DCIT, CENTRAL CIRCLE-4(3), KOLKATA, KOLKATA vs. RAJ GOENKA , KOLKATA

Name of the loan Amount of loan creditors taken (Rs.) M/s JNB Sidhu 42,00,000/- Finance Pvt Ltd. M/s Mainland Finance 73,00,000/- Pvt Ltd. M/s Jajodia Finance 2,00,000/- Limited Total 1,17,00,000/-

4. Aggrieved by the said order, the assessee filed an appeal before the CIT(A) wherein the assessee has been allowed by observing as under:

“6.2.20. I find that the facts of the instant case at hand is quite similar to the facts discussed by the Hon’ble jurisdictional High Court in the case of Principal Commissioner of Income tax vs. Sreeleathers in [2022] 143 taxmann.com 435 (Calcutta). The facts of the said case were: a) The assessee-firm was engaged in business of trading/retailing of footwear and leather and non-leather accessories. It had filed its return of income and same was selected for scrutiny. Subsequently, notices under sections 143(2) and 142(2) were issued on it. b)The Assessing Officer noted that the assessee had received certain amount of unsecured loans from various companies out of which 13 companies were allegedly claimed to be paper companies. He thus made addition of amount of unsecured loans in the assessee's total income. c) The Commissioner noted that the assessee had furnished various documents to prove genuineness and creditworthiness of alleged paper companies however same was rejected by the Assessing Officer. He thus held that it was not enough for the Assessing Officer to dismiss documents furnished by the assessee without consideration but rather should have 3 recorded reasons in writing as to why these documents filed by the assessee did not go to establish the identity of the lender or prove the genuineness of the transaction. In the absence of any such finding, order passed by the Assessing Officer was held to be utterly perverse. The Hon’ble High Court of Calcutta gave the following judgement: “This provision of section68 deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The crucial words in the said provision are 'assessee offers no explanation'. This would mean where the assessee offers no proper, reasonable and acceptable explanation as regard the amount credited in the books maintained by the assessee. No doubt the burden of proof is on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their conformations, it has been held that the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit so as to be justified in referring to section 68. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation with regard to the cash credit, the Assessing Officer should consider the same objectively before he takes a decision to accept or reject it. If the explanation given by the assessee shows that the receipt is not of income nature, the department cannot convert good proof into no proof or otherwise unreasonably reject it. On the other hand, if the explanation is unconvincing, the same can be rejected and an inference shows that the amount represents undisclosed income either from a disclosed or an undisclosed source. The explanation given by the assessee cannot be rejected arbitrarily or capriciously, without sufficient ground on suspicion or on imaginary or irrelevant grounds. Further to be noted that where the assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee's transaction. Thus, more importantly, the onus of proving that the appellant was not the real was on the party who claims it to be so. Bearing the above legal principles in mind, in the instant case, it is clear that the Assessing Officer issued show cause notice only in respect of one of the lenders FGD. The assessee responded to the show cause notice and submitted the reply. The documents annexed to the reply were classified under 3 categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer has brushed aside these documents and in a very casual manner has stated that mere filing PAN details, balance sheet does not absolve the assessee from his responsibility of proving the nature of transaction. There is no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee has discharged his initial burden and the burden shifts on the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression 'money laundering.' Such usage is uncalled for as the allegations of money laundering is a very serious allegations and the effect of a case of money laundering under the relevant Act is markedly different. Therefore, the Assessing Officer should have desisted from using such expression when it was never the case that there were any allegations of money laundering. Much reliance was placed on the statement of AKA which statement has been extracted in full in the assessment order and it cannot be disputed that there is no allegation against the assessee company in the said statement. There is no evidence brought on record by the Assessing Officer to connect the said entry operator with the loan transaction done by the assessee. Therefore, the statement is of little avail and could not have been the basis for making allegations. The Assessing Officer ignored the settled legal principle and in spite of the assessee having offered the explanation with regard to the loan transaction, no finding has been recorded as regards the satisfaction on the explanation offered by the assessee. Therefore, the Assessing Officer ignored the basic tenets of law before invoking his power under section 68. Fortunately, for the assessee, the Commissioner (Appeals) has done an elaborate factual exercise, took into consideration, the creditworthiness of the 13 companies the details of which were furnished by the assessee. More importantly, the Commissioner noted that all these companies responded to the notices issued under section 133(6) which fact has not been denied by the Assessing Officer. On going through the records and the net worth of the lender companies, the Commissioner (Appeals) has recorded the factual findings that the net worth of those companies is in crores of rupees and they have declared income to the tune of Rs. 45,00,000/-. Therefore, the Assessing Officer if in his opinion found the explanation offered by the assessee to be not satisfactory, he should have recorded so with reasons. However, there is no discussion on the explanation offered by the assessee qua, one of the lenders. Admittedly, the assessee was not issued any show cause notice in respect of other lenders. However, they are able to produce the details before the Commissioner (Appeals)who had rightly appreciated the facts and circumstances of the case. As pointed out earlier, the Assessing Officer brushed aside the explanation offered by the assessee by stating that merely filing PAN details, balance sheet does not absolve the assessee from his responsibilities of proving the nature of transactions. It is not enough for the Assessing Officer to say so but he should record reasons in writing as to why the documents which were filed by the assessee along with the reply does not go to establish the identity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. In the absence of any such finding, it is held that the order passed by the Assessing Officer was utterly perverse and rightly interfered by the Commissioner (Appeals). The Tribunal reappreciated the factual position and agreed with the Commissioner (Appeals). The tribunal apart from taking into consideration, the legal effect of the statement of AKA also took note of the fact that the notices which were issued by the Assessing Officer under section 133(6) to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materials were available on the file of the Assessing Officer and there is no discussion on this aspect. Thus, the tribunal rightly dismissed the appeal filed by the revenue. [Para 5] In the instant appeal also, the AO in spite of having all the requisite documents at his disposal failed to bring on record any reasons to justify his conclusion that the documents which were filed by the assessee along with the reply did not go to establish the identity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. Similarly, the decision of the Hon’ble Rajasthan High Court in the case of CIT Vs A.L. Lalpuria Construction (P) Ltd (215 taxmann 12) is also found to be relevant to the present case where in also the addition made by the AO alleging unsecured loans to be in the nature of accommodation entry was held to untenable as it was based on unconfronted oral statement of third party which was obtained prior to the search conducted u/s 132 of the Act upon the assessee. The Hon’ble Court observed that,

"2. The revenue has preferred instant appeals U/s 260A of Income-tax Act,1961 ("Act, 1961") assailing judgment of the Tribunal dt.31-3-2010 affirming order of Commissioner (Appeals)dt. 5-3-2008, with modification that on the statement of Kripa Shanker Sharma, the income of Rs. 5 Lacs was assessed in the hands of assessee and it was observed by the Tribunal that the statement of Kripa Shanker Sharma was never confronted and no documentary evidence was supplied to the assessee, in absence where of the income in the hands of the assessee on the basis of statement of Kripa Shanker Sharma deserves deletion. The assessee as alleged carried out construction activities and disclosed income from subcontract and investment in building construction. After the search U/s 132 of the Act,1961was carried out on 12-4-2005 in the case of another assessee M/s. B.C. Purohit & Company at Jaipur & Kolkata, evidence was gathered and from the investigation it revealed that in the garb of tax consultation the owners and employees of this group were running the racket of providing accommodation entries of gifts, loans, share application money, share investment and long-term capital gains in shares. It will be relevant to record that the present assessee might have been in consultation with M/s. B.C. Purohit & Company and a member of the group and has drawn inference regarding providing accommodation entries and the assessing officer was of the view that details made available by the assessee as regards unsecured loans and share application money, reference of which has been made in para-4of its order, appears to be the accommodation entries and the present assessee was middleman and invoking Sec.68 of the Act, it was considered to be part of the income in the hands of the assessee. However, on appeal preferred before the Commissioner(Appeals)by the assessee U/s 143(3) r/w 147 of the Act, 1961 all the factual statements were examined at length and the Commissioner (Appeals), after due appreciation of material which came on record, observed that from independent enquiry the copies of bank account were obtained by the assessing officer and found that for clearing of the cheques issued by these companies either cash was deposited in the same account or in another account of the group company in fact was M/s. B.C. Purohit of which the present assessee was considered to be one of the group member. However, it was further observed that summons issued U/s 131of the Act were served upon all such applicant/creditors and their confirmation letters were filed and the companies were assessed to tax being the private limited companies, the existence of their separate legal entity ordinarily could not have been doubted. However, on the basis of statement of Kripa Shanker Sharma which was recorded by the search authorities as regards accommodation entries, a sum of Rs. 5 Lacs was assessed in the hands of present assessee alone and as regards other income; it was not considered to be in the hands of the present assessee. Obviously, the department being aggrieved preferred appeal before the Tribunal and at the same time, the present assessee filed cross objection regarding part of the income, to the extent of a sum of Rs. 5 Lacs, as being recorded in the hands of present assessee on the basis of statement of Kripa Shanker Sharma. The Tribunal while appreciating the factual matrix came on record observed that after the summons were issued U/s 131 of the Act,1961 to the applicant/creditors and their confirmation letters were filed and the companies were assessed to tax being private limited companies the existence of their separate legal entity ordinarily could not have been challenged more so when the identity of existence of the investor is not disputed and accordingly upheld the view of Commissioner(Appeals), at the same time further observed that merely on the basis of oral statement of Kripa Shanker Sharma recorded before the search authorities that the assessee provided accommodation entries was not sufficient for the income to be assessed for a sum of Rs. 5Lacs in the hands of the assessee and while allowing the cross objection filed by the assessee dismissed the appeal preferred by the revenue under order impugned. We have heard the parties at length and of the view that what has been observed by the Commissioner (Appeals) & the Tribunal appears to be based on factual matrix and the reappears no substantial question of law arises which may require interference by this Court to be examined in the instant appeal. Consequently, the instant appeals are wholly devoid of merit and accordingly stand dismissed." In addition to the aforesaid binding judgment of Hon’ble Calcutta High Court in the case of PCIT vs Sreeleathers [2022] 143 taxmann.com 435 (Calcutta), I am supported in myviews by the following binding judgments of Hon’ble Jurisdictional Calcutta High Court: CIT vs. M/s. Dataware Private Limited reported in 2011 (9) TMI 175 (CAL) PCIT vs Alom Extrusions Limited [ITACT/268/2024, judgment dated 17.12.2024] PCIT vs Parwati Lakh Udyog [ITAT/2/2024, judgment dated 19.02.2024] CIT v. Mitul Krishna Kapoor (ITA No.333 of 2009, judgment dated 09.06.2016)

PCIT vs Coal Sale Co. Ltd. [ITAT/71/2022, Judgment dt. 29.07.2022] CIT vs. Eastern Commercial Enterprises [1994] 210 ITR 103 (Cal) of CIT(E) -vs- Mayapur Dham Pilgrim & Visitors Trust (2022) 214 DTR 441 / 328 CTR 984(Cal) CIT(E) -vs- Sanskriti Sagar [ITAT/46/2018 (GA No. 631 of 2018 dated 26.04.2022 (Cal)] 6.2.21.In view of the above discussions and various judicial pronouncements, the additions of loan amount of Rs. 1,17,00,000/- u/s 68 of the Act, made by the AO in the assessment order u/s 143(3) r.w.s 260 of the Act dated 26.06.2024, is deleted. Hence, these grounds of appeal raised by the assessee are allowed.

5. Being dissatisfied, the revenue is in appeal before us raising the following grounds of appeal:

6. Contrary to that, the ld. AR supports the impugned order thereby submitting that in the course of assessment proceedings, summons was issued to all the loan creditors and replies were received from them and the Assessee has also furnished relevant details in response to statutory notices issued to the assessee. The ld. AR also submits in response to notice u/s 131 of the Act, the assessee company before the Assessing Officer submitted evidences such as copies of audited accounts, bank Raj Goenka statements, ITR filed for the relevant F.Y, loan confirmation statements and source of funds in relation to all the lender companies and the Assessing Officer failed to show any defect or discrepancy in the documents furnished before him and such documents indicates that the onus cast upon the assessee under section 68 of the Act to prove identity, creditworthiness and genuineness was duly discharged. His submission is that the Assessing Officer referred to the data base of shell companies list and made various generalized observations to doubt the source of the lenders and the Assessing Officer has relied on the past deeds/actions of lender companies and also the Assessee Company and tried to raise adverse inference against the transactions of the Assessee company pertaining to the year under consideration. His submission is that the loans were repaid within the same financial year which was not controverted by the Assessing Officer and the Assessing Officer failed to record as to whether any further enquiries were made by him to establish the financial credibility of the lender companies. The ld. AR further submits that the loan creditors have sufficient own capital and free reserves/net worth and there is no reason to doubt about their creditworthiness. His submissions that the identity of the lender companies cannot be doubted as relevant documentary evidences were placed on record and the alleged transaction in question was done through banking channels and loan confirmations from the creditors were produced on record. The ld. AR submits that there is no irregularity in the impugned order of the ld. CIT(A) and the ld. CIT(A) has discussed everything in details in his impugned order. To support his contention, the ld. AR has submitted the following judicial pronouncements:

2. PCIT vs. M/s Narayan Tradecom Pvt. Ltd. [ITAT/76/2025] of Hon’ble Calcutta High Court

3. PCIT vs. Alom Extrusions Ltd. [ITAT/268/2024] of Hon’ble Calcutta High Court

Name of the Opening Fresh loan Repayment Closing balance party Balance taken during during the year the year M/s JNB Rs. Rs. 42,00,000 Rs. 69,00,000 Rs. 4,60,00,000 Sidhu Finance 4,87,00,000 Pvt Ltd. M/s Mainland Rs. Rs. 73,00,000 Rs. 98,00,000 Rs. 46,00,000 Finance Pvt 71,00,000 Ltd. M/s Jajodia Rs.45,00,000 Rs.2,00,000 Rs.47,00,000 Rs. 0 Finance Limited 7.1 It is pertinent to mention here that replies were made in response to the summons were issued to all the loan creditors and the assessee duly submitted evidences in response to notice u/s 131 of the Act such as copies of audited accounts, bank statements, ITR filed for the relevant F.Y, loan confirmation statements and source of funds in respect of all the lender companies. We also find that no adverse remark was made by the Assessing Officer in respect of loan confirmation and the documents submitted by the assessee and the Assessing Officer did not find any fault or pass any adverse remark in the documents furnished by the assessee to prove identity, creditworthiness of the lenders and genuineness of the transactions. We note that all the loans were repaid through banking channels and all the three lender companies had sufficient net worth to give loans to the assessee company and the details of the same are hereinbelow:

Name of the Income during the year Net worth (Rs.) loan creditors M/s JNB 159.97 lakhs 2699.47 lakhs Sidhu Finance Pvt Ltd. M/s Mainland 1146.35 lakhs 9952.94 lakhs Finance Pvt Ltd. M/s Jajodia 1200.24 lakhs 6031.74 lakhs Finance Limited 7.2 We have gone through the cited decisions of Hon’ble Jurisdictional High Court including the decision in the case of PCIT vs. Alom Extrusions Ltd. (supra), wherein, the Hon’ble High Court held as under:

“This appeal filed by the Income Tax Department under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated December 14, 2023 passed by the Income Tax Appellate Tribunal "A" Bench, Kolkata (The Tribunal) in for the assessment year 2015-16. The revenue has raised the following substantial questions of law for consideration : i) Whether the Learned Income Tax Appellate Tribunal has committed substantial error in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the disallowance made under Section 68 of the Income Tax Act, 1961 on account of unsecured loan from shell companies amounting to Rs.3,00,00,000/- as unexplained cash credit without appreciating the materials brought on record and facts evaluated by the Assessing Officer in the Assessment Order ? 13 Raj Goenka ii) Whether the Learned Income Tax Appellate Tribunal has committed substantial error in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the addition made under Section 69C of the Income Tax Act, 1961 on account of interest expenses on such unsecured loan ? We have heard Mr. Tilak Sharma, learned standing counsel appearing for the appellant and Mr. Amit Agarwal, learned counsel appearing for the respondent. The Department was unsuccessful in their challenge before the learned Tribunal wherein they questioned the correctness of the order passed by the Commissioner of Income Tax (Appeals) - 27, Kolkata [CIT(A)] on 14 th June, 2023. By the said order, the [CIT(A)] allowed the appeal filed by the assessee and set aside the addition made by the Assessing Officer by invoking power under Section 68 of the Act. As could be seen from the order passed by the learned Tribunal, the Tribunal has examined the factual details after noting the factual findings recorded by the [CIT(A)], more importantly, the learned Tribunal found that all the loans stood repaid, which has also been factually ascertained by the [CIT(A)] and re-affirmed by the Tribunal. We find the order passed by the [CIT(A)] to be an elaborate order after discussing all the facts. The learned Tribunal has, in fact, quoted the relevant portions of the order passed by the [CIT(A)] and thereafter independently proceeded to examine the correctness of the finding and affirmed the same. Thus, we are of the view that no questions of law, much less substantial questions of law arises for consideration in this appeal. Hence, the appeal fails and the same is dismissed. 7.3 Going over the discussion made above and considering the judicial pronouncements, we find that the ld. CIT(A) has elaborately discussed everything and thereafter, passed the impugned order in favour of the assessee considering the judicial precedents. We, therefore, do not find any infirmity in the order of the ld. CIT(A) and the same is upheld. Accordingly, the appeal of the revenue is dismissed.

Kolkata, the 5th February, 2026.