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Facts
The assessee company is in appeal against the order of CIT(A) that confirmed additions under Section 68 of the Income Tax Act for unsecured loans from Arvind T. Shah (Rs. 50,00,000) and Arihant Corporation (Rs. 22,85,800). The primary reason for disallowance by the Assessing Officer and confirmation by the CIT(A) was the failure to furnish the Income Tax Returns (ITR) of the lenders, which the assessee argued was beyond their control.
Held
The Tribunal observed that the assessee had furnished documentary evidence for identity and genuineness of the loans. For the loan from Arvind T. Shah, additional evidence was submitted, leading the Tribunal to set aside the issue to the CIT(A) for fresh adjudication. For the loan from Arihant Corporation, new evidence was also presented, and the issue was restored to the CIT(A) for fresh adjudication.
Key Issues
Whether the disallowance of unsecured loans under Section 68 of the Income Tax Act is justified solely on the ground of non-furnishing of lender's ITR, when other evidences of identity and genuineness are provided? Whether unabsorbed depreciation and brought forward business losses are to be allowed?
Sections Cited
68, 133(6), 139(1), 115JB
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM:
The captioned appeal is preferred by the assessee against the order of Commissioner of Income Tax (Appeals) / NFAC, Delhi (for short “The Ld. CIT(A)”), dated 11.08.2025 for the Assessment Year (AY) 2013-14, arises from the order under section 143(3) of the Income Tax Act, 1961 (the Act)
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. dated 16.03.2016 passed by ITO, Ward-10(2(3), Mumbai. (for short “the ld. AO”).
The grounds of appeal
raised by the assessee are as under: “1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax-(A), NFAC, Delhi erred in confirming the addition of Rs. 50,00,000/- under section 68 of the Income-tax Act, 1961, in respect of loan received from Shri Arvind T. Shah, despite the fact that: (i) The identity of the lender was established; (ii) Confirmation of loan was duly submitted during the remand proceedings, (iii) The transaction was routed through regular banking channels and verified by the Assessing Officer in the remand report; (iv) The amount was credited to the assessee's bank account, thereby establishing genuineness of the transaction;
2. The failure to furnish ITR of the lender, which was beyond the control of the assessee, ought not to have been made the sole basis for drawing adverse inference regarding creditworthiness.
3. The learned Commissioner of Income Tax-(A), NFAC, Delhi failed to appreciate that the burden placed upon the assessee under section 68 was adequately discharged by furnishing all three limbs identity, genuineness, and prima facie creditworthiness and that the absence of the lender's ITR alone does not negate the authenticity of the transaction.
4. Without prejudice to the above, the learned Commissioner of Income Tax-(A), NFAC, Delhi erred in not giving due weight to the remand report of the Assessing Officer, wherein it was specifically acknowledged that confirmation from Shri Arvind T. Shah was received and the amount was verified in the assessee's bank account.
5. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax-(A), NFAC, Delhi erred in confirming the addition of Rs. 22,85,800/- under section 68 of the Act, in respect of loan received from M/s. Arihant Corporation, by relying solely on the absence of ITR and bank statements of the lender, ignoring the fact that: (i) A valid loan confirmation was submitted by M/s. Arihant Corporation; (ii) The transaction was through normal banking channels; ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. (iii) The PAN of the lender was provided, establishing identity; 6. The assessee had discharged the initial onus under section 68 of the Income Tax Act.
The learned Commissioner of Income Tax-(A), NFAC, Delhi erred in law and on facts in holding that in the absence of ITR and bank statement of the lender, creditworthiness cannot be established, despite no express requirement under section 68 of the Income Tax Act for production of ITR where sufficient corroborative evidence is on record to demonstrate identity and genuineness.
The learned Commissioner of Income Tax-(A), NFAC, Delhi further erred in rejecting the appellant's submission that only the net credit balance of Rs. 9,25,000/- should be considered for disallowance (if any), instead of the gross credit of Rs. 22,85,800/-, without properly appreciating the flow of funds and accounting entries.
The Learned Commissioner of Income Tax-(A), NFAC, Delhi erred in not giving a clear direction for allowing set-off of unabsorbed depreciation of Rs.32,49,007/-,,despite adjudicating and allowing the claim of unabsorbed depreciation in the appellate order.
That the leaned Commissioner of Income Tax(A), NEAC, Delhi failed on Facts in upholding the disallowance of the set-off of carried forward sine bones of Rs 3,96,8037- solely on the ground that the appellant failed to conclusively establish timely filing of return under Section 139(1).
That the learned Commissioner of Income Tax-(A), NFAC, Delhi failed to appreciate that the appellant had submitted the acknowledgment of return as evidence, which constitutes prima facie proof of filing, and in absence of any specific evidence from the Department to the contrary, the claim ought to have been allowed.
That the learned Commissioner of Income Tax-(A), NFAC, Delhi erred in holding due the acknowledgment was "insufficient" without providing specific findings or allowing further opportunity to the appellant.
That the disallowance is based on a mere technicality and goes against the principle of substantial justice, particularly where the quantum and nature of loss is not in dispute 14. That the action of the AO in denying the set-off without proper verification, and the Commissioner of Income Tax-(A)'s endorsement of the same, is arbitrary and unjustified in the facts and circumstances of the case.”
Briefly stated, the assessee-company had filed its return of income for the relevant AY on 01.03.2013 declaring total income at Nil under regular tax
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. provisions, showing unabsorbed depreciation of Rs. 11,41,294/- and income as per the provisions of section 115JB for Rs. 3,02,059/-. The return of assessee was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny, accordingly notice under section 143(2) and 142(1) of the Act were issued. In response to the said notices, ld. Counsel of the assessee attended the proceedings and filed various details. As emanating from records, during the year under consideration the assessee was engaged in the business of manufacturing of anti material, anti bacterial, anti inflammatory, anti biotic and anti diarrhea products. The assessee’s factory is located in SEZ in Surat, so was also eligible for income tax exemptions upto June 29, 2018 starting from June 29, 2008. During the course of assessment, ld. AO had raised an issue regarding unsecured loan availed by the assessee from the following persons: Sr. Name & address of the person PAN Amount Amount no taken during repaid during . the year the year 1 Arihant Corporation 101, BKCPS6989M 22,85,800 13,60,800 Shayadri Apartment, Timallyawad, Nanpura, Surat 2 Arvind T Shah 32-A, Atlas AAHP58428D 50,00,000 --- Apartment, Harkness Road, Opp. Jivan Bharti Nanpura, Surat. 3 Mahavir Traders 22, Krishna AABHC3678M --- 2,00,000 Complex, Delhi Gate, Surat 4 Parth Gems, 3-F, Siddhsila ADRP51230L 4,20,000 3,35,000 Apartment, Opp. Jivan Bharti, Nanpura, Surat. 5 Shri Vipul P. Shah, 601, Dev AAHPS8405J 50,00,000 --- Darshan, Ridge Road, Mumbai ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd.
Regarding aforesaid unsecured loans the assessee was required to furnish necessary details to satisfy the conditions of section 68 of the Act, also notice under section 133(6) of the Act were issued, in response to which replies were submitted by Shri Vipul P. Shah and M/s Parth Gems but the remaining lenders have not responded, so another show-cause notice dated 12.02.2016 issued to the assessee regarding non-compliance of the notice issued under section 133(6) of the Act, to which the assessee has furnished loan confirmation in the case of M/s Mahavir Traders and M/s Arihant Corporation but bank statement or copy of return etc. were not produced. In view of non-compliance, the ld. AO remain dissatisfied, therefore had observed that the lenders as well as the assessee are failed to offer any satisfactory explanation in respect of receipt of unsecured loans, therefore in absence of satisfactory explanation about the nature and source of the unsecured loan received by the assessee, so, the amounts received from M/s Arihant Corporation, M/s Mahavir Traders and Shri Arvind T. Shah aggregating to Rs. 74,85,800/- were added back to the income of assessee under section 68 of the Act.
Being aggrieved with the aforesaid addition, assessee preferred an appeal before the First Appellate Authority (FAA), who had deliberated on the issues before him, wherein the ld. CIT(A) had partly allowed the contentions of the assessee by deleting the addition of Rs. 2,00,000/-, the loan repaid to M/s
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. Mahavir Traders, whereas the remaining amount of Rs. 72,85,800/- added under section 68 of the Act by the ld. AO kept as sustained.
Before the ld. CIT(A) assessee also raised an issue regarding set off of depreciation and losses which the ld. CIT(A) had allowed to the assessee by directing the ld. AO to allow such deduction against the business income of the assessee.
Being aggrieved with the additions to the extant sustained by the ld. CIT(A) the assessee is in appeal before us.
At the outset the ld. Counsel of the assessee (in short ‘ld. AR’) submitted that the assessee had furnished necessary documents to establish the identity of the lender, like confirmation of loan which was furnished during the remand proceedings, the transactions were routed through regular banking channel and verified by the ld. AO in remand report, the amount has been credited to the assessee’s bank account, thus establishing the genuineness of transaction. It is argued that, the only shortcoming in assessee’s submission was that the assessee was unable to furnish ITR of the lender which was on account of reasons beyond the control of assessee, the same ought not to have been made the sole basis for drawing adverse inference regarding creditworthiness of the lender. It was the submission that the ld. CIT(A) failed to appreciate that the burden placed upon the assessee under section 68 was adequately discharged
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. by furnishing all three limbs i.e. identity, genuineness and prima facie creditworthiness, so merely in absence of lender’s ITR alone the transaction in its authenticity should not be negated. It was also an alternate submission by ld. AR that the ld. AO also in remand report had specifically acknowledged the confirmation from Shri Arvind T. Sah as verified from the assessee’s bank account.
Per contra, ld. Sr. DR submitted that the additions were caused because of assessee’s failure to furnish necessary information/documents before the ld. AO as well as the FAA, therefore the orders of revenue authorities deserve to be sustained.
We have considered the rival submissions, perused the material available on record and the decision relied upon by the ld. AR in the case of Gaurav Triyugi Singh vs. ITO [2020] 121 taxmann.com 86 (Bombay) and PCIT vs. Ami Industries (India) (p.) Ltd. [2020] 116 taxmann.com (Bombay). In the aforesaid judgment of Gaurav Triyugi Singh vs. ITO (supra), Hon’ble Jurisdictional High Court of Bombay had observed that where the assessee had received unsecured loan of certain amount from an individual, since loan amount was received by the assessee through cheque and there was no dispute as to identity of creditor, genuineness of transaction and the revenue could not prove or bring any material impeach source of credit, no addition under section 68 could be made on account of such loan amount. In the case of PCIT vs. Ami 7
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. Industries (India) (P.) Ltd. (supra), the Hon’ble High Court has come up with the finding, that assessee had discharged its onus of proving as identity of creditors, genuineness of transaction and creditworthiness of creditors which finding on fact stood affirmed by the Tribunal and revenue had not been able to say any perversity in the said findings of fact by authorities below, the Tribunal was right in holding, no addition can be made under section 68 of the Act. In the present matter, the disallowance made by ld. AO and sustained by ld. CIT(A) from the lenders was on account of following reasons: i. Arvind T. Shah: The amount of Rs. 50,00,000/- received by the assessee as unsecured loan from Arvind T. Shah, the addition was confirmed by ld. CIT(A), only for the want of return of income of the lender, which could not be furnished either by the lender in response to enquiry under section 133(6) or by the assessee in compliance to the show-cause notice issued. ii. Arihant Corporation: The assessee has furnished documents before the FAA such as loan confirmation, bank statement etc., however was unable to furnish ITR of the said lender, thus the authority doubted the creditworthiness of the lender. The assessee before the FAA has made an alternate contention that even if the creditworthiness of Arihant Corporation is not found satisfactory in that case the net credit balance i.e. the total amount received and ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. amount already paid during the year should be considered for the disallowance. Such contention was not found tenable by the ld. CIT(A), as he was of the opinion that the assessee has to substantiate the entire amount received during the year.
In backdrop of the aforesaid facts and circumstances, our observation qua the aforesaid two transactions, are as under:
i. Arvind T. Shah: Since the assessee has furnished additional evidence such as the copy of ITR, bank statement, and some other relevant documents pertaining to the aforesaid lender, which prima facie would be helpful to check the creditworthiness of the said lender, however since such documents were furnished before us first time, as additional evidence under Rule 29 of the Act, so for the sake of verification and also following the principles of natural justice, we set-aside this issue to the file of ld. CIT(A) for fresh adjudication, considering the additional evidence furnished before us. ii. Arihant Corporation: Regarding 2nd lender as per details on record, it is appearing that the assessee has received a some of Rs. 22,85,800/- from the said lender out of which an amount of Rs. 13,60,800/- was paid and the closing balance remains at Rs. 9,25,000/-. Some additional evidence furnished before us, i.e., copy of bank statement of Arahant Corporation,
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. showing the transactions and in support of financial capacity of the lender. Ld AR also submitted the proof of similar transactions in previous AY i.e., 2012-13, stating that the transaction in earlier year with Arihant Corporation were accepted by the Ld. CIT(A). We observe that since some additional evidence and information has been furnished before us, the same needs to be looked into by the Ld. CIT(A) for a justified and logical conclusion, we thus restore this issue also to the file of Ld. CIT(A) for fresh adjudication under the site of additional evidence and totality of the facts.
Consequently, ground no 1 to 8 of the present appeal are allowed for statistical purposes.
Ground no 9: for allowance of unabsorbed depreciation, we direct to allow the same in accordance with the provisions of law. The finding of Ld. CIT(A) to direct the AO to allow deduction of against the business income before making any other adjustment, regardless of filing date of the return, thus how has been rendered to be erroneous could not be make out by the Ld. AR, we thus do not see any necessity to modify the same. Ground 9, partly allowed.
Ground no 10: for allowance of brought forward Business Losses, we direct to allow the same in accordance with the provisions of law. The finding of Ld. CIT(A) had dismissed the contention of assessee, stating that the assessee was unable to conclusively prove the precondition to file the return of income withing specified time limits u/s 139(1). We remit this issue back to 10
ITA No.6449/Mum/2025 Mc coy Drugs Private Ltd. Ld. CIT(A) to furnish the copies of ITRs of relevant years for which the Loss was claimed and brought forward to relevant AY, The CIT(A) would accordingly verify the claim of assessee and allow in accordance with law. Ground 10, thus allowed for statistical purposes.
Ground No 11 to 15 are consequential, general or academic in nature, so need not be adjudicated separately.
In result the appeal of assessee is allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 10-02-2026.
Sd/- Sd/- (AMIT SHUKLA) (ARUN KHODPIA) Judicial Member Accountant Member Mumbai, Dated : 10-02-2026. *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT
BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai