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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI KUL BHARAT & SHRI ANADEE NATH MISSHRA
PER ANADEE NATH MISSHRA, A.M.: (A). The present appeal has been filed by Revenue against the impugned order dated 11.10.2023 passed by the learned Commissioner of Income Tax (Appeals)-4, Kanpur, [“learned CIT(A)”] for the assessment year 2020-21. In this appeal, Revenue has raised the following grounds: - “1. Whether on facts and circumstances of the case and in law, Ld. CIT(Appeal)-IV, Kanpur has erred in deleting the addition of Rs. 2,21,00,000/- made u/s 68 of the Income Tax Act, 1961 on account of unexplained unsecured loan taken from Motisons International, LLP, without appreciating the fact that lender company did not have any business activities during the whole year except making only three transactions with respect to providing the alleged loan to the assessee. Besides, the lender company in its Balance Sheet did not have any assets except alleged loan advanced to the assessee and some petty cash, which proves beyond doubt that it is a paper entity. Hence, the assessee failed to explain the creditworthiness and genuineness of transaction with cogent evidences.
1. 2. Whether on facts and circumstances of the case and in law, Ld. CIT(Appeal}-IV, Kanpur has erred in deleting the addition of Rs. 57,00,000/- made u/s 68 of the Income Tax Act,1961 on account of unexplained unsecured loan taken from One U.P. Housing Finance Pvt Ltd, without considering the fact that the lender Company 1 not any business activities during the whole year except making only two transactions with respect to providing alleged loan to the assessee.
Page 2 of 7 Besides, the lender company in its Balance Sheet did not have any assets except alleged loan advanced to the assessee and some petty cash, which proves beyond doubt that it is a paper entity. Hence, the assessee failed to explain the creditworthiness and genuineness of transaction with cogent evidences.
Whether on facts and circumstances of the case and in law, Ld. CIT(Appeal)-IV, Kanpur has erred in deleting the addition of Rs. 1,02,00,000/made u/s 68 of the Income Tax Act on account of unexplained unsecured loan taken from Siddhimangal Hirise Pvt. Ltd, without considering the fact that the lender Company did not any business activities during the whole year except providing alleged loan to the assessee. Besides, the lender company in its Balance Sheet did not have any fixed assets except alleged loan advanced to the assessee, petty cash and some other investment, which proves beyond doubt that it is a paper entity. Hence, the assessee has failed to explain the creditworthiness and genuineness of transaction with cogent evidences.
That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of appeal. (B). In this case, the assessment order dated 02.02.2023 was passed u/s 143(3) of the Income Tax Act, 1961 (“Act”, for short) whereby the assessee’s total income was determined at Rs.20,59,19,310/- as against the returned income of Rs.16,58,92,310. In the aforesaid assessment order, additions were made, inter alia, u/s 68 of the Act, in respect of loans claimed to have been received; amounting to Rs.2,21,00,000/- from M/s. Motisons International LLP; Rs. 57,00,000/- claimed to have been received from M/s One UP Housing Finance Pvt Ltd and Rs.1,02,00,000/- claimed to have been received from M/s. Siddhimangal Hirise Pvt Ltd. As regards the aforesaid M/s. Motisons International LLP, the Assessing Officer observed that there were only three transactions of the said party with the assessee during the year, all pertaining to the alleged unsecured loan. The Assessing Officer further noted that the said entity did not possess any significant assets in its balance sheet except the alleged loan advanced to the assessee, along with a petty investment of Rs. 2,000/-, cash equivalents amounting to Rs. 1,64,725/-, and other assets of Rs. 30,591/-. It was also observed that M/s. Motisons International LLP did not carry out Page 3 of 7 any business activity during the relevant year and its only activity of significance was to provide the alleged loan to the assessee. Furthermore, the Assessing Officer observed that the balances in the bank account of the said party remained meagre throughout the year and that the credits and debits therein pertained solely to the transfer of funds to the assessee, which were immediately withdrawn thereafter. In the case of M/s. One UP Housing Finance Pvt. Ltd., the Assessing Officer noted that there were only two transactions between the said party and the assessee during the entire year, both relating to the alleged loan transactions. The Assessing Officer further observed that the balance sheet of the parties did not reflect any significant assets except the alleged loan advanced to the assessee. It was also noted that the said parties did not carry out any business activity during the entire year, and their only activity appeared to be the advancement of the alleged loan to the assessee. The Assessing Officer additionally observed that the balances in bank account remained meagre throughout the year, and the credits and debits therein were only in respect of receipt of funds for immediate transfer to the assessee. In the case of M/s. Siddimangal Hirise Pvt. Ltd., the Assessing Officer observed that the only transactions of the said party with the assessee during the year pertained to the alleged loan transaction and the corresponding interest payment thereon. It was further noted that this party did not possess any fixed assets such as land or building; and the only assets reflected in its balance sheet comprised loans, cash, and certain minor investments. The Assessing Officer also observed that the said entity had undertaken only nominal business activity during the year and had incurred minimal expenditure towards employee benefits and other administrative expenses. Moreover, it was observed that M/s. Siddimangal Page 4 of 7 Hirise Pvt. Ltd. had received the exact amount in its bank account either on the same day or a day prior to the date on which the loan was allegedly advanced to the assessee. The bank balance of the said party remained almost constant throughout the year, except at the time when the aforesaid loan transactions took place.
(B.1) In view of the aforesaid facts, as elaborated in detail in the assessment order, the Assessing Officer, rejecting the explanation of the assessee, added the aforesaid amounts to the assessee’s income. The assessee preferred an appeal before the Ld. CIT(A). Vide impugned appellate order dated 11.10.2023, the Ld. CIT(A) deleted the additions of Rs.2,21,00,000/- and Rs.57,00,000/-, and Rs.1,02,00,000/-. The Ld. CIT(A) held that the existence of low operational income and negligible expenses or absence of business activity could not be treated as a litmus test for determining creditworthiness. It was further observed by Ld. CIT(A) that the entire loan amounts had been received through banking channels from the respective lenders.
(B.2) At the time of hearing before us, the Ld. Departmental Representative placed strong reliance on the assessment order and supported the findings recorded therein by the Assessing Officer. The Ld. AR for assessee placed reliance on the aforesaid paper book. The Ld. AR also placed reliance on the decision of the Gujarat High Court in the case PCIT vs Gopal Heritage (P.) Ltd (2021) 133 taxmann.com 173 (Guj).
(B.2.1) We have heard both sides. We have perused the materials on record. The findings recorded by the Assessing Officer in the assessment order, as summarized in foregoing paragraph no. (B.1) of this order, are not in dispute. Further, Page 5 of 7 upon careful consideration of the assessee’s submissions made during the assessment as well as the appellate proceedings before the Ld. CIT(A), it is observed that the assessee’s emphasis was primarily on establishing the identity of the aforesaid three parties from whom the loans were claimed to have been received. The evidences adduced by the assessee, such as the copy of ITR acknowledgement, certificate of registration, and master data as available on the portal of the Ministry of Corporate Affairs, these documents do nothing more than establish the existence and identity of the respective parties. Further, the confirmed copies of account statements as well as the bank statements of the said parties merely demonstrate the occurrence of the transactions. The issue before us, however, is not the existence of the transactions or the identity of the aforesaid three parties from whom the assessee claims to have received loans. The issue for our consideration is whether the aforesaid three parties possessed the financial capacity to advance the loans and whether the loan transactions claimed by the assessee were genuine. Although the assessee has filed copies of the ITR acknowledgments and audited financial statements of the aforesaid three parties, the fact remains that these parties had themselves received funds from other sources, which were subsequently passed on to the assessee. In the case of M/s. Motisons International LLP and M/s. One UP Housing Finance Pvt. Ltd., these two parties had received funds from M/s. Envision Investment Consultant Pvt. Ltd. Similarly, in the case of M/s. Sidhimangal Hirise Pvt. Ltd., the party had received funds from M/s. Adinath Shares and Commodities. Therefore, the aforesaid three parties did not transfer their own funds, but used borrowed funds to advance the loans to which the assessee claims to have received from them as unsecured loans. This is an Page 6 of 7 indication that the parties did not have financial capacity of their own; and the entire arrangement was sham, aimed at manufacturing an ‘apparent’ picture which covered the ‘real’ one. The observations of the Assessing Officer, as summarized in the foregoing paragraph no. (B.1) of this order; which have not been disputed by the assessee, lead to the inference that the loan transactions claimed to have been received by the assessee were not genuine. This inference is further reinforced by the fact that the assessee did not receive the funds directly from M/s. Sidhimangal Hirise Pvt. Ltd. and M/s. Adinath Shares and Commodities Pvt. Ltd., but instead routed them through additional layers in the form of M/s. Motisons International LLP, M/s. One UP Housing Finance Pvt. Ltd., and M/s. Sidhimangal Hirise Pvt. Ltd. There is no explanation as to why M/s. Sidhimangal Hirise Pvt. Ltd. and M/s. Adinath Shares and Commodities Pvt. Ltd. did not provide the loans directly to the assessee and instead routed them through these intermediary entities. The assessee, being a leading manufacturer of edible products, enjoys a significantly higher goodwill and reputation compared to the aforesaid three parties, and why the loans were not taken directly by the assessee, is beyond all reason. The logical inference is, that the entire arrangement was designed to create the impression that the loan transactions were genuine, whereas, in reality, the transactions are devoid of genuineness and authenticity. The Assessing Officer has successfully examined and unraveled this arrangement, and his rejection of the assessee’s explanation is justified. In the facts and circumstances of the present case, and in view of the provisions of section 68 of the Act, the mere routing of transactions through banks is wholly irrelevant, and the Ld. CIT(A) erred in relying on this fact to accept the genuineness of the loan transactions. In Page 7 of 7 view of the foregoing discussion, we confirm the additions of the aforesaid amounts of Rs.2,21,00,000/- and Rs.57,00,000/- and Rs.1,02,00,000/- made by the Assessing Officer. Accordingly, ground nos. 1, 2 and 3 are allowed and the additions of the aforesaid amount of Rs.2,21,00,000/- and Rs.57,00,000/- and Rs.1,02,00,000/- are sustained.
(C) In the result, the appeal of Revenue is treated as allowed for statistical purposes.
Order pronounced in the open Court on 29/10/2025.