ACIT, CIRCLE-52(1), NEW DELHI, DELHI vs. SINGHANIA ALU FOIL CONTAINERS MANUFACTURING COMPANY, NEW DELHI

4. Aggrieved with the above order, the assessee preferred an appeal before CIT(A), who after obtaining remand report from the assessing officer and the detailed discussion on the issue deleted the addition made by the assessing officer by holding as under: - “7. I have carefully considered the relevant and material facts on record, in respect of this ground of appeal

, as brought out in the assessment order and submissions made during appeal proceedings. The moot point for adjudication is whether the AO was justified in treating the unsecured loans aggregating to Rs. 2.87 Crore raised by the appellant firm from these threeloan creditor entities, as unexplained cash credits under section 68, in the light of evidence brought on record. I find that the appellant, in the course of assessment proceedings, and appellate proceedings, has brought on record the identity particulars of loan creditor entities, including name, complete address and PAN, the mode of receipt of each loan; the relevant bank statement of the appellant, supporting documents relating to capacity of the loan creditor viz. loan confirmation, explanation as to source of funds, and banks statement of the loan creditor. On a careful perusal thereof, I find that the appellant has satisfactorily discharged the primary onus cast upon it to substantiate the unsecured loan transaction during the year, by furnishing all the relevant and material evidence. The identity of the loan creditor is established by furnishing name, complete address and PAN of the lender. The creditworthiness of the loan creditor is established from the loan account confirmations and relevant bank statements of the loan creditors. The genuineness of loan transaction is established form the fact that both the acceptance and subsequent repayment of loan amounts has been through banking channel, as evidenced from the bank statement of the appellant and bank statement of loan creditors. The CO No.105/Del/2024 banking transactions in relation to each repayment of loan, by the appellant to the respective lenders, have also been independently confirmed by the Bank. 7.1 In the assessment proceedings, as also in the Remand Report, AO has doubted genuineness of loan transactions mainly on two grounds - (i) notices have returned unserved from postal authority, and (ii) copies of ITRs of lenders were not submitted. AO has also doubted the creditworthiness of lenders, on the basis that “source of loans given” in the hands of loan creditor was not satisfactorily explained, and has brushed aside the plethora of documentary evidence furnished by the appellant. However, AO on his part has not made any independent enquiry viz. by way of issue of summons to the Directors, or calling for information from Banks, etc. to verify the genuineness of loan transactions. AO has not reverted any factual finding in the assessment order that there are cash deposits reflected in the bank statements of the loan creditor entities, immediately prior to the transfer entry therein by way of RTGS in favour of the appellant. AO has only made certain general observations regarding overall circumstances, and on that basis has drawn adverse inference as to genuineness of transactions and creditworthiness of loan creditors. It is pertinent to note that AO has not alleged that the source of funds in the hands of the lender entities was doubtful. In view of the specific, relevant and material evidence adduced by the appellant to substantiate the loan transaction, I am not inclined to agree with the adverse findings of the AO regarding creditworthiness of the loan creditor, or genuineness of loan transaction. 7.2 I find considerable force in the plea that on the given facts, the appellant could not be expected to substantiate “source of source of funds” in the hands of creditor entity. In this context, it would be pertinent to refer to the relevant provisions of section 68. The second proviso to section 68 (inserted by the Finance Act 2012, with effect from 1st April 2013), which provides that in cases where assessee is a closely held company, and any sum is found credited by way of share capital, share application money, share premium etc., the “source of source of such credits” is also required to be explained satisfactorily. Firstly, this proviso would not apply in the present case, as the appellant is a firm. Even otherwise, it is noteworthy that the statutory obligation to explain not only the credit in the hands of the assessee, but also source of such credit in the hands of the creditor, is applicable only for credits in the nature of share capital, share application money etc., where it is reasonable to presume a continued relationship with the creditor; and not in respect of credits by way of loans or borrowings. 7.3 It is pertinent to note that the Finance Act’ 2022 has further amended the provisions of Section 68, by inserting the First proviso thereto with effect from 1st April 2023, which provides that where the sum so credited consists of loan or borrowings or any such amount, the “source of source of such credits” is also required to be explained satisfactorily. This amendment, however, is applicable to the Assessment Year 2023-24 and subsequent assessment years CO No.105/Del/2024 only; and hence does not apply to the year under consideration (i.e. Assessment Year 2015-16). 7.4 It is well-established that the onus lies on the assessee to adduce necessary documentary evidence so as to prove all the three ingredients of section 68 viz. identity and creditworthiness of the creditor, and genuineness of the transaction, as the relevant and material facts are within the special knowledge of the assessee. It has also been held that the evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of the human probabilities and normal course of human conduct. 7.5 Hon’ble ITAT, Mumbai Bench, Mumbai in case of ITO v. Anant Shelters Pvt Ltd (20 taxmann.com 153) (2012) (Mum) has enumerated certain legal principles regarding taxation of cash credits under section 68 as under :- “(i) Section 68 can be invoked when following three conditions are satisfied -(a) when there is credit of amounts in the books maintained by the assessee, (b) such credit has to be a sum of money during the previous year, (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. (ii) The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record file. Once the explanation of the assessee is found unbelievable or false the AO is not required to bring positive evidence on record to treat amount in question as income of the assessee. While considering the explanation of the assessee, the AO has to act reasonably-application of mind is the sine qua non for forming the opinion. (iii) Phrase appearing in the section - nature and sources of such credits - should be understood in right perspective, so that genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a causal manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' CO No.105/Del/2024 cannot and should not be called for while making inquiry under section. (iv) In the matters related to section 68, burden of proof cannot be discharged to the hilt -such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under Section 68. (v) Confirmatory letters or A/c payee cheques do not prove that the amount in question is properly explained for the purpose of section 68. Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive. (vi) In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of a/cs. of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue. 7.6 In the light of aforesaid legal principals, I find that in the instant case the appellant has been able to discharge the primary onus placed on him under section 68 of the Act. The appellant has furnished name, address and PAN of loan creditor, loan confirmation duly signed, relevant bank statements of the appellant and the loan creditors etc. The loan transactions are duly reflected in the books of accounts, Tax Audit Report and bank statement of the appellant for the relevant period. The outstanding loan amounts have subsequently been repaid to the respective lenders through proper banking channel during the succeeding Financial Year. There is no finding that any sum by way of cash was deposited in the bank account of loan creditor immediately prior to the issue of Cheque. In such circumstances, I find that the appellant has discharged the initial onus cast upon it to establish the identity and creditworthiness of the loan creditor as well as genuineness of the loan transactions. Thereafter, the onus shifted to the AO to bring further facts on record, which could prove the contrary. If the AO was not satisfied, he had the option of making inquiries from the loan creditor by summoning them. It is a fact that no independent verification has been carried out by the AO with loan creditor, by way of issue of summons under section 131, or in any other CO No.105/Del/2024 manner. AO has not recorded any statement of the lender to verify the genuineness of loan transactions. There is no finding by the AO that the documentary evidences produced by the appellant were untrustworthy or lacked credibility. Thus, the appellant’s contention that it had discharged onus of establishing the identity and creditworthiness of the loan creditors and genuineness of the transactions with the help of relevant supporting evidence is found to be in order. 7.7 On similar facts, Hon’ble Bombay High Court in the case of Rushabh Enterprises Vs ACIT (60 taxmann.com 134) (2015) (Bombay) has held that loans taken in the regular course of business through account payee cheques were ordinarily to be treated as bonafide. Though the judgement has been rendered on validity of reassessment proceedings, Hon’ble High Court has observed at Para 8 of its judgment as under,- “8. On behalf of the revenue, Mrs. Bharucha submitted that all the four parties concerned had facilitated accommodation entries. They were not genuine and bona fide loans advanced to the Petitioner. She has supported the order of the Assessing Officer. The Commissioner of Income Tax while rejecting the objections on 19th December, 2012 once again reiterated that the Petitioner has routed unaccounted cash through bogus loans and has been found in the books of account of the Petitioner. According to her, the revenue has received information from the Director General of Income Tax (Inv) that the assessee has taken unsecured loans from the above parties by way of unaccounted cash/accommodation entries. We are unable to agree since the Petitioner has clearly stated that all the payments were made by account payee cheques which were encashed in the bank account of the Petitioner in the regular course of business. We find that the Petitioner has also paid interest on this loans after deduction of tax at source and TDS returns are also accordingly filed. There is no dispute in regard to the above. We find nothing to support the said contentions of the revenue. The revenue's contention in the affidavit in reply has no merit. On the other hand, the loans appear to be taken in the regular course of business and were found amongst the 45 members in respect of which all particulars have already been furnished by the assessee to the Assessing Officer. The fact remains that the Assessing Officer had power to reopen the assessment provided there was some tangible material on the basis of which he has reason to believe that income chargeable to tax had escaped assessment." 7.8 On similar facts, Hon'ble Gujrat High Court in the case of Pr. CIT Vs Ojas Tarmake (P.) Ltd. (2023) (156 taxmann.com 75) (Gujarat) has heldthat where assessee showed unsecured loans received during relevantassessment year and AO made addition on ground that assessee failed todischarge onus of liability as laid down under section 68, since amountof loan received by assessee was returned to loan party during year itself,and all CO No.105/Del/2024 transactions were carried out through banking channels, impugned addition was to be deleted. 7.9 On similar facts, Hon'ble Gujrat High Court in the case of Pr. CIT (Central) Vs Naresh Nemchand Shah (2023) (156 taxmann.com 346) (Gujarat) has held that where pursuant to a survey, unsecured loans taken by assessee from a body corporate were deemed non-genuine by Assessing Officer on basis of statement of director of that company; since apart from said statement, there was no other evidence against assessee and moreover, assessee had filed evidence in form of confirmation from creditor, audited accounts of creditor and copies of banks accounts to prove genuineness and creditworthiness of creditor which was within parameters of section 68, impugned addition made in that respect to be deleted 7.10 On similar facts, Hon’ble ITAT, Surat in the case of ITO Vs Mega Collections (P.) Ltd. (2023) (151 taxmann.com 403) (Surat-Trib.) has held that where assessee-company by submitting PAN number, address, income tax returns, audited financial statements of creditors and bank statement of share applicants had discharged onus to prove identity, creditworthiness and genuineness of its loan transactions with various companies and source of source had also been proved by assessee, impugned loan transactions could not be treated as unexplained cash credit under section 68. 7.11 On similar facts, Hon’ble Delhi High Court (“the jurisdictional High Court”) in the case of Pr. CIT Vs Wel. Intertrade (P.) Ltd. (2023) (152 taxmann.com 663) (Delhi) has held where assessee had taken loan from a party, since assessee discharged its primary onus of proving identity and capacity of creditor as well as genuineness of transaction, merely because creditor had not responded to notice issued under section 133(6), such loan could not be treated as unexplained credit under section 68. 7.12 On similar facts, Hon'ble Gujrat High Court in the case of Pr. CIT Vs Yogendrakumar Gupta (2023) (152 taxmann.com 661) (Gujarat) has held that where amount received as loan by assessee from 'B' Ltd. was through regular banking channels, and assessee had proved identity of creditor and genuineness of transactions by filing confirmation from creditor and assessee had furnished copy of audited accounts, balance sheet and Profit and Loss account along with copy of ledger of 'B' Ltd., revenue was not justified in proceeding against assessee on ground that loan taken from said 'B' Ltd. was unexplained credit and that lender was not genuine. 7.13 Hon'ble Supreme Court in the case of ITO Vs Kayathwal Estate (P.) Ltd. (2022) (139 taxmann.com 317) (SC) has dismissed the SLP against Gujrat High Court ruling that where assessee-company had furnished all details including bank statements of party from whom loan was taken during original scrutiny assessment and further, said loan was also paid back subsequently with interest after deducting TDS thereon, impugned reopening CO No.105/Del/2024 notice issued against assessee after four years from relevant assessment year on ground that such loan transaction was bogus was unjustified. 7.14 On similar facts, Hon'ble Gujrat High Court in the case of Pr. CIT Vs Ambe Tradecorp (P.) Ltd. (2022) (145 taxmann.com 27) (Gujarat) has held that where assessee took loan from two parties and assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid in subsequent year, no addition under section 68 could be made on account of such loan. 7.15 On similar facts, Hon'ble Gujrat High Court in the case of Pr. CIT Vs Haresh kumar Manilal Somaiya (2023) (154 taxmann.com 432) (Gujarat) has held that where assessee received unsecured loans and produced confirmation of lenders and other relevant documents such as copy of PAN, ledger account, bank statement and audited books so as to establish creditworthiness, genuineness and identities of lenders in transactions, impugned addition made under section 68 on account of said unsecured loan by AO without considering such documents/details produced by assessee was unjustified. 7.16 Furthermore, on similar facts, Hon'ble Gujrat High Court in the case of Pr. CIT Vs Gopal Heritage (P) Ltd. (2021) (133 taxmann.com 173) (Gujarat) has held that where assessee had taken unsecured loans from some persons and Assessing Officer made addition under section 68 on ground that assessee had not been able to prove immediate source of cash-in-hands of party, since all ingredients contemplated under section 68 had been duly satisfied on aspect of identity of creditors, genuineness of transactions and their creditworthiness, said addition was to be deleted. 7.17 The Hon'ble Supreme Court in the case of CIT Vs Lovely Exports (216 CTR 195) (2008) (SC) has held that "If the share application money is received by the assessee company from alleged bogus shareholders who's name are given to the Assessing Officer then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company". 7.17.1 On similar facts, Hon'ble Bombay High Court in the case of CIT Vs Creative World Telefilms Ltd (2011) (333 ITR 100) (Bombay) has relied on the Apex Court decision in case of CIT Vs Lovely Exports (supra) and held as under,- “In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the Assessing Officer ought to have found out their details through PAN CO No.105/Del/2024 cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs.” 7.17.2 On similar facts, Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd (394 ITR 680) (2018) (Bombay), has relied on the Apex Court decision in case of CIT Vs Lovely Exports (supra) and held as under,- “In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.” 7.18 It is pertinent to mention that the facts of present case are completely distinguished from the facts in the case of NRA Iron & Steel (P) Ltd (103 Taxmann.com 48) (2019) (SC). In that case, AO had issued summons and also conducted independent field enquiries with respect to the investor companies, which revealed that identity of the investor companies and genuineness of the transaction was clearly not established. In the instant case, however, no such enquiry has been conducted by the AO, to bring on record any fact which could controvert the facts contained in the documentary evidence adduced by the appellant to substantiate the impugned transactions. Therefore, the ratio of Supreme Court judgement in case of NRA Iron & Steel (P) Ltd (supra) is not applicable on the facts of present case. 7.19 In view of the facts and circumstances of the case, the prevailing position of law applicable on such facts, as laid down in the aforementioned binding judicial precedents, I find that the appellant has established the identity and creditworthiness of the loan creditors and genuineness of the transactions, in respect of the credits in the nature of unsecured loan aggregating to Rs. 2,86,97,100/-, received by the appellant during the year from the aforesaid three lenders. Thus, the appellant has satisfactorily explained the nature and source of the credits to the extent of Rs. Rs. 2,86,97,100/- by way of unsecured loan. The Jurisdictional Assessing Officer (J.A.O.) is directed to CO No.105/Del/2024 delete the addition of unexplained cash credits under section 68 of the Act to the extent of Rs. 2,86,97,100/-, representing the aggregate of unsecured loan received by the appellant from the aforementioned loan creditors. Accordingly, this ground of appeal is allowed.

8. In the result, the appeal is allowed.”

1. On facts and in the circumstances of the case the Ld. CIT, NFAC erred in law and facts in deleting the addition of Rs 2,86,97,100/- made by the AO on account of unexplained unsecured loans without considering the basic facts of the case.

2. On facts and in the circumstances of the case the Ld. CIT, NFAC erred in law and facts by admitting the additional evidence as supporting documents in respect of receipt/payments of Rs.2,86,97,100/- under Rule-46A of the Act which were sought by the AO during the assessment proceedings but the assessee failed to produce.

3. On facts and in the circumstances of the case the Ld. CIT, NFAC erred in law and facts by not considering the Remand report submitted by the AO based on proper verification and enquiry of the parties with whom transactions of Rs.2,86,97,100/- made by the assessee.”

6. At the time of hearing, ld. DR of the Revenue submitted that Ld. CIT (A) deleted the addition of Rs.2,86,97,100/- made by the AO on account of unexplained unsecured loans without considering the basic facts of the case. He further submitted that ld. CIT (A) erred in law and facts by admitting the additional evidence as supporting documents in respect of receipt/payments of Rs.2,86,97,100/- under Rule-46A of the Act which were sought by the AO during the assessment proceedings but the assessee failed to produce. Further submitted that ld. CIT (A) has not rightly appreciated the Remand Report submitted by the AO based on proper CO No.105/Del/2024 verification and enquiry of the parties with whom transactions of Rs.2,86,97,100/- made by the assessee. Accordingly, he heavily relied on the findings of the AO.

7. On the other hand, ld. AR of the assessee submitted that addition made by the assessing officer is totally erroneous. The assessee company has duly discharged its onus u/s 68 of the Act. The assessee company has filed complete details and documentary evidences before the lower authorities to establish the identity of the creditors, their creditworthiness and genuineness of the transactions. It is pertinent to point out that the above loans taken by company were repaid back by banking channel well before the issue of notice u/s 143(2). Thus, the loans were repaid back even before the case of the assessee was taken up for scrutiny.

9. We observed that on the similar facts on record, coordinate Bench in the case of Signature Global India Pvt. Ltd. (supra) held as under :- “18. With regard to ground no.ii(a), we observed that the Assessing Officer observed that the assessee has taken unsecured loan from 9 parties and assessee has submitted copies of ITR acknowledgement, confirmation of the loan creditors and copy of bank statement of all the loan creditors and with regard to Basera Realtech Private Limited submitted a copy of the Hon’ble High Court order. The Assessing Officer has made the addition after analyzing loan creditors. He came to the conclusion based on the declaration of meager income in the return of income and observed how can they lend huge amount to the assessee as unsecured loans, therefore, he raised doubt of the creditworthiness of these parties. In appellate proceedings, ld. CIT (A) considered the detailed submissions of the assessee and he deleted the addition with the observation that the assessee has submitted all the relevant details/documents in respect of securing unsecured loans from all the nine parties. After considering the details filed on record, he observed that Assessing Officer has not pointed out any discrepancy in the abovesaid documents and not made further enquiries. Further he observed that based on the balance sheet of these lender companies, he observed that the status of own funds/total funds available with these lender companies are much higher than the amount lend by them and he negated the findings of the Assessing Officer on the basis of lending the money merely on the basis of earning of income. He relied on the decision of coordinate Bench in the case of Addl.CIT vs. Prayag Polytech Pvt. Ltd. (supra), ITO vs. Computer Home Information Plus Pvt. Ltd. (supra) and the decision of Hon’ble Delhi High Court in the case of Pr.CIT vs. Goodview Trading Pvt. Ltd. (supra) and came to the conclusion that income alone is not the criteria CO No.105/Del/2024 for making the loan and also negated the findings of the Assessing Officer that the loan was given immediately after it was received by them and cannot be the ground for making addition u/s 68 of the Act. Finally, he deleted the addition by observing that the assessee has taken loans from these companies for short duration and almost all the loans were repaid during the year itself and only some small amount is outstanding as at the year end and that too is mainly on account of interest. He has reproduced the following chart in his order :- S.No. Name of the Party Loan amount Outstanding added by A.O. balance as at (Rs.) the year end (Rs.) 1 Ace Stone Craft Limited 20000000 2 Arise Infotech Private 5900000 1346065 Limited 3 BaseraRealtech Private 5200000 NIL Limited 4 Multiplex Fincap Limited 163456456 NIL 5 Radhay Portfolio Limited 2950000 4361540 6 SRK TradelinksPvt. 15500000 NIL Limited 7 Syala Buildwell Private 2500000 2590369 Limited 8 Tia Enterprise Private 4000000 NIL Limited 9 Umang Leasing and 11750000 NIL Credit Co. Ltd.

Further we find that Hon’ble jurisdictional Delhi High Court in the case 11. of PCIT v. KRBL Pvt. Ltd. (supra) held as under: - “35. We are not in agreement with the submission made by Mr. Maratha. The loan advanced was in the FY 2013-14, i.e., AY 2014- 15. The identity of the creditor has been proved by documentary evidence and also through the statement of the Director of Shashi Foods recorded during the survey proceedings and also in reply to the notice under Section 133(6) of the Act. It has also been established that Shashi Foods advanced the loan out of the funds credited in its bank account, proving the creditworthiness of the entity. Though the AO had held that Shashi Foods did not have the necessary funds in its bank account to provide the loan, the findings of the CIT(A) and the ITAT are at variance with the observation of the AO inasmuch as that the loan has been advanced from the bank account of Shashi Foods. In any case, the Revenue has not placed on record anything to show that in the AY 2014-15, the requisite funds to advance the loan were not available in the bank account of Shashi Foods. “ CO No.105/Del/2024 11. Respectfully following the aforesaid orders, we are inclined not to disturb the findings of the ld. CIT (A) and find that there is no infirmity in the findings of the CIT(A), therefore, the grounds raised by the Revenue are dismissed.

12. In the result, the appeal filed by the Revenue is dismissed.

13. The cross objections filed by the assessee are merely supporting the impugned order of the ld. CIT (A), hence becomes infructuous. Accordingly, the cross objections filed by the assessee are dismissed as infructuous.

14. To sum up : both the appeal filed by the Revenue and cross objections filed by the assessee are dismissed. Order pronounced in the open court on this 28th day of January, 2026.