INCOME TAX OFFICER, WARD-1(1), FARIDABAD, FARIDABAD vs. AGARWAL EARTH MOVERS PRIVATE LIMITED, FARIDABAD

2. The brief facts of the case are that the assessee is a private limited company engaged in the business of renting earth-moving machines, which are used in infrastructure and construction activities. The income tax return for the year under consideration was filed on 02.12.2020, declaring NIL income. Thereafter, case of the assessee of the assessee was reopened under section 147 accordingly, notice u/s. 148 dated 29.3.2024 was issued to the assessee based on the information received gathered 2 during the course of search conducted on Galaxy Group, Himanshu Verma, and others on 17.11.2021, alleging that assessee has received accommodation entry amounting to Rs. 3,09,45,000/- from M/s Highrise Securities & Trading Pvt. Ltd. and M/s Sarvottam Securities Pvt. Ltd. In compliance to the said notice, the assessee filed its return of income in response to notice u/s. 148 on 22.4.2024. Subsequently, a notice u/s. 143(2) of the Act, dated 30.6.2024 and notice u/s. 142(1) of the Act, dated 30.9.2024 and 12.3.2025 requiring assesse to furnish various details and explanations in respect of unsecured loans of Rs. 1,50,00,000/- taken from Highrise Securities and Trading Pvt. Ltd. and Sarvottam Securities Pvt. Ltd. In response to the same, the assessee filed detailed submissions vide replies dated 11.1.2025 and 17.3.2025, furnishing documentary evidences in support of the impugned loans. The assessee vide its reply dated 11.1.2025, submitted that it had obtained genuine loans from Highrise Securities and Trading Pvt. Ltd. amounting to Rs. 50,00,000/-. These loans were availed for the purpose of repayment of the loan against property obtained from Deutsche Bank Ltd., as the assessee company, being engaged in infrastructure and construction activities, requires substantial funds for the purchase and operation of machinery. It was further submitted that the said loans were repaid alongwith interest to the respective parties within the same financial year, i.e. FY 2019-20. Further, the assessee, vide the aforesaid reply dated 11.1.2025, clarified that the impugned loans were genuine and routed proper banking channels, received from Highrise Securities and Trading Pvt. Ltd. Rs. 1,00,00,000/- and Sarvottam Securities Pvt. Ltd. Rs. 50,00,000/-. The assessee furnished relevant supporting documents in substantiation of the said transactions. After considering the aforesaid, the AO issued a show cause notice dated 22.3.2025, proposing to treat the aforesaid loans as unexplained. In response to the aforesaid show cause notice, the assessee filed reply dated 26.3.2025 reiterating that it had fully discharged the onus cast upon it under section 68 of the Act. It was submitted that the assessee had duly established the identity and 3 creditworthiness of the lenders as well as the genuineness of the transactions by furnishing confirmations, financial statements, and bank statements of the lenders. The assessee further submitted that the loans were received and repaid through banking channels and were duly recorded in the books of account, thereby substantiating the genuineness of the trasnactions. In respect of the interest paid on the aforesaid unsecured loans and the issuance of credit notes, the assessee vide reply dated 26.3.2025, furnished the requisite documentary evidences before the AO and after considering the same, AO proceeded to make an addition of Rs. 1,50,00,000/- u/s. 68 by treating the loans as unexplained credits and further made an addition fRs. 4,50,000/- u/s.69C towards alleged commission. The AO also disallowed interest of Rs. 10,50,000/- which had been actually paid to the lenders after deduction of tax at source. Additionally, an addition of Rs. 5,68,000/- under section 69C was made in respect of credit notes issued to M/s Bhavya Creators Pvt. Ltd, despite the assessee furnishing ledger accounts and supporting documents explaining the nature of the said business expenditure. Against the action of the AO, assessee preferred appeal before the Ld. CIT(A), who after considering all the evidences and the legal position, allowed the appeal of the assessee and categorically held that the impugned additions made by the AO were unsustainable. He also observed that assessee had duly discharged the onus cast upon it under section 68 by establishing the identity of the lenders, their creditworthiness and the genuineness of the transactions by way of confirmations, ITRs, audited financial statements and bank statements. He further observed that the loans were received and repaid through banking channels and interest thereon had been paid after deduction of tax at source. Since no adverse materials had been brought on record by the AO to rebut the documentary evidences furnished by the assessee, the additions made by the AO cannot be sustained. Aggrieved, Revenue is in appeal before the Tribunal.

3. Ld. DR relied upon the order of the Assessing Officer and stated that Ld. 4 CIT(A) erred in deleting the additions in dispute.

4. On the other hand, Ld. AR has relied upon the order of the Ld. CIT(A).

, the Statement of Facts, written submission as well as impugned order. 5.2 Briefly stating the background of this case; the appellant is a company and it had filed its Return of Income (Rol) on 02.12.2020 declaring Total Income at Nil. Subsequently, notice u/s 148 was issued on 29.03.2024 in compliance to which Rol was filed declaring Nil income on 22.04.2024. The reassessment proceedings undertaken culminated into passage of an order u/s 147 on 31.03.2025 where additions to the tune of Rs.1,70,68,000/- were made on three different counts. Impugning such order, the appellant has filed the present appeal. 5.3 The reassessment proceedings were undertaken in view of “information received about the assessee taking accommodation entry of Rs.3,09,45,000 from M/s Sarvottam Securities Pvt. Ltd. and M/s Highrise Securities & Trading Pvt. Ltd. during the F.Y. 2019-20 (A.Y. 2020-21)”. The information cited here was gathered in view of search and seizure proceedings undertaken on a ‘Galaxy Group’ and associated ‘entry providers’. The AO has inferred that this appellant had availed bogus unsecured loan of Rs.1,50,00,000/- besides claiming deduction of interest of Rs. 10,50,000/-. The amount of unsecured loan of Rs. 1,50,00,000/- was added u/s 68 whereas unexplained expenditure of Rs.4,50,000/- on account of commission and unexplained credit note of Rs.5,68,000/-, totaling to Rs. 10,18,000/- were added u/s 69C/disallowed u/s 37. The interest amount of Rs. 10,50,000/- was also added u/s 69C. 5.4.1. Vide the ground no. 6 to 9 of the present appeal, the appellant has assailed the quantum additions/disallowances made in the impugned reassessment order. During the course of appellate proceedings, the appellant has made a detailed submission and has stated that, “4. Appellant furnished overwhelming 5 evidences in support of taking the impugned loan to prove the identity of the lender, genuineness of loan taken and credit worthiness of the lender and also the facts that loans were repaid during the same year itself. Statements recorded of various persons of the lender company and used against the appellant did nowhere mention name of appellant as a beneficiary. A request was also made to afford an opportunity of cross examination of the person whose statement was being relied upon by the Revenue and used against the appellant but it was never afforded. Various documents pertaining to lender were not considered in their entirety by the Learned AO. ’’ 5.4.2. The appellant has also stated that it “had taken interest bearing unsecured loan from HIGH RISE SECURITIES AND TRADING PRIVATE LIMITED amounting to Rs. 1,00,00,000 and SARVOTTAM SECURITIES PRIVATE LIMITED amounting to Rs.50,00,000 through banking channel during May 2019 and June 2019. Appellant paid interest on the said loan after deduction of tax at source. The loan was also repaid in January 2020 that is after 8 months only." Thus, the loans were taken during the F.Y. 2019-20 and repaid during the same period. 5.4.3. The appellant has also claimed that the onus u/s 68 has been discharged by it as follows: “(a) Identity of lender - PAN of lender "Sarvottam Securities" and "Highrise Securities" are ABCS6941A and AAACH3402Q respectively. Copy of ITR of lenders is also enclosed. Further both of them are registered with ROC since 1996 and 1994 respectively. (b) Creditworthiness - Sarvottam Securities Private Limited is a Company registered with ROC. It has filed ITR with income of Rs. 65,05,820 and balance sheet is showing net worth of 59.86 crore as on 31st March 2020. This proves credit-worthiness of the lender for loan of Rs. 50,00,000. - Further, Highrise Securities and Trading Private Limited is also a Company registered with ROC. The balance sheet is showing net worth of 4 7.22 crore as on 31st March 2020. This proves credit-worthiness of the lender for loan of Rs. 1,00,00,000. (c) Genuineness of transaction - / would like to state that the company took a loan from the "Highrise Securities and Trading Private Limited" and "Sarvottam Securities Private Lmited" amounting to Rs. 1 crore and 50 lacs as under:- Sarvottam Securities Particulars Highrise Securities 30th May 2019 50,00,000 — 3rd June 2019 50,00,000 50,00,000 1,00,00,000 50,00,000 Total

Payment of Highrise Securities was done through NEFT. Payment of Sarvottam Securities was done through RTGS respectively from 30th May 20219 to 3rd June 2019. - Utilisation of loans taken - The said funds were used for repayment of loan against property from "Deutsche Bank Ltd" on 1st July 2019 which was taken for business purpose. - Further these unsecured loans were repaid with interest to the respective lenders during the same year..”

Thus, the fact of the matter is that the appellant has accepted and repaid 5.4.5. the loans through banking channels. The identity of the lenders has been established by way of submission of ITR of lenders, Bank statements of lenders, Loan agreement and resolution of both lenders, Balance sheet of both lenders, Confirmation of both lenders and Bank statement of appellant showing transaction. There is no adverse inference in regard to any of such material. The appellant has cited decision of Hon'ble Supreme Court in case of Commissioner of Income- tax vs. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC)[11-01-2008] where it has been held that “Once identify is established and loan is through banking channels, no addition can be made in hands of the assessee; department may proceed against the creditor.” The appellant has also mentioned the fact that loans has been repaid during the year itself and cited the following decisions 7 wherein it has been held that once loans are repaid the addition u/s 68 becomes untenable. “a) PCIT v. Veedhata Tower Pvt. Ltd. [2021] 432 ITR 213 (Bom HC) “Once the assessee provides documentary evidence and the loans are repaid, no addition under Section 68 is justified, unless the Revenue can conclusively prove it to be bogus.” (b) Dazzling Construction (P.) Ltd. vs. Income Tax Officer [2025] 172 taxmann.com 860 (Delhi - Trib.) “Where assessee received loan from a company, since trail for obtaining of loan and repayment thereof were proved and lender had duly filed its return of income encompassing transactions carried with assessee, additions made by Assessing Officer towards unexplained credit under section 68 in case of assessee were wholly unjustified.” (c) Deputy Commissioner of Income-tax vs. Hetal Nitin Shah [2024] 159 taxmann.com 1618 (Mumbai - Trib.) “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 recieved by assessee was not justified.” (d) CIT v. Jai Kumar Bakliwal [2014] 46 taxmann.com 206 (Rajasthan HC) “Where loans were repaid and the transactions were through banking channels, no addition under Section 68 was justified.” (e) DCIT v. Rohini Builders [2002] 256 ITR 360 (Gujarat HC) “Suspicion cannot replace evidence; where identity and genuineness are established and repayments are made, no addition is warranted.” 5.4.6. The addition of Rs.4,50,000/- relating to commission payment had been made u/s 69C which is related to addition of Rs.1,50,00,000/- u/s on the premise of unexplained credit. Once the addition u/s 68 becomes indefensible, the corresponding addition of commission payment is also untenable. The appellant has assailed that this addition of Rs.4,50,000/- has been made without any supporting material. 5.4.7. Similarly, addition of Rs.5,68,000/- has been made on account of ‘unexplained credit note’; held as ‘inadmissible expense’ u/s 69C. The appellant has explained that it had “...received short payment from customer, hence credit note was issued for same. Further this is normal business expenditure and provisions of Sec 69C are nowhere applicable to this case. - The credit notes were issued due to some dispute between the appellant and the Company. The same can be seen through the ¡edger of M/S Bhavya Creators Pvt Ltd. As there was amount receivable of Rs. 6,06,019 at 1st Apr 2019 and no further payment was received by company and hence credit note were issued during the year to settle the matter. Copy of ledger with credit note is attached herewith. - Learned AO was asking proof that counter party has shown the same as its income or confirmation from counter party regarding credit note. Since the counter party has not even booked the expense against the same, so question of confirmation for credit note will not arise at all.

- We are already enclosing ledger account of party and copy of credit notes and same have been also uploaded on GST return.” 5.4.8. The addition of Rs. 10,50,000/- has been made u/s 69C as inadmissible interest payment, the appellant has submitted that the interest has been paid through banking channels, to recognized and identifiable existing lenders. TDS has been deducted u/s 194A and deposited. The loan has been utilized towards business purposes. In such circumstances, the addition of Rs. 10,50,000/- also becomes untenable. 5.4.9. The above facts and circumstances of the matter clearly show that the AO has not brought out anything to dispute aforesaid assertions of the appellant which are irrebuttable and supported by evidences. The appellant’s assertion supported by ITRs of the two companies from whom the loans were received and repaid, bank statement of the lenders, balance sheet and confirmations etc. had been filed apparently before the AO and during these appellate proceedings also. Loan of Rs. 1,00,00,000/- was received from Highrise Securities And Trading Private Limited which has filed ITR 9 for A.Y. 2020-21 disclosing total income Rs.51,69,960/-; the loan was received and repaid through banking channel, interest was paid and TDS was deducted. Similarly, loan of Rs.50,00,000/- was received from Sarvottam Securities Private Limited which has disclosed total income of Rs.65,05,820/- for A.Y. 2020-21. In this case also confirmation was filed by the appellant; the loan was received and repaid through banking channel, interest was paid and TDS was deducted. 5.4.10. Here, the ratio of several judicial pronouncements, in similar facts and circumstances is relevant to recall. The important decisions in this regard are as under: 1. where assessee obtained unsecured loans from multiple lenders, since lenders were well- established entities with disclosed transactions and substantial financial reserves and loans were repaid through banking channels and no evidence suggested they were non-genuine, additions made u/s. 68 was to be deleted (Deputy Commissioner of income-tax vs. Supreme Holdings and Hospitality (India) Ltd. [2025] 171 taxmann.com 309 (Mumbai - Trib.)[07-01- 2025]) 2. 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 ( Principal Commissioner of Income-tax vs. Ambe Tradecorp (P.) Ltd. [2022] 145 taxmann.com 27 (Gujarat)/[2023J 290 Taxman 471 (Gujarat)[05-07-2022]) 3. Assessee-company took unsecured loans from two companies - On basis of statement of one PKJ recorded during search and seizure operation that he had provided accommodation entries to assessee, Assessing Officer treated said loans as fake - Whether since Assessee had submitted all evidence to substantiate loans in question, including confirmation from creditors and loans were taken and repaid through banking channels, Assessing Officer was not justified in treating said unsecured loan as fake and making addition of interest paid on said loan to assessee's income - Held, yes (Principal Commissioner of Income-tax vs. Bairagra Builders (P.) Ltd. [2024] 164 taxmann.com 162 (Bombay)/[2024] 299 Taxman 460 (Bombay)[18-06-2024]) 4. Assessee availed unsecured loan from one 'A' in month of October, 2006 and repaid 10 same in February, 2007 along with interest and deducted tax at source on interest amount - Assessing Officer held that loan was not genuine and made addition of same to income of assessee under section 68 - Whether when unsecured loan had been repaid within a short span of time for which assessee had paid interest and deducted tax thereon, Assessing Officer was not justified in making addition under section 68 - Held, yes (Rajhans Construction (P.) Ltd. vs. ACIT [2022] 140 taxmann.com 370 (Surat-Trib.)[14-03-2022]) 5. Section 68 of the Income-tax Act, 1961 - Cash Credits - Assessing Officer made addition of Rs. 12,85,000 as unexplained cash credits in respect of loans taken by assessee from 21 parties - Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses, GIR numbers/permanent account numbers and copies of assessment orders wherever readily available - Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors - Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted - Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source - Held, yes - Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine - Held, yes - Whether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors, Tribunal was justified in deleting addition made - Held, yes - Whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed - Held, yes (Deputy Commissioner of Income-tax vs. Rohini Builders [2003] 127 Taxman 523 (Gujarat)/[2002] 256 ITR 360 (Gujarat)/[2003] 182 CTR 373 (Gujarat)[19-03-2001]) 5.4.11. In the view of foregoing discussion and respectfully following the judicial ratio, the ground no. 6 to 9 of the additions i.e. appeal against quantum addition of Rs.1,50,00,000/- u/s 68 as well as the additions of Rs.4,50,000/- and Rs.5,68,000/- on account of unexplained expenditure u/s 69C and addition of Rs. 10,50,000/- account 11 of interest expenditure disallowed citing section 37 are allowed and the AO is directed to delete such additions.”