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Facts
The assessee, engaged in import and trading of copper-based products, received an advance of Rs.2,02,00,000/- from M/s Emkay Industries Ltd. The AO treated this as an unexplained cash credit under Section 68. The CIT(A) upheld the addition, primarily due to a typographical error in the creditor's name in the assessee's ledger.
Held
The Tribunal held that the identity, creditworthiness, and genuineness of the creditor were established through documentary evidence, including PAN, MCA data, ROC filings, and bank statements. A mere clerical error in the name did not warrant disregarding the transaction.
Key Issues
Whether a cash credit under Section 68 can be added solely based on a clerical error in the creditor's name, despite other evidence establishing identity, creditworthiness, and genuineness of the transaction.
Sections Cited
68, 263, 143(3), 131, 133(6)
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Order PER LALIET KUMAR, J.M: This appeal by the assessee is directed against the order dated 20.01.2025 passed by the Ld.CIT(A)/NFAC, Delhi, upholding the addition of Rs.2,02,00,000/- made under section 68 of the Income-tax Act, 1961 (“the Act”) in the assessment framed pursuant to the order passed u/s 263.
The assessee is aggrieved by the findings of the authorities below and is in further appeal before this Tribunal.
Briefly, the facts of the case are that the assessee is an individual engaged in the business of import and trading of copper-based products through his proprietorship concern, Usha Impex. The assessee filed the return of income on 29.09.2014 declaring total income of Rs.42,83,680/-.
3.1 The original assessment u/s 143(3) was completed on 15.11.2016 wherein the income was assessed at Rs.45,36,066/- after making a small disallowance of Rs.2,52,386/-. This assessment was later subjected to revision u/s 263 by the Pr. CIT-3, Ludhiana on 25.03.2019, on the ground that the sundry creditor appearing in the assessee’s balance sheet to the tune of Rs.2,02,00,000/- had allegedly not been duly verified. Pursuant thereto, the case was taken up for re-assessment, and the Ld. AO framed assessment u/s 143(3) r.w.s. 263 on 22.12.2019. 3.2 The Ld. AO treated the said sum of Rs.2,02,00,000/- outstanding in the name of M/s Emkay Industries Ltd. as unexplained cash credit u/s 68 of the Act. The Ld. AO alleged that the assessee failed to establish identity, creditworthiness, and genuineness of the creditor, and further observed that no business transaction took place between the parties. Multiple observations regarding alleged discrepancies in the name of the creditor, nature of transactions, bank entries, and non-filing of return by the creditor were relied upon.
3.3 The Ld. CIT(A) upheld the addition. The Ld. CIT(A) did not dispute the documents placed on record by the assessee but remained primarily influenced by one factor—namely, that the assessee had earlier submitted the creditor’s name as “M/s Emm Kay Industries Ltd.” instead of “M/s Emkay Industries Ltd.”. The Ld. CIT(A) held that this inconsistency in the naming of the creditor cast doubt on the entire transaction.
Aggrieved, the assessee is before this Tribunal on the grounds mentioned in the appeal.
The Ld. AR submitted that the assessee had received an advance of Rs.2,02,00,000/- from M/s Emkay Industries Ltd. against a proposed supply of approximately 100 tonnes of bare copper wire. The assessee is a recognised importer of the product, and Emkay Industries Ltd. is engaged in manufacturing super-enamelled copper wire, requiring such copper as raw material. The proposed transaction required the creditor to pay the full purchase consideration before the assessee imported the goods. However, as the creditor failed to pay the remaining amount (approximately Rs.4 crores in total), the transaction could not materialise, and the assessee returned the entire advance in FY 2017-18 and 2018-19 through normal banking channels.
5.1 The Ld. AR submitted that the identity of the creditor is conclusively proved by giving the evidence of the PAN (which was correctly mentioned even during the assessment proceedings),MCA Master Data showing active corporate status,ROC-filed annual return of the creditor, Confirmed ledger accounts exchanged between the parties, Bank statement of the creditor evidencing transfer of funds The Ld. had further drawn our attention to the copies of orders of Hon’ble ITAT Amritsar Bench in the case of Emkay Industries Ltd. (PAN-confirmed) which further establish the existence and tax identity of the Company.
5.2 On the basis of these documents the assessee has submitted that the identity of M/s Emkay Industries cannot be disputed. Further, regarding creditworthiness, the Ld. AR submitted that the creditor’s bank statement reveals that the funds were available and transferred through regular banking channels. There is no record to indicate that the bank entries of the creditor were manipulated, fabricated, or made by anaccommodation entry operator. With regard to genuineness of the transaction, the Ld. AR emphasised that: The receipt of funds is through bank transfer, The purpose of advance is commercially explained, The entire amount has been repaid through banking channels, The assessee has consistently reflected the balance in audited financial statements from FY 2013-14 to FY 2018-19. 5.3 The Ld. AR submitted that the only real issue arises from a clerical error in the assessee’s internal ledger, where the name was wrongly typed as “Emm Kay Industries Ltd.” instead of “Emkay Industries Ltd.”, but the PAN, address, and all documents always related to Emkay Industries Ltd.. A mere typographical mistake, without any mala-fide, cannot be the sole basis to disregard an otherwise fully documented transaction.
