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Facts
The assessee, Viva Boards Private Limited, received unsecured loans totaling Rs. 7,73,20,661/- from related parties for Assessment Year 2017-18. The Assessing Officer added this amount as unexplained cash credit under Section 68, suspecting lack of genuineness and creditworthiness due to factors like meagre income of lenders and cash deposits in their accounts. The Commissioner of Income Tax (Appeals) upheld this addition.
Held
The Tribunal found that the assessee had discharged its initial onus by proving the identity of the creditors and the genuineness of transactions through banking channels and supporting documents. It held that the Assessing Officer failed to provide sufficient time for verification and could not prove the loans were the assessee's undisclosed income, therefore, the additions were unwarranted.
Key Issues
Whether the addition of unsecured loans as unexplained cash credit under Section 68 was justified when the assessee claimed to have discharged the initial onus regarding identity, genuineness, and creditworthiness of creditors.
Sections Cited
68, 115BBE, 143(2), 142(1), 131
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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
करदाता का प्रतततितित्व/ : Shri A.V. Raghuram, Assessee Advocate. Represented by राजस्व का प्रतततितित्व/ : Ms. U. Mini Chandran, Department Represented by CIT-DR सुिवाई समाप्त होिे की ततति/ : 08.10.2025 Date of Conclusion of Hearing घोर्णध की तधरीख/ 07.11.2025 : Date of Pronouncement O R D E R PER MANJUNATHA G., A.M : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National 2 Viva Boards Private Limited Faceless Appeal Centre [in short “NFAC”], Delhi, dated 29.07.2025 relating to the assessment year 2017-18.
The grounds raised by the assessee read as under :
“1. On the facts and in the circumstances of the case, the order of the Id. CIT(A) is erroneous both on facts and in law.
2. The Id. CIT(A) erred in sustaining the addition made by the AO of Rs.7,73,20,616 as unexplained credit u/s.68 of the Act.
3. The authorities failed to appreciate that once the creditors are income tax assesses and have confirmed the advancing of loan and the medium of loan, the same cannot be treated as unexplained credits in the hands of the Appellant. (Tax Effect: Rs.5,97,30,177) 4. The findings of the Id. CIT(A) are factually and legally incorrect. The ld. CIT(A) has rejected the submissions and documents filed by the Appellant for flimsy reasons.
Any other ground that may be urged at the time of hearing.”
The brief facts of the case are that, the assessee company “Viva Boards Private Limited” is engaged in the business of manufacturing of paper and paper products, had filed its return of income for A.Y. 2017-18 on 30-10-2017, admitting total loss of Rs. 4,23,41,850/-. The case was selected for limited scrutiny through CASS and notice under Section 143(2) of the Income Tax Act, 1961, along with notice under Section 142(1) of the Act, was issued and served on the assessee company. The assessee company was called for relevant details including books of 3 Viva Boards Private Limited accounts, financial statements, etc. In response to the notices, the assessee company has furnished information through ITBA from time to time. During the course of assessment proceedings, the A.O., from the balance sheet filed by the assessee company, observed that, loans and advances from the related parties have increased to an amount of Rs. 7,73,20,661/-. Therefore, notice under Section 142(1) dated 29-08-2019 and 19-09-2019 was issued requiring the assessee company to furnish the information related to the details of unsecured loans taken from the related parties along with their names, PAN, communication addresses, confirmations, and ledger copies of the loans. In response to the notice issued by the A.O., the assessee company, vide letter dated 17.12.2019, has furnished the details of unsecured loans taken from the related parties, along with their names and addresses, PAN numbers, copies of the ITRs and the relevant bank account statements and also confirmation letters from the parties along with ledger accounts. The A.O., after considering relevant submissions of the assessee company, observed that, the income of the persons, who have given loans to the assessee company is very meagre in comparison to the amount of loan given. Further, 4 Viva Boards Private Limited the bank account statements contained frequent cash deposits in all the bank account statements, thereby raising suspicion relating to the genuineness and creditworthiness of the transactions. Therefore, issued summons under Section 131 of the Act, dated 17-12-2019 to Shri Pattipati Subbarao, Director of the assessee company, to produce all the persons, who had given unsecured loans during the year, along with their copies of ITRs filed for A.Y. 2015 to 2017-18 and copy of the bank account statement for F.Y. 2016-17. Since there was no response from the Director of the assessee company in response to the summons issued u/s 131 of the Act, the A.O. opined that, the unsecured loans claimed to have been received from the related parties are not genuine and the assessee company has failed to prove the identity of the creditors, genuineness of the transactions, and creditworthiness of the parties. Thus, the A.O. rejected the explanation furnished by the assessee company and made addition of Rs. 7,73,20,616/- under Section 68 of the Income Tax Act, 1961, as unexplained cash credit and taxed the same as per the provisions of Section 115BBE of the Income Tax Act, 1961. 5 Viva Boards Private Limited
Aggrieved by the assessment order, the assessee company preferred appeal before the Ld. CIT(A).
5. Before the Ld. CIT(A), the assessee company has furnished detailed written submissions on the issue, which has been reproduced at Paragraph 6 on pages 4 to 6 of the Ld. CIT(A)’s order. The sum and substance of the arguments of the assessee before the Ld. CIT(A) are that, the unsecured loans taken from related parties were genuine transactions and the same has been routed through proper banking channel. The assessee company has furnished the details of loan creditors, confirmation letters, their ITRs filed for the relevant assessment year along with copies of bank statements and discharged the onus cast upon the assessee company in terms of Section 68 of the Income Tax Act, 1961. However, the A.O., only for the reason of non-appearance in response to summons issued under Section 131 of the Act, has treated the genuine transactions as unexplained cash credits, even though, the A.O. has not provided sufficient time to the assessee company for producing the creditors for verification, which is evident from the date of summons issued on 17-12-2019 6 Viva Boards Private Limited and assessment order passed on 21-12-2019. Therefore, he submitted that, the addition made by the A.O. should be deleted.
The Ld. CIT(A), after considering the submissions of the assessee company and also taking note of the reasons given by the A.O. to treat the unsecured loans taken from the related parties, observed that, although the assessee company has filed a number of documents, but the same are of no use, since those documents are without particulars, and are not relating to the issue involved and no bank statements were provided for any of the parties as well as the assessee company’s own bank statements. In certain cases, there was cash was deposits before giving gifts to the lenders and hence, the A.O. was not satisfied with the documents and papers submitted. Therefore, observed that, the assessee company has failed to prove the creditworthiness of the parties by filing relevant details of the loan creditors. The bank statements of the persons, who have made payments to the assessee company also contains cash deposits on various dates. If one looks at the loan confirmations given by the lenders, there are number of entries where payments were received by way of journal entries, however, no explanation has been furnished by the assessee 7 Viva Boards Private Limited company nor tried to justify the entries. By merely stating that, the amounts have been advanced through banking channels does not prove the creditworthiness of the lenders. The assessee company has not given audited accounts of the company. Further, the tax audit report issued by the Auditor in Form 3CD and 3CB does not provide the details of receipts of loans by way of their entries. In few cases, the loans were given immediately after receipt of gifts. However, it has been stated by the assessee company that, the said gifts were received in cash in huge amounts. Although the assessee company has received loans from the related parties, no interest has been provided to any of the parties. The assessee company has received loans of Rs. 7.77 crores during the year on which no interest is payable. It is difficult to digest that, the lenders, who have meagre income, would provide interest-free loans to a private limited company. Further, all the loan creditors have filed their return of income at Nizamabad from one IP address. From the above details, it is very clear that, the assessee company has failed to establish the genuineness of the transactions and also failed to prove the creditworthiness of the parties. Thus, the Ld. CIT(A) rejected the 8 Viva Boards Private Limited explanation offered by the assessee company and upheld the additions made by the A.O. towards unsecured loans u/s 68 of the Act, as unexplained cash credits.
