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Facts
The assessee declared long-term capital gains from the sale of shares, claiming exemption under Section 10(38). The AO treated these gains as bogus and income from other sources. Additionally, the AO added unsecured loans received by the assessee as unexplained cash credits.
Held
The Tribunal held that the AO's additions were based on suspicion and generalized reports without specific evidence or opportunity for cross-examination. The assessee had provided extensive documentary evidence to substantiate the transactions and loans. Therefore, the additions were not justified.
Key Issues
Whether the long-term capital gains from share transactions were genuinely earned and eligible for exemption, and whether the unsecured loans were explained and not unexplained cash credits.
Sections Cited
10(38), 115BBE, 14A, 68, 57, 133(6), 131, 69C
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Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMAR
This appeal by assessee is directed against the order of NFAC, Delhi dated 21.07.2023 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
1. That the learned Commissioner of Income Tax (Appeals) (for the purposes of brevity it is hereinafter mentioned as Ld. CIT(A)) erred in sustaining the finding given by the AO in treating Long term capital gain of Rs. 61,49,716/- arising to the assessee from the sale of 12,500 shares of Cressanda Solution Ltd. and claimed by her as exempt u/s. 10(38) of the I.T. Act, as bogus and treating this amount of Long term capital gain as income from other sources (Taxable @ of 30% as provided u/s. 115BBE) and consequently adding this amount of Rs. 61,49,716/- to the total income of assessee, which sustenance of treating Long term capital gain of Rs. 61,49,716/- as bogus and income from other sources and adding the same in the total income of assessee is most arbitrary, unjust, untenable and bad in fact and in law and in the alternative excessive w.r.t. facts and circumstance of the case.
2. That the Ld. CIT (A) failed to appreciate that Cressanda Solution Ltd. is a public limited company, its shares are quoted in recognized stock exchange, its shares were sold by the assessee through the recognized stock exchange after paying STT and payment was received by the assessee through banking channels.
3. That the Ld. CIT(A) erred in sustaining addition of Rs. 3,68,983/- made by the AO by whimsically presuming that the beneficiaries have paid commission for acquiring the above mentioned alleged accommodation entry of Rs. 61,49,716/- and further treating the amount of Rs.3,68,983/- as undisclosed expenditure and consequently adding the same in the total income of assessee, which sustenance of addition of Rs. 3,68,983/-is unjustified and in the alternative excessive w.r.t facts and circumstance of the case.
4. That the Ld. CIT(A) erred in sustaining the finding given by the AO in treating unsecured loans taken by assessee from four loan creditors totaling to Rs. 1,83,00,000/- (Loan of Rs. 40,00,000/- from Manju Lata Sharma plus Loan of Rs. 31,00,000/-from Maruti Enterprises plus Loan of Rs. 44,00,000/- from Vikas Sethia plus loan of Rs. 68,00,000/- from Tara Devi Sethia) as unexplained loans and adding this amount of Rs. 1,83,00,000/-to the total returned income of the assessee as unexplained cash credit u/s. 68 of the I.T. Act, 1961, which sustenance by the Id. CIT(A) of agreeing with the observation of the AO made by him (the AO) in the assessment order that the provisions of section 68 were attracted and consequently upholding the addition of Rs.1,83,00,000/- to the total income u/s. 68 of the I.T. Act is most arbitrary and unjust and in the alternative excessive w.r.t. facts and circumstance of the case.
5. That the Id. CIT(A) failed to appreciate that the assessee duly discharged the primary onus which lay upon her by filing before the AO, (1) all the confirmations duly signed by the loan creditors, (2) PAN of loan creditors, (3) Bank statements and other relevant record to prove that all the transactions of loan and interest payment are through account payee cheques/banking channels,(4) Copy of ITR acknowledgment towards proof of filing of return of income and other supporting evidence to prove the identity, genuineness and creditworthiness of all the loan creditors.
6. That the Id. CIT (A) erred in sustaining the disallowance made by the AO u/s. 57 of interest paid to all the four loan creditors totaling to Rs. 22, 70,120/- and adding the same in the total income of assessee, which sustenance of addition of Rs. 22, 70,120/- is most arbitrary and unjust and in the alternative excessive w.r.t. facts and circumstance of the case.
