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Facts
The revenue appealed against the CIT(A)'s order deleting an addition of Rs. 55,49,75,562 made under Section 68 of the Income Tax Act. The addition was related to short-term loans/borrowings treated as bogus by the Assessing Officer due to alleged lack of creditworthiness and genuineness of the creditors.
Held
The Tribunal held that a substantial portion of the loans were opening balances from previous years. For the loans actually received during the year, the assessee had discharged the onus of proving identity, creditworthiness, and genuineness of the lenders with documentary evidence. The addition was made mechanically without proper verification, based on closing balances rather than fresh credits.
Key Issues
Whether the addition made by the Assessing Officer under Section 68 for loans and borrowings was justified, considering the evidence of identity, creditworthiness, and genuineness of the lenders provided by the assessee.
Sections Cited
68, 36(1)(iii), 139, 143(1), 143(3), 144B
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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
Assistant Commissioner- vs Supreme Lake View Bungalows 15(3)(2), Mumbai Private Limited 4th Room No.483A, Floor Plot No.94/C, Supreme House, AayakarBhawan, MK Road, Opp. IIT Main Gate, Pratapgadh Mumbai-400020 Powai, Mumbai 400076 PAN : AAUCS9508G APPELLANT RESPONDENT Assessee by : Shri Rakesh Joshi Revenue by : Shri Arun Kanti Datta (CIT DR) Date of hearing : 24/12/2025 Date of pronouncement : 07/01/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the revenue filed against the order of the NFAC, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in shot, ‘the Act) for the Assessment Year 2022-23, date of order 16/07/2025. The impugned order was emanated from the order of the Assessment Unit, Income- tax Department (in short, ‘the Ld.AO’), order passed u/s143(3) r.w.s. 144B of the Act, date of order 14/03/2024.
Supreme Lake View Bungalows Private Limited 2. The revenue has taken following grounds “
1. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 55,49,75,562 under Section 68 of the Act, without appreciating 1 that the assessee failed to discharge the burden of proof regarding the creditworthiness and genuineness of the loan creditors.
2. Whether, on the facts and in the circumstances of the case and in law, the CIT(A) erred in accepting the identity and 2 genuineness of the lenders merely based on documents like PAN and ITRs, failing to recognize the significant disparity between the loan amounts and the lenders' low declared taxable income.
3. Whether, on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in relying on judicial precedents without considering their factual context, whereas, the AO's reliance on principles established by Hon'ble Calcutta High 3 Court in CIT v. Precision. Finance (P) Ltd., (1994) 208 ITR 465 (Cal) and the Hon'ble Kerala High Court in ITO v. Diza Holdings (P) Ltd., (2002) 255 ITR 573 (Ker), which mandate a deeper inquiry into the financial capacity of the lenders, was improperly disregarded.
4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering that a large portion of the borrowed funds was diverted to related entities without a clear business purpose, thereby undermining the genuineness of the loan transactions and strengthening the basis for the addition under Section 68 of theAct“
3. The brief facts of the case are that the assessee is a developer and filed the return under section 139 of the Act by declaring total loss amount of Rs.15,78,559/-. The return was processed under section 143(1). Subsequently, the case was taken in scrutiny under CASS and the notice was duly issued. During the assessment proceeding the Ld. Ld. AO found that the assessee had taken short term loan/borrowings amount of Rs.55,49,75,562/- which is declared in the final statement of the assessee. In the assessment the Ld. AO found that there is lack of creditworthyness of the loan creditors. Accordingly, he treated the alleged borrowings as bogus loan and addition was confirmed under section 68 amount Supreme Lake View Bungalows Private Limited of Rs.55,49,75,562/- with the total income of the assessee. Further the addition was also confirmed under section 36(1)(iii) of the Act amount of Rs.15,37,228/-. Aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld. CIT(A) considering the submissions of the assessee deleted the addition made under section 68 amount of Rs.55,4,975,562/-. But related to addition under section 36(1)(iii) amount of Rs.15,37,228/- was confirmed. Bering aggrieved revenue filed an appeal before us. But the assessee has not challenged the impugned appellate order related to addition under section 36(1)(iii) before us.
The Ld. DR argued and contended that for compliance of section 68 the identity, creditworthiness and the transactions of the parties should be proved. But the assessee was unable to bring any evidence before the Ld. AO related to the creditworthiness of the creditors. The Ld. DR stands in favor of the impugned assessment order.
The Ld. AR argued and filed a paper book containing page 1 to 70 which is placed on record. The Ld. AR stated that the assessee during the impugned assessment year has taken only the part of the loan. The said loans duly carry forward from earlier years. Following submissions in APB page 62 to 63 the fact was duly narrated as below: “11. The Learned Assessing Officer has made the addition of Rs.55,49,75,562/- u/s.68 of the Income Tax Act 1961, by treating the genuine unsecured loans taken from the following parties as alleged unexplained cash credit:
At the outset, we submit that the addition u/s.68 can be made only for the loan which is taken during the year under consideration. The loan of Rs.55,49,75,562/-was not taken during the year under consideration. We are giving the table below to explain how much the loan was taken during the year under consideration:
The Ld. AR further argued that the assessee has already submitted the relevant documents related to the proof of creditworthiness of the parties. The assessee submitted all the details before the Ld. CIT(A) and the Ld. AO. The relevant part of the submissions related to creditworthiness of the parties is reproduced as below: “18. The appellant submits that the low income offered in relevant year cannot be the criteria for making an addition u/s.68 of the Income Tax Act, 1961. The income of the particular year depended on the various factor. The creditworthiness of the lender is to be verified from the various facts such as income of the lender, past accumulated savings, Supreme Lake View Bungalows Private Limited investment capacity, net worth etc. The documents which were submitted during the course of the assessment proceedings are sufficient enough to prove creditworthiness of the parties. We are providing the explanation of each party as under:
Thus, from the perusal of the above, it is abundantly clear that creditworthiness of the parties is proved with the documents by the appellant during the course of the assessment proceedings, but the Ld. Assessing Officer has not applied his mind and simply made the addition on surmises and conjecture in spite of clear evidence available on record to suggest that the loan transactions are genuine in nature and were made through banking channels.”
Supreme Lake View Bungalows Private Limited 7. The Ld. AR in argument stated that the Ld. CIT(A) adjudicated the issue and deleted the alleged addition. He respectfully relied on the impugned appellate order paragraph no.9 which is reproduced as below: “9. Decision: 1) Ground Nos.1 to 3: Addition of Rs. 55,49,75,562/-, u/s.68 of the I. T Act, 1961. From the submissions made by assessee during the appellate proceedings, following facts emerged: 1M/s. Supreme Housing and Hospitality Limited, in respect of which addition of Rs.12,35,32,906/- has been made, is having net worth of Rs.86Cr and having turnover of Rs.62Cr (approx) during the year. M/s.Supreme Housing and Hospitality Limited has shown income of Rs.87,83,40/- during the assessment year 2022-23. Further, assessee company has taken loan of Rs.12,35,32,906/- during the year and repaid also loan of Rs.7,03,28,533/-, which shows regularity and continuity of transactions. These facts are sufficient to prove the identity and creditworthiness of the lender company and genuineness of transaction. From all these facts, it is clear that AO has wrongly made this addition. 2.Bavani Shankar Sharma, in respect of which addition of Rs. 8,79,22,866/- has been made, in reality has given only Rs.2,42,43,000/-to the assessee company during the year. AO has made addition of closing balance of Rs.87922866/-despite the fact that during assessment proceedings, AO was being specifically informed that total loans received during the year from Sri. Bavani Shankar Sharma was Rs.2,42,43,000/- only. It itself proves the fact that the AO has made this addition without application of mind. Further Sri. Bhavani Shankar Sharma has exempt income of Rs.62,06,09,965/- and has filed return of Rs.65,92,240/- during A.Y-2022-23, which is sufficient to prove his creditworthiness and genuineness of the transaction. From all these facts, it is clear that AO has wrongly made this addition. 3.Vikram Sharma, in respect of which addition of Rs.18,66,58,805/- has been made, without verifying the fact that during the relevant assessment year Vikaram Sharma has not given any loan to assessee company.AO has made addition of closing balance of Rs.18,66,58,805/- despite the fact that during assessment proceedings, AO was being specifically informed that total loans received during the year from Sri. Vikram Sharma was nil. It itself shows that AO has made Supreme Lake View Bungalows Private Limited addition without verifying the facts and application of mind. U/s.68, addition can be made of unexplained cash credits received during the year, but during relevant A.Y-2022-23, the assessee company has not received any loans from Sri. Vikram Sharma. This factual information was given by assessee during the assessment proceedings also. During appellate proceedings, assessee has reiterated these facts along with judicial pronouncements, which has been reproduced above. Further assessee company has also submitted ITR of Sri Vikram Sharma, having income of Rs. 44,65,650/-, in order to prove his identity and creditworthiness. From all these facts, it is clear that AO has wrongly made this addition. 4.M/s.Supreme Villa Private Limited, in respect of which addition of Rs.15,68,60,985/- has been made. From the analysis of the financial statements of M/s. Supreme Villa Private Limited it has been found that it has taken loan of Rs.88,86,08,000/- from India Bulls Commercial Credit Limited, out of which of loan of Rs.15,68,60,985/- has been given to the assessee company. It clearly proves the identity, genuineness and creditworthiness of the lender company, as it has taken loan from reputed NBFC, hence source being proved.From all these facts, it is clear that AO has wrongly made this addition. From the above discussion, it is clear that assessee company has received loan of Rs.30,46,75,891/-, during the A.Y-2022-23 from these four concerns and even repaid Rs.7,03,28,533/- But AO has made addition of Rs.55,49,75,562/-, which is completely wrong. It clearly shows that AO has made addition completely on the basis of surmises and conjectures. Further, from the above party wise factual analysis, creditworthiness, genuineness and source of funds of M/s. Supreme Housing and Hospitality P Limited, Mr. Bavanishankar Sharma, Mr Vikram Sharma and M/s. Supreme Villa P Ltd has been proven and in case of Mr. Vikram Sharma, there are no cash credits received by assessee during relevant A.Y-2022-23. Furthermore assessee has put reliance on number of judicial pronouncements in this regard which are reproduced as under: 14. The appellant submits that there are various case laws which states that the addition u/s.68 can be made in the year in which loan was taken, we placed reliance on the same: A) The similar view was taken by the Hon’ble ITAT, Mumbai in the case of ITO -20(2)(3) v. Shri Nasir Khan J. Mahadik (ITA No. 153/Mum/2010). The relevant extract of the decision Supreme Lake View Bungalows Private Limited is as follows: “29. With regard to the addition made under section 68 of the Act the learned counsel submitted that in the case of M/s. Saabia International the opening balance was to the tune of Rs.3,26,000/- and there was in fact reduction ofthe balance, in which event no addition is called for whereas the A.O.proceeded to make an addition of Rs.2,26,000/- referable to closing balance as on 31.03.2006 and also interest thereon. The CIT(A) has committed a further error in sustaining an addition of Rs.1,50,000/-overlooking the fact that in the year under consideration only a sum ofRs.1,00,000/- has been taken as fresh loan whereas assessee repaid a sum ofRs.2,00,000/-. Thus, an addition of Rs.1,00,000/-, at best, could have been made but in the particular facts of the case even such addition is No maintainable since assessee repaid a sum of Rs.1,00,000/- on 01.06.2005,which is deemed to be available as on 26.10.2005 if the cash credit is held to be non-genuine. In this regard he referred to page 82 of the paper book. Hestrongly submitted that the CIT(A) was totally confused in confirming the addition of Rs.1,50,000/- referable to loan taken from M/s. Saabia International. It was also submitted that the proprietor of M/s. Saabia International is an income tax assessee (Pg. 8 of the paper book) and PAN is available on record and hence the identity and creditworthiness have been proved in the said case. Similarly, as regards the loan taken from Shri Khalid Khan he submitted that PAN and passport copy were filed before the CIT(A) and hence there is no basis for confirming the addition of Rs.50,000/-. ”B) The similar view was also taken by the Hon’ble ITAT, Mumbai vide order in the case of Shri Arun Babulal Shah v/s CIT(A) NFAC, (ITA No. 2460/Mum/2023).The relevant extract of the decision is as follows: “6. We heard the rival submission and considered the documents available in record. The assessee argued that related to serial numbers 1 to 3 of the above mentioned chart, i.e. M/s Shailee Capital Services Pvt. Limited, Mr.Rajesh Mehta and Mrs. Indumati Vasa + B.S.Vasa, all the loans are from earlier years and was only the balance is carried over to this year. So, the addition inimpugned assessment year is uncalled for. Therefore, it is directed to the ld.AO that the additions amount of R.27,50,000/-, Rs.18 lakhs, Rs.50 lakh sare liable to be deleted on the ground that the loans are brought forwarded from earlier years, not related to this impugned assessment year.” Furthermore, assessee has put reliance on number of judicial pronouncements which are as under:
Supreme Lake View Bungalows Private Limited 19. In this regard, your assessee would like to place reliance on the following transaction wherein it has been stated that addition cannot be made on surmises and conjecture: .Hon’ble Mumbai Tribunal in the case of ITO Vs. Ambika Metalchem Impex P. Ltd (ITA No.1676/Mum/2017) has held that: “5.3 However, the factual matrix, before us, in the present case is quite different. In the present case, we find that the assessee has dulydischarged the initial onus of proving the identity of the investors,creditworthiness of the transactions and genuineness of the transactions. Notices issued u/s 133(6) have been responded to. In such a scenario, theonus to dislodge the assessee’s claim, in our opinion, was shifted back to Ld. AO and he was duty bound to investigate the case further. However,the facts on record nowhere establishes that such further inquiries /investigations have subsequently been conducted by Ld. AO in the present case. For the said proposition, we draw strength from the land mark case of Kale Khan Mohammad Hanif Vs. CIT [50 ITR 1] and Roshan Di Hatti Vs.CIT [107 ITR 938] as already cited in the above decision of Hon’ble Apex Court. Similar is the ratio of Hon’ble Apex Court rendered in CIT Vs. Orissa Corporation [159 ITR 78]. It is trite law that additions could not be made merely on the basis of doubts, conjectures or surmises. 5.4 Upon due consideration of the factual matrix, we find that no infirmity could befound in the impugned order. Therefore, by confirming the same, we dismiss the appeal.” Hon’ble Mumbai ITAT in the case of ITO v. Sankalp Corporate Services(P) Ltd (ITA No.5778/Mum/2017) concluded that assessee had submitted all the necessary details to establish the creditworthiness, identity of investor and genuineness of the transaction such as PAN card, CIN Master data (ROC), Share application Forms, Board Resolution, Confirmation of Account, Balance Sheet of shareholder, Bank statement and, IT Acknowledgement receipt, Assessment Order under section 143(3) of the shareholder, Valuation report of the shares, NAV working of assessee, and balance sheet of the assessee. AO had not pointed out any defect in The documents. As a matter of fact, AO had not even issued a notice under section 133(6) to the share applicant, if he had any doubt regarding creditworthiness of the share applicant. Balance sheet of share applicant showed ample source of funds, hence, AO’s negative observation about availability of funds with share applicant was factually incorrect and addition made under section 68 only based upon surmise and conjecture had to be deleted. Hon’ble Kolkata Tribunal in the case of M/s Blue Lotus Designers Pvt. Ltd Vs ITO (ITA No. 941/Kol/2017) concluded that AO treated assessee’s share capital / premium of Rs.2,01,50,000/- Supreme Lake View Bungalows Private Limited as unexplained cash credits u/s 68.He contended that summons u/s 131 remained un-complied with as perlower appellate findings under challenge and all of the assessee’s investor parties were accommodation entry providers which had been rightly treated as bogus in both the lower proceedings. In the facts of the present case, both the nature & source of the share application received was fully explained by assessee. Assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO’s record. Without doing so, the addition made by AO was based on conjectures and surmises could not be justified. Thus, no addition was warranted under Section 68. ITO V/s Surana Trading 92 ITD 212 (Mum)(para 98)(ITA No.2826/Mum/2013) held that no addition could be made merely on assumptions or presumptions or surmises or conjectures. Commissioner of Income Tax vs Sent. Sita Devi Juneja (2010) 325 ITR593 (P& H): held that it is settled law that, no addition can be made on the basis of surmises, suspicion and conjectures.” Accordingly, on the basis of above detailed factual analysis and judicial pronouncements, AO is hereby directed to delete this addition of Rs. 55,49,75,562/- and give relief to the assessee. Accordingly these grounds of appeal are allowed.
8. We have carefully considered the rival submissions, perused the material placed on record, and examined the impugned appellate order. It is an undisputed fact that a substantial portion of the loans reflected by the Assessing Officer represented opening balances brought forward from earlier years, in respect of which no addition under section 68 of the Act could have been made in the impugned assessment year. Further, insofar as the loans actually received during the year are concerned, the assessee has duly discharged the onus cast upon it under section 68 of the Act by establishing the identity of the lenders, their creditworthiness, and the genuineness of the transactions through documentary evidence, including confirmations, bank statements, financial statements, and income-tax returns. We find that the Ld. CIT(A) has carried out a Supreme Lake View Bungalows Private Limited detailed party-wise factual analysis and has recorded clear findings demonstrating that the Ld. AO made the impugned addition mechanically, without proper verification of facts and in complete disregard of the evidence available on record. The addition has been made on the basis of closing balances rather than fresh credits received during the year, which is legally impermissible. The reliance placed by the Revenue on the decisions in Precision Finance (P) Ltd. (supra) and Diza Holdings (P) Ltd. (supra) is misplaced, as the factual matrix of the present case clearly establishes the creditworthiness and genuineness of the loan transactions. In view of the settled legal position that no addition under section 68 of the Act can be sustained on the basis of mere suspicion, surmises, or conjectures, and respectfully following the judicial precedents relied upon by the Ld. CIT(A), we find no infirmity in the impugned appellate order deleting the addition of Rs.55,49,75,562/-. Accordingly, the grounds raised by the revenue are devoid of merit and are hereby dismissed. The appeal filed by the revenue is, therefore, dismissed.