Aggrieved by the order of the Ld. CIT(A), the assessee company is now in appeal before the Tribunal.
The learned counsel for the assessee company Shri A.V. Raghuram, Advocate, submitted that, the Ld. CIT(A) erred in confirming the additions made by the A.O. towards loans received from related parties, even though, the assessee company had discharged the onus by filing relevant evidences and proved the identity of the creditors, genuineness of the transactions, and creditworthiness of the parties. The learned counsel for the assessee company, further referring to the bank statement of the assessee company, submitted that, all the loan amounts from all the parties have been received through proper banking channels. The creditors have furnished confirmation letters indicating payment of loan amounts through their bank accounts along with their bank statements and ITRs filed for the relevant assessment years. Further, the A.O. and the Ld. CIT(A) have generalized the 9 Viva Boards Private Limited issue of cash deposits into bank accounts, even though, the cash deposit is only in one solitary case of Shri Harshavardhan Pattipati. The assessee company has also explained the reasons for the cash deposit into the account of the creditor out of his agricultural income. Insofar as the non-furnishing of PAN numbers and ITRs of Pattipati Suchitra and Pattipati Srujan, both are minor children of the Director, Shri Pattipati Nageshwar Rao, and both of them had advanced loans to the assessee company out of gifts received from their father through bank account. Shri P. Nageshwar Rao has paid the amount through bank account directly to the company on behalf of his children, and the same has been treated as loans from the above two persons through journal entries. This fact has been duly explained to the A.O. and the Ld. CIT(A). The Ld. CIT(A) without appreciating the relevant facts, simply sustained the additions made by the A.O. only on the ground that, the income declared by the loan creditors was meagre when compared to the loan amount advanced to the assessee company. However, fact remains that, the income declared by the parties is not a relevant criteria to decide the creditworthiness of the creditors, if they have source of income 10 Viva Boards Private Limited from other activities like drawing from partnership firm, etc. Since the assessee company has furnished all the relevant details and proved the transactions beyond doubt, the A.O. ought not to have made the additions. The Ld. CIT(A) without appreciating relevant facts, simply sustained the additions made by the A.O. Therefore, he submitted that, the addition made by the A.O. should be deleted. In this regard, he relied upon the decision of ITAT, Hyderabad Bench in the case of K.L.R. Industries Ltd. Vs. DCIT in dated 15.07.2015.
The Ld. CIT-DR for the Revenue, Ms. U. Mini Chandran, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee company has failed to discharge the onus in terms of Section 68 of the Act, by filing relevant evidences. Although the assessee company has established the identity of the creditors, but has failed to prove the genuineness of the transactions and the creditworthiness of the parties, which is evident from the detailed reasons given by the A.O., where the A.O. has brought out a number of discrepancies in the documents submitted by the assessee company with regard to the genuineness of the transactions and the creditworthiness of the 11 Viva Boards Private Limited parties. Further, in the majority of cases, there were cash deposits in the bank accounts of the creditors before they transferred funds to the assessee company. The income declared by the creditors in their income tax returns filed for the relevant assessment year is meagre when compared to the amounts given to the assessee company. The A.O., after considering the relevant facts, has rightly held that, the assessee company has failed to prove the creditworthiness of the parties. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the addition made by the A.O. Therefore, she submitted that, the addition made by the A.O. should be sustained.
We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. The A.O. made an addition of Rs. 7.77 crores towards unsecured loans received from related parties on the ground that, although the assessee company has proved the identity of the creditors, but it has failed to prove the genuineness of the transactions and the creditworthiness of the parties. The A.O. had discussed the issue at length in the light of various evidences filed by the assessee company to prove the loan creditors, including 12 Viva Boards Private Limited confirmation letters from the creditors, their bank statements, and income tax returns filed for the relevant assessment years. According to the A.O., the income declared by the creditors is meagre when compared to the amount of loan given to the assessee company. Further, in few cases, there were cash deposits into the bank accounts of the creditors before the date the amounts were transferred to the assessee company. In some cases, the amount of loan has been given to the company out of gifts claimed to have been received in cash from various persons, but no evidence in support of such gifts was furnished. Therefore, the A.O. opined that, the assessee company has failed to establish the creditworthiness of the creditors and the genuineness of the loan transactions and accordingly treated the entire amount of unsecured loans received from related parties as unexplained cash credit and brought the same to tax under Section 68 of the Income Tax Act, 1961.