7. That the Id. CIT (A) erred in sustaining the disallowance of Rs. 67,344/- made by the AO u/s. 14A, which sustenance of addition of Rs. 67,344/-u/s. 14A is most arbitrary and unjust and in the alternative excessive w.r.t facts and circumstance of the case.
8. That the appellant craves leave to add, alter, amends and/or substitute one or more grounds of appeal as and when necessary.”
2. When the matter was called for hearing, the ld. AR for the assessee fairly conceded that the appeal had been filed with a delay of 122 days. It was submitted at the bench by the ld. AR that the impugned order of NFAC was passed on 21.07.2023, and accordingly, the appeal ought to have been filed within 60 days from receipt, i.e., by 19.09.2023. However, the appeal was actually filed on 19.01.2024, resulting in delay of 122 days. In this regard, assessee has filed an application seeking condonation of delay supported by an affidavit. The ld. AR submitted that the assessee is aged about 74 years, a widow, less educated, and unfamiliar with computer operations and online communications. Hence, the assessee inadvertently missed noting the online receipt of the order, causing delay. These facts were affirmed through her affidavit.
3. We have carefully perused the application for condonation of delay along with the affidavit. Considering the age, educational background, and lack of familiarity with online communications, we are satisfied that the assessee was prevented by sufficient cause from timely filing. Noting the prevalent mode of electronic communication and ensuring natural justice, we condone the delay. Accordingly, the delay of 122 days is condoned, and the appeal admitted for adjudication.
4. At the time of hearing, before commencing the submissions of the case, the ld. AR of the assessee submitted that he did not wish to press Ground No. 7 raised in relation to the disallowance under Section 14A of the Act. Accordingly, Ground No. 7 raised by the assessee is dismissed as not pressed.
Brief facts of the case are that the assessee e-filed her return of income for the Assessment Year 2014-15 on 29.11.2014 declaring a total income of Rs. 16,35,150. The return was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny assessment under section 143(3) through CASS, initially for limited scrutiny, but later converted to complete scrutiny. Notices under section 142(1) were issued, and compliance was made through submissions and relevant documents.
During the assessment proceedings, AO noticed that the assessee had sold 12,500 shares of M/s. Cressanda Solutions Ltd. for a consideration of Rs. 62,89,303/- and claimed exemption of long-term capital gain amounting to Rs. 61,49,716/- under Section 10(38) of the Act. Based on investigations by the Department and SEBI reports, the AO observed that M/s. Cressanda Solutions Ltd. was identified as a penny stock company used for accommodation entries, characterized by abnormal price movements and lack of fundamental strength. The AO concluded that the transaction was a sham, arranged merely to claim exemption under Section 10(38), and treated the entire sale consideration as income from other sources, invoking Section 115BBE of the Act. Consequently, the AO disallowed the exemption claim and added Rs. 61, 49,716/- to the assessee’s total income. Aggrieved by this, the assessee approached the NFAC, which upheld the AO's order. Aggrieved further by the order of NFAC, the assessee is now in appeal before us.
Ld. AR of the assessee before us argued that the assessee is regularly assessed to income tax for more than three decades and has been an active investor in shares and securities. It was submitted that the assessee had genuinely purchased 12,500 shares of M/s. Smart Champs IT & Infra Ltd. on 18.11.2011 through banking channels, and these shares later got amalgamated with M/s. Cressanda Solutions Ltd. pursuant to a High Court approved scheme. The ld. AR of the assessee highlighted that all relevant documents substantiating the genuineness of the transaction, including copies of the bank statement reflecting purchase consideration, share certificates, dematerialization statements, broker’s contract notes evidencing the sale, ledger copies, and the detailed transaction statements, were submitted before the AO. It was further argued that the AO erroneously relied upon statements of unrelated third parties, without providing any opportunity of cross-examination, thus violating principles of natural justice. Moreover, the AO’s observations regarding abnormal price fluctuation were merely based on assumptions and lacked concrete evidence.
During the course of appellate proceedings, the Learned Authorised Representative (Ld. AR) appeared on behalf of the assessee and made detailed submissions. The Ld. AR submitted that the assessee is a regular income tax assessee since more than three decades and has consistently made investment in shares and securities. In support of the above contentions, the assessee placed on record paper book page no. 37-46 containing the Profit and Loss Statements and Balance Sheets for the financial years ending on 31st March 2009, 2010, 2011, 2012, 2013, and 2014. The computation of total income for the year under appeal was also filed before us. The Ld. AR further submitted that the assessee had made investments in a variety of quoted and unquoted shares, which form part of the assessee’s regular investment portfolio. It was contended that the assessee has been regularly earning income from such investments in the form of dividend income, as well as long-term and short-term capital gains arising from the purchase and sale of shares and securities. The Ld. AR emphasized that the investment activity carried on by the assessee is in the nature of regular and consistent investment. Further, it was brought to our notice that during the year under appeal, apart from the gains arising from the alleged penny stock transactions, the assessee has also earned long- term capital gains from the sale of other listed and unlisted shares and securities. It was submitted that this clearly demonstrates that the assessee has been engaged in regular investment activity and not a one-off transaction intended to evade taxes. The Ld. AR submitted that the assessee’s conduct and history of investment over the years establishes a consistent pattern of long-term investment, and therefore the capital gains earned, including those under consideration, ought to be accepted as genuine long-term capital gains arising from investments.
Investment In share as on 31/03/2011 S. No. Investment Qty Cost Listed & Unlisted 1 Champalal Distributors Pvt Ltd 40000.00 2,04,000.00 Unlisted 2 Dreamland Buildmart Pvt Ltd 5000.00 50,000.00 Unlisted 3 Laxmi India Finance Ltd 119400.00 11,94,000.00 Unlisted 4 Prem Dealers Pvt Ltd 60000.00 50,500.00 Unlisted 5 Power Gird 297.00 25,393.50 Listed 224697.00 15,23,893.50
Investment In share as on 31/03/2012 S. No. Investment Qty Cost Listed & Unlisted 1 Champalal Distributors Pvt Ltd 40000.00 2,04,000.00 Unlisted 2 Dreamland Buildmart Pvt Ltd 7500.00 75,000.00 Unlisted 3 Laxmi India Finance Ltd 79400.00 7,94,000.00 Unlisted 4 Prem Dealers Pvt Ltd 60000.00 50,500.00 Unlisted 5 Power Gird 297.00 25,393.50 Listed 6 Smartchamps IT & Infra Ltd 12500.00 1,25,000.00 Unlisted 7 Deepak Hitech Motors Pvt Ltd 50000.00 5,00,000.00 Unlisted 187197.00 17,73,893.50
Investment In share as on 31/03/2013 S. No. Investment Qty Cost Listed & Unlisted 1 Champalal Distributors Pvt Ltd 40000.00 2,04,000.00 Unlisted 2 Dreamland Buildmart Pvt Ltd 7500.00 75,000.00 Unlisted 3 Laxmi India Finance Ltd 79400.00 7,94,000.00 Unlisted 4 Prem Dealers Pvt Ltd 60000.00 50,500.00 Unlisted 5 Power Gird 297.00 25,393.50 Listed 6 Smartchamps IT & Infra Ltd 12500.00 1,25,000.00 Unlisted 7 Deepak Hitech Motors Pvt Ltd 50000.00 5,00,000.00 Unlisted 187197.00 17,73,893.50
Mutual Fund Cost as on 31/03/20211 S. No. Mutual Fund Name Cost 1 DSP BLACK ROCK TOP 100 2312224 80000.00 2 DSP TAX SAVER 2312224/89 15000.00 3 FRANKLIN FLEXI CAP 2019904005330 36000.00 4 HDFC Equity Fund 6047953\88 273500.00 5 HDFC TAX SAVER 6047953\88 15000.00 6 HDFC TOP - 200 6047953\88 156000.00 7 SBI MUTUAL FUND TAX GAIN 12741117 15000.00 8 SUNDRAM RURAL FUND SBBNAA254163 80000.00 9 Sundaram Select Focus Fund SBBNAA254163 48000.00 10 ICICI ST PLAN 300000.00 11 IDBI FLEXIBOND 15000.00 12 L&T Equity Fund 90000.00 13 SBI FLEXICAP 22500.00 14 RELIANCE GROWTH FUND 48000.00 15 RELIANCE TAX SEVER(ELSS FUND)DIVIDEND PLAN 70000.00 16 SUNDRAM TAX SAVER SBBNAA254163 15000.00 17 TEMPLETON SHORT TERM 137500.00 18 HDFC ST PLAN 6047953\88 12000.00 19 ICICI DYNAMIC FUND 5088498\75 92000.00 Total 1520500.00
Mutual Fund Cost as on 31/03/2012 S. No. Mutual Fund Name Cost 1 DSP BLACK ROCK TOP 100 2312224 260000.00 2 DSP TAX SAVER 2312224/89 45000.00 3 Franklin Bluchip Fund 0389904303651 20000.00 4 FRANKLIN FLEXI CAP 2019904005330 84000.00 5 HDFC Equity Fund 6047953\88 364500.00 6 HDFC TAX SAVER 6047953\88 45000.00 7 HDFC TOP - 200 6047953\88 300000.00 8 SBI MUTUAL FUND TAX GAIN 12741117 42500.00 9 SUNDARAM SELECT MIDCAP FUND SBBNA254163 45000.00 10 SUNDRAM RURAL FUND SBBNAA254163 90000.00 11 Sundaram Select Focus Fund SBBNAA254163 96000.00 12 ADITYA BIRLA FRONTLINE EQUITY 64000.00 13 ICICI ST PLAN 300000.00 14 IDBI FLEXIBOND 15000.00 15 L&T Equity Fund 190000.00 16 SBI FLEXICAP 40000.00
17 RELIANCE GROWTH FUND 84000.00 18 RELIANCE TAX SEVER(ELSS FUND)DIVIDEND PLAN 70000.00 19 SUNDARAM THEMATIC RURAL 62000.00 20 SUNDRAM TAX SAVER SBBNAA254163 42500.00 21 TEMPLETON SHORT TERM 237500.00 22 HDFC ST PLAN 6047953\88 17000.00 23 ICICI DYNAMIC FUND 5088498\75 184000.00 Total 2698000.00
Mutual Fund Cost as on 31/03/2013 S. No. Mutual Fund Name Cost 1 DSP BLACK ROCK TOP 100 2312224 440000.00 2 DSP TAX SAVER 2312224/89 67500.00 3 Franklin Bluchip Fund 0389904303651 47500.00 4 FRANKLIN FLEXI CAP 2019904005330 117000.00 5 HDFC Equity Fund 6047953\88 64928.79 6 HDFC TAX SAVER 6047953\88 75000.00 7 HDFC TOP - 200 6047953\88 228000.00 RELIANCE MUTUAL FUND GROWTH 8 407108155646 27000.00 9 SBI MUTUAL FUND TAX GAIN 12741117 72500.00 10 SUNDARAM SELECT MIDCAP FUND SBBNA254163 105000.00 11 SUNDRAM RURAL FUND SBBNAA254163 40000.00 12 Sundaram Select Focus Fund SBBNAA254163 144000.00 13 ADITYA BIRLA FRONTLINE EQUITY 152000.00 14 IDBI FLEXIBOND 15000.00 15 L&T Equity Fund 170000.00 16 SBI FLEXICAP 52500.00 17 RELIANCE GROWTH FUND 93000.00 18 SUNDARAM THEMATIC RURAL 84000.00 19 SUNDRAM TAX SAVER SBBNAA254163 65000.00 20 TEMPLETON SHORT TERM 75000.00 21 HDFC ST PLAN 6047953\88 108000.00 22 ICICI DYNAMIC FUND 5088498\75 156000.00 Total 2398928.79
Mutual Fund Cost as on 31/03/2014 S. No. Mutual Fund Name Cost 1 AXIS SMALL CAP FUND 250000.00 2 DSP BLACK ROCK TOP 100 2312224 680000.00 3 DSP TAX SAVER 2312224/89 72500.00
4 Franklin Bluchip Fund 0389904303651 77500.00 5 FRANKLIN FLEXI CAP 2019904005330 144000.00 6 HDFC Equity Fund 6047953\88 300000.00 7 HDFC TAX SAVER 6047953\88 100000.00 8 HDFC TOP - 200 6047953\88 184099.00 9 Icici Pru. Value Fund 6446009\87 300000.00 RELIANCE MUTUAL FUND GROWTH 10 407108155646 48000.00 11 SBI MUTUAL FUND TAX GAIN 12741117 102500.00 12 SUNDARAM SELECT MIDCAP FUND SBBNA254163 165000.00 13 SUNDRAM RURAL FUND SBBNAA254163 88000.00 14 Sundaram Select Focus Fund SBBNAA254163 63090.00 15 ADITYA BIRLA FRONTLINE EQUITY 248000.00 16 L&T Equity Fund 239396.03 17 SBI FLEXICAP 52500.00 18 SUNDRAM TAX SAVER SBBNAA254163 92500.00 19 FRANKLIN India Short Term Plan 125000.00 20 HDFC ST PLAN 6047953\88 193000.00 21 ICICI DYNAMIC FUND 5088498\75 248000.00 Total 3773085.03
