THE DCIT,1(1), INDORE vs. M/S. RITSPIN SYNTHETICS LTD., PITHAMPUR

That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not sec. 115BBE of the Act by the AO even when the only source of income of assessee was from its business only.

That on the facts of the case and as per law, the CIT(A) erred in not deciding the ground w.r.t. taxability of income added u/s 68 at a higher rate as per amended Sec. 115BBE even when amended provision received Assent from President w.e.f. 15- 12-16 only.

The assessee reserves its right to add alter and modify any of the cross objections taken by it.”

The brief facts of the case are that the assessee, a company engaged in the business of manufacture of synthetic yarn at Pithampur and also undertaking job work, filed its return of income for A.Y. 2017–18 on 29.11.2017 declaring a loss of ₹9,16,92,957/-. The case was selected for complete scrutiny under CASS. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had accepted unsecured loans aggregating to ₹4,10,00,000/- from eight Kolkata-based unlisted private limited companies. The Assessing Officer required the assessee to establish the identity of the creditors, their creditworthiness and the genuineness of the transactions. Although the assessee furnished confirmations, PAN details, C.O. 4/Ind/2024 ACIT vs. M/s. Ritspin Synthetic Pvt. Ltd. & M/s. Ritspin Synthetic Pvt. Ltd. vs. DCIT A.Y. 2017-18 - 3 - audited financial statements, balance sheets, bank statements and acknowledgements of returns of income of all the eight creditor companies, the Assessing Officer asked the assessee for the personal appearance of the directors of these companies. The assessee expressed its inability to produce the directors on the ground of distance between Kolkata and Indore, though it reiterated that all documentary evidences were already on record. The Assessing Officer was not satisfied with the explanations furnished. The Assessing Officer held that mere filing of documents and routing of funds through banking channels was not sufficient and that the assessee had failed to discharge the onus cast upon it under section 68 of the Act. The Assessing Officer further analyzed the financials of each creditor company and pointed out various discrepancies, such as low return of income, high share premium, advancement of loans out of borrowed funds or capital, lack of any real business activity and non-production of directors. On these grounds, the Assessing Officer held that the creditworthiness and genuineness of the unsecured loans were not established. Accordingly, the Assessing Officer added the entire amount of unsecured loans of ₹4,10,00,000/- as unexplained cash credit under section 68 of the Act and taxed the same under section 115BBE of the Act. Consequentially, the interest expenditure of ₹25,27,261/- paid on such loans was treated as unexplained expenditure under section 69C of the Act and also taxed under section 115BBE of the Act.

Aggrieved by the assessment order, the assessee carried the matter in appeal before the learned CIT(A). During the appellate proceedings, the assessee filed written submissions, reiterating that all three ingredients of section 68 of the Act, namely identity, creditworthiness and genuineness, stood duly proved by documentary evidence. It was specifically pointed out C.O. 4/Ind/2024 ACIT vs. M/s. Ritspin Synthetic Pvt. Ltd. & M/s. Ritspin Synthetic Pvt. Ltd. vs. DCIT A.Y. 2017-18 - 4 - that all the unsecured loans were received through banking channels, duly recorded in the books of account and, more importantly, that a substantial portion of the loans aggregating to ₹3.10 crore had been repaid either during the same financial year or in the immediately subsequent years. It was contended that if the loans were bogus or represented the assessee’s own unaccounted income, there would be no occasion for repayment of such amounts. The assessee placed reliance on several judicial precedents to contend that once repayment of loans is established, the credit entries cannot be viewed in isolation ignoring the corresponding debit entries. It was also argued that the Assessing Officer could not sit in judgment over the creditworthiness of the creditor companies, which were income-tax assessees, without bringing any adverse material on record, and that non- production of directors by itself could not justify the addition when all documentary evidences were available.

The learned CIT(A), after considering the assessment order, the submissions of the assessee and the judicial precedents cited, held that the assessee had satisfactorily discharged the onus cast upon it under section 68 of the Act. The learned CIT(A) observed that the identity of all the creditors was established beyond doubt, their creditworthiness was evidenced by their audited financial statements and bank transactions, and the genuineness of the transactions stood proved, inter alia, by repayment of the loans in the same or subsequent financial years. Following binding judicial precedents, the learned CIT(A) held that the addition of ₹4,10,00,000/- made under section 68 was not sustainable and deleted the same. Consequent to the deletion of the principal addition, the learned CIT(A) further held that the disallowance of interest of ₹25,27,261/- under section 69C of the Act could not survive, C.O. 4/Ind/2024 ACIT vs. M/s. Ritspin Synthetic Pvt. Ltd. & M/s. Ritspin Synthetic Pvt. Ltd. vs. DCIT A.Y. 2017-18 - 5 - particularly when the interest expenditure was duly recorded in the books of account and tax was deducted at source thereon. Accordingly, the addition under section 69C was also deleted. In view of the deletion of additions under sections 68 and 69C, the remaining grounds relating to taxation under section 115BBE and levy of interest were held to be academic. Thus, the appeal of the assessee was allowed on merits.

The Department is in appeal before us against the order passed by CIT(Appeals) allowing the appeal of the assessee. The assessee has filed cross-objections, primarily supporting the findings of CIT(Appeals) in the appellate order.

We have heard the rival submissions and perused the material available on record. The limited controversy raised by the Department in the present appeal relates to the correctness of the relief granted by the learned CIT(A) on the additions made under sections 68 and 69C of the Act, primarily on the premise that the unsecured loans received by the assessee was repaid in the same or subsequent financial years and that interest thereon was paid after deduction of tax at source. The learned CIT(A) has accepted the assessee’s explanation and deleted the additions by placing reliance, inter alia, on the fact of repayment of loans and interest.

Having regard to the totality of facts and circumstances of the case, we are of the considered view that the issue requires limited verification at the end of the Assessing Officer. The Ld. DR has submitted that there is no specific clarity when the amounts were repaid back, whether the repayment was through banking channels and whether TDS had been deducted on interest as claimed by the assessee. The Ld. DR submitted that these facts C.O. 4/Ind/2024 ACIT vs. M/s. Ritspin Synthetic Pvt. Ltd. & M/s. Ritspin Synthetic Pvt. Ltd. vs. DCIT A.Y. 2017-18 - 6 - need to be rectified by the Assessing Officer. The judicial position is now well settled that where the assessee demonstrates that the unsecured loans received have been repaid to the lenders and the interest thereon has also been paid after due deduction of tax at source, such a fact constitutes strong and clinching evidence in support of the genuineness of the transactions and no addition is ordinarily called for under section 68 of the Act, nor can the interest expenditure be disallowed under section 69C of the Act. The Hon’ble Gujarat High Court in PCIT v. Ambe Tradecorp (P.) Ltd. [2022] 145 taxmann.com 27 (Guj.), held that once repayment of loan is proved on the basis of documentary evidence, the ingredients of creditworthiness and genuineness stand satisfied and no addition under section 68 is warranted. In Principal Commissioner of Income-tax vs. Merrygold Gems (P.) Ltd. [2024] 164 taxmann.com 764 (Gujarat), the High Court held that here amount of loan received by assessee was returned within same financial year, appellate authorities had rightly deleted addition made under section 68 of the Act in respect of such loan.

In view of the above legal position, we deem it appropriate, in the interest of justice, to restore the matter to the file of the Assessing Officer for the limited purpose of factual verification as to whether the assessee has, in fact, repaid the principal amount of the unsecured loans along with interest to the respective lender companies and whether tax has been duly deducted at source on such interest payments in accordance with law. The Assessing Officer shall verify the repayment of principal and interest on the basis of bank statements and other relevant documentary evidences. In the event the Assessing Officer finds that the assessee has repaid the principal amount along with interest after duly deducting tax at source, the relief granted by the C.O. 4/Ind/2024 ACIT vs. M/s. Ritspin Synthetic Pvt. Ltd. & M/s. Ritspin Synthetic Pvt. Ltd. vs. DCIT A.Y. 2017-18 - 7 - learned CIT(A) shall stand confirmed and no addition under section 68 of the Act or disallowance of interest under section 69C of the Act shall survive. If, however, any discrepancy is found in respect of such repayment or deduction of tax at source, the Assessing Officer shall pass a fresh order in accordance with law after affording reasonable opportunity of being heard to the assessee.

Further, it is noted that the learned counsel for the assessee submitted that the assessee does not wish to press the cross-objections filed by it. In view of the said submission, the cross-objections filed by the assessee are dismissed as “not pressed”.

In the result, the appeal filed by the Department is allowed for statistical purposes, in terms indicated above, and the cross-objections filed by the assessee are dismissed as not pressed. This order pronounced as per Rule 34(4) of ITAT Rules, 1963 on 13/01/2026