J.K.V. STONEX,KISHANGARH vs INCOME TAX OFFICER, KISHANGARH

आयकरअपीलीय अधिकरण] जयपुरन्यायपीठ] जयपुर
IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES,’’B” JAIPUR

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BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihyla-@ITA No. 542/JPR/2025
fu/kZkj.ko"kZ@Assessment Year : 2012-13

M/s. J K V Stonex
J-16, M/s. SCLJ & Associates
Lal Kothi Yojana, Sahkar Marg, Jaipur-302015
Ward- 1
Kishangarh
LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJFJ 1014 E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby :ShriSandeep Jhanwar, CA jktLo dh vksjls@Revenue by: Shri Gaurav Awasthi, JCIT-DR lquokbZ dh rkjh[k@Date of Hearing

: 15/07/2025
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: : 17/09/2025

vkns'k@ORDER

PER: DR. S. SEETHALAKSHMI, J.M.

This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax, National Faceless Appeal Centre,
Delhi[ for short CIT(A)] dated 05.03.2025 for the assessment year 2012-13
raising therein following grounds of appeal.
‘’1. Under the facts and circumstances of the case, the order dated 26-12-
2019 passed u/s 147 r.w.s. 143(3) by the AO is bad in law and deserves to be quashed.

Under thefacts and circumstances of the case, the ld. CIT(A) has erred in confirming the addition u/s 68 to the extent of Rs.46,79,121/- out of total addition of Rs.1,40,89,951/- by holding that the assessee could not prove the credit

2
JKV STONEX VS ITO, WARD -1,KISHANGARH worthiness of Shri Gaurav Agarwal (Loan amount of Rs.7,74,700/-), Smt. Pista
Devi (Loan amount of Rs.11,92.025), Smt. Saroj Agarwal (Loan amount of Rs.5,88,276) Shri Mohan Singh (Loan amount of Rs.8,64,370) , Smt. Preeti
Agarwal (Loan amount of Rs.12,59,750/-‘’

1 Apropos to the grounds of appeal of the assessee, it is noticed that ld. CIT(A) has partly allowed the appeal of the assessee by confirming the addition of Rs.46,79,121/- u/s 68 of the Act. The observations made by the ld.CIT(A) from para5.1 to para 7 of his order is reproduced as under:- 5.1 Considering the submission filed bythe appellant, the grounds of appeal raised by the appellant are adjudicated as per the subsequent paras.

Ground No.1:- In this ground the appellant has contested the reopening of the assessment u/s 147 of the Act.

1 The submission uploaded by the appellant is reproduced in para 5 above.

2 I have perused the reassessment order, grounds of appeal and submission filed by the appellant carefully. I find that AO was having the tangible material in the form of specific information received during assessment proceedings for AY 2016-17 that as per the balance sheet as on 31/03/2012, the appellant had obtained unsecured loans of Rs.1,40,89,951/- were appearing but the appellant had never filed the return of for AY 2012-13 or earlier years. On the basis of the said additional material available on hand, a reasonable belief was formed by the AO that income of the assessee of Rs. 1,40.89.951/- has escaped assessment. Therefore, once the reasonable belief is formulated by the AO on the basis of cogent tangible material, the AO is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion. Function of the Assessing Officer at this stage is to administer the statute. What is required at this stage is a reason to believe and not establish fact of escapement of income and therefore. lookingto the scope of section 147 as also sections 148 to 152, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the Assessing Officer can form a belief that the income of the assessee has escaped assessment. In the present case, there is independent application of mind by the AO in arriving at the conclusion that income had escaped assessment and therefore, the contentions raised by the assessee are devoid of merits.

3
JKV STONEX VS ITO, WARD -1,KISHANGARH
I further find that the Hon'ble Supreme Court of India in its decision dated
23/05/2007 in the case of Assistant Commissioner Of Income Rajesh Jhaveri
Stock Brokers Pvt. in Civil Appeal No 2830 of 2007 held thatif the Assessing
Officer for whatever reason has reason to believe that income has escaped assessment it confers juri iction to reopen the assessment. The relevant portion of the above decision is reproduced as under:-

16.

Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO (1991 (191) (TR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant maternal on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. (1996 (217) ITR 597 (SC)). Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC))

17.

The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer juri iction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (1) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jun iction to issue notice under section 148 read with section 147(a) But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever

4
JKV STONEX VS ITO, WARD -1,KISHANGARH reason has reason to believe that income has escaped assessment it confers juri iction to reopen the assessment it is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147 The case at hand is covered by the main provision and not the proviso

18.

So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initate reassessment proceedings even when intimation under section 143(1) had been issued

In the case of Raymond Woolen Mills 236 ITR 34 (SC), Hon'ble Supreme Court
Of India held that it is only to be seen whether there was a prima facie case for reopening or not, sufficiency of reasons not to be seen.

I find that the facts of the case laws relied upon by the appellant are not identical to the facts of the present case, hence the case laws relied upon by the appellant are not applicable to the present case since the same are distinguishable on facts.

In view of the above, the contention of the appellant challenging the validity of re- opening the case u/s. 147 of the Act and issuing of notice u/s. 148 of the Act is hereby rejected. Hence, ground Nos. 1 raised by the appellant is dismissed

Ground No.2: - In these grounds the appellant has contested the addition of Rs. 1,40,89,951/- made by the AO u/s 68 of the Act.

1 The submission uploaded by the appellant is reproduced in para 5 above.

2 I have perused the assessment order, grounds of appeal, and submission filed by the appellant carefully. I find from the assessment order that the appellant has contended before the AO that the unsecured loans are old and they are having source of income. The appellant submitted copies of accounts, bank statements and confirmation letters were before the AO but the same was rejected by the AO and addition of Rs. 1,40,89,951/-was made.

During the course of appellate proceedings, the appellant has reiterated his submission filed before AO and submitted the detailed explanation which has already been reproduced in para 5 above. The appellant submitted the identity, genuineness and creditworthiness of the unsecured loan transactions is already proved, hence requested to delete the addition.

I find from the submission that the unsecured loans of Rs.92,10,830/- were obtained during the period prior to FY 2011-12 through banking channel. Thus, I find that the same cannot be added us 68 of the Act in AY 2012-13. Regarding

5
JKV STONEX VS ITO, WARD -1,KISHANGARH the remaining loans of Rs.48,79,121/-, it is submitted that the same was obtained from 6 friends and relatives. The appellant had produced confirmation letters and copies of ITRs and submitted that the genuineness of the unsecured is proved.
However, on perusal of the copies ITRs, I find that the income disclosed in the ITR for AY 2012-13 is not commensurate with the loans provided to the appellant by the concerned parties. The details of the income shown in the ITRs are as under:-

S.No. Name of party
Income shown in ITR for A.Y.
2012-13
Amount of loan obtained by the apellant
1. Shri Gaurav Agarwal
Rs.3,35,146/-
Rs.7,74,700/-
2. Pista Devi
No ITR produced Rs. 11,92,025/-
3. Saroj Agarwal
Rs.2,86,658/-
Rs.5,88,276/-
4. Ravi Agarwal, HUF
Rs.2,76,530/ and Agri. Income of Rs.38,000/-
Rs.2,00,000/-
5. Mohan Singh
Rs.1,79,850/-
Rs.8,64,370/-
6. Preeti Agarwal
Rs.3,86,685/-
Rs.12,59,750/-

From the above details, I find that except, Ravi Agarwal HUF, no other person was having capacity to provide the substantial amount of loan considering the income disclosed in ITR and the appellant has not produced any other evidence to prove the creditworthiness of the unsecured loans of Rs.46,79,121/- obtained from the remaining 5 persons excluding Ravi Agarwal, HUF. Thus, I find that the appellant has failed to prove the creditworthiness of unsecured loans of Rs.
46,79,121/-. Therefore, the addition of Rs.46,79,121/- is confirmed and addition of Rs.2,00,000/- is deleted since creditworthiness is proved. Thus, the ground of appeal raised by the appellant is partly allowed.’’

2 During the course of hearing, the ld. AR of the prayed that ld.CIT(A) is not justified in partly allowing the appeal of the assessee as the assessee submitted the detailed written submission before the AO for consideration of his case.To counter the orders of the lower authorities, the ld AR of the assessee has filed the following written submission.

6
JKV STONEX VS ITO, WARD -1,KISHANGARH

‘’Ground 1
Under the facts and circumstances of the case, the order dated 26.12.2019
passed u/s 147 r.w.s. 143(3) by ld. AO is bad in law and deserves to be quashed.
Ground 2
Under the facts & circumstances of the case the ld. CIT (A)-NFAC, has erred in confirming the addition u/s 68 to the extent of Rs. 46,79,121/-, out of total addition of Rs. 1,40,89,951/-, by holding that the asessee could not prove the credit worthiness of Sh. Gaurav Agarwal (Loan Amount of Rs. 7,74,700/-), Smt
Pista Devi (Loan amount of Rs. 11,92,025/-) Smt. Saroj Agarwal (Loan amount of Rs. 5,88,276/-), Sh. Mohan Singh (Loan Amount of Rs. 8,64,370/-), Smt. Peeti
Agarwal (Loan amount of Rs. 12,59,750/-).
Ground 3
The assessee craves right to add, alter or amend any of the grounds of appeal.

Brief Facts
1. The assessee is a Partnership Firm started with an object of carry on business of dealing and manufacturing in marble and granite slabs, Tiles, Chips, Powder,
Blocks and luffers. During the year under consideration, the assessee has not undertaken any revenue activity of sale/purchase etc. and there were neither any expenditure nor revenue. Copy of Financial Statements is enclosed are hereby enclosed at Page 01 to 02 of paper book. The assessee was under bonafide impression that since no income has been earned by it in absence of any business activity during the year under consideration, therefore, the assessee firm had not filed return of income u/s 139(1) of the IT Act, 1961. 2. The case of assesse was selected for limited scrutiny for AY 2016-17 to examine source of capital contribution by partners in assesse firm. It was noticed by ld. AO that assessee firm has shown partners’ capital of Rs. 4,40,83,752/-.
Accordingly, assesse was asked to explain the source of capital contribution by partners in assesse firm.