The ld. AR also submitted that the assessee had meticulously maintained full and complete records of all share transactions, and no cash was returned to the assessee from the transaction. The transactions were carried out transparently through recognized stock exchanges, Securities Transaction Tax was duly paid, and shares were held and transacted as per the relevant law in force. The ld. AR further contended that the AO’s adverse findings were based merely on suspicion, conjecture, and surmise without any tangible evidence or without any investigation specifically implicating the assessee in manipulation or accommodation entries. Moreover, no adverse remarks or inquiry were initiated against the assessee by SEBI or any regulatory authority.
In support of these arguments, the ld. AR placed the following documents on record: i. Copy of intimation dated 03.12.2011 of allotment of 12,500 equity shares of M/s. Smart Champs IT & Infra Ltd. ii. Bank statement evidencing purchase consideration paid through banking channels. iii. Copy of intimation letter regarding issue of shares by M/s. Cressanda Solutions Ltd. (post-amalgamation). iv. Share certificates of 12,500 shares. v. Transaction & Holding statement evidencing dematerialization. vi. Sale bill reflecting total sale value of shares. vii. Broker’s statement of account evidencing receipt of sale proceeds. viii. Bank statements evidencing receipt of sale proceeds through RTGS. (ix) Audited financial statements for the relevant assessment years. (x) Annual reports of M/s. Cressanda Solutions Ltd. for the relevant period
The ld. AR contended before us that the transactions relating to the sale of shares of M/s. Cressanda Solutions Ltd. were genuine and fully substantiated by extensive documentary evidence including bank statements, share certificates, dematerialization details, broker notes, transaction statements, and other relevant third-party documents. It was argued that the AO wrongly relied upon the generalized report of the Investigation Wing without bringing forth any specific evidence against the assessee. The AO did not provide copies of statements relied upon, nor allowed cross-examination of any alleged entry operators or brokers, thus violating the principles of natural justice.
To substantiate these arguments, the ld. AR relied upon several judicial decisions, including the decisions of the Hon’ble Rajasthan High Court in the case of CIT vs. Pooja Agarwal (160 DTR 0198 (Raj. High Court), ITA 385/2011) and PCIT vs. Pramod Jain (DB as well as decisions of the Jaipur Bench of ITAT in the cases of DCIT, Central Circle-6 Jaipur vs. Shri Vigyan Lodha (ITA 169/JP/2022), CIT Central, Jaipur vs. Maverick Share Brokers Pvt. Ltd. ((2017) 57 Tax World 87 ITAT Jaipur Bench), The DCIT, Central Circle-2 Jaipur vs. M/s. Countrywide Build estate Pvt. Ltd. (Tax World (2012) Page 50 ITAT Jaipur Bench) and Manohar lal Chugh vs. ITO, Ward 6(1), Jaipur (ITA No. 305/JP/2022). The ld. AR emphasized that the Hon’ble Rajasthan High Court and this Tribunal, in multiple judgments, have categorically held that without providing an opportunity for cross-examination and in absence of specific adverse evidence directly implicating the assessee, additions made merely on the basis of generalized investigation reports and suspicion cannot be sustained. Therefore, the ld. AR prayed for deletion of the additions made by the AO and sustained by the ld. CIT (A), as the same were made without proper appreciation of facts, evidence, and law.
