay High Court in the case of Commissioner of Income tax vs. Creative World Telefilms Ltd. [2011] 15 taxmann.com 183 (Bombay) ix) Decision of Bombay High Court in the case of CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No. 16 of 2012 (Bombay). x) The Learned counsel also relied on various decisions of the Hon‘ble Supreme Court and the Hon‘ble Jurisdictional High Court that have been followed Jurisdictional Tribunal in the context of alleged accommodation entries of LTCG in respect of certain stocks added by revenue u/s 68 of the Act and the ratio of these judgments also equally applies to the additions made in the case of appellant u/s 68 of the Act. However, we are avoiding their mention on account of different facts and circumstances.
Decisions of the Jurisdictional Mumbai Tribunal: i) Reliance Corporation, vide order in dated 12-04-2017 ii) Vikram Muktilal Vora vide order dated 23.05.2017 in ITA No. 842/Mum/2017. iii) Sumit Jain in ITA No. 145/MUM/2017. iv) Keynote Fincorp Ltd inITA No. 1643 & 1647/MUM/2018. v) Gujarat Construction in ITA No. 7040/M/2016. vi) Vashu Bhagnani in ITA No. 5648/M/2016. 14
Vasupujya Filaments (batch appeals) vii) Jainam Investments in ITA No. 6099/M/2016. viii) Pabal Housing P Ltd 2689/M/2018. ix) Smt. Pratima Ashar, [2019] 107 taxmann.com 135 (Mumbai - Trib.), x) Hetal Nitin Shah, [2024] 159 taxmann.com 1618 (Mumbai - Trib.). xi) Chemicon Engineering Consultant (P.) Ltd. v. ACIT, [2022] 142 taxmann.com 297 (Mumbai - Trib.).
11. From the perusal of the Ld.CIT(A)‘s order, it is seen that the Ld.CIT(A) has incorporated the relevant observation and finding of the AO on merits and has dealt with each and every company separately in all the years in his consolidated order and has also referred to catena of judgments. In sum and substance, findings revolves around the fact that enquiries were conducted by the Investigation Wing and either these companies were not found in their given address or they were found to be providing bogus accommodation entries. Regarding the documents of the various documents which were filed by the assessee, he held that all are make belief documentation in the form of ITR acknowledgement, bank statement and financial statement, which is not sufficient to discharge the onus u/s. 68 of the Act. Accordingly, the Ld. CIT (A) has confirmed all the loans taken by the assessee in all the assessment years.
Upon a careful perusal of the documentation furnished by the assessee, it becomes abundantly clear that, in respect of each of the lender companies, a comprehensive suite of evidences has been produced. These comprise copies of their Permanent Account Numbers, acknowledgements of income-tax returns filed, and certificates of incorporation attesting to their legal existence. The assessee has further fortified the record with Memoranda of Understanding, Articles of Association of the lender entities, their duly audited financial statements for the relevant years, as well as confirmation letters issued by them. In corroboration, ledger extracts from the assessee‘s own books of account reflecting the loan transactions, 15
Vasupujya Filaments (batch appeals) together with its bank statements evidencing the inflow of funds, have been filed. Copies of the corresponding bank statements of the lender companies, demonstrating the outflow of monies, also find place on record. The evidentiary chain is completed by banking records evidencing repayment of the loans.
13. All these documents form part of the Paper Book before us. A close scrutiny of these materials leaves no room for doubt that the lenders are neither fictitious nor non-existent but are genuine entities on the tax rolls, regularly filing their income-tax returns and disclosing income accompanied by audited financials. Their balance sheets specifically record the loans advanced to the assessee, and their financial statements reveal substantial surplus funds. The bank statements show credit entries arising from normal business clearings and financial dealings. What is of significance is that neither the Assessing Officer nor the learned CIT (A) has discredited these documents, nor undertaken any enquiry to impeach the availability of funds with the lenders. The evidences, therefore, stand un-rebutted.
What emerges most significantly is that the addition made by the Assessing Officer rests exclusively upon post-search enquiries conducted in the cases of third parties, and not on any incriminating material unearthed against the assessee. No independent enquiry was carried out by the authorities to test the veracity of the assessee‘s explanation or to probe the authenticity of the documentary evidences furnished. The assessee has produced material establishing identity, genuineness, and creditworthiness, none of which has been doubted or shown to be fabricated. The Assessing Officer has not demonstrated how these documents were inadequate, nor has the learned CIT (A) spelt out how the burden of proof was left undischarged.
Equally significant is the fact that the third-party reports or statements relied upon by the Department contain not a whisper of 16
Vasupujya Filaments (batch appeals) allegation against the assessee. At no stage was the assessee confronted with such statements or afforded an opportunity of cross-examination. It is well settled that any material not tested in the crucible of cross-examination cannot be used against an assessee. An investigation report, at best, may justify initiation of scrutiny or reopening, but it cannot, in isolation, constitute substantive evidence to sustain an addition under section 68. In the absence of corroborative enquiry negating the evidences furnished, reliance solely upon such external reports is legally untenable.
Another factor decisively favouring the assessee is the fact that the loans in question stood repaid well before the commencement of the present proceedings. Both principal and interest were repaid through regular banking channels, and in respect of interest, tax was duly deducted at source and deposited. Such repayment, coupled with recognition of TDS by the Revenue itself, conclusively fortifies the genuineness of the transactions.
We have carefully considered the rival contentions, examined the records and perused the findings of the lower authorities in light of the well- settled principles of law. As noted earlier in this order, the assessee had availed unsecured loans from various corporate entities during the relevant assessment years. To establish the veracity of these credits, the assessee placed before the Assessing Officer an extensive set of documents demonstrating the three vital requirements under section 68, namely, identity of the creditors, their financial capacity to advance loans, and the genuineness of the transactions. Specifically, the assessee furnished the Permanent Account Numbers of the lender companies, their certificates of incorporation, acknowledgements of income tax returns, and documents downloaded from the Ministry of Corporate Affairs portal evidencing that the companies continued to hold the status of ―active.‖ These materials, read together, conclusively establish that the lender entities were not fictitious
Vasupujya Filaments (batch appeals) but were genuine and legally existing companies. Significantly, the Department itself has not disputed that these companies are duly incorporated and continue to be assessed to tax in their own jurisdictions.
Coming to the aspect of creditworthiness, the assessee placed on record audited balance sheets, profit and loss accounts, and bank statements of the lending companies. A bare perusal of these documents reveals that the lenders had substantial funds at their disposal and were in a financial position to advance loans to the assessee. The bank statements clearly show that even prior to disbursing the loans, the lenders had sizeable credit balances, and the amounts advanced were well within their financial means. These facts are further corroborated by the confirmations issued by the lender companies as well as by the ledger accounts maintained by the assessee. On this evidence, we find no reasonable ground to doubt the creditworthiness of the creditors.
As regards genuineness of the transactions, the assessee furnished its own bank statements reflecting receipt of the loan amounts through account payee cheques. Corresponding bank statements of the lenders also show the outflow of funds to the assessee. In subsequent years, repayments of the loans are evidenced by the assessee‘s bank records, which in turn tally with the records of the lenders. Confirmations filed by the creditors unambiguously admit that the loans were in fact advanced. It is not in dispute that all these companies are assessed to income tax. The Revenue has not produced any evidence to demonstrate that the confirmations are fabricated, or that the transactions involved any circular routing of funds. Viewed in entirety, the assessee has produced cogent and reliable evidence which fully supports the genuineness of the loan transactions.
Vasupujya Filaments (batch appeals)
Despite such evidence being available on record, we find that the Assessing Officer proceeded mainly on the basis of a general investigation report prepared in the course of search operations in cases of third parties, wherein certain persons were alleged to be engaged in providing accommodation entries. Reliance was placed on portions of their statements, and further on the fact that summons issued under section 133(6) in the case of some lenders had returned unserved or that no representative was found at the given addresses. Based on these circumstances, the Assessing Officer concluded that the loans in question represented unexplained cash credits.
In our considered opinion, such an approach is contrary to the settled position of law. It is well established principle that information in an investigation report, or untested statements of third parties, cannot by themselves constitute sole grounds for making additions under section 68. Such statements can acquire relevance only when specifically confronted to the assessee and there is some live link information is established with the assessee‘s case. Here in this case, no where the assessee‘s name has cropped up in any of the statement of the parties or there is any material found that assessee has paid any cash before taking the loan. On the contrary, the assessee has furnished concrete documentary proof that the lenders are existing companies, active on the MCA portal, duly filing returns of income, and possessed of financial strength to advance loans. Their financial statements and bank records are before the Department. The suspicion, however strong in light of the investigation report, cannot replace evidence, and authentic documents furnished by the assessee at the time of assessment proceedings and AO cannot discard merely on the basis of conjecture or sweeping references to an investigation report unconnected with the assessee. It is incumbent upon the AO that, once the assessee has filed all the documentary evidences along with the explanation and has 19
Vasupujya Filaments (batch appeals) given proof of the source of the money received from the lenders along with their creditworthiness in the form of Balance Sheet and bank statement having more than sufficient funds, then AO should have enquired upon the sources of the funds from the said company. At least the AO should have found out whether the increase in the bank statement of the lender companies show some pattern of accommodation entry. From the bare perusal of the bank statements it is seen that regular source of funds are coming which has been disclosed in the Balance Sheet. In such scenario, it cannot be inferred that the lender companies did not have the creditworthiness. It is reiterated again that loans taken have been taken back in the subsequent years which also proves the genuineness of the loan taken.
In view of the above discussion, and guided by the binding precedents of the Hon‘ble High Court and various decisions of this Tribunal rendered on exactly similar facts based on same investigation report wherein the additions have been deleted, we hold that the assessee has duly discharged the burden cast upon it under section 68. Once the assessee has produced material establishing the identity of the lenders, their financial capacity, and the genuineness of the transactions, the onus shifts upon the Revenue to rebut the same by bringing adverse material on record. In the present case, the Revenue has failed to do so. Therefore, the additions made under section 68 in respect of unsecured loans, as well as the consequential disallowances of interest under section 69C, have no legal or factual basis and cannot be sustained.
We accordingly set aside the findings of the lower authorities and direct the deletion of the additions made under section 68 and the consequential disallowance of interest. The assessee thus succeeds on this issue and the grounds of appeal are allowed on merits.
Vasupujya Filaments (batch appeals)
Having held that the loans are genuine, the addition made on account of interest paid on such loans under section 69C of the Act also falls to the ground and is directed to be deleted.
We now turn to the addition made by the Assessing Officer in Assessment Year 2015-16 on account of alleged Hundi loans under section 69D of the Act. It is noted from the assessment order that this addition was based upon a document contained at page 61 of bundle number 4, seized by party number MN-5, from the residential premises of Shri Divyesh Dhanani. This document, which formed the fulcrum of the addition, has been reproduced in the appellate order by the learned CIT(A) at page 70.
The learned Departmental Representative, on the other hand, supported the orders of the lower authorities and relied upon the reasoning adopted therein.
In response, the learned counsel for the assessee vehemently contended that the foundational requirement for invoking the deeming fiction enshrined in section 69D of the Act, inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1st April 1977, is that the underlying document must, in substance, represent a Hundi. Only thereafter, the provisions can be pressed into service. In the present case, according to the assessee, the impugned document cannot, by any standard, be regarded as a Hundi. The counsel drew our attention to the following characteristics of the seized document which negate its treatment as a Hundi: a) The transaction is strictly bilateral in nature and not tripartite, which is the essence of a Hundi transaction. b) The document is in the English language and not in any oriental or vernacular script, which is the traditional and customary form in which Hundis are drawn. 21
Vasupujya Filaments (batch appeals) c) It is well settled that it is not the mere nomenclature or the form—such as the use of the word ―Hundi‖ on a stamped paper—that determines its nature, but rather the substance of the transaction, as judicially emphasised in several binding precedents. d) The document, at best, represents a proposed transaction which never materialised. It was not found in the custody of the alleged lender and, therefore, cannot even qualify as a promissory note, much less a Hundi.
In this connection, the learned counsel placed reliance on the recent decision of the Coordinate Bench of the Tribunal, Mumbai, in Kemox Corporation v. DCIT, CC-3, Thane (ITA No. 2019/Mum/2025, order dated 06.03.2025), wherein on identical facts it was held that the instrument in English language and recording a bilateral arrangement could not be treated as a Hundi for the purposes of section 69D. In arriving at that conclusion, the Tribunal had placed reliance on the judgment of the Hon‘ble Andhra Pradesh High Court in the case of Dexan Pharmaceuticals Pvt. Ltd., and the decision of the Hon‘ble Delhi High Court in CIT v. Ram Niwas [2008] 170 Taxman 5 (Delhi). It was further submitted that a Hundi is essentially a traditional financial instrument or negotiable bill of exchange, historically used in mercantile practice for trade credit. It is an unconditional order or contract mandating payment, negotiable by valid transfer, and generally governed by local usage. The essence of a Hundi lies in its negotiability, customary form, and tripartite character. The document relied upon by the Assessing Officer lacks all these essential features.
We have heard the rival submissions and examined the material available on record. We find considerable force in the contentions of the assessee. The Hon’ble Andhra Pradesh High Court in Dexan
Vasupujya Filaments (batch appeals)
Pharmaceuticals Pvt. Ltd. (supra), while analysing the scope of section 69D, explained that a bill of exchange in vernacular language is generally known as a Hundi. The Court observed that Hundis are negotiable instruments in oriental language, sometimes in the nature of bills of exchange and sometimes akin to promissory notes, but always subject to mercantile usage and unaffected by the general provisions of the Negotiable Instruments Act. The Court further emphasised that section 69D was specifically enacted to cover Hundi loans. However, in the absence of the essential characteristics of a Hundi, the deeming provision cannot be invoked. We note that the Hon‘ble Andhra Pradesh in the case of Dexan pharmaceuticals Private Limited, (Supra) and Coordinate bench of ITAT in the case of Ravi B jaising Vs ACIT in has noted that: A bill of exchange in the vernacular language is generally called as Hundi. Hundies are negotiable instruments written in an oriental language, they are sometimes bills of exchange and at other times promissory notes and are subject to local usage and are unaffected by the provisions of the Indian negotiable instrument act. The Hon'ble Andhra Pradesh High Court has further concluded as under:
“We feel that one of the reasons for bringing s, 69D of the Act on the statute book is to cover the Hundi transaction in view of the wording of s. I of the Negotiable Instruments Act. Now considering the present transactions as pointed out already. we find that apart from the fact that the contents of the documents are in English and not in oriental language, the transactions are not between three parties at all. The transactions aforesaid are all bilateral. The drawer himself is the drawee in all the transactions under question. Though it may not he wholly accurate to say that all the instruments which are not drawn in vernacular cannot he Hundis, there is no doubt whatsoever that the absence of oriental language in the document coupled with the fact that the transaction is only bilateral and not tripartite is conclusive to show that the instrument though titled as Hundi was not really a Hundi transaction The transactions are very much on the lines of promissory note where it is a bilateral transaction. It is not the form but the substance of the document and the true transaction which is really to be seen. A plain reading of s 69D of the Act shows that it can be brought into service only when the loan transaction is 23
Vasupujya Filaments (batch appeals) of Hundi loan. It may also be under pointed incidentally that the documents consideration have waived the notice of dishonour in advance and no grace period is granted. This is also indicative of the transaction being not a Hundi transaction. In view of the discussion made above, we are of the opinion that the Tribunal was right in its conclusion that the transaction was not a Hundi transaction. We answer the reference in the affirmative.”
Thus, the Hon‘ble High Court held that: • Where the contents of the document are in English and not in oriental language, • Where the transaction is bilateral and not tripartite, and • Where the instrument lacks features such as grace period or negotiability, the document cannot, by substance, be regarded as a Hundi. In such circumstances, the instrument would at best resemble a promissory note, but not a Hundi. We note that in the present case also, the seized document suffers from identical deficiencies: it is in English, it records only a bilateral arrangement, and it lacks the customary features of a Hundi.
The contention of the assessee that the loans were received through banking channels by way of cheque further reinforces that the transaction was not a Hundi loan. The seized document, even if considered at face value, does not satisfy the essential characteristics of a Hundi. Respectfully following the ratio laid down by the Hon‘ble Andhra Pradesh High Court, the Hon‘ble Delhi High Court, as well as the Coordinate Benches of this Tribunal, we hold that section 69D of the Act is not attracted to the facts of the present case. The addition of ₹10 lakhs made on account of alleged Hundi loan is, therefore, unsustainable in law and is directed to be deleted.
Insofar as Assessment Years 2017-18 and 2018-19 are concerned, the assessee has also assailed the denial of carry-forward of business losses. On this issue, we direct the Assessing Officer to verify the records and allow the 24
Vasupujya Filaments (batch appeals) carry-forward of eligible losses in accordance with law, while giving effect to this order. Consequently, all additions made under section 68 of the Act in respect of unsecured loans, disallowance of interest under section 69C, and the addition u/s. 69D of the Act on account of alleged Hundi loans stand deleted.
Before parting, we also note that the assessee had raised several legal grounds challenging the very jurisdiction of the additions made in assessments framed under sections 143(3) and 153A. It was contended that the impugned additions travel beyond the permissible scope of section 153A, as they were not based on any incriminating material found during the search of the assessee but only on documents recovered from the search of third parties. While there may be considerable merit in these submissions, in the present case we find it unnecessary to adjudicate upon these legal grounds in detail, since we have already deleted the impugned additions on merits. Accordingly, the legal contentions are rendered academic and are not separately adjudicated.
In the result, all appeals filed by the assessee are allowed.