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Facts
The assessee, engaged in the purchase and sale of sugar, had taken unsecured loans amounting to Rs. 17,99,05,000/- from two parties, M/s Kay Ess Enterprises and M/s Sai Baba Metals Pvt Ltd. The Assessing Officer (AO) added these amounts as unexplained cash credits, also disallowing 20% of certain purchases. The assessee's appeal before the CIT(A) was unsuccessful.
Held
The Tribunal found that the assessee had provided explanations and documents for the loans and purchases. It observed that the AO had not properly examined the submitted documents and had not given the assessee sufficient opportunity to explain. The Tribunal also noted that the trade payables were towards family members, and their similar replies did not automatically warrant an addition.
Key Issues
Whether the loans from group entities and sundry creditors constituted unexplained cash credits under Section 68 of the Income Tax Act, and if the disallowance of 20% of purchases was justified.
Sections Cited
68, 143(3), 133(6), 142(1), 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: SHRI YOGESH KUMAR US, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the CIT(A)-27(1), Delhi, dated 27.03.2025 pertaining to A.Y 2017-18.
2. The grievances of the assessee read as under:
1. That the orders passed by Ld. AO u/s 143(3) of the Act as well as appellate order passed by Ld. CIT(A) are bad in law and [A.Y 2017-18] Uