DCIT, CENTAL CIRCLE 2(3), KOLKATA vs. LUMINO INDUSTRIES LIMITED, MERLIN ACROPOLIS, E.K.T.

The ld. DR strongly controverted and opposed the appellate order of the ld. CIT(A) by submitting that the lenders were lacking creditworthiness. He also pointed out the spot enquiries conducted by 3 & C.O No.57/Kol/2025 Lumino Industries Ltd the ld. AO u/s 131 of the Act in the course of which several of these lenders were not found at their addresses. He further submitted that these lenders were shell entities as was established by the ld. AO in light of the statements of entry operators and therefore claimed that the impugned addition be restored.

The ld. AR for the assessee vehemently submitted before the bench that the order passed by the ld. CIT(A) is very reasoned and cogent one passed after taking into account the submissions and evidences filed by the assessee and facts on record and after following various decisions of different judicial forums. The ld. AR, while referring to the evidences filed by the assessee as well as by the subscribers in response to notices issued u/s 133(6) of the Act, submitted that the assessee as well as the subscribers have filed all the evidences proving the identity and creditworthiness of the subscribers as well as genuineness of the transactions. The ld. AR also submitted that, when the lenders had complied with the notices u/s 133(6) which were issued and served through registered post, the impugned addition could not be made on the ground that there was no compliance to summon issued u/s. 131 of the Act upon the lenders. The ld. AR further pointed out fallacies and infirmities in the statement(s) of the entry operators which were relied upon by the ld. AO. He contended that none of these persons had stated that they had provided any accommodation entries to the assessee company and therefore the ld. AO’s reliance on these statements was misplaced. According to the ld. AR, even otherwise, the ld. AO could not have relied on these statements without affording opportunity to cross examine these persons when admittedly their statements were recorded at the back of the assessee.

We have heard the rival submissions and perused the material available on record. We note that according to the ld. AO, the assessee had borrowed loans aggregating to Rs.7,75,00,000/- from the following ten parties. We observe that ld. AO had initially made independent 4 & C.O No.57/Kol/2025 Lumino Industries Ltd enquiries u/s 133(6) of the Act from all the above lenders, by issuing notices and also noted that all these notices were served upon the lenders and they complied with the same. In the appellate proceedings, the ld. CIT(A) has allowed the appeal of the assessee by elaborately examining the documentary evidences furnished by the lenders by passing a well-reasoned and speaking order. We also note that each of these lenders had filed all the relevant documents which were required by the AO to substantiate their identity and creditworthiness and genuineness of the transactions. Besides we note that the assessee has filed detailed paper book comprising of the documents furnished by these 10 lenders in response to notices issued u/s 133(6) of the Act which are available from page 76 to 707 of the paper book. The lenders have filed all the documents including their MCA data, loan confirmations, source of funds, bank statements, ITR acknowledgement, audited accounts, extracts of bank statements, 26AS evidencing deduction of TDS on the interest amount, etc. taking into account all these documents, we are in full agreement with the ld. CIT(A) that the lenders / the assessee had filed the relevant evidences to discharge their onus of substantiating the identity and creditworthiness of the lenders and genuineness of the transactions. According to the AO though these lenders had complied with the notices u/s 133(6) and provided the documents in support of the loan transactions, but these transactions were not genuine because the ld. AO had established that these entities were shell entities managed by entry operators. To this, ld. AR has filed a summary statement outlining the details of these loan creditors and the corresponding entry operators who were purportedly managing them along with their remarks explaining why these statements were either factually distinguishable or of no relevance. It was brought to our notice that 4 lenders, viz. M/s Albino Investment Consultants Pvt Ltd, M/s Welkin Investment Pvt Ltd, M/s Atlantic Invest Advisory Pvt Ltd and M/s Basil Tracon Pvt Ltd was alleged to be controlled by Shri Pankaj Agarwal.

In respect of the lenders M/s Vivek Tracom Pvt Ltd&M/s Paritosh Electricals Pvt. Ltd., the ld. AO is found to have relied on the statement of Shri Raj Kothari dated 02.03.2016 and also the spot enquiries made by the inspector wherein he was unable to locate these companies at their given addresses. We find that the assessee had placed on record the copies of the assessment orders passed u/s 143(3) of the dated 20.12.2016 and 14.12.2016 in the cases of M/s Vivek Tracom Pvt Ltd& M/s Paritosh Electricals Pvt. Ltd respectively for the relevant AY 2014- 15, which is available at Pages 107 to 112&138 to 144 of the Paper book. There is merit in the assessee’s contention that when the ld. AOs' of the respective lenders has had accepted their source of funds and the genuineness of the loans advanced during the years, it would be improper to dispute the genuineness of the loans availed from these two parties by the assessee. We also find that the coordinate benches of this Tribunal in the case of ACIT vs. Machinery Agencies India(ITA No. 2100/Kol/2018) on similar facts and circumstances held that the ld. AO’s reliance on the statement of Shri Raj Kothari to justify the addition u/s 68 of the Act was unsustainable.

So far as the genuineness of the transactions is concerned, the ld. AO sought to justify the impugned addition by citing example of M/s Vivek Tracom Pvt Ltd that it had reported meagre income which did not commensurate with the loan advanced by it. The ld. AO was of the view that the said lender had accommodated losses to reduce its taxable income. This observation of the ld. AO is also found to be of no relevance in as much as if the ld. AO had any suspicion on the expenses debited by the lender in their books, then action could be taken against the lender and not the assessee. As already noted by us above, each of the shareholders had sufficient own funds and reserves to justify the investments made by them in the assessee company. The fact that some of the lenders did not derive sufficient profits during the year cannot be the sole determinative factor to doubt their creditworthiness. From the audited financials of these lenders, it is observed that each of them had sufficient owned funds to justify the loans advanced by them. These lenders were taxed in their own right and they had also provided their source of funds / bank statements. According to us, nothing much turns on the fact that some of the shareholders had reported meagre income in the relevant year. 9 & C.O No.57/Kol/2025 Lumino Industries Ltd 14. According to the ld. AO, some of these lenders had issued share capital at a premium in earlier years, which he suspected was not genuine. This observation of the ld. AO is also found to be of no relevance in as much as by ld. AO's own admission, these lenders had raised securities premium on issue of shares in their own right in earlier year/s. No fresh capital was issued during the year by these lenders during the year and therefore the securities premium balance appearing in their financial statements had been brought forward from earlier years. Clearly therefore, the securities premium of these shareholders did not constitute the immediate source of loans advanced by them to the assessee.

For the aforementioned reasons, we find ourselves in agreement with the ld. AR that, the entire line of reasoning given by the ld. AO to doubt the creditworthiness of the shareholders cannot be countenanced.

