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Facts
The assessee's case was reopened under Section 147/148 of the Income Tax Act, and additions were made by the Assessing Officer (AO) for unexplained cash credits (unsecured loans) under Section 68, commission paid for arranging these loans under Section 69C, and disallowance of interest on these loans across assessment years 2014-15, 2015-16, and 2016-17. Penalties under Section 271(1)(c) were also levied for AY 2014-15 and 2015-16. The Ld. CIT(A) upheld these additions and penalties.
Held
The Tribunal held that the assessee had provided sufficient evidence regarding the identity, creditworthiness, and genuineness of the loan transactions, and notably, many loans were repaid in subsequent years. Citing High Court precedents, the Tribunal ruled that Section 68 cannot be invoked if loans are repaid and proper documentation is provided. It also found several additions to be factually incorrect as no loans were taken in the relevant years or amounts were misrepresented. Consequently, all additions for unexplained cash credits, commission, and interest disallowance were deleted, and the reopening of assessment for AY 2016-17 was deemed unsustainable. The penalties under Section 271(1)(c) were also deleted as the quantum additions did not survive.
Key Issues
Whether additions for unexplained cash credits under Section 68 are justified when loans are repaid and evidences are furnished; validity of disallowance of commission under Section 69C and interest on loans; sustainability of assessment reopening under Section 147; and the legality of penalties under Section 271(1)(c).
Sections Cited
68, 69C, 133(6), 147, 148, 271(1)(c)
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM
These are appeals preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 08.07.2024, 08.07.2024 and 26.07.2024 for the AY 204-15, 2015-16 and 2016-17. The penalties were levied u/s 271(1)(c) of the Act by the NFAC (national Faceless Assessment Centre), Delhi for A.Y. 2014-15 and 2015-16 vide even order dated 15.06.2021.
As the facts and circumstances are similar in all the appeals and these all relates to the same assessee, these are being decided by 3. The issue raised in ground no.1 and 2 is against the confirmation of addition by ld. CIT (A) as made by the ld. AO on account of unexplained cash credit u/s 68 of the Act.
3.1. The facts in brief are that the assessee filed the return of income on 09.09.2014, declaring total income at ₹27,34,820/-. The case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 27.03.2019, which was complied with by the assessee by filing the return of income on 09.04.2019. Thereafter, statutory notices were issued and served upon the assessee along with questionnaire which were complied by filing the necessary evidences/ documents. During the course of assessment proceedings, the ld. AO noted that the assessee has taken unsecured loan from two parties namely Ms. Shresth Builders Pvt. ltd. and BSR Finance and construction Pvt. ltd. of ₹22,00,000/- and ₹50,00,000/- respectively. The ld. AO treated the loans as unexplained cash credit on the ground that the assessee failed to provide sufficient evidences to substantiate the identity, creditworthiness of the lenders and the genuineness of the transactions. The ld. AO also noted that the Inspector deputed to verify these lender companies, could not trace lenders’ offices. Finally, the addition was made to the income of the assessee as unexplained cash credit u/s 68 of the Act.
After hearing the rival contentions and perusing the materials available on record, we find that the assessee raised the above said loans from two parties. The assessee filed before the ld. AO evidences qua the said loan creditors i.e. names, addresses, PAN numbers, audited financial statements, confirmations, etc. However, according to the ld. AO, the reply furnished by the loan creditors u/s 133(6) of the Act did not prove the creditworthiness of these lenders and therefore, the ld. AO treated these loans as unexplained. The ld. CIT (A) simply affirmed the order of the ld. AO. We note that the loans raised by the assessee company were repaid in the subsequent assessment years and evidences to that effect were available before the authorities below. Therefore, once the assessee established that the loans raised by the assessee were repaid in the subsequent financial years then in our opinion, the provisions of Section 68 of the Act cannot be invoked as the subsequent payments made by the assessee cannot be considered in isolation. The case of assessee is squarely covered by the decisions of the Hon’ble Calcutta High court in number of cases namely PCIT-2, Kolkata Vs. Rahul Premier India Agency Private Limited in ITAT/133/2025, IA No.GA/2/2025 vide order dated 05.08.2025, PCIT Vs. M/s Narayan Tradecom Pvt. ltd. in ITAT/76/2025, IA No. GA/1/2025 dated 10.06.2025, PCIT Vs. Alom Extrusions Ltd. ITAT/268/2024, IA no. GA/1/2024, GA/2/2024 dated 17.12.2024, PCIT Vs. M/s Edmond Finvest Pvt. ltd., in ITAT/28/2024, GA/2/2024 dated 26.02.2024, PCIT Vs. Parwati Lakh Udyong, ITAT/2/2024, IA No.GA/1/2024 dated 19.02.2024. In all the above
"3. The issue in this case arose in respect of the assessment year 2012-2013. It appears that the two loan transactions of Rs. 8,50,00,000/- and Rs. 23,70,00,000/- received by respondent assessee from one M/s. J.A Infracon Private Limited and M/s. Satya Retail Private Limited were treated by assessing officer to be sham in the sense that the creditworthiness etc. of the giver of the loan were not established. Accordingly, the assessing officer made addition under section 68 of the Act.
3.1 While the assessing officer dealt with unexplained cash credit from the M/s. Satya Retail Private Limited and from M/s. J.A Infracon Private Limited in his order in paras 5.1 and 5.2 respectively, the Commissioner of Income-tax in the appeal preferred by assessee found on facts and the material before it that the said two cash creditors had been holding there identity, creditworthiness and genuineness in respect of the loan transactions.
3.2 The appellate authority observed that, "In this regard, it has been noticed that ledger accounts and confirmations of the aforesaid two parties have been provided by the appellant to the AO in the assessment proceedings. Thereafter, the AO also carried out the independent inquiries u/s. 133(6) of the I.T. Act and in compliance thereto both the companies have submitted the requisite information."
3.3 The information supplied by assessee was duly noticed by appellate authority and facts in that regard were recorded also to arrive at a finding that the unsecured loans to the aforesaid parties have been paid by account payee cheques from the bank account of the assessee which was not in dispute, muchless in doubt. The accounts were finally settled with the repayment of the loan to the lender companies. 3.4 When the revenue preferred appeal before the Appellate Tribunal, the Tribunal confirmed the findings recorded by the Appellate Authority. The Tribunal referred to the decision of Durga Prasad More (82) ITR 540 and also in Sumati Dayal (214) ITR 801, to further record on the basis of the facts that the assessee had furnished the details such as copy of ledger account, bank statements, income tax returns, balance
The issue raised in ground no. 3 is against the confirmation of addition of ₹2,16,000/- by ld. CIT (A) as made by the ld. AO towards commission paid for arranging bogus unsecured loans.
Since, we have allowed ground no.1 and 2 by directing the ld. AO to delete the addition made in respect of unsecured loans raised from
The issue raised in ground no.4 is against the order of ld. CIT (A) confirming the addition of ₹99,649/- as made by the ld. AO no account of interest paid on bogus unsecured loans.
7.1. We have allowed ground no. 1 & 2 in the above para in favour of the assessee by directing the ld. AO to delete the addition made u/s 68 of the Act as unexplained cash credit. This being a consequential issue to ground no. 1& 2 as decided by us in above para. Accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition. The ground no. 4 is allowed.
Even on the legal issue, we note that the reopening of assessment made by the ld. AO based is upon the reasons recorded in A.Y. 2016- 17, which in our opinion, is not permissible under the Act. In order to invoke the provisions of Section 147 of the Act by the ld. AO, the ld. AO has to record his satisfaction and reasons to believe independently for each assessment year separately. In our opinion, the reopening of assessment based upon the reasons recorded in A.Y. 2016-17, is incorrect and cannot be sustained. Therefore, even on this issue, the reopening of assessment as well as assessment framed by the ld. AO consequently, cannot be sustained.
9. The issue raised in ground no. 1 of this appeal, is similar to ground no.1 and 2 as decided by us in ITA No. 1877/KOL/2024. Accordingly,
The issue raised in ground no.2 of this appeal, is similar to ground no. 3, as decided by us in ITA No. 1877/KOL/2024. Accordingly, our decision would, mutatis mutandis, apply to ground no.2 of this appeal of assessee. Hence, ground no.2 of this appeal is allowed.