With respect of source of capital, the assessee submitted that this capital was introduced in earlier year and also filed balance sheet as on 31st March 2012
during the course of assessment proceedings for the AY 2016-17. On perusal of balance sheet, the ld. AO observed that that assessee firm had shown a capital of Rs. 2,34,57,494/- including fresh capital of Rs. 34,15,304/- and Rs. 16,68,116/-, introduced by Sh. Jai Narayan Agarwal and Sh. Krishan
Murari Agarwal respectively during the year under consideration and also observed that unsecured loan of Rs.1,40,89,951/- was also obtained during the year under consideration. The ld. AO alleged that as the assessee failed to file the return of income for any assessment year including the year under 7
JKV STONEX VS ITO, WARD -1,KISHANGARH consideration, therefore, the capital introduced by the partners and unsecured loan of remained unexplained.

Accordingly, the case was reopened u/s 147 and notice u/s 148 has been issued on 29.03.2019. In response to the notice, the assessee had filed return of income of Rs. Nil on 08.07.2019. Copy of Income tax return and computation of income is enclosed at 03 to 04 of paper book.

During the course of reassessment proceeding, following notices u/s 142(1) were issued :

S.
No.
Notice dated
Detail asked in notice
Reply filed on Reply/detail filed by the asseessee
1
05.11.2019
1. Details regarding source of capital contribution form partners with all the supporting evidences including copy of bank account of partners copy of ITR of computation and other relevant documents.

Copy of capital account of all partner

Detail of bank account and bank statements. 17.11.2019 The assesse filed all details as required by ld. AO in the notice u/s 142(1). 2 20.12.2019 1. Computation of income.

Brief note on business activity.

Copy of partnership deed. 24.12.2019 The assesse, inter alia, submitted in respect of unsecured loan that unsecured loan appearing in balance sheet are mostly unsecured loans and are very old loan. They are having regular source of income and 8 JKV STONEX VS ITO, WARD -1,KISHANGARH S. No. Notice dated Detail asked in notice Reply filed on Reply/detail filed by the asseessee

Balance sheet and Profit & Loss account for the year under consideration.

Copy of account confirmation of all unsecured loans appearing in balance sheet.

Complete book of account with all the supporting bills and voucher. filing their income tax return regularly, they are identified and loans was taken by account payee cheques/drafts, therefore, the unsecured loans are genuine. The assessee also submitted copy of bank statement showing amount received from lenders via banking channel.

The assesse also submitted that it has not started production and only investment was made by the partners in industrial land of RIICO.
3
24.12.2019
Copies account confirmation of all unsecured loan appearing in balance sheet and complete books of account confirmation.

The assesse duly submitted copies of account confirmation, copy of ITR
&
Computation of lenders. The assesse submitted that all lenders are identified and loans are taken account payee cheque.

With respect to books of account, the assesse submitted that during the year under consideration, the assessee firm has not started business activity and no purchase & sale was made, only investment was made in RIICO

9
JKV STONEX VS ITO, WARD -1,KISHANGARH
S.
No.
Notice dated
Detail asked in notice
Reply filed on Reply/detail filed by the asseessee
Industrial land.
4
Show cause question (while personal hearing in Note sheet dated
26.12.2019)
Sh.
Shankar
Lal
Sharma,
Advocate attended as AR of the assesse also filed written reply. The AR submitted that the same has also been filed by him on behalf of assesse regarding the unsecured loan.
The AR of the assessee submitted that most of the unsecured loans are old. The AR filed copy of account of unsecured loan. It is pertinent to mention here that no ITR has been filed by the assessee prior to AY
2012-13. Therefore, the unsecured loan appears first time in the books of assessee.
The AR not filed relevant bank account copy in which the loans were received in earlier year. The AR was asked to show cause that why the amount of Rs.
1,40,89,951/- should not be treated unexplained cash credit be added to income of assessee.
Reply of AR taken on record through order sheet.
26.12.2019
The AR replied that most of the unsecured creditor loans are old
& confirmation of loan received during the year has been given.
All the cash creditors are tax payers and filing their ITR.

10
JKV STONEX VS ITO, WARD -1,KISHANGARH
4. The ld. AO has not considered confirmation sought in respect of unsecured loan and passed assessment order on 26.12.2019. The ld. AO has raised his point of creditworthiness of lenders at the time of passing assessment order only whereas in notices issued u/s 142(1), he sought for account confirmation only which the assessee has duly provided and no discrepancy has been pointed out by the ld. AO while passing the assessment order.
Submission for Ground no. 1
As regard reason recorded by ld. AO, we may submit as under:
Sl.No Reason recorded
Our submission
1
During the financial year
2011-12, the partners of the firm Shri Jai Narayan
Agarwal and Shri Krishna
Murari Agarwal have been introduced capital of Rs.34,15,304/- and Rs.16,68,116/- respectively. On perusal of bank statements of these partners submitted during the course of assessment proceeding for the A.Y. 2016-17, it is noticed that Shri
Jai
Narayan Agarwal and Shri
Krishna Murari Agarwal have deposited cash of Rs.3,60,500/- and Rs.32,46,800/- respectively in their bank account which was subsequently transferred to assessee firm. Further,
Shri Jai Narayan Agarwal and Shri Krishna Murari
Agarwal have shown income of Rs.41,87,940/- and Rs.4,31,400/- respectively in their
Income tax returns filed for the year under consideration.
Thus, creditworthiness of the In respect of this reason, we may submit that ld. AO has taken case for reassessment on the basis of capital introduced by partners during the year which was introduced by partners out of cash deposited made by them in their bank account. The closing balance of capital account was 2,34,57,494/-. However, this is not reason to believe but it is reason to suspect.