5.4 The Ld. AR placed relianceon various judgments including: Kayathwal Estate Pvt. Ltd. (SC) PCIT v. Overtop Marketing Pvt. Ltd. (P&H HC) PCIT v. E-City Projects Lucknow Pvt. Ltd. (Orissa HC) PCIT v. Neotech Education Foundation (Guj HC) PCIT v. Ojas Tarmake Pvt. Ltd. (Guj HC) wherein it has been held that when identity is proved, transaction is routed through banking channels, and the amount is repaid, addition u/s 68 is unjustified.
Per contra, the Ld. DR supported the orders of the lower authorities and submitted that the assessee failed to file a satisfactory explanation of the entries. The Ld. DR emphasized that the creditor did not appear personally in response to summons issued u/s 131 and that the bank account of the creditor showed contemporaneous deposits prior to issuing the advance to the assessee. According to the Ld. DR, such credit pattern raises doubts about the creditworthiness of the creditor. 6.1 The Ld. DR further submitted that the absence of any eventual sale of goods between the parties and the delay in repayment justify the suspicion entertained by the Ld. AO.
We have carefully considered the rival submissions, perused the assessment order, the impugned order of the Ld. CIT(A), the documents placed in the Paper Book, and the various evidence referred to during the course of the hearing. 7.1 The core dispute revolves around the treatment of the outstanding credit of Rs.2,02,00,000/– standing in the name of M/s Emkay Industries Ltd., which the Assessing Officer characterised as unexplained under section 68 of the Act. The foundation of the addition appears to rest largely on a clerical variation in the spelling of the creditor’s name, wherein the ledger reflected the creditor as “Emm Kay Industries”, leading the AO to presume that no such entity existed. 7.2 The evidences placed on record paint a completely different picture. The assessee furnished MCA Master Data, ROC filings, PAN details, confirmation letters, audited financial statements and past orders of the ITAT Amritsar Bench in the name of Emkay Industries Ltd., all of which unequivocally establish that it is an existing corporate entity, duly incorporated, holding a valid PAN and regularly assessed to tax. When such statutory records remain undisputed, a mere typographical variation in the spelling of the creditor’s name in internal ledgers—such as “Emm Kay”— cannot be a valid basis to doubt its identity, particularly when the PAN, ROC particulars and audited documents consistently relate to the same juridical entity. It is well settled that PAN is the primary statutory identifier, and where PAN, corporate filings and audited records are available, a clerical mis- description in the ledger cannot override unimpeached substantive evidence. The Ld. AO ought to have appreciated that the spelling variation was only a staff-level error, while the identity of the creditor stood fully established through government-verified documents; consequently, the first limb of section 68 stood duly satisfied. 7.3 The genuineness of the transaction also stands firmly established from the evidence produced. The entire sum of Rs.2,02,00,000/– was received by the assessee through regular banking channels from the bank account maintained in the name of Emkay Industries Ltd. The ledger accounts of both the assessee and the creditor correspond with the respective bank statements, and at no stage has the Revenue pointed out any discrepancy in the banking trail. Further, the assessee has demonstrated that the very same amount was repaid in FYs 2017–18 and 2018–19 through account- payee banking channels to the same undisputed bank account of Emkay Industries Ltd. The repayment entries match precisely with the earlier receipts. This factual matrix remains unrebutted by the lower authorities.
7.4 It is further noteworthy that neither the Assessing Officer nor the Ld. CIT(A) ever questioned the bank name, bank account number or the movement of funds from and to the same account of the creditor. Once both inflow and outflow of funds are established through a continuous and verifiable banking route, the allegation regarding non-existence of the creditor or lack of genuineness of the transaction becomes wholly unsustainable. When repayment to the same bank account has been accepted by the Department, the very foundation for invoking section 68 stands considerably weakened, if not completely demolished. 7.5 As regards the observation of the AO that no sale of goods eventually took place, we find such reasoning to be legally misplaced. Section 68 concerns itself strictly with three parameters—identity of the creditor, creditworthiness of the creditor, and genuineness of the transaction. It does not stipulate that the loan or advance must culminate in a successful business transaction. The assessee’s explanation that the creditor initially intended to procure copper but could not execute the purchase, and therefore the amount was subsequently refunded, has not been found to be false or implausible. Non-materialisation of the intended commercial transaction cannot, by any stretch, convert an otherwise genuine financial credit into an unexplained cash credit. 7.6 Coming to the aspect of creditworthiness, we note that the AO drew an adverse inference merely because certain deposits appeared in the bank account of Emkay Industries Ltd. prior to advancing the loan. However, no enquiry under section 133(6) was conducted to examine the source of those deposits. Emkay Industries Ltd. is a regular income-tax assessee with audited books of account and statutory filings. No material has been produced by the Revenue to show that the creditor was a shell or a paper company. In the absence of any contrary evidence, the documentary record furnished by the assessee ought to have been accepted. The Ld. AR has also invited our attention to the fact that Emkay Industries Ltd. has itself filed appeals before the ITAT, and that even the Revenue has filed appeals against the orders