We have given our thoughtful consideration to the reasons given by the Ld. CIT(A) to sustain the additions made towards loans and advances received from related parties as unexplained cash credits under Section 68 of the Income Tax Act, in light of 13 Viva Boards Private Limited the various arguments advanced by the learned counsel for the assessee company, and we ourselves do not subscribe to the reasons given by the A.O. and the Ld. CIT(A) for the simple reason that, as per the provisions of Section 68 of the Act, the initial onus is on the assessee company to prove the identity of the creditors, genuineness of the transactions, and creditworthiness of the loan creditors. Once the initial onus is discharged by filing the relevant details, the onus shifts to the A.O. to prove otherwise. In other words, once the initial onus is discharged by the assessee company, then the A.O. should prove that, the amounts credited in the books of account of the assessee company is the undisclosed income and not loans and advances received from the loan creditors. In light of the above legal position, if we examine the facts of the present case, there is no dispute with regard to the fact that, the A.O. has never disputed the identity of the loan creditors. In fact, the A.O. accepted the fact that, the assessee company has filed relevant details such as names, addresses, and PAN numbers of the creditors along with confirmation letters to prove the identity of the loan creditors. Further, the assessee company has also furnished sufficient evidence in the form of 14 Viva Boards Private Limited financial statements to prove that, all the parties are shareholders of the assessee company, and the assessee company has allotted equity shares to all the loan creditors in the subsequent financial years. From the above details, there is no dispute with regard to the identity of the loan creditors. In so far as the genuineness of the transactions, although, the A.O. doubted the genuineness of the transactions on the ground of cash deposited into the bank account of one or two loan creditors, going by the evidence furnished by the assessee company, including confirmation letters along with the ledger accounts of the loan creditors, return of incomes filed for the relevant assessment year, bank account statements of the loan creditors, and other supporting evidences like financial statements of the partnership firms where few creditors were partners and had drawn amount from the partnership firms, there is no dispute with regard to genuineness of transactions between the assessee company and the loan creditors. Upon perusal of the relevant confirmation letters filed by the loan creditors, it is observed that, all the loan creditors have confirmed the loan transactions with the assessee company by providing their communication addresses and PAN numbers.
15 Viva Boards Private Limited The assessee company has also furnished relevant bank account statements of loan creditors along with bank account statements of the assessee company, indicating the transfer of funds from the bank accounts of the loan creditors to the bank account of the assessee company. Although, in one case i.e., in the case of Shri Pattipati Harshavardhan, there were cash deposits in the bank account of the creditor, but the assessee company has explained the transactions with relevant details and argued that, Shri Pattipati Harshavardhan is an agriculturist, and out of his agricultural income, he has deposited the cash into bank account. The A.O. on the basis of one instance of cash deposit in the bank account of Pattipati Harshavardhan, although the same has been explained by the assessee company, doubted genuineness of loan transactions.
Insofar as the loans received from Pattipati Suchitra and Pattipati Srujan, the assessee company submitted that, both the parties are the children of Shri P. Nageshwar Rao, the director of the assessee company, and the amounts advanced by them to the assessee company were out of gifts received from their father through banking channels. To prove the claim of the assessee 16 Viva Boards Private Limited company, the relevant bank account statement of Shri P. Nageshwar Rao has been furnished and upon careful perusal of the said bank statement, we find that, Shri P. Nageshwar Rao had transferred a sum of Rs. 55 lakhs in the name of Pattipati Suchitra and further sum of Rs. 55 lakhs in the name of Pattipati Srujan to the assessee company and the same has been treated as loans received from the above two persons by passing journal entries in the books of accounts of the assessee company. From the details furnished by the assessee company, it is undisputedly clear that, the above transactions have been routed through banking channel and the same has been given out of gifts received from his father. Therefore, the observations of the A.O. and the Ld. CIT(A) that, the loans received through journal entries have not been explained with relevant details is incorrect and cannot be accepted. Since the assessee company has filed all details in respect of each and every loan creditors and also proved the source of source by filing relevant supporting evidences wherever savailable, in our considered view, the observations of the A.O. regarding genuineness of the transactions and creditworthiness of the parties on the basis of income declared as per their income tax 17 Viva Boards Private Limited returns filed for the relevant assessment year is totally incorrect going by the facts available on record. No doubt, in many cases, they declared very less income when compared to the amount of loan given to the assessee company, but fact remains that, the assessee company has explained the case of Abhishek company, a partnership firm, where the firm has declared total income of Rs.2,85,590/- and has given loan of Rs.50,00,000/- out of the income of the partnership firm. Similarly, the assessee company has explained the loan received from Shri Vamshi Sri Hotel and claimed that, even though the firm has declared nil income, but the transaction has been routed through bank account. Since the assessee company has discharged the onus by filing relevant evidences and also proved identity of the creditors, genuineness of the transactions and creditworthiness of the parties, in our considered view, the A.O. has erred in making additions towards loans received from the related parties as unexplained cash credit without bringing on record any evidences to the contrary and proved that, the said loans are undisclosed income of the assessee company. It is well established principle of law by the decisions of various Hon’ble High Courts, including the decision of the Hon’ble 18 Viva Boards Private Limited Supreme Court in the case of CIT Vs. Lovely Exports Private Limited Vs. CIT, 216 CTR 195 (SC), wherein it has been clearly held that, once the initial burden is discharged by filing relevant evidences and proved the identity of the loan creditors and genuineness of the transactions, then the Department is free to proceed on the loan creditors in accordance with law, but the sums received from the loan creditors cannot be treated as income of the assessee company.
Insofar as the observation of the A.O. with regard to non- appearance of Shri Pattipati Subbarao, Director of the assessee company, and taking adverse inference on the issue, in our considered view, going by the date of summons issued under Section 131 of the Act, dated 17.12.2019 and date of assessment order on 21.12.2019, the A.O. has given three days time for furnishing or producing the parties along with their income tax returns for verification, and from the above, it is very clear that, the A.O. had not given sufficient time to the assessee company to produce the parties in person for verification, and therefore, the inference drawn by the A.O. on the basis of non-appearance of the Director and the loan creditors cannot be attributable to the fault 19 Viva Boards Private Limited of the assessee company. In the present case, since the assessee company has discharged the initial onus by filing relevant evidences, in our considered view, the A.O. ought not to have made additions towards loans and advances received from the related parties as unexplained cash credit of the assessee company.
The assessee company has relied upon the decision of KLR Industries Ltd. Vs. DCIT in dated 15-07- 2015. The Coordinate Bench of the ITAT, Hyderabad, under identical set of facts, under identical additions made by the A.O. and on the issue of identical addition towards loans and advances under Section 68 of the Act, as unexplained cash credit, deleted the additions by observing as under :
“13. We have considered the rival submissions and perused the orders of the revenue authorities as well as other materials placed on record. We have also applied our mind to the decisions relied upon by the learned A.R. As could be seen, the A.O. in course of assessment proceedings finding that the assessee during the relevant previous year has introduced an amount of Rs.9,88,50,000 as share application money in the name of 19 persons enquired into the source of such credit and ultimately concluded that assessee’s claim that they represent share application money received from certain persons cannot be accepted and accordingly treated them as unexplained cash credit under section 68 of the Act. Learned CIT(A) also confirmed such addition. As can be seen from the materials available on record, before the A.O. assessee submitted confirmation letters in case of seven persons covering an amount of Rs.2,95,91,391. In course of hearing of appeal before the first 20 Viva Boards Private Limited appellate authority, the assessee submitted confirmation letters containing not only the name, address of the party, but also the income tax particulars including PAN. In addition to the confirmation letters, the assessee also submitted affidavits of the concerned persons confirming advancing of money along with other necessary details like the mode of advancement of money, account copies etc., before the first appellate authority. As it appears the A.O. as well as Ld. CIT(A) only emphasizing on the fact that in the confirmation letters, the concerned persons have stated of having advanced the amounts towards investment whereas, the assessee it its books has shown the amount as share application money, which according to the A.O. and learned CIT(A) the assessee has failed to substantiate through documentary evidence, the credits have been treated as unexplained cash credits under section 68 of the Act. It is evident from record, in course of proceeding before departmental authorities, it was explained by the assessee that the advances were actually obtained by the Director’s from their known persons and on their advice it was shown as share application money in the books of the company since capital was required for the company to diversify its activities to real estate business. It is a fact on record that all the creditors have not only confirmed of having advanced the amount in question, but the entire transaction is through proper banking channel by way of cheque or DD. 13.1. It is a well known principle of law that for establishing a credit appearing in the books of accounts, the initial onus is on the assessee to prove such credit by establishing the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor. In the facts of the present case, it is a matter of record that the assessee has produced confirmation letters in respect of all the creditors wherein not only the identity of the creditors with their address have been furnished but income tax particulars including PAN has also been given. Therefore, the identity of the creditors remains established. In fact learned CIT(A) has also accepted this position. The second ingredient which requires fulfillment is the genuineness of the transaction. As is evident, the entire transaction has been through proper banking channel. Therefore, as far as the assessee is concerned, the genuineness of the transaction has been established as not only the transaction is through banking channel but the source of such credit has also been proved by the assessee. Now coming to the third ingredient, the creditworthiness of the creditors, it is to be noted that all the creditors have not only confirmed of having advanced the money to the assessee but have also stated that it is out of their own sources. It is also not disputed that all the creditors are income tax assessees’ in the role of the department. 13.2. As it appears from the orders of the A.O. as well as CIT(A) as well as the remand report submitted by the A.O., the primary reason for not accepting assessee’s explanation is creditworthiness has not been 21 Viva Boards Private Limited proved. If at all the A.O. or Ld. CIT(A) had any doubt with regard to creditworthiness of the creditors, it should have triggered an enquiry by the A.O. to find out the real facts. When the identity of the creditors along with their income tax particulars including PAN and assessment details were available with the A.O. it would not have been difficult on the part of the A.O. to verify their bank accounts and other details to ascertain whether the advances were from explained sources. Even the A.O. could have taken up the issue with the concerned A.Os with whom the creditors are assessed. When all the creditors are assessees’ of the Income Tax Department and the entire transaction is through proper banking channel, it is not understood how the A.O. and Ld. CIT(A) could doubt the creditworthiness of the concerned creditors without bringing any positive evidence or material on record through a process of enquiry to indicate that the creditors did not have the creditworthiness to advance the amount. It further needs to be mentioned, when the entire transaction is through proper banking channel, it is for the department to bring positive evidence on record to establish that it is the assessee’s money which has been routed back to him through the creditors. 