The reason recorded by ld. AO depicts that he wants to verify cash deposit in partners’ bank accounts.
It is not responsibility of assessee firm to provide source of source of cash deposited in partners’ bank accounts specifically when no income is being accrued to the assesse in absence of any business activity.

Moreover, the ld. AO not produced anything on record which suggests that cash deposited by partners in their bank account pertains to unexplained source.
If this asserted, the ld. AO should have initiated reassessment proceeding on the partner, not on assesse firm.

11
JKV STONEX VS ITO, WARD -1,KISHANGARH
Sl.No Reason recorded
Our submission partner
Shri
Krishna
Murari Agarwal has not proved. In view of the above, source of cash deposited of Rs.36,07,300/- in partners account and therefore after transferred to firm account remains unexplained.

2
On perusal of balance sheet submitted during the course of assessment proceeding for the AY
2016-17, it is noticed that the assessee firm has obtained unsecured loan amounting to Rs.
1,40,89,951/- during the year under consideration but the assessee firm has not submitted any document/evidence in respect of these unsecured loans.
Even these unsecured loans were also not disclosed in return of income filed by the assessee firm upto
A.Y. 2015-16. While recording reason in respect of unsecured loan, the ld. AO took closing balance of unsecure loan of Rs.
1,40,89,951/- as on 31.03.2012 unlike reason recorded in respect of capital contribution by partner during the year under consideration. The ld. AO alleged that the assessee has received unsecured loan of Rs.
1,40,89,951/- during the year under consideration. Further, he also stated that evidence/documents in respect of unsecured loan has not been submitted by the assesse during the assessment proceeding.

In this regard, we may submit that the ld. AO has not asked for any document/evidence in respect of unsecured loan during the assessment proceeding of AY 2016-
17. He only asked for document/evidence regarding source of capital introduced which is mentioned by the ld. AO in para
1 at page 1 of statement of reason recorded. Copy of statement reason recorded has been provided during the course of hearing before

12
JKV STONEX VS ITO, WARD -1,KISHANGARH
Sl.No Reason recorded
Our submission
Hon’ble Bench on 15.07.2025. Further, the amount taken by ld.
AO in statement of reason recorded in respect of unsecured loan represents closing balance, not loan taken during the year under consideration.
Closing balance includes opening balance, amount received during the year, repayment made during the year and any adjustment made in account during the year under consideration. In the statement of reason recorded, the ld. AO has not referred to any tangible material except balance sheet which led to belief that unsecured loan of RS.
1,40,89,951/- appearing in balance sheet as on 31.03.2012
has escaped assessment. The reason recorded by ld. AO transpires that he initiated reassessment proceeding for roving of enquiry and verification. There is no reason to even suspect that the balance sheet of the assesse did not correctly reflect its state of affairs.

Without prejudice to the above, lf ld. AO found any suspicious from the record furnished by the assesse during assessment proceeding, he should have conducted enquiry u/s 133(6) to seek detail from assesse and lenders in respect of unsecured loan. If the lenders could not give explanation or gave contrary explanation, the ld. AO should have initiated reassessment proceeding on assesse. Assessment for AY
2016-17
completed on 27.12.2018 and last date to issue notice u/s 148 was 31.03.2019. 13
JKV STONEX VS ITO, WARD -1,KISHANGARH
Sl.No Reason recorded
Our submission

We also argued before Hon’ble
Bench that amount mentioned by the ld. AO in statement of reason recorded in respect of unsecured loan is not correct and thereby reassessment proceeding is not valid without proper application of mind. The reassessment proceeding was initiated by ld. AO with hasty manner. The assessee relied on judgment of Hon’ble Bench in case of Sushila
Choudhary vs.
ITO (ITA 638/JPR/2024, date or order: 12.02.2025) in support of non-application of mind. In the judgment relied upon by the assessee,
Hon’ble
Bench also supported its view by relying upon judgment passed by Hon’ble High
Court of Bombeyin case of Tata &
& 45 of order of Hon’ble Bench):
“If we consider the table reproduced above, the sale of shares of TCS Ltd. which according to Respondent No. 1
should be treated as 'business income' and not 'profits arising out of sale of sale of investment', is only
Rs.
19,32,34,27,592/-
(12,26,61,28,794
+
7,05,72,98,798) i.e."Long terms capital gains:-
Tata
Consultancy
Services
Limited". Mr. Pinto though he made valiant attempt to defend the notice issued for re-opening, in fairness, as an offcer of the Court, considering the reasons as recorded

14
JKV STONEX VS ITO, WARD -1,KISHANGARH
Sl.No Reason recorded
Our submission agreed that the only item which could have been stated to have escaped assessment would be the Long
Term
Capital gains in the sale of TCS Ltd. shares amounting to Rs.
19,32,34,27,592/- and Respondent
No.
1
was incorrect in stating that he had reason to believe that the sum of Rs. 22,71,25,79,374/- has escaped assessment”.

No business activity has commenced during the year under consideration, therefore, no addition is warranted u/s 68 in respect of unexplained cash credit

Our submission before Hon’ble Bench on 15.07.2025
Further remarks
In this regard, we may submit that from the ITR filed u/s 148, reply and financial statement during the course of assessment proceeding, it is undisputed fact that no business activity has commenced since the incorporation of firm.
In the return furnished u/s 148, the assesse has shown business loss on account of Pre-operative expenses.
Only investment in RIICO industrial land was made out partners’
capital and unsecured loan during the year under consideration. It is settled principle as held in various judicial pronouncements that when no business activity is started during the year under consideration then no addition can be made u/s 68 in respect unexplained cash credit as no unaccounted income has been generated in absence of business activity.

Reliance is placed on following judgments:

During the course of hearing on 15.07.2025, the ld. DR pointed out against the case law of Hon’ble
High
Court of Delhi in case of Alankar
Promoters
LLP
(supra) relied upon by AR of the assessee. Ld. DR pointed out that in case of Alankar
Promoters
LLP
(supra), the assessee has filed return of income u/s 139(1), however, in the present case, the assessee as not filed its return of income u/s 139(1).

In this regard, we may submit as under:

Assessee was 15 JKV STONEX VS ITO, WARD -1,KISHANGARH Our submission before Hon’ble Bench on 15.07.2025 Further remarks  Hon’ble High Court of Allahabad in case of CIT vs. Lal Manohar [2017] 88 taxmann.com 260 held that Whether since it was first year of business of AOP and no business activity having been shown to have been conducted by it that could lead to generation of unaccounted income on first day of relevant accounting period itself, Tribunal had not committed any error in deleting impugned addition - Held, yes.


Hon’ble High Court of Allahabad in case of Abhyudaya Pharmaceuticals vs CIT [2013] 32 taxmann.com 68
held that here addition was made to assessee's income on ground that it failed to prove source of amount contributed by one partner, in view of fact that it was first year of operation of firm so it could not have its personal funds and, moreover, addition, if any, could be made in hands of said partner only, impugned addition made in hands of assessee was to be deleted.


Hon’ble High Court of Delhi in case of Alankar Promoters LLP vs. ITO
[2024] 167 taxmann.com 594 held in para 30 to 34 as under:

30.

In the present case, the assessee had filed its return of income showing Nil return. The petitioner had also annexed his balance sheet showing unsecured loan of Rs. 5,00,000/-. The AO had initiated the reassessment proceedings solely on the basis that the petitioner's balance sheet recorded an outstanding unsecured loan of under bonafideimpression that it doesn’t require to file return of income as not income was accrued to it during the year under consideration.

In the case law of Alankar Promoters LLP (supra), the ld. AO initiated proceeding solely on the basis that petitioner balance sheet recorded an outstanding unsecured loan of Rs. 5,00,000/-. The Hon’ble High Court has not given its finding in its judgment that despite the fact that the assessee has filed its return of income, how availing of loan by the assesse as reflected in its books of account could be a reason for the AO to believe that the assessee’s income had escaped assessment.

So far as non-filing of return by the assesse, there is penal provision in Income Tax Act, 1961 to impose penalty for non- filing of return.

Without prejudice of above, even if the ld. AO

16
JKV STONEX VS ITO, WARD -1,KISHANGARH
Our submission before Hon’ble Bench on 15.07.2025
Further remarks
Rs. 5,00,000/-. This is apparent from a plain reading of the reasons for reopening of the assessment as recorded by the AO. The relevant extract of the said reasons is set out below:

"In this case
Company was incorporated 09.07.2011 and has authorized capital Rs. 1,00,000/-. It has not shown any sales/receipts or any other Income. But on perusal of Balance sheet noticed that it has unsecured loan Rs. 5,00,000/- from others. Since the assessee has not carried out any business activity during the year. Therefore, I have reason to believe that income
Rs.5,00,000/- has escaped assessment for AY 2012-13. The assessment/reassessment proceedings in this case for AY 2012-
13 pertain to period beyond four years but before the expiry of six years from the date of issue of notice.
The assessment/reassessment proceedings in this case for AY 2012-
13 pertain to period beyond four years but before the expiry of six years from the date of issue of notice. In view of the same, as no assessment has been made in this case for AY 2012-13, u/s 143(3) or u/s 147, the first proviso to section 147 is not applicable to the case."
31. We are at loss to comprehend as to how availing of a loan by the assessee as reflected in its books of account could be a reason for the AO to believe that the assessee's income had escaped assessment. There is no material to indicate that the AO had any ground to believe that wants to reopen case, he should conduct enquiry u/s 133(6) on assessee and lenders as he had ample time to conduct enquiry after completion of assessment and due date initiating proceeding u/s 148 for the year under consideration.

17
JKV STONEX VS ITO, WARD -1,KISHANGARH
Our submission before Hon’ble Bench on 15.07.2025
Further remarks the loan availed by the assessee (as reflected in the books of accounts) was chargeable to tax under the Act.

32.

There is neither any allegation nor any material to even remotely suggest that the assessee had earned income chargeable to tax, which was camouflaged as an unsecured loan and reflected in its books of accounts. The AO had clearly no material on record to form any belief that the income of the assessee had escaped assessment.

33.

The impugned order does not reflect any ground for believing that the income of the assessee had escaped assessment in the relevant financial year. The AO had rightly rejected the contention that this is not a case of any change of opinion as an assessment had not been framed under Section 143(3) of the Act. However, the impugned order throws no light as to how an unsecured loan reflected in the assessee's book was reason enough to believe that the income of the assessee had escaped assessment.

34.

The assessee had, in its letter dated 27.11.2012, explained that it had availed of the unsecured loan from its the then director Sh. Ashok Kumar Jain. It had also pointed out that the notes to the accounts for the financial year ended on 31.03.2012 and also disclosed that loan Rs. 5,00,000/- was received from Sh Ashok Kumar Jain, who was the Key Management Personnel. Notwithstanding the note, the AO has proceeded on the unfounded premise that the amount shown outstanding as unsecured loan in the balance sheet is unexplained and, thus chargeable to tax

18
JKV STONEX VS ITO, WARD -1,KISHANGARH
Our submission before Hon’ble Bench on 15.07.2025
Further remarks under Section 68 of the Act.

35.

As explained in LakhmaniMewal Das (supra) the assessment can be reopened only on account of 'reason to believe' and not 'reason to suspect'. In the present case, a fortiori, there is no reason to even suspect that the balance sheet of the assessee did not correctly reflect its state of affairs.

Assessee has fulfilled its responsibility by furnishing account confirmation of lenders, return of income and bank account of firm

In this we may submit that the assessee duly submitted account confirmation of lenders, return of income of lenders and bank account of firm to show that loan has been received via banking channel. It is also undisputed fact that unsecured loan has been given by identifiable person. Unless anything contrary evidence produced by assessing officer, the assessee is only to explain that the investment has been made by the particular individual/person and it is the responsibility of that individual/person to account for the investment made by him. If that person owns an entry, the burden of the assesse is discharged. It is open for the Assessing Officer to undertake further investigation with regard to that individual who has given this amount. In such a case, the onus of the assessee is duly casted.

Reliance is placed on following judgment(s):


Hon’ble High Court of Madhya Pradesh in case of CIT vs. Metachem
Industries [2001] 116 Taxman 572 held that Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee-firm is over. The assessee-firm cannot ask that person who makes investment, whether the money invested is properly taxed or not. The assessee is only to explain that the investment has been made by the particular individual and it is the responsibility of that individual to account for the investment made by him.
If that person owns that entry, then the burden of the assessee-firm is discharged. It is open for the Assessing Officer to undertake further investigation with regard to that individual who has deposited this amount.

19
JKV STONEX VS ITO, WARD -1,KISHANGARH
So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an income-tax payer or not or from where he had brought this money, is not the responsibility of the firm. The moment the firm has given a satisfactory explanation and produced the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open for the Assessing Officer to take appropriate action under section 69 against the person who has not been able to explain the investment.
Submissions on Ground No. 2
1. As stated in para 4 of facts of the case, during the course of assessment proceeding, the ld. AO has sought copy of account confirmation of 14 lenders in respect of unsecured loan of Rs. 1,40,89,951/- which the assessee has duly submitted. The assessee also reiterated during assessment proceeding that mostly unsecured loan are old which is also discernible from account confirmation of lenders. Apart from that, the assessee also submitted copy of ITR of lenders for the year under consideration and bank statement of assessee to establish that lenders are identifiable and loan has been received via banking channel. The ld. AO has not pointed out any discrepancy in account confirmation and bank statement.

During the course of first appeal proceeding, the assessee submitted the same documents, i.e. confirmation and return of income of all the lenders and the ld. CIT(A) has deleted addition of Rs.92,10,830/- which represents opening balance of unsecured loan and Rs. 2,00,000/- where the income in the return of income is higher than the amount of loan. The ld. CIT(A) has sustained addition of Rs.46,79,121/- in respect of remaining 5 lenders where the return of income for the year was less than the amount of loan for want of credit worthiness.

We may submit that for the only reason that the amount of return of income for the year under consideration is lower cannot be reason to consider that the creditworthiness of the parties is not proved. Out of total of 5 lenders of Rs.46,79,121/- for which the CIT(A) has sustained addition, 4 lenders for a total sum of Rs.38,14,751/- are family members of the partners of the assessee firm. For all of them, it’s a family business and the money saved by them over the years have been received in the firm i.e. new family business where funds are required for setting up. Fruther, the other 1 lender has also advanced out of the savings of past few years. Therefore, rejecting the credit worthiness only for the reason that the amount of income during the year under consideration is less than the amount of loan is not justified.

Also, we may also submit that since the assessee has not started the business

20
JKV STONEX VS ITO, WARD -1,KISHANGARH activities, the money received cannot be considered as income of the assessee in view of the judgements quoted above earlier in these submissions.
4. Without prejudice, the assessee can submit all the records, i.e.
return of income of the lenders for the previous years, their bank account statements and the sources of their funds in case an opportunity is provided. As the issue was of 14 lenders before the AO & CIT(A) out of which most of the lenders were carried through opening balances and the assessee was only asked for confirmation of the lenders, the assessee did not submit additional documents before the AO & CIT(A). It is requested to grant another opportunity to the assessee by way of setting aside the case to the Assessing Officer for verification of these 6 lenders. ‘’

