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Facts
The assessee company received unsecured loans from M/s. ANR Finance Limited and M/s. Kanungo Financiers Limited. The Assessing Officer treated these loans and the interest paid thereon as unexplained, making additions to the assessee's income. The CIT(A) upheld these additions, finding the lenders' creditworthiness unproven.
Held
The Tribunal held that the assessee had provided sufficient evidence, including confirmations, bank statements, and ITRs of creditors, to establish the genuineness of the loans. The Tribunal noted that substantial repayments were made and TDS on interest was deducted. Following jurisdictional High Court precedents, the Tribunal concluded that the additions were not sustainable.
Key Issues
Whether unsecured loans and interest thereon are unexplained cash credits under Section 68, and whether the assessee discharged the onus of proving genuineness and creditworthiness of the lenders.
Sections Cited
147, 144B, 148, 68, 194-I, 133(6), 271(1)(c), 115BBE, 271AAC(1)
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Date of hearing : 09-03-2026 Date of pronouncement : 08 -04-2026 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
These two appeals are filed by the Assessee as against two separate appellate orders both dated 30-09-2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the reassessment orders passed under section 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2016-17 and 2018-19. Since common issues of unsecured loan, payment of interest and repayment of loans are & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 2 Prolife Industries Ltd. Vs. ITO involved in both the appeals, for the sake of convenience, the same are disposed of by this common order.
Brief facts of the case is that the Assessee is a limited company engaged in the business of chemicals and filed its return of income for the Assessment Year 2016-17 on 29.09.2016 declaring total income of Rs. 1,01,60,320/-. The return was re-opened by issuing notice under Section 148 of the Act on the ground that accommodation entries of Jignesh S. Shah and Sanjay Shah were received by the Assessee through the companies controlled by them, namely, M/s. ANR Finance Limited and M/s. Kanungo Financiers Limited. In response to the notice under Section 148 of the Act, the Assessee filed the same return of income declaring total income of Rs. 1,01,64,320/-. During re- assessment proceedings, the Assessee filed confirmation of accounts along with bank statement, duly highlighting the credit entries, income tax returns, audit reports and balance sheet, etc., before the Assessing Officer. The Assessing Officer, however, was not satisfied with the explanation, thereby making an addition of Rs. 1,26,00,000; being the unexplained loan from the above two parties as unexplained, and also disallowed the interest amount of Rs. 1,89,124/- paid to M/s. ANR Finance Limited and Rs. 9,89,589/- paid to M/s. Kanungo Financiers Limited and demanded tax thereon.
2.1 Aggrieved against the reassessment orders, the Assessee filed an appeal before the CIT(A), who confirmed the addition by observing as follows: “3.17 As regards the documents of the two alleged lenders, submitted by the appellant before the AO to discharge the onus of proof, it transpires that gross & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 3 Prolife Industries Ltd. Vs. ITO total income of the company for A.Y. 2016-17 is Rs. 5,96,246/ and for AY 2017- 18 the company has shown loss of Rs. 13,99,799/- whereas it is claimed to have provided unsecured loan of Rs. 1,00,00,000/- to assessee during the year under consideration. Similarly, in the case of ANR Finance Limited, the P&L account of the ANR Finance Ltd. for FY 2015-16 shows that the company has shown profit before tax of Rs. 4,41,649/-and Rs. 2,63,830/- for FY 2014-15, whereas the company is stated to have provided unsecured loan of Rs. 26,00,000/- to the assessee during the year under consideration. In the case of Kanungo Finance Limited the assessee had furnished only acknowledgement of ITR and not the full set of ITR, Further, in balance sheet of Kanungo Financiers Limited for FY 2015-16, the tangible & intangible assets are reported as NIL. 3.18 In view of the above, the case of the appellant does not stand to the test of creditworthiness either. I, therefore, find that the creditworthiness of the alleged lenders has not at all been proved by the appellant, either before the AO or during the course of the instant proceedings before me. The action of the AO is, accordingly, sustainable even on this count alone.”
Aggrieved against the appellate order, the assessee is in appeal before us in raising the following Grounds of Appeal:
“[1] The Ld. CIT(A), NFAC, DELHI was grievously erred in confirming the addition of Rs. 1,26,00,000/- made by the Ld. A.O. of considering unsecured loan to accommodation entries which is not correct and also added an interest of Rs. 11,78,713 on it which is also incorrect. The appellant submits that the Ld. CIT (A), NFAC, Delhi has not considered the submission made during the appellate proceedings as well as assessment proceedings. [2] The appellant has proved the creditworthiness and submitted necessary documents but the Ld. CIT (A) has confirmed this item as accommodation entries which were made by the Ld. A.O. without finding any tangible material and any cash transaction movement and one of loan is repaid in next year. 3] That having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in deciding the appeal ex parte in violation of the principles of natural justice and without granting to the appellant a fair, proper & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 4 Prolife Industries Ltd. Vs. ITO and meaningful opportunity and confirmed the findings of the Ld. Assessing Officer that the appellant is not serious and sincere to pursue the case is wholly incorrect. [4] That the Ld. CIT(A), NFAC, Delhi was also grievously erred in confirming the penalty under section 271(1)(c) on the amount Rs. 1,26,00,000/- made by the Ld. A.O. and his order is thus prima facie devoid of merits and contrary to law and needs to be quashed and prayed for accordingly. [5] The appellant therefore requests your good self to kindly delete the above- mentioned additions of Rs. 1,26,00,000/-and interest of Rs. 11,78,713/-on it made by the Ld. A. O. by upholding the same by the Ld. CIT(A) looking to the merits of the case. [6] The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
4. Learned counsel appearing for the Assessee submitted before us a paper book running to 132 pages which contains the confirmation of accounts along with bank statements, ITRs of unsecured creditors, ledger accounts and also submitted that the loans were taken from June 2015, wherein interest was paid each year end after detecting the TDS under Section 194-I of the Act and a major portion of the loans were repaid on 19.12.2016, 29.11.2016, and 07.12.2017 before the date of search, namely, on 11.09.2018, taken place in the case of Jignesh R. Shah. During the reassessment proceedings, as against five unsecured creditors, the Assessing Officer has made addition only on two unsecured creditors, namely M/s. ANR Finance Limited and M/s. Kanungo Financiers Limited. The Assessing Officer has not made any attempt to issue notice under Section 133(6) of the Act against the unsecured creditors, whereas the Assessee has fully discharged its onus cast upon it by providing all relevant materials, details and evidences before the Assessing Officer. Therefore, the additions made by the lower authorities are not sustainable in law and requested to delete the addition.
& 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 5 Prolife Industries Ltd. Vs. ITO 4.1 Learned counsel appearing for the Assessee also relied upon the decisions of the Co-ordinate Bench in this regard.
Per contra, learned Senior D.R. appearing for the Revenue supported the order passed by the lower authorities and also submitted that as per Section 73 of the Companies Act, the Assessee is prohibited from taking unsecured loans from non-banking financial companies and therefore, requested to sustain the addition made by the lower authorities.
We have heard the rival submissions and perused the materials available on record. Learned counsel for the Assessee submitted before us a table of running loan account from M/s. Kanungo Financiers Limited and M/s. ANR Finance Limited and repayment of loans with interest as well as TDS under Section 194-I of the Act, which reads as follows:
Prolife Industries Limited Kanungo Financiers Limited (Α.Υ.: 2016-2017, 2017-2018, 2018-2019, 2019-2020) Date Particulars Loan Interest Repayment TDS Closing Page Taken Accrued Balance No. 04-06-2015 Loan taken 2500000 04-06-2015 Loan taken 2500000 04-06-2015 Loan taken 2500000 04-06-2015 Loan taken 2500000 31-03-2016 Interest on 989589 Unsecured Loan 31-03-2016 TDS On Interest 98959 30-06-2016 Interest on 325824 Unsecured Loan 30-06-2016 TDS On Interest 32582 80-82 06-10-2016 Loan 890630 & Repayment 177 19-12-2016 Loan 3500000 Repayment & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 6 Prolife Industries Ltd. Vs. ITO 31-03-2017 Interest on 838563 Unsecured Loan 31-03-2017 TDS On Interest 86516 29-11-2017 Loan 500000 Repayment 07-12-2017 Loan 547949 Repayment 31-03-2018 Interest on 865162 Unsecured Loan 31-03-2018 TDS On Interest 86516 10-08-2018 Loan 865162 Repayment 31-03-2019 Interest on 807163 Unsecured Loan 31-03-2019 TDS On Interest 80716 25-04-2019 Loan 6500000 Repayment 25-04-2019 Loan 639931 Repayment 31-03-2020 Interest on 58684 Unsecured Loan 31-03-2020 TDS On Interest 5868 52816
Prolife Industries Limited ANR Finance Limited (Α.Υ.: 2016-2017, 2018-2019) Date Particulars Loan Interest Repayment TDS Closing Page Taken Accrued Balance No. 10-06-2015 Loan taken 2600000 85 & 31-03-2016 Interest on 189124 176 Unsecured Loan 31-03-2016 TDS On Interest 18912 06-11-2017 Loan 800000 Repayment 07-11-2017 Loan 227789 Repayment 31-03-2018 Interest on 219495 Unsecured Loan 31-03-2018 TDS On Interest 21950 1997 A.Ys. 2016-17 & 2018-19 7 Prolife Industries Ltd. Vs. ITO 6.1 It is an undisputed fact that search action took place in the case of Jignesh Shah and Sanjay Shah on 11.09.2018, wherein they were managing and operating multiple companies and the Assessee has received unsecured loans. Whereas the Assessee has made substantial repayment of loan on 19.12.2016 and also paid interest on the unsecured loan with TDS under Section 194-I to the parties concerned. Further, the Assessee during the reassessment proceedings has filed confirmation of accounts, ITRs of the unsecured creditors with bank statements, ledger accounts, etc. However, the lower authorities have not accepted the unsecured loans, holding the same as not genuine, thereby making addition of the unsecured loans as well as the interest thereon.
6.2 It is further seen from record the assessee filed the same evidences which were placed before the Ld AO and contended that it has discharged its onus as cast under section 68 of the Act [page nos. 10- 59 of the Paper Book], whereas the AO has not established as to how Assessee's unaccounted money was routed back as unsecured loans. The statement of Mr. Jignesh Shah relied upon by Ld AO is a general statement and he has nowhere stated that accommodation entries were provided to the assessee. Whereas the assessee had submitted bank account of such parties and sources of such loans were also explained [page nos.42-47 and 54-54 of the Paper Book] and there was neither cash deposit prior to giving cheque to the assessee nor AO has established any links of cash deposit in layering bank account and the loans received by the assessee. Therefore, the addition u/s.68 of the Act cannot be made merely on the ground that the loan creditors have shown meagre income or addition was made based upon statement of entry provider. The assessee also claimed that during search action & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 8 Prolife Industries Ltd. Vs. ITO u/s.132, no incriminating evidences suggesting any exchange of cash against loans were found. Thus the Ld AO did not bring any direct or circumstantial evidence on record to show that any cash was returned by the assessee to the lenders or that the loans were not genuine. Further none of the materials relied upon by Ld AO establish any nexus between the assessee and the alleged accommodation entry providers.
6.3 The assessee also submitted that it had paid interest on such loans and necessary TDS has been deducted on such interest payment. The assessee further submitted that loans received during the year are repaid in subsequent Assessment Years i.e. upto 2018-19. Therefore, the addition u/s.68 of the Act cannot be made merely on the ground that loan creditors have shown meagre income or addition was made based upon statement of entry provider. These facts could not be contravented by the Revenue with any material evidences.
The Hon’ble Jurisdictional Gujarat High Court in the case of Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Guj) it was held as follows: “Section 68, read with section 143, of the Income-tax Act, 1961 - Cash credit [Loans] -Assessment year 2006-07 - Assessing Officer framed assessment under section 143(3) wherein he made addition of Rs. 1.45 crore under section 68 on ground that loan taken from one ‘IA’ was not explained satisfactorily - On appeal, Commissioner (Appeals) was satisfied with respect to genuineness of transaction and creditworthiness of MA' and, therefore, deleted addition - It was found that total loan of Rs. 1.60 crore was advanced to assessee, out of which Rs.15 lakh was repaid - Therefore, an amount of Rs.1.45 crore remained outstanding to be paid to ‘IA’ - Balance loan amount was repaid by assessee in immediately next financial year - Whether when Department had accepted same, addition made by Assessing Officer was to be deleted - Held, yes [Para 6] [In favour of assessee] & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 9 Prolife Industries Ltd. Vs. ITO 7.1 In the case of CIT Vs. Shri Mahavir Crimpers, [2018] 95 taxmann.com 323 (Guj.) wherein it has been held as follows:
"5. We have heard both the parties. There is no dispute so far as identity of the creditor party M/s. Raj Capital & Finance Pvt. Ltd. is concerned. There is further no quarrel that the Assessing Officer does not dispute the fact that the assessee has not availed any cash loan from the said entity. His only case is that the assessee has not been able to prove source along with genuineness and creditworthiness of the above stated entity. It emanates from above extracted portion that the assessee has filed all relevant details along with assessment records of the said entity explaining source of the loans to the above entity's balance sheet indicating sufficient reserves, surplus and share premium as followed by repayment in succeeding assessment year. Learned Departmental Representative fails to rebut CIT (A)'s conclusion that the assessee has been having regular loan transactions with the said entity. We notice in this backdrop that Hon'ble Jurisdictional high court's decision in DCIT v. Rohini Builders, (2002) 256 ITR 360 (Guj) upholding tribunal's conclusion deleting Section 68 addition in view of identical details; squarely applies here. So in their lordships' latter decision in CIT v. Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251 (Guj) confirming this tribunal's another decision reversing Section 68 addition wherein the department head accepted repayment of loan in subsequent year to be correct. We take into account all these facts and judicial precedents to affirm CIT(A)'s findings under challenge deleting the impugned addition. This first substantive ground is accordingly declined." 7.2 In the case of DCIT Vs. Rohini Builders, [2002] 256 ITR 360 (Guj.) wherein it has been held as follows: “Once primary documents are given, onus shifts from assessee to revenue. In absence of anything contradictory brought on the table, it wouldn't be fair to confirm addition u/s 68 of the Act. Gujarat High Court went on to the extent of confirming that even if creditors didn't turn up on issue of summons, even then, the transaction can't be termed as bogus because preliminary documents have been put forth by the assessee and nothing contradictory is observed by the revenue. It was contended by revenue that "creditworthiness" continues to remain unproved because a few alleged parties were having a meagre income as against hefty deposits made. To this argument, the court held that assessee's duty is discharged once it shows the bank statement of the depositor. It is not assessee's look out to find out source to source, and get into the subject of how the creditor could afford that money. Source is what is required to be proved by the assessee, and the onus immediately gets discharged on submission of preliminary documents like a bank statement of the depositor. Also, if the & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 10 Prolife Industries Ltd. Vs. ITO revenue seriously felt that the source to source was bogus, in which case the resultant addition would fall in the hands of the depositors or investors u/s 69 of the Act. As far as assessee is concerned, he is required to prove that the alleged depositor or creditor, as the case be, had legitimate monies which were given to assessee through banking channel. How that monies were earned and whether or not the depositor is showing it in his personal return of income is beyond the scope of the assessee; if there are any doubts on the source to source then revenue can always approach the depositor."
7.3 In similar circumstances, the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Ojas Tarmake (P.) Ltd. reported in [2023] 156 taxmann.com 75 held as follows:
“Where assessee showed unsecured loans received during relevant assessment year and AO made addition on ground that assessee failed to discharge onus of liability as laid down under section 68, since amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.”
7.4 Similarly Jurisdictional High Court in the case of PCIT Vs. Ganesh Plantation Ltd. [2022] 134 taxmann.com 149 held as follows:
“Where Assessing Officer initiated reassessment on basis of Information that search in case of Venus Group showed that amount of Rs. 4 crores had been received by assessee from Builders of Venus Group through banking channel against corresponding payment of unaccounted cash by assessee to Builders, and considered this as accommodation entry and made addition under section 68, since no live link/proximate nexus of alleged dubious transactions between searched person and assessee had been brought on record, said addition was to be deleted.”
Respectfully following the above judicial precedents, we find merits in the grounds raised by the Assessee and the same are allowed.
In the result, the appeal filed by the Assessee in is allowed.
& 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 11 Prolife Industries Ltd. Vs. ITO IN 10. The appeal filed by the Assessee in for the Asst. Year 2018-19, raising the following Grounds of Appeal:
“[1] The CIT(A), NFAC, Delhi was grievously erred in confirming the addition of Rs. 59,06,101/- made by the Ld. A.O. u/s. 68 is illegal and bad in law. The appellant submits that the Ld. CIT(A) has not considered the submission made during the appellate proceedings as well as assessment proceedings. [2] The appellant has proved the creditworthiness and submitted necessary documents but the CIT (A) has considered the same as accommodation entry without finding any tangible material and any cash transaction movement. [3] There is repayment of the loan and it cannot be considered as unexplained and added u/s. 68 of the Act. Also, due to meager income the creditworthiness cannot be doubted. [4] The Ld. CIT(A), National Faceless Appellate Centre was grievously erred in confirming the tax u/s. 115BBE of the of Act @ 60% made by the Ld. A.O. is illegal and incorrect and required to be deleted. [5] The Ld. CIT(E) National Faceless Assessment Centre was grievously erred in confirming the penalty proceedings u/s. 271AAC(1) r.w.s. 274 of the IT Act, 1961 made by the Ld. A.O. which is illegal and likely to be deleted. [6] The appellant therefore requests your goodself to kindly delete the above mentioned addition of Rs. 59,06,101/- made by the Ld. A.O. which was confirmed by the Ld. CIT(A) looking to the merits of the case. [7] The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
10. There is no change in facts of the case, but change in loan amounts. In this case also, the Assessee repaid the loans, which are not disputed by the revenue. Thus, the addition rendered by us in para Nos.6 to 8 of this order are squarely applicable to the facts of the & 2225/Ahd/2025 A.Ys. 2016-17 & 2018-19 12 Prolife Industries Ltd. Vs. ITO present case by mutatis mutandis. Thus, the grounds raised by the Assessee are hereby allowed.
Order pronounced in the open court on 08-04-2026