The issue raised in ground no.3 of this appeal, is similar to ground no. 4, as decided by us in ITA No. 1877/KOL/2024. Accordingly, our decision would, mutatis mutandis, apply to ground no.3 of this appeal of assessee. Hence, ground no.3 of this appeal is allowed.
12. The issue is against the confirmation of addition of ₹1,94,61,213/- by the ld. CIT (A) as made by the ld. AO on account of unexplained cash credit u/s 68 of the Act.
12.1. During the year, the assessee took unsecured loans from two parties namely; Hopewell Dealcom Pvt. ltd. amounting to ₹60,00,000/- and from M/s Shresth Builders (P) ltd. amounting to ₹1,11,63,213/-. However, while passing the order the ld. AO made additions in respect of certain loans from some parties from whom no loans were raised during the year and thus addition was made wrongly. For the sake of ready reference the table is extracted below:-
SL Name of the Party Pan Principal Interest Loan No. Amt Added by Refunded the AO AY
12.3. We also note that the AO had made an addition of ₹3,60,000/- on account of unsecured loan taken from Aanchal Tradelink Ltd., which is factually incorrect as the loan was not taken loan during the year. It was the loan which was taken in the earlier assessment years and interest was provided amounting to ₹3,60,000/- for the same in the impugned assessment year. Therefore, this addition is wrong and cannot be sustained. Similarly, in respect of BSR Finance and Constructions Ltd., the ld. AO made addition of ₹12,78,000/- on account of loan taken. However, as a matter of fact no unsecured loan was raised from the said party and in fact paid the interest provided on the loan. We would like to mention that the ld. AO has disallowed the interest of ₹14,16,204/- to the said party while the correct amount of interest paid is 12,78,000/-. The loan raised from this party was refunded in the current assessment year. Therefore, we set aside the order of ld. CIT (A) on this issue and direct the ld. AO to delete the addition of ₹12,78,000/-.
12.4. Similarly, the loan raised from Shresth Builders (P). Ltd. during the year was ₹1 crores, whereas the ld. AO had taken the loan amount of ₹1,11,63,213/-, which is factually incorrect. In fact the ld. AO had taken interest provided on the said loan of ₹11,63,213/- as loan taken. Besides, the ld. AO disallowed the interest on the said loan of ₹17,21,627, which is also incorrect and the correct amount is ₹11,63,213/-. Therefore, the order of ld CIT(A) upholding the assessment order can not be sustained. We also note that the loan
12.5. Similarly, in respect of Multiplus Resources Ltd. and Dharapati Distributors Pvt. ltd., the ld. AO made an addition of ₹4,56,000/- and 2,04,000/- on account of unsecured loans. However, the assessee had not taken any loan from these entities during the year and were infact these amounts were paid towards interest provided on the unsecured loans taken in the earlier years. We note that the ld. AO has made an addition on account of interest of ₹5,05,248 and ₹2,25,032/-, which is incorrect and should be ₹4,56,000/- and ₹2,04,000/- respectively. We note that the loans raised from these parties in the earlier years were repaid in the subsequent financial year. Therefore, we set aside the order of ld. CIT (A) on this issue and direct the ld. AO to delete the addition.
The issue raised in ground no.2 of this appeal, is against the confirmation of addition of ₹5,85,338/- u/s 69C of the Act in respect of commission for arranging loans.
13.1. Since, we have already decided the issue in ground no.1, wherein we deleted the addition in respect of unsecured loans therefore, this being a consequential issue and accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition. The ground no.2 of this appeal is allowed.
The issue raised in ground No.3 of this appeal is against the confirmation of addition of ₹49,17,891/- by ld. CIT (A) as made by the ld. AO on account of interest disallowed on the above bogus loans.
& 1880/KOL/2024 (penalty appeal) 15. These are penalty appeals imposed by the ld. AO u/s 271(1)(c) of the Act and confirmed by the ld. CIT (A) in the appellate proceedings. Since, we have already deleted the addition in the quantum appeals (supra), therefore, these penalties do not survive.and accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO to delete the penalties.
In the result, all the appeals of the assessee are allowed.
Order pronounced in the open court on 19.11.2025.