It is pertinent to mention that the ld. AR of the assessee has relied on following case laws.
1. Sushila Choudhary vs ITO, NFAC, Delhi (ITA No. 638/JPR/2024 for the assessment year 2013-14 order dated 12-02-2025) on the issue of assessment proceedings u/s 148 of the Act and addition made u/s 69A of the Act where the appeal of the assessee was allowed.
2. Alankar Promoters LLP vs ITO [2024] 167 Taxmann.com 594 (Delhi ) wherein the appeal was allowed in favour of the assessee. The observation of the Hon’ble High Court is reproduced as under:-
‘’ 30. In the present case, the assessee had filed its return of income showing
Nil return. The petitioner had also annexed his balance sheet showing unsecured loan of Rs. 500,000 The AO had initiated the reassessment proceedings solely on the basis that the petitioner's balance sheet recorded an outstanding unsecured loan of Rs. 5,00,000 This is apparent from a plain reading of the reasons for reopening of the assessment an recorded by the AO. The relevant extract of the said reasons is set out below:

The assessment/reassessment proceedings in this case for AY 2012-13
pertain to period beyond four years but before the expiry of six years from the date of issue of notice. In view of the same, as no assessment has been made in this case for AY 2012-13, u's 143(3) or u/s 147, the first proviso to section 147 is not applicable to the case."

31.

We are at loss to comprehend as to how availing of a loan by the assessee as reflected in its books of account could be a reason for the AO to believe that the assessee's income had escaped assessment. There is no material to indicate that the AO had any ground to believe that the loan availed by the assessee (as reflected in the books of accounts) was chargeable to tax under the Act.

32.

There is neither any allegation nor any material to even remotely suggest that the assessee had earned income chargeable to tax, which was camouflaged as an unsecured loan and reflected in its books of accounts, The AO had clearly no material on record to form any belief that the income of the assessee had escaped assessment

33.

34.

35.

As explained in LakhmaniMewal Das (supra), the assessment cannot be reopened only on account of ‘’reason to believe’’ and not ‘’reason to suspect’’. In thepresentcase,a fortiori, there is no reason to even suspect that the balance sheet of the assessee did not correctly reflect its state of affairs.

22
JKV STONEX VS ITO, WARD -1,KISHANGARH

36.

In view of the above, the necessary condition for initiating reassessment u/s 147 of the Act is not satisfied. The impugned notice is thus, set aside. Consequently, the impugned re-assessment order is also set aside.’’

Further, to support his submissions, the ld. AR of the assessee has filed the following paper book.
S.N.
Particulars
Page No.
1. Financials of JVK Stonex for the A.Y. 2012-13
1-2
2. ITR &Computat4ion of income of JVK Stonex for the A.Y. 2012-
13
3-4
3. Ledger account of parties in books of the assessee
5-9
4. Confirmation of all parties of unsecured loan
10-14
5. Bank account statement for the perod 01-04-2011 to 31-03-
2012
15-16
6. ITR & computation of income of the parties of unsecured loan
17-25
7. Copy of lease agreement
26-42
8. Copy of assessment order dated 23-05-2023 for the A.Y.2014-
15 and reply filed dated 15-03-2023 during assessment proceedings
43-50

3 During the course of hearing, the ld.DR supported the order of ld. CIT(A). The ld. DR also filed the letter dated 19-03-2019 issued by Shri Jethanand Bholchandani, ITO, Ward-1, Kishangarh with regard to reasons for reopening of the assessment in the case of JVK Stones. The detail of the letter is reproduced as under:-

23
JKV STONEX VS ITO, WARD -1,KISHANGARH

24
JKV STONEX VS ITO, WARD -1,KISHANGARH

25
JKV STONEX VS ITO, WARD -1,KISHANGARH

4 We have heard the parties and perused the materials available on record. The facts as coming out of the records are that the assessee is in the course of setting up of the business and purchased an Industrial Land where no commercial activity has yet been started. During the course of assessment proceedings for AY 2016-17, the assessee furnished the Financial Statements for the year under consideration where the issue involved was source of the capital introduced by the partners. On the basis of the Balance Sheet so submitted, the AO found that unsecured loans of Rs. 1,40,89,951/- and partners capital account are outstanding as on 31.03.2012. Further, on this basis, the AO initiated the proceedings u/s 148 of the Act and thereafter made addition of the entire amount of unsecured loans despite the fact that the assessee furnished confirmations of the parties and also the relevant documents, copy of the books of accounts etc. to show that most of the unsecured loans were received in the earlier years. The ld. CTT(A), considering these facts, deleted the addition to the extent of Rs.92,10,830/- of the unsecured loans which were received in the preceding years. Out of the balance amount of addition of Rs 48,79,121/- he allowed relief of Rs.2,00,000/-in respect of one loan of Mr. Ravi Agrawal HUF and sustained addition of Rs 46,79,121/- in respect of 5 loans

26
JKV STONEX VS ITO, WARD -1,KISHANGARH of the persons whose Income for the year under consideration was lower than the loan given. An analysis of facts and circumstances of the case suggests that the AO did not properly appreciate the facts and circumstances of the case. The Assessee submitted confirmations brought on record the fact that most of the unsecured loans were outstanding from previous year, still without properly verifying the facts, he just proceeded to make addition of entire amount of Rs.1,40,89,951/-unsecured loans outstanding as on the balance sheet date. The confirmation of all the parties is on record. All the parties in respect of which addition is sustained are filing their returns of income except Pista Devi who is mother of the partners of the assessee. Entire money has been received through account payee cheques. The assessee firm has not commenced any business activity and therefore, it is not justified to say that the assessee has camouflaged earned this income in view of Delhi High Court Judgement in the case of Alankar Promoters LLP Vs. ITΟ 167 taxmann.com 594. The ld.
CIT(A) has also not appreciated the facts of the case properly and just compared the income of one year vis a vis the amount of loan given by the parties and gave relief where the return of income for the year is higher than the amount of loan received by the assessee. Looking at the facts of the case where revenue activity has not started, loans are received through

