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Facts
The assessee, engaged in manufacturing and trading, filed its return for AY 2014-15. During the year, it took an unsecured loan of Rs. 20,00,000/- from M/s. Dolphin Commerce Pvt. Ltd. and paid interest of Rs. 1,79,835/-, also paying Rs. 15,550/- interest to M/s. Klapp Vyapar Pvt. Ltd. The Assessing Officer made an addition under Section 68 for the loan and disallowed both interest payments, relying on an earlier DDIT report that identified certain entities as shell companies, despite Dolphin Commerce Pvt. Ltd. not being on that list. The CIT(A) confirmed these additions and disallowances.
Held
The Tribunal found that M/s. Dolphin Commerce Pvt. Ltd. was not listed as a shell company in the DDIT report and that the assessee had discharged its onus under Section 68 by providing comprehensive documentation proving the identity, creditworthiness, and genuineness of the loan transaction. Consequently, the Tribunal deleted the addition of Rs. 20,00,000/- and allowed the interest of Rs. 1,79,835/- paid to Dolphin Commerce Pvt. Ltd. The disallowance of Rs. 15,550/- interest paid to M/s. Klapp Vyapar Pvt. Ltd. was also deleted, noting the loan's long-standing nature and regular interest payments.
Key Issues
1. Whether the addition of Rs. 20,00,000/- as unexplained cash credit under Section 68 was justified. 2. Whether the disallowance of interest payments totaling Rs. 1,95,385/- to M/s. Dolphin Commerce Pvt. Ltd. and M/s. Klapp Vyapaar Pvt. Ltd. was justified.
Sections Cited
68, 143(2), 142(1), 131(1)(d), 250, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 444/JPR/2025
PER DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee against the order of ld. Addl/JCIT (A), Panchkula dated 24.02.2025 passed under section 250 of the I.T. Act, 1961, for the assessment year 2014-15. 2. The assessee has raised the following grounds of appeal :-
1. “1. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 20,00,000/- u/s 68 of the Act by treating the loan received from M/s. Dolphin Commerce Pvt. Ltd. as unexplained cash credit.
2. The ld. CIT (A) has erred on facts and in law in confirming the disallowance of interest of Rs. 15,550/- paid to M/s. Klapp Vyapaar Pvt. Ltd. M/s Bansal Oil Mill Ltd., Jaipur and interest of Rs. 1,79,835/- paid to M/s. Dolphin Commerce Pvt. Ltd., totaling to Rs. 1,95,385/- by treating it as bogus expenses. 3. The appellant craves to alter, amend and modify any ground of appeal
4. Necessary cost be awarded to the assessee.”
The brief facts of the case are that the assessee is engaged in the manufacturing and trading of edible oil, oil cake, emery stone and chakki, trading of seeds & spices and also generation of wind power. If filed the return of income on 26.09.2014 declaring total income of Rs. 7,98,503/-. The case of the assessee was selected for scrutiny under CASS. Notice under section 143(2) of the Income Tax Act, 1961 was issued on28.08.2015 which was duly served upon the assessee on 02.09.2015. Notice under section 142(1) of the Act along with questionnaire was issued on 17.06.2016. In response to the notice, the representative of the assessee attended and during the assessment proceedings written submission along with audit report, books of account were produced and the same were examined on test check basis. During the year under consideration assessee took unsecured loan of Rs. 20,00,000/- from M/s. Dolphin Commerce Pvt. Ltd., Kolkata. It paid interest of Rs. 1,79,835/- on this loan and also paid interest of Rs. 15,550/- on loan taken from M/s. Klapp Vyapar Pvt. Ltd. in FY 2003-24 which was repaid during the year on 27.06.2013.