As already noted earlier, all the facts and details concerning these ten lenders are available on record. It is further observed that, the assessee being an NBFC had obtained several loans in the course and for the purposes of the business. From the statements of accounts of these lenders, it is seen that the loans taken from these parties were mostly repaid in the same year or at the most, in the subsequent year. We also observe that the assessee would provide and discharge the interest on these loans on quarterly basis after deduction of TDS u/s 194A of the Act. Hence, the details available on record substantiates the genuineness of these transactions. The case of the assessee is supported by series of decisions of Hon'ble Calcutta High Court namely, PCIT vs. Overtop Marketing (P.) Ltd (148 taxmann.com 94)&PCIT vs. Shree Leathers (supra). We also refer to the decision of the co-ordinate Bench in case of Iris Clothings Limited Vs. DCIT in for A.Y. 2013- 14 vide order dated 02.01.2024, wherein similar issue has been decided in favour of the assessee by the Bench. The operative part of which reads as under:- 10 & C.O No.57/Kol/2025 Lumino Industries Ltd “8. After hearing the rival contentions and perusing the relevant material placed before us, we find that the assessee has raised loans from twelve entities, the details of which were given in the assessment order in para 3. We note that the assessee has also paid interest on these loans after deduction of tax at source and the details were also given in the same table. The tax deducted at source was also deposited in the Government Treasury. We would like to note that these loans were repaid through banking channel even prior to passing of the assessment order by the ld. Assessing Officer. The assessee has filed copies of ITR acknowledgments, master-data of the lenders, audited financial statements, Memorandum & Article of Associations, copies of bank statements, loan confirmations and ledgers showing receipt and refund of loans alongwith TDS details in respect of each of the lenders, which are filed in the paper book from pages no. 11 to 718. We also note that the AO issued notices under section 133(6) of the Act to twelve parties which could only be served to six parties and remaining six cases, the notices were returned back unserved. We note that the six parties, to whom notices were served, have duly responded and replied with all the requisite details. The ld. Assessing Officer has made the addition on the basis of the statements of three persons, namely Shri Shri Abhishek Chokhani, Shri Sanjay Kumar Drolia and Shri Praveen Kumar Agarwal and stated that Iris Clothings Limited they have arranged the loans from four parties. The ld. Assessing Officer has disbelieved the transactions on the basis of the statements of three persons, who were stated to have arrangedloans four parties mentioned at serial nos. 1, 2 &6 and 11 and reached a generalized conclusion even on the remaining parties. The ld. CIT(Appeals) has simply dismissed the appeal of the assessee by passing a very cryptic and non-speaking order. Now the issue before us is whether the assessee has duly discharged his burden by filing the aforesaid evidences before the authorities or not. We note that the assessee has filed all the evidences qua these lenders along with their ITRs, confirmation certificates, names, addresses, PANs banking statements showing the receipt and repayment of loans alongwith their Master Data. The ld. Assessing Officer has relied only on the statements of three parties as stated above, who according to the AO have arranged the loans from four parties mentioned at serial nos. 1, 2 & 6 and 11. In our opinion, the assessee has duly discharged its onus by 11 & C.O No.57/Kol/2025 Lumino Industries Ltd filing evidences before the ld. Assessing Officer and ld. Assessing Officer has acted on the basis of statements of three persons, which lacks evidentiary value in absence of any substantive and corroborative evidences being brought on records. The ld. AR stated that where the AO has any doubt about the lenders where the assessee has furnished all the evidences before the AO, then the matter should be looked into the hands of the creditors and not the assessee. The case of the assessee is supported by the decisions of the Hon'ble Calcutta High Court which are discussed as under: a) In the case of PCIT -vs.-Sreeleathers (supra), the Honble Court has held as under: …... b) In the case of Commissioner of Income Tax -vs.- M/s. Dataware Private Limited(supra):- …... c) In the case of Crystal Networks (P) Limited -vs.- Commissioner of Income Tax (supra) The Hon'ble Court :- …... d) ITAT, Kolkata in the case of Poddar Realtors -vs.- ITO has decided as under after following the decision of the Hon'ble Calcutta High Court in the case of Pr.CIT vs. Sreeleathers (supra) :- …...

In all the aforesaid decisions, it has been held by the Hon'ble Courts and also by the Coordinate Bench of this Tribunal, where the assessee has filed all the evidences concerning transactions to establish the identity and creditworthiness of the lenders and to prove the genuineness of the transactions and the ld. Assessing Officer has not carried out any further verification, the addition cannot be made in the hands of the assessee. The AO must examine the issue in the cases of creditors and make the addition there and not in the hands of the assessee. The assessee has discharged its initial burden and the burden shifted on the Assessing Officer to enquire further into the matter by filing the evidences, which he failed to do. Accordingly, we set 12 & C.O No.57/Kol/2025 Lumino Industries Ltd aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the addition.”

The case of the assessee is also squarely covered by the decision of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. vs. CIT (35 taxmann.com 432) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the creditors, the fact that summon issued were returned unserved or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors. The relevant portion of the decision is extracted below:

The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.

Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.

In our opinion, also once the loans were repaid then the provisions of Section 68 of the Act cannot be invoked in respect of the loan transactions as has been held by the Hon’ble High Court of Gujarat in the case of PCIT vs. Ambe Tradecorp (P.) Ltd. (2022) (145 taxmann.com 27), in which the Hon'ble High Court has held that once the repayment of loan has been established based on the documentary evidences then the credit entries cannot be looked in isolation after ignoring the debit entries despite the fact that debit entries were carried out in the later years. Even the case of the assessee is squarely covered by the decision of the co-ordinate bench decision passed in the case of Poddar Realtors 14 & C.O No.57/Kol/2025 Lumino Industries Ltd Vs. ITO in vide order dated 22.06.2023. Both the decisions have been followed by the ld. CIT (A) while deleting the addition. Under these circumstances, we do not find any infirmity or defect in the order of the ld. CIT (A) which warrant our interference. Accordingly, we uphold the appellate order by dismissing the appeal of the Revenue 19. In view of our above decision, the cross objections filed by the assessee challenging the validity of the assessment for improper issue of notice u/s 143(2) of the Act has become academic in nature and is therefore dismissed as having become infructuous.

In the result, both the appeal of the Revenue and cross objections of the assessee are dismissed. Kolkata, the 16th September, 2025.