27
JKV STONEX VS ITO, WARD -1,KISHANGARH account payee cheques and the parties are relatives of partners and confirmed the loans. Thus, the addition made by applying the provisions of section 68 is not justified. We hold accordingly.Further, the Id. AR also contended that the entire reassessment was initiated on the basis of details received during the course of assessment proceeding of AY 2016-17 in respect of capital contribution by partners and unsecured loan received by the assessee during AY 2012-13. In respect of capital contribution by partner Shri Krishna Murari Agarwal of Rs. 16,68,116/-, the AO recorded reason that creditworthiness of the partner Sh Krishna Murari Agarwal has not been proved as he has shown income of Rs. 4,31,400/- in his return of income.
2.4.1 In respect of unsecured loan of Rs. 1,40,89,951/- as on 31.03.2012, the AO recorded the reason that the assessee has not submitted any documents/evidence in respect of these unsecured loans. The amount taken by AO in statement of reason recorded in respect of unsecured loan represents closing balance, not loan taken during the year under consideration. In the statement of reason recorded, the AO has not referred to any tangible material except balance sheet which led to belief for AO that unsecured loan of Rs. 1,40,89,951/- appearing in balance sheet as on 31.03.2012 has escaped assessment. There is no reason even to 28
JKV STONEX VS ITO, WARD -1,KISHANGARH suspect that the balance sheet of the assessee did not correctly reflect its state of affairs. Both the reasons recorded by AO are not reasons to believe but reasons to suspect which implies that basis of reassessment was to conduct roving enquiries which is against the fundamental basis of reopening of the case. The AO has not brought the fact in the statement of reasons that capital contribution by Shri Krishna Murari Agarwal and unsecured loan received from various parties were out of undisclosed sourcesof assessee’s income. Even otherwise, the AO had any doubt in respect of capital contribution and unsecured loan then he should have conducted enquiry on assessee as well as partner before initiation of reassessment proceeding and in case it is found that the capital contribution and unsecured loan were made out of assessee's undisclosed sources then reassessment proceeding should have been initiated.
638/JPR/2024, date of order 12.02.2025) in support of non-application of mind. In the judgment relied upon by the assessee, ITAT Jaipur Bench also supported its view by relying upon judgment passed by Hon'ble High Court

29
JKV STONEX VS ITO, WARD -1,KISHANGARH of Bombey in case of TATA & Sons Ltd vs DCIT 137 tasmann.com 414
wherein it was held in para 6 & 7 as under:-
‘’6. If we consider the table reproduced above, the sale of shares of TCS
Ltd. which according to Respondent No. 1 should be treated as ‘business income’ and not ‘profits arising out of sale of sale of investment’ is only Rs.
19,32,34,27,392/-(12,26,61,28,794 + 7,05,72,98,798) i.e. "Long terms capital gains:-‘’Tata Consultancy Services Limited’’. Mr. Pinto though he made valiant attempt to defend the notice issued for re-opening, in fairness, as an offer of the Court, considering the reasons as recorded agreed that the only item which could have been stated to have escaped assessment would be the Long Term Capital gains in the sale of TCS Ltd shares amounting to Rs 19,32,34,27,592/-and Respondent No 1 was incorrect in stating that he had reason to believe that the sum of Rs 22,71,25,79,374/-has escaped assessment

‘’7. in our view, if the reasons for reopening the assessment is based on incorrect facts or conclusion, certainly the notice issued for reopening cannot be sustained. Moreover, if according to respondent No 1 only the sale of shares of TCS Ltd was ‘business income’ and not ‘profits arising of sale of investment’ to say that the amount of Rs 22,71,25,79,374- has escaped assessment, also indicates non application of mind.’’

Apart from this, since the assessee has not started the business activity, therefore, in view of the Delhi High Court decision in the case of Alankar
Promoters LLP VS. ITO (Supra), reassessment proceedings under section 68 cannot be justified in the case of the assessee firm. Hence, in view of the aforesaid discussion, we hold that the re-assessment proceedings are 30
JKV STONEX VS ITO, WARD -1,KISHANGARH not justified in this case and the appeal of the assessee is allowed as indicated hereinabove.
3.0
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 17 / 09 /2025. . ¼ jkBkSM+ deys'kt;UrHkkbZ ½

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(RATHOD KAMLESH JAYANTBHAI)

(Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member
U;kf;dlnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 17 / 09/2025

*Mishra
आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
1. The Appellant- M/s. J K V Stonex, Kishangarh
2. izR;FkhZ@ The Respondent- The ITO, Ward- 1, Kishangarh
3. vk;djvk;qDr@Theld CIT
4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत
5. xkMZQkbZy@ Guard File (ITA No.542/JPR/2025) vkns'kkuqlkj@ By order,

सहायकपंजीकार@Aेेजज. त्महपेजतंत

J.K.V. STONEX,KISHANGARH vs. INCOME TAX OFFICER, KISHANGARH