M/s Bansal Oil Mill Ltd., Jaipur The AO on the basis of assessment order for AY 2013-14 where DDIT (Inv.), Unit-1(3), Kolkata issued commission u/s 131(1)(d) to verify the genuineness of the loan taken from 8 parties mentioned at page 2 of the assessment order, concluded that in response to such notice the directors of concerned companies did not make personal appearance but some of them submitted their replies to the office and therefore prima facie it appears that the concerned entities are merely paper/shell entities which are unable to prove their creditworthiness and thus he declared the transactions as bogus transactions. On the basis of the above report, AO at para 3.4 of its order observed that during the assessment proceedings for AY 2013-14 assessee could not prove the identity and creditworthiness of the person from whom the loan was taken. During the year assessee had taken loan of Rs. 20,00,000/- from Dolphin Commerce Pvt. Ltd. and therefore vide order sheet entry dt. 05.12.2016 assessee was required to show cause why the amount of Rs. 20,00,000/- taken as loan from M/s. Dolphin Commerce Pvt. Ltd. be not added under section 68 of the Act and why not the payment of interest made to M/s. Klapp Vyapar Pvt. Ltd. of Rs. 15,550/- be disallowed. In response assessee filed the reply on 26.12.2016 (PB 20) which is reproduced at page 3-4 of the assessment order to explain the genuineness and creditworthiness of the creditor. The M/s Bansal Oil Mill Ltd., Jaipur AO, however, did not accept the explanation submitted by the assessee on the basis of finding given in AY 2013-14 and made addition of Rs. 21,95,385/- (20,00,000 + 1,79,835 + 15,550) by referring to the various decisions at para 7 to 7.1.4 of the assessment order dated 29.12.2016. Aggrieved by the order of the AO, the assessee preferred appeal before the ld.CIT (A). The ld. CIT (A), NFAC after reproducing the written submission of the assessee at pages 5-14 and the assessment order at pages 14-32 of its order, at para 6.3 observed that M/s. Dolphin Commerce Pvt. Ltd. was not among the 8 entities on which report of DDIT (Inv.) dated 15.03.2016 was obtained but AO has observed that assessee has failed to discharge its onus as it did not produce the directors before him for verification of loans which are similar to the facts before the DDIT (Inv.) in other company cases who were informed to be mere paper/shell entities. Accordingly, the ld. CIT (A) confirmed the addition of Rs. 21,95,385/- made by the AO. Now the assessee, being aggrieved, has come in appeal before the Tribunal on the grounds mentioned hereinabove.
Before us, the ld. AR of the assessee submitted that the lower authorities were not justified in making the addition. In this regard, the ld. AR has submitted his written submission, which are being reproduced here under :-
“ 1. The AO has made addition u/s 68 of the Act. This section provides that if any sum is found credited in the books of accounts, then the assessee has to prove the identity and creditworthiness of the party from whom amount is received and the genuineness of the transaction. In the present case, the assessee has not only proved the identity of the party from whom the loan has been taken but also proved the creditworthiness as well as genuineness of the transaction by filing following documents :-
(i) Response filed by Dolphin Commerce Pvt. Ltd. against notice issued u/s 133(6) of the Act (PB 1) (ii) Acknowledgement of income tax return for the AY 2014-15 (PB 2) (iii) Copy of the financial statement for AY 2014-15 from which it is evident that the company is having net worth of Rs. 12,47,90,160/- (PB 3-14) (iv) Copy of the bank account from which it is evident that there is no immediate cash deposit. The immediate source in the bank account for giving loan to the assessee is refund of the earlier loan given to Uma Plastick Ltd. (PB 15-16)] (v) Copy of the account of assessee in the books of Dolphin Commerce Pvt. Ltd. (PB 17) (vi) Copy of the account of Dolphin Commerce Pvt. Ltd. in the books of assessee for FY 2014-15 and 2015-16 showing repayment of loan along with interest after deducting tax at source (PVB 18-19).
From the above table it can be noted that creditor is assessed to tax.The transaction is through banking channels. The principal amount along with interest is paid. The AO at pg. 3, para 3.5 has incorrectly observed that assessee has produced affidavit of the director whereas the fact is that assessee has not filed any affidavit nor did the AO require the assessee to produce the director. In fact AO made the addition on the basis of the report of DDIT (Inv.) Kolkata dt. 15.03.2016 ignoring the fact that the 8 parties with reference to which the DDIT (Inv.) carried out the investigation do not include M/s Dolphin Commerce Pvt. Ltd. The ld. CIT (A), NFAC has also accepted this fact at para 6.3 of the order but incorrectly observed that assessee failed to produce the director before the AO ignoring that AO never required the assessee to produce director of Dolphin Commerce Pvt. Ltd. rather he issued notice u/s 133(6) which was duly responded by it (PB 1). Thus, the assessee has discharged his onus u/s 68 and therefore the addition made by AO and confirmed by ld. CIT (A) by treating the loan received from Dolphin Commerce Pvt. Ltd. as unexplained is uncalled for.
3. The lower authorities have referred to various decisions which are either on preponderance of probability or are not applicable on the facts of the M/s Bansal Oil Mill Ltd., Jaipur present case. The ld. CIT (A) has also not distinguished the cases relied by the assessee as reproduced at Pg 8-11 of the order. The assessee further place reliance on the following decisions :-
CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) The gist of the case is as under:-
Income – Cash credit – Burden of proof – Assessee had given he names and addresses of the creditors – It was in the knowledge of the Revenue that the said creditors were income-tax assessees – Their index number was in the file of the Revenue – Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further – Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the allowed loans – Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence – High Court was therefore, right in refusing to refer the questions sought for.
Pr. CIT, Udaipur Vs. Shubh Mines Pvt. Ltd. DBITA No. 96/15 order dt. 03.05.2016 (Raj.)(HC)
The relevant facts are that the assessee company introduced share application money to the tune of Rs. 75 lacs including the sum of Rs. 50 lacs allegedly taken from the entry provided namely, Moderate Credit Corporation Limited, Delhi. The AO observed that the assessee could not substantiate necessity for obtaining the huge share application money only after few months of promoting the company. The AO on the basis of the statements of one Shri Aseem Kumar Gupta concluded that the money deposited in the bank accounts of the assessee company is bogus entry. Accordingly, treating the money received as belonging to the assessee company, same was added u/s 68 of the Actg. The ld. CIT (A) deleted the addition made by the AO and the order of CIT (A) was confirmed by Hon’ble ITAT. The Hon’ble High Court confirmed the order of lower authorities by giving the following findings at ara 7 of its order :
7. A bare perusal of the assessment order reveals that the AO has made the addition on suspicion which is based on the statements of third party Shri Aseem Kumar Gupta, admittedly, recorded in the back of the assessee. It has come on record that the share application money of Rs. 50,00,000/- was received from Moderate Credit Corporation Ltd., a listed company. It is not disputed before this court that the investment made was received by account payee cheque and the same was refunded by an account payee cheque when the M/s Bansal Oil Mill Ltd., Jaipur company dropped its project. In the considered opinion of this court, in absence of any cogent evidence on record establishing that 6the money shown to have received as share application money, was as a matter of fact, unaccounted money belonging to the assessee company, the finding arrived at by the AO, which is based on suspicion, has rightly been held not sustainable in the eyes of law. Suffice it to say that the finding arrived at by the CIT (A), affirmed by the ITAT, which remains a finding of fact, cannot be said to be capricious or perverse.
PCIT Vs. Bairagra Builders (P>) Ltd.(2024) 299 Taxman 460 (Bom.)(HC)
Where assessee had taken unsecured loan from two companies and had submitted all evidences to substantiate loan including confirmation from creditors and loan was taken and repaid through banking channels, AO was not justified in treating the said unsecured loan as fake and unexplained cash credit.
PCIT Vs. Ambe Tradecorp (P) Ltd. (2023) 290 Taxman 471 (Guj.)(HC)
Assessee received loan from two parties. AO treated same to be sham for reason that creditworthiness of loan givers was not established and accordingly made addition u/s 68. It was held that assessee had furnished details such as copy of ledger account, bank statements, income tax returns, balance sheet, etc. of loan givers. Notice u/s 133(6) was issued to said loan givers which were duly responded by them therefore, identity of parties could not be disputed. Assessee was not the beneficiary as loan was repaid by assessee in subsequent year. Since identity and creditworthiness of partiers and genuineness of loan transaction were well established, therefore, impugned addition made u/s 68 on account of said loan amount laws unjustified.
4. The lower authorities have also disallowed the interest paid on the loan taken from Dolphin Commerce Pvt. Ltd. and interest paid to Klapp Vyapar Pvt. Ltd. The interest of Rs. 1,79,835/- paid to Dolphin Commerce Pvt. Ltd. is after deducting the TDS. The loan taken from Dolphin Commerce Pvt. Ltd. is genuine as explained above and therefore interest paid to it is allowable deduction.
In case of Klapp Vyapar Pvt. Ltd. the loan was taken inFY 2002-03. Since then assessee is regularly paying interest after deducting tax at source as is evident from the copy of ledger account enclosed (Pg 5-14). The loan together with interest was repaid during the year on 27.06.2013. In response to the notice issued by DDIT (Inv.), the creditor has furnished the details including copy of its return for AY 2013-14 along with financial statements (Pg 15-21) which M/s Bansal Oil Mill Ltd., Jaipur proves the creditworthiness of the creditor and genuineness of the transaction. The loan has been accepted as genuine in all earlier years and interest has been allowed except in AY 2013-14 against which appeal filed before CIT (A) is pending for disposal. Hence the interest of Rs. 15,550/- paid to Klapp Vyapar Pvt. Ltd. is an allowable deduction. In view of above, addition made by AO and confirmed by Ld. CIT (A) be directed to be deleted.”
The ld. AR of the assessee, further placed reliance on the Paper Book furnished as under :- S.No. Particulars Pg. Filed before No. AO/CIT (A) 1. Copy of submission filed before Ld. CIT (A) 1A-5A CIT (A) 2. Copy of paper book index filed before ld. CIT (A) 6A CIT (A) 3. Copy of income tax return acknowledgement, auditors 2-14 Both report along with financial statements of Dolphin Commerce Pvt. Ltd. (Creditor) for AY 2014-15. 4. Copy of bank statement of Dolphin Commerce Pvt. Ltd. 15-16 Both (creditor) for AY 2014-15 5. Copy of ledger account of assessee in books of Dolphin 17 Both Commerce Pvt. Ltd. for FY 2013-14.
6. Copy of ledger account of Dolphin Commerce Pvt. Ltd. 18-19 Both in books of accounts of assessee for FY 2014-15 and 2016-17 showing repayment of loan.
7. Copy of letter dt. 22.12.2016 filed before ACIT 20 Both 8. Copy of letter dt. 20.12.2016 filed before ACIT 21-22 Both
On the other hand, the ld. DR relied on the orders of the lower authorities.
We have heard the rival contentions, perused the material on record and gone through the orders of the lower authorities. We find that the AO made the addition of Rs. 20,00,000/- on the basis of the report of DDIT (Inv.) Kolkata dated 15.03.2016 ignoring the fact that name of M/s. Dolphin Commerce Pvt. Ltd. was not appearing in the list of 8 entities M/s Bansal Oil Mill Ltd., Jaipur against whom it was alleged by investigation wing to be accommodation entry providers. The ld. CIT (A) has also accepted this fact at para 6.3 of his order that the addition has been made primarily on the basis of the report of the Deputy Director of Income Tax (Investigation), Unit 1(3), Kolkata, bearing reference no DDIT (Inv)/Unit-1(3)/Kol/Cir- 4/JPR/Commission/2015-16 dated 15.03.2016, wherein eight entities were identified as shell companies. However, M/s. Dolphin Commerce Private Limited, from which the assessee received the loan, was not among these eight entities but incorrectly observed that assessee failed to produce the director before the AO ignoring that AO never required the assessee to produce director of M/s. Dolphin Commerce Pvt. Limited rather he issued notice u/s 133(6) which was duly responded by it (PB 1). The ld. D/R has not placed any material to contradict the above narrated facts. Thus, the assessee has discharged his onus casted u/s 68 and therefore the addition made by AO and confirmed by ld. CIT (Appeals) by treating the loan received from M/s. Dolphin Commerce Pvt. Ltd. as unexplained is uncalled for. The assessee has also proved the creditworthiness as well as genuineness of the transaction by filing following documents :- (i) Response filed by Dolphin Commerce Pvt. Ltd. against notice issued u/s 133(6) of the Act (PB 1)
M/s Bansal Oil Mill Ltd., Jaipur (ii) Acknowledgement of Income Tax return for the AY 2014-15 (PB 2) (iii) Copy of the financial statement for AY 2014-15 from which it is evident that the company is having net worth of Rs. 12,47,90,160/- (PB 3-14) (iv) Copy of the bank account from which it is evident that there is no immediate cash deposit. The immediate source in the bank account for giving loan to the assessee is refund of the earlier loan given to Uma Plastick Ltd. (PB 15-16)] (v) Copy of the account of assessee in the books of Dolphin Commerce Pvt. Ltd. (PB 17) (vi) Copy of the account of Dolphin Commerce Pvt. Ltd. in the books of assessee for FY 2014-15 and 2015-16 showing repayment of loan along with interest after deducting tax at source (PVB 18-19). In this way the appellant has proved all ingredients of section 68 of the Income Tax Act, 1961 and considering the above facts, we delete the addition of Rs. 20,00,000/- made by ld. AO u/s 68 of the Income Tax Act, 1961 and also allow the interest paid to M/s. Dolphin Commerce Pvt. Ltd. of Rs. 1,79,835/- treating the same as genuine. In respect of interest of Rs. 15,550/- paid to M/s. Klapp Vyapar Pvt. Ltd. which has been disallowed by the AO considering the same as bogus expenditure, we find that this party had advanced the loan to the appellant in the year 2002-03 and since then the appellant has been paying interest regularly to it which had always been allowed except in the AY 2013-14 wherein the disallowance of interest made by AO is pending in appeal before ld. CIT (A). We observe that no doubt has been raised by the AO on source of the appellant company for repayment of the loan and even the said party had M/s Bansal Oil Mill Ltd., Jaipur responded to the notice issued u/s 133(6). Therefore, we do not find any logic to sustain this disallowance and accordingly, we delete the above said disallowance of Rs. 15,550/-. Hence we delete all the additions/disallowances made by ld. AO. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 18/09/2025.