13.3. In our view, though, the assessee has discharged the primary onus cast upon it by establishing the identity of the creditors, the genuineness of the transaction and the source from which the credit has come, but the department has miserably failed to prove the fact that the creditors do not have the creditworthiness or the transaction is not genuine. Only because the credits have been shown as share application money in the books of accounts of the assessee, it will not automatically lead to the conclusion that the amount received is unexplained credit as the assessee has failed to establish its claim that the money advanced is towards share application money. Regardless, whether the advances were towards share application, as claimed by the assessee, or investment as stated by the creditors in the confirmation letters and affidavits, fact remains that the assessee has proved the source from which such credit has come to him. Moreover, it is not in dispute that in addition to the confirmation letters and other evidences filed, the assessee in course of proceeding before Ld. CIT(A) has also produced affidavits from the concerned parties wherein they have accepted that the amounts were advanced by them towards investment in the company. Ld. CIT(A) has refused to take cognizance of the affidavit by stating that they are in the nature of additional evidence. In our view, when certain statements have been made in the affidavit which are only supporting the confirmation letters already filed, they cannot be ignored by treating them as additional evidence. The averments made in an affidavit prima facie has to be considered to be correct unless evidence is brought on record to falsify the claim made in the affidavit. At this juncture, it needs to be mention that in course of hearing before us, Ld. CIT/D.R. submitted that though the assessee was asked by the department to produce creditors for examination, but assessee failed to produce them. Since, learned Counsel 22 Viva Boards Private Limited appearing for the assessee strongly denied and disputed the aforesaid claim of the Ld.CIT/D.R., the Bench made a specific query to the learned D.R. to produce evidence before the Bench by way of order sheet entry or communication made to the assessee to indicate that assessee was asked to produce creditors for examination. Though, Ld.D.R. stated before us that such evidence would be brought to record by way of written submission but till date neither any written submission or evidence have been filed before us by the Ld. CIT/D.R. Thus, from the aforesaid facts, a conclusion can be drawn that the assessee was never asked to produce the creditors. If the department had any doubt with regard to the genuineness of the transaction or creditworthiness of the creditors, they should have made proper enquiry and brought positive material on record to establish such fact. More so, when not only the identity of the creditors are available with the department, but their income tax particulars are also submitted by the assessee. The department could have also made enquiry with regard to the source of the money advanced as it was through proper banking channel and could have ascertained whether there is a nexus between the unaccounted income of the assessee and the money advanced. Without any such enquiry, the department cannot be permitted to treat the credit as unexplained income of the assessee on mere presumption and surmises or solely relying upon the entries made in the books of account showing the credit as share application money. In the aforesaid facts and circumstances, the assessee having proved the credits by establishing the identity of the creditors, genuineness of the transaction and creditworthiness of the creditors, through proper documentary evidence, he is not required to prove any further. As far as decision relied upon by Ld. D.R. is concerned, on careful analysis of the same, we fail to understand how it will apply to the facts of the present case. Therefore, on overall consideration of facts and materials on record, we are of the view that no addition under section 68 of the Act can be made in the present case. Accordingly, we delete the addition made by the departmental authorities and allow the ground of the assessee.
14. In ground No.3 of the revised ground, the assessee has challenged the addition made of Rs.6,51,93,703 as unexplained credit under section 68 of the Act.
Briefly the facts are during the assessment proceedings, the A.O. while verifying the accounts of the assessee noticed that assessee has shown an amount of Rs.12,41,93,703 as trade credits in the name of 11 persons. When called upon to explain the source of such credits, it was submitted by the assessee that during the year assessee became interested in real estate business, for which purpose, it accepted advances from certain parties which were shown as credit deposits. The A.O. however was of the view that the amount introduced are in the nature of cash credit, hence, called upon the assessee to prove the identity, creditworthiness of the creditor and genuineness of the 23 Viva Boards Private Limited transaction. In response to query raised by the A.O. assessee submitted confirmation letters from two parties for an amount of Rs.5,90,00,000. However, as far as other credits are concerned, as observed by the A.O., the assessee could not even submit confirmation letters. Keeping this fact in view, the A.O. while accepting the credits of Rs.5,90,00,000, treated the balance amount of Rs.6,51,93,703 as unexplained cash credit under section 68 of the Act and added it to the income of the assessee. Being aggrieved of such addition, assessee preferred appeal before the first appellate authority.
16. In course of hearing of appeal before the first appellate authority, out of the 9 persons in whose cases assessee could not produce confirmation letters before the A.O., assessee produced confirmation letters in respect of six persons for credit amount of Rs.6,23,24,518. On the basis of the submissions made by the assessee and evidences produced, Ld. CIT(A) called for a remand report. In the remand report, the A.O. stated that though the assessee has established the identity of the creditors, but, he has failed to establish the creditworthiness of the creditors and genuineness of the transaction. Learned CIT(A) after considering the report of the A.O. confirmed the addition by observing that assessee has failed to prove the creditworthiness of the creditors and genuineness of the transaction.
We have considered the submissions of the parties and perused the orders of the authorities and other materials available on record. The Learned Counsel for both the sides adopted the arguments advanced in case of cash credit. In addition, learned A.R. submitted that the ingredients of section 68 cannot be applied to trade credits as it is in course of business transaction. The learned A.R. submitted that the amounts were received as advance towards real estate business/development activities to be undertaken by the assessee. In this context, he not only relied upon the confirmation letters but also copy of development agreement entered with some of the parties. On perusal of assessment order, it is very much clear that the A.O. has disallowed the amount of Rs.6,23,24,518 only for the reason that the assessee has failed to submit confirmation letters from the concerned creditors, whereas, he accepted the credits in respect of which, the assessee could submit confirmation letters. On going through the confirmation letters, it is very much evident that not only the creditors have confirmed of giving advance to the assessee, but it is also evident that all of them are income tax assessee’s as well as the transaction is through proper banking channel. On a perusal of a sample copy of the registered development agreement between the assessee and M/s. Suchir India Developers P. Ltd., a copy of which is placed on record, the claim of the assessee that these are trade credits cannot be disbelieved. Even assuming that the credits are not trade advance, fact remains assessee has produced documentary evidence to establish the identity of the creditors by 24 Viva Boards Private Limited furnishing their postal address as well as PAN with income tax particulars. It is also not disputed that the advances were received through proper banking channel, hence, genuineness of the transaction also cannot be doubted. Therefore, if the A.O. had any doubt with regard to the creditworthiness, he should have made proper enquiry with the concerned person to find out whether they had the capability to advance the amount to the assessee. The material on record demonstrate that A.O. without making any enquiry has made the addition merely on presumption and surmises. In case of trade credits also assessee has established the identity of the creditors by furnishing confirmation letters containing their name, address, income tax particulars etc. The entire transaction is through proper banking channel, thereby, proving its genuineness. Lastly, all creditors are income tax assessees which prove the source of credits. Therefore, following our detailed reasoning in paragraph Nos.13 to 13.3 in case of share application money, which also equally applies to the trade creditors, we delete the addition of Rs.6,23,24,518. However, in respect of three creditors viz., Palomi Estates, Zisanuddin and others for a total amount of Rs.28,69,185, it is a fact on record that assessee has neither furnished any confirmation letters nor any other evidence to establish the identity of the creditors, their creditworthiness and genuineness of the transaction. Therefore, in absence of any evidence submitted by assessee to prove the credits for the aforesaid amount, addition to the extent of Rs.28,69,185 is sustained. This ground is partly allowed.
15. In this view of the matter and considering facts and circumstances of this case and also by following the decision of ITAT, Hyderabad Bench in the case of KLR Industries Ltd (supra), we are of the considered view that, the assessee company has discharged the onus by filing all details and proved identity of the creditors, genuineness of transactions, and creditworthiness of the parties. The A.O. without appreciating relevant facts simply made additions towards loans and advances as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Ld. CIT(A)
25 Viva Boards Private Limited without appreciating relevant facts simply sustained the additions made by the AO. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the additions made towards loans and advances under Section 68 of the Act, as unexplained cash credit.
In the result, the appeal filed by the assessee company is allowed.
Order pronounced in the Open Court on 7th November, 2025. (श्री रवीश सूद) (मंजूिधथ जी) (RAVISH SOOD) (MANJUNATHA G.) न्यायिक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Hyderabad, dated 07.11.2025. TYNM/sps