Per contra, the ld. DR, during the course of hearing before us, strongly relied upon the orders passed by the lower authorities. Additionally, the ld. DR placed reliance upon certain judicial precedents, filing written submissions and argued, by giving reference to the orders passed by the lower authorities, that the impugned transactions are merely
accommodation entries. It was therefore submitted that the findings of the NFAC were justified and should accordingly be upheld.
We have heard the rival contentions, carefully perused the material available on record, and duly considered the orders of the lower authorities, submissions made by both parties, and judicial decisions relied upon. The primary issue before us revolves around the addition made by the AO by treating Long-Term Capital Gain (LTCG) earned on the sale of shares of M/s. Cressanda Solutions Ltd. as bogus, primarily relying upon the investigation report.
We observe that the ld. CIT(A), while upholding the order of AO, has solely relied upon the decision of the Hon’ble Calcutta High Court in the case of PCIT-5 Kolkata Vs. Swati Bajaj, [IA No. GA/2/2022 in ITAT/6/2022 &Ors.]. The AO, in the assessment order, based his allegation on a generalized report received from the Investigation Wing, suggesting that certain persons were involved in generating accommodation entries of bogus LTCG through penny stocks to convert unaccounted money into legitimate money, availing exemption under Section 10(38) of the Act. However, it is notable that in narrating the modus operandi, the AO described it in a generic manner without specifically implicating the transaction carried out by the assessee. It has been observed by us that the assessee has substantiated the transaction by placing extensive documentary evidence on record, including purchase bills, bank statements reflecting payment through banking channels, share certificates,
dematerialization statements, contract notes evidencing the sale through a recognized stock exchange after paying Security Transaction Tax (STT), and bank statements showing the receipt of sale proceeds through banking channel. All these documents, forming part of the paper book submitted before us, were also available before the lower authorities.
Despite these submissions, the AO did not point out any specific discrepancies or adverse findings against the documentary evidence produced by the assessee. The AO’s conclusions were based purely on suspicion arising from generalized statements and reports of the Investigation Wing. Significantly, neither was the assessee provided with copies of these reports and statements nor was any opportunity afforded for cross-examination of the persons whose statements the AO heavily relied upon. This omission constitutes a clear violation of the principles of natural justice.
We find merit in the arguments advanced by the ld. AR of the assessee, who rightly pointed out that abnormal fluctuation in the share prices alone, without any direct incriminating evidence against the assessee, cannot render the transactions bogus. The assessee successfully discharged primary onus by furnishing robust third-party documentary evidence, none of which was controverted by any tangible material brought on record by the AO. Further, there is no evidence or indication brought forth by the AO suggesting cash was routed back to the assessee.
We have noted that the NFAC has solely relied upon the decision in the case of Swati Bajaj, rendered by the Hon’ble Calcutta High Court. However, we find substantial merit in the submissions of the ld. AR, who relied upon recent decisions of the coordinate Bench, Jaipur, particularly in the case of DCIT, Central Circle-6 Jaipur vs. Shri Vigyan Lodha (ITA 169/JP/2022), wherein the decision of Swati Bajaj was comprehensively distinguished on factual and legal grounds. In Vigyan Lodha, this Tribunal categorically observed that without providing specific evidence to the assessee and without granting an opportunity for cross-examination of the persons whose statements were relied upon, additions based purely on generalized reports and suspicion cannot be sustained. Further strength is drawn from the consistent decisions of the Hon’ble Jurisdictional Rajasthan High Court, specifically in the cases of CIT vs. Pooja Agarwal (160 DTR 0198 (Raj. High Court)) and PCIT vs. Pramod Jain (DB where it has been unequivocally held that unless the AO provides specific, tangible, and cogent evidence directly implicating the assessee and allows cross-examination of witnesses, additions based merely on assumptions, suspicions, or generalized investigation reports cannot be upheld. Similar observations were consistently reiterated by this Tribunal in other decisions, such as CIT Central, Jaipur vs. Maverick Share Brokers Pvt. Ltd. ((2017) 57 Tax World 87 ITAT Jaipur Bench), DCIT, Central Circle-2 Jaipur vs. M/s. Countrywide Build estate Pvt. Ltd. (Tax World (2012) Page 50 ITAT Jaipur Bench), and Manohar lal Chugh vs. ITO, Ward 6(1), Jaipur (ITA No. 305/JP/2022).
Considering the detailed factual matrix, the extensive documentary evidence placed on record by the assessee, the absence of specific adverse findings by the AO, violation of principles of natural justice by non-provision of relied-upon documents, and denial of cross-examination opportunities, we hold that the NFAC erred in relying solely on the decision in Swati Bajaj, which, as per settled precedents of this coordinate Bench, including Vigyan Lodha (supra), stands distinguished and is not applicable to the facts of the present case.
We have carefully considered the submissions filed by the ld. DR during the course of proceedings before us, along with the judicial decisions relied upon. The ld. DR raised contentions similar to those taken by the lower authorities, reiterating that the transactions should be treated as bogus. However, we note that the ld. DR has not pointed to any specific material or evidence on record to controvert or rebut the extensive documentary evidence submitted by the assessee before the lower authorities as well as before us.
Thus, respectfully following the binding judicial principles enunciated by the Hon’ble Jurisdictional Rajasthan High Court and consistent judgments of the coordinate Bench at Jaipur, we are of the considered view that the AO was not justified in making the impugned addition of Rs. 61,49,716 by treating the LTCG transaction on shares of M/s. Cressanda Solutions Ltd. as bogus, based merely on a general investigation report and without any specific adverse evidence or opportunity of cross-examination.
Therefore, we allow the claim of exemption under Section 10(38) of the Act and direct deletion of the addition made by the AO and sustained by ld. CIT (A).
Consequently, grounds no. 1 and 2 raised by the assessee in the present appeal are hereby allowed.
Apropos of Ground No. 3 raised by the assessee, which relates to the addition of Rs. 3,68,983/-, on account of alleged commission paid for accommodation entries, we find that this issue is consequential to the findings given by us in Grounds No. 1 and 2. Since we have already held that the transactions of purchase and sale of shares and the resultant Long- Term Capital Gain are genuine and cannot be treated as bogus, the consequential addition made by the AO on account of presumed commission paid, treating the same as undisclosed expenditure under Section 69C of the Act, does not hold good and is accordingly unsustainable. Therefore, the addition made by the AO and confirmed by the ld. CIT (A), is hereby deleted.
Grounds No. 4 and 5 raised by the assessee pertain to the addition of Rs. 1,83,00,000/- made by the AO treating unsecured loans as unexplained cash credits under Section 68 of the Act, along with the consequential disallowance of interest amounting to Rs. 22,70,120/- claimed under Section 57 of the Act.
Brief facts relating to these grounds are that during the relevant assessment year, the assessee received unsecured loans totalling Rs.
1,83,00,000/- from four creditors, namely, Smt. Manju Lata Sharma (Rs. 40,00,000/-), M/s. Maruti Enterprises (Rs. 31,00,000/-), Shri Vikas Sethia (Rs. 44,00,000/-), and Smt. Tara Devi Sethia (Rs. 68,00,000/-). These loan transactions were executed through proper banking channels. To substantiate these credits, the assessee had duly submitted confirmations from creditors, copies of their PAN cards, income tax return acknowledgments, bank statements evidencing the transfer of amounts, and related identity documents before the AO. The assessee had also claimed the interest payment of Rs. 22, 70,120/- on these loans as a legitimate deduction. The AO, however, doubted the genuineness and creditworthiness of these transactions, primarily relying on the fact that notices issued under Section 133(6) of the Act were returned unserved or were not replied. The AO further emphasized that the creditors had declared negligible income and were perceived as lacking sufficient capacity to advance large sums. Consequently, treating these loans as unexplained cash credits under Section 68, the AO proceeded to add the entire sum of Rs. 1, 83, 00,000/- to the assessee’s income. Following this, the AO also disallowed the interest claimed thereon amounting to Rs. 22, 70,120/- under Section 57, considering it a consequential adjustment.
Aggrieved by these additions, assessee approached NFAC, submitting that the primary onus cast upon her under Section 68 was fully discharged through detailed documentary evidence confirming the identity of the creditors, their creditworthiness through banking channels, and the genuineness of the transactions through explicit confirmations and PAN
details. However, NFAC upheld the AO’s decision. Consequently, NFAC sustained the addition of Rs. 1, 83, 00,000/- and the resultant disallowance of interest payment amounting to Rs. 22, 70,120/-.
Before us, the ld. AR strongly contended that the assessee had thoroughly discharged her initial burden under Section 68 of the Act. It was emphasized that documentary evidence, including creditors' confirmations, PAN details, bank statements, and income tax return acknowledgments, were presented, establishing the identity, capacity, and genuineness of the creditors. The ld. AR further highlighted, that the AO had failed, to make any independent inquiry or issue summons under Section 131 for verification, nor had he provided any concrete adverse material to rebut the evidence submitted by the assessee. As regards the interest payments, the ld. AR argued that payments were undisputedly routed through banking channels, duly reflected in books of account, and therefore, their disallowance under Section 57 was unjustified.
Having carefully considered the submissions of both sides and meticulously examined the relevant documents available on record, we find merit in the contentions raised by the ld. AR. It is an established legal principle that under Section 68 of the Act, once the assessee satisfactorily furnishes prima facie documentary evidence confirming the identity of the creditors, their creditworthiness, and the genuineness of transactions, the initial burden placed upon the assessee is discharged. Thereafter, the onus shifts upon the Revenue to establish, with cogent and specific evidence,
any contrary position. In the present case, we note that the assessee has adequately demonstrated the identity of each creditor through PAN and other official documentation. The creditworthiness has also been substantiated by the clear and documented banking transactions, while genuineness stands established by confirmations and corroborating bank records. The AO’s reliance solely on non-receipt of replies to notices issued under Section 133(6) of the Act, the creditors' minimal income disclosures does not, in itself, conclusively prove these transactions to be non-genuine. In our view, lower authorities have failed to bring any tangible adverse evidence or carry out independent verifications or confrontations that would undermine the authenticity of the documentary evidence placed on record. Further, regarding the disallowance of interest payments under Section 57, since we have found the principal loans themselves to be genuine, duly documented, and verifiable, interest payments made through banking channels, properly recorded in books of accounts, cannot be summarily disallowed without substantiated evidence to the contrary.
The ld. AR of the assessee, also placed on record details substantiating not only the unsecured loans but also providing the sources of funds in respect of each creditor from whom loans had been received. The ld. AR emphasized before us that, in the present case, the assessee had gone beyond the initial requirement by also establishing the sources of the creditors themselves, thus thoroughly substantiating the entire transaction chain.
We further appreciate that in the instant case, the assessee has not only discharged her primary onus but has also gone a step further by providing documentation substantiating even the sources of the creditors, thus demonstrating the genuineness of the transactions.
Therefore, on evaluation of all the facts and circumstances, we are of the considered view that the addition of Rs. 1,83,00,000/- made by the AO under Section 68 of the Act, as well as the consequential disallowance of interest payments of Rs. 22,70,120/- under Section 57 of the Act, are not sustainable in law or on facts. We, therefore, direct the AO to delete both these additions.
Accordingly, Grounds No. 4 and 5 raised by the assessee in the present appeal are allowed.
In the result, the appeal of the assessee is allowed.
The Order is pronounced in the open court on the 12th day of August 2025.