DCIT, KOLKATA vs. M/S NEW CHARAN KANWAL FINANCE COMPANY PVT. , KOLKATA

Brief facts of the case are that the assessee is a company and had filed the return of income for AY 2019-20 on 31.10.2019 by declaring income of ₹19,73,910/-. A search and seizure operation u/s 132 of the Act was carried out in the case of Balaji Group on 29.01.2021. In consequence to the search, the Assessing Officer (hereinafter referred to as the Ld. 'AO') issued notice u/s 153A of the Act dated 09.10.2021. The assessee complied with the notices by filing a return u/s 153A of the Act on 26.11.2021 and submitted various documents and clarification as sought by the Ld. AO during the assessment proceeding. The Ld. AO passed an assessment order assessing the income of the assessee at ₹44,73,910/- vide order passed u/s 153A of the Act on 29.03.2022 and the additions were made of ₹25,00,000/- as unexplained cash credit u/s 68 of the Act r.w.s. 115BBE of the Act being unsecured loan taken by the assessee. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who considered the facts of the case and the notices u/s 133(6) of the Act issued to the I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. parties namely Popular Tie-up Pvt. Ltd. and Samay Traders Pvt. Ltd. from whom the assessee had received unsecured loan or paid interest on loan amount which is mentioned at page 8 of the appeal order, the details being extracted from the assessment order. In the case of Samay Traders Pvt. Ltd., only the interest amount was outstanding at ₹24,862/- and the notice was served/reply received while in the case of Popular Tie-up Pvt. Ltd. a sum of ₹25,00,000/- Lakh was received by the assessee and the creditor was not found. Posts search enquiry was also conducted by the Inspector of the Ld. AO but the whereabouts of the company could not be traced by the Inspector, which led to the inference that the creditor was nothing but a company on paper. The notices u/s 133(6) of the Act were also served by e-mail and the assessee was given an opportunity to cross examine the Entry Operator but the director of the company failed to appear before the Ld. AO. It was found in majority of the cases that the lending companies were shell/jamakharchi companies having no fixed assets and were not paying nor had paid any rent for years and majority of these companies had no creditworthiness to give huge unsecured loans to the entities of the Balaji Agro Group of Companies. The profit before tax was negligible or negative in the case of all these companies. The assessee company submitted the bank statement as well as confirmation of loan account but these documents nowhere established that these companies had any creditworthiness to give such huge loan. M/s Popular Tie-up Pvt. Ltd. was stated by the assessee to be a group company and not managed and controlled by the entry operators. The assessee submitted that the loans were received through proper banking channel but the Ld. AO was of the belief that merely showing that the transactions were carried out through banking channel in the facts and circumstances of the case I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. was not sufficient to prove the genuineness of the transaction and relying upon the case of Commissioner of Income-tax vs. Durga Prasad More [1971] 82 ITR 540 (SC)[26-08-1971] and Sumati Dayal vs. Commissioner of Income-tax [1995] 80 Taxman 89 (SC)/[1995] 214 ITR 801 (SC)/[1995] 125 CTR 124 (SC)[28-03-1995] wherein it is held that “Tribunals have to judge the evidence before them by applying the test of human probability” and in the case of the assessee if the said test was applied, the assessee failed to prove the identity, creditworthiness and the genuineness of the transaction, therefore, the loan of ₹25 Lakh from Popular Tie-up Pvt. Ltd. was treated as bogus and added u/s 68 of the Act.

Aggrieved with the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who vide the impugned order allowed the appeal. Before the Ld. CIT(A), it was submitted by the assessee that during the previous FY 2017-18, the assessee had provided an unsecured loan of ₹25 Lakh to one of his group companies Popular Tie- up Pvt. Ltd. and in the current FY 2018-19, the assessee company received the sum along with interest as full repayment of loan. The payer company M/s Popular Tie-up Pvt. Ltd. was having its registered office at A5-6 New BBT Road, Maheshtala, Kolkata-700143. The assessee during the year had received interest of ₹81,260/- on progressive balance after TDS on the same. The amount credited in the books for such repayment of the loan was assessed u/s 68 of the Act in the assessment made u/s 153A/143(3) of the Act. It was stated that the AO used incorrect PAN of the payer and consequently the incorrect address as stated in the PAN, hence the notice was returned un-served and accordingly, no adverse view can be taken for non-service of notice as pointed out by the AO. The payer was stated to be a company under I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. the same management and a regular filer of return and had a net worth of ₹1,69,94,534/-. The assessee company was holding NBFC Certificate from the RBI. The payer is a Tea Manufacturer having Tea Garden in Assam and is holding the status of Active Compliant on MCA portal. Before the Ld. CIT(A), the assessee filed the loan confirmation in the year of receiving loan, loan confirmation in the year of loan repayment, audited Accounts of the Payer, income tax return of the payer, bank statement of the payer and the intimation u/s 143(1) of the Act which were also filed before the Ld. AO. It was stated that the balance as brought forward from last year, was squared-off in the current year and there was no balance in the party ledger. The loan transaction and refunds were done by account payee cheque/bank transfer and the loan confirmation was provided and other documents in support of the transaction including payer's identity & creditworthiness were available and, therefore, the sum credited for receipt of repayment of loan could not be assessed u/s 68 of the Act. The Ld. CIT(A) called for the remand report which was received on 17.10.2024 and has been reproduced at page 13 and 14 of the appeal order. The assessee also submitted rejoinder to the remand report which has also been discussed in the appeal order and the Ld. CIT(A) considered the submission of the assessee, the details of transactions from 01/04/2017 to 09/03/2019 and deleted the addition amounting to ₹25 Lakh and has given his findings as under: “The appellant has challenged the addition of Rs.25,00,000/- made by the AO u/s.68 of the Act in relation to the unsecured loan of Rs. 25,00,000/- from Popular Tie up Pvt Ltd From the above table, it transpires that the appellant had in F.Y 2017-18 relevant to A.Y. 2018-19 had advanced a loan of Rs. 22,00,000/- to Popular Tie Up Pvt ltd. The balance outstanding as on 31.03.2018 was Rs. 22,06,835/-. A sum of Rs. 25,00,000/- was refunded by Popular Tie up Pvt Ltd and the appellant after deducting interest repaid I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. back Rs. 2,20,031 /-. Therefore, the AO's contention that the appellant had received loan of Rs. 25,00,000/- during the year is not borne by facts. The appellant had also filed the copy of Tax Audit Report of Popular Tie Up Pvt Ltd for A.Y.2018-19 evidencing the amount of Rs. 22,06,839/- of loan outstanding. In view of the above, therefore, there is no justification of the AO for invoking the provision of section 68 of the Act and the addition of Rs.25,00,000/- is deleted. In the result, the appeal is allowed.”

Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined. Before us the Ld. AR submitted that in AY 2020-21 similar issue was raised. Our attention was drawn to page 17 of the appeal order and it was stated that the sum of ₹22 Lakh was given in the earlier year to the group company. On page 17 the fund flow statement has been mentioned. The extra payment was refunded.

The Ld. DR stated that at the time of assessment the assessee did not take the plea, the notice u/s 133(6) of the Act was issued but no reply was received to which the Ld. AR countered by stating that as mentioned at page 16 para 8 of the appeal order, the notice was issued on the wrong PAN. As regards shell company, it was stated that the promoters were common and the assessee cannot be held to be a shell company.

We have heard the submissions made. The Ld. Assessing Officer held that the assessee had received the loan whereas the amount received was repayment of loan advance by the assessee earlier to the group company and the difference of 2,20,031 /- was squared off during the year after the loan was repaid. The Ld. CIT(A) has analysed the facts I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. of the case and has concluded that the addition was not justified and therefore, the same has been deleted. In Ground no. 4 it is mentioned that the case falls under exceptional clause mentioned in 3.1(h) of the CBDT Circular No. 05/2024. However, we fail to understand as to how the money which was advanced in the earlier year and has been repaid in the current year can fall under the exceptional clause or as unexplained cash credit while it is a repayment of the loan advanced by the assessee.

The Ld. DR also could not bring any instance to our notice when an adverse view was taken in respect of the loans advanced by the assessee to the group company in which one of directors was holding 80% of the share. Except for the fact that the notice u/s 133(6) of the Act was returned unserved, no other adverse inference has been drawn nor any addition was made by the Ld. AO in respect of the other entity namely Samay Traders Pvt. Ltd. in which case the notice was served, the reply was received and only a sum of ₹24,862/- as interest was outstanding. In the assessment order, the Ld. AO has made a general statement and the fact that the assessee had received the loan from one of the group companies is mentioned on page 6 of the assessment order in the submission dated 17/03/2022 made before the Ld. AO that the sum of ₹25 Lakh was the unsecured loan received in the FY 2018-19. It was also stated that the PAN of the company has been wrongly mentioned in the show cause notice in the name of the company had changed with effect from 27/08/2020 one which was no called M/s Seleng Tea Estate Pvt. Ltd. which was refunded to the loan creditor in subsequent year along with interest while the facts before the Ld. CIT(A) show that the loan was advanced in the previous year which has been returned by the debtor to the assessee in the current year. Perhaps the I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. incorrect reply filed before the Ld. AO led to the addition. The assessee also took the plea before the Ld. AO that there was no incriminating document found and therefore, the addition could not have been made in the order u/s 153A of the Act.

We have considered the submissions made. Since the facts were not properly represented before the Ld. AO, the addition was made on account of the premise that the assessee had received a loan, while the same was repayment of loan to the assessee. The Ld. CIT(A) called for a remand report but instead of rebutting the contention of the assessee, the Ld. AO simply stated that the additional documents had been submitted by the assessee with respect to the lending entity and not by the concerned lending party and there is no documentary evidence regarding the source of funds of the lending entities. Thus, even in the remand report the Ld. AO on continued on the premise that it was the assessee who had received the loan without considering the full facts of the case that it was the assessee who had advanced the loan in the earlier year which has been repaid in this year. Since the incorrect PAN was used, no response could be filed by the party and non-filing of any response does not make the transactions non-genuine. In any case, since the assessee’s loan was repaid, there was no justification for the Ld. AO to make the addition which has been rightly deleted by the Ld. CIT(A). There are other aspects of the case namely that the tax effect is ₹19,50,000/- and therefore, on this ground alone the appeal is also liable to be dismissed. The Revenue, however, has taken the plea that the is covered under the exceptional clause. However, the Ld. DR could not demonstrate how it is covered under the exceptional clause since both the parties are part of the same group of companies. Further, the assessee had also taken the plea before the Ld. CIT(A) that no I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. incriminating document was found and, therefore, the addition could not have been made in the impugned assessment year u/s 153A of the Act. The Ld. CIT(A) apparently has not given any finding on this ground but the fact remains that even in the assessment order no mention is made of any incriminating material found relating to this transaction except for the return of the notice issued u/s 133(6) of the Act to the payer. Apparently, A.Y. 2019-20 was an unabated assessment on the date of the search, therefore, even in the absence of incriminating material the addition could have been made. However, the facts of the case as brought out by the Ld. CIT(A) do not justify the addition and therefore, there is no reason to interfere with the findings of the Ld. CIT(Appeals). Thus, considering the totality of facts and circumstances of the case, we confirm the findings of the Ld. CIT(A). Thus, Ground nos. 1, 2, 3 and 4 are dismissed, while Ground No. 5 is general in nature and therefore, does not require any separate adjudication.

In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 17th November, 2025. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 17.11.2025 Bidhan (Sr. P.S.) I.T.A. No.: 434/KOL/2025 Assessment Year: 2019-20 M/s. New Charan Kanwal Finance Company Pvt. Ltd. Copy of the order forwarded to:

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order