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Facts
The assessee company filed its return of income declaring NIL income. The AO completed the assessment at Rs. 4,88,23,370, making additions of Rs. 2,88,56,010 on account of unsecured loans and Rs. 1,99,67,364 as interest on the loan from M/s. Sunglow Fininvest Private Limited (SFPL). The AO held that the assessee failed to explain the sources of the loan and the transactions.
Held
The Tribunal held that the assessee had discharged the onus under section 68 by providing sufficient evidence regarding the identity, creditworthiness, and genuineness of the loan from SFPL. The Tribunal also noted that the interest rate was in line with market rates and TDS was duly paid and accepted.
Key Issues
Whether the addition made by the AO under Section 68 for loan and interest thereon from SFPL was justified, and whether the assessee had discharged its onus to prove the genuineness of the transaction.
Sections Cited
143(3), 144B, 68, 194A
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Before: SHRI SAKTIJIT DEY & SHRI PRABHASH SHANKAR
Date of Hearing 17.07.2025 Date of Pronouncement 12.08.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 20.04.2021 for the Assessment Year [A.Y.] 2018-19.
A.Y. 2018-19 Endura Soft Solution Private Limited, Mumbai 2. The grounds of appeal are as under:-
1. On given facts, circumstances and judicial pronouncements Hon. CIT (Appeals) erred in confirming addition made under section 68 for loan availed during the year amounting to Rs. 2,83,56,010 from M/s. Sunglow Fininvest Private Limited (NBFC). Such addition is bad in law and liable to be deleted.
2. Without prejudice to the above, On given facts. circumstances and judicial pronouncements Hon. CIT (Appeals) erred in confirming addition made under section 68 for loan availed during the year amounting to Rs. 2,83,56,010 from M/s. Sunglow Fininvest Private Limited (NBFC) because the lender had incurred losses during the year. Such addition made is bad in law and liable to be deleted.
3. On given facts, circumstances and judicial pronouncements Hon. CIT (Appeals) erred in confirming addition made under section 68 for interest on entire loan-credited to the account of M/s. Sunglow Fininvest Private Limited (NBFC) during the year amounting to Rs. 1,99,67,364. Such addition of Interest is bad in law and liable to be deleted.
4. Without prejudice to the above, On given facts, circumstances and judicial pronouncements Hon. CIT (Appeals) erred in confirming addition made under section 68 for interest on entire loan credited to the account of M/s. Sunglow Fininvest Private Limited (NBFC) during the year amounting to Rs. 1,99,67,364. Such addition of Interest on entire loan balance is excessive in facts and is bad in law and liable to be reduced.
3. Brief facts of the case are that the assessee a Private Limited Company filed the return of income declaring total income at NIL. Subsequently, the case was selected for scrutiny and the AOcompleted the assessment u/s 143(3) r.w.s. 144B on total income Rs. 4,88,23,370 /- making additions of Rs. 2,88,56,010/- on account of unsecured loans received from one Sunflow Fininvest Pvt Ltd(‘SFPL’) and interest paid on the loan amounting to Rs. 1,99,67,364/-.During the course of assessment proceedings, it was noticed by the AO that the assessee had A.Y. 2018-19 Endura Soft Solution Private Limited, Mumbai taken loan from SFPL as on 31.03.2018 was Rs. 14,59,37,451/-which consisted Rs. 2,88,56,010/- of loan taken during this year and interest of Rs. 1,99,67,364/- paid to it. The AO held that the assessee failed to explain the sources of the loan, circular transactions and fund flow pattern i.e. immediate debits followed by matching credits movement of cheques amongst the related entities. Therefore, the amount of Rs. 2,88,56,010/- and payment of interest of Rs. 1,99,67,364/- remained unexplained and were added to the total income of the assessee.
4. In the subsequent appeal, the ld.CIT(A) noted that during the course of appeal proceedings, the assessee had submitted the return of income of SFPL for the A.Y. 2018-19 in which it declared loss amounting to Rs. (-) 1,53,61,528/-.Therefore,the lender did not have proper source of loan given to the assessee for the said year. It was also the fact that there were corresponding debits to the holding company of SFPL when the funds were credited by the assessee. During the course of appeal proceedings, the assessee was to explain the source of repayment amounting to Rs. 7,18,44,444/- made by it to SFPL and also source of loan amounting to Rs. 14,59,37,451/- given by SFPL. It is stated that the assessee did not file any details despite multiple opportunities allowed. Therefore, he concluded that the assessee failed to justify the transactions based on which addition was made to income during the A.Y. 2018-19 Endura Soft Solution Private Limited, Mumbai assessment proceedings as also to justify the source of funds SFPL and also failed to explain the source of repayment. Accordingly, he upheld the addition with minor relief.
5. Before us, the ld.DR relied on the orders of authorities below while the ld.AR reiterated the contentions made before them in the assessment and appeal proceedings. We find that neither the AO nor the ld.CIT(A) have considered the details and evidences submitted before them in correct perspective which is apparent from the following observations: i. The lender SFPLis a financial intermediary which avails loan from holding companies and financial institution and further extended loans to its customers. It is an NBFC duly recognized by the RBI and primarily engaged in the business of lending and related activities since 09.01.2003. ii. The assessee company a related party had availed loan ofRs 14.53 cr.in the previous year and during the year, further loan taken was Rs 2.83 cr. iii. Net worth of SFPL and lending capacities are more than evident from the audited BalanceSheets placed on record. iv. The AO made enquiry with the lender which duly affirmed the transactions and nothing has been brought on record to suggest even an inkling of doubt about the identity, credit worthiness of the lender and the genuineness of the transactions.
A.Y. 2018-19 Endura Soft Solution Private Limited, Mumbai v. The impugned loan was treated as unexplained cash credit without appreciating the contentions of the assessee that as per the ledger account, there was substantial opening balance of Rs 16.94 cr. carried forward from the earlier yearas on 01.04.2017 and which according to the assessee was duly considered without any adverse inference by the predecessor AO in assessment proceedings for AY 2017-18,a fact which has remained undisputed. vi. During the year, the assessee has repaid a sum of Rs 7.18 cr.to the above lender which further affirms the genuineness of the impugned transaction. vii. Therefore, all the ingredients of section 68 of the Act are fully satisfied by the assessee. viii. The ld.AO has made the addition merely on the ground that in the account of the lender there were certain debits immediately following the repayment of loan by the assessee. This reason in our view cannot make the entire loan as non genuine. ix. We have perused the Balance Sheet of the lender which show revenue from operations of Rs 90.485/- cr. Reserve and surplus amounts to Rs 7.46 cr., Current assets worth Rs. 4.17 cr. x. Own funds of the lender for AY 2017-18 was Rs 12.28 cr. and Rs 20.84 cr for AY 2018-19.Therefore,it had enough money in hand for lending to the assessee company which could not be considered unexplained from any stretch of imagination.
A.Y. 2018-19 Endura Soft Solution Private Limited, Mumbai xi. The ld.CIT(A) merely on the observations that the book result of the lender during the year showed loss, has also doubted the lending capacity of thelender which to our mind is not a fair judgment of net worth of any entity without appreciating the financials thereof. xii. Besides, as confirmed by the lender, the rate of interest charged from the assessee was stated to be 12.75% which is in line with prevailing market rates. xiii. The assessee during the proceedings submitted various documents and papers relating to the lender such as Financial Statement,Bank statement, Ledger confirmation, ITR/PAN of the lender,Interest details and TDS made etc. However, none of the authorities below have taken due note of these evidences. xiv. Both theauthorities below have also not taken due note of the facts that the assessee made TDS on the interest payment u/s 194A of the Act which has been duly accepted by the lender. xv. The appellate order merely reiterates the grounds of appeal
, submissions made by the assessee and the contents of the assessment order without giving any worthwhile finding of its own. xvi. Onus u/s 68 has been duly discharged by the assessee in the instant case. 5.1 In view of the above facts on record, we are of the considered opinion that the ld.CIT(A) was not justified in upholding the addition A.Y. 2018
19. Endura Soft Solution Private Limited, Mumbai made by the AO in respect of the loan and interest thereof which lacks any substance. Accordingly, we set aside the appellate order and direct the AO to delete the additions made, thus allowing the grounds of appeal of the assessee.
6. In the result, the appeal is allowed. Order pronounced in the open court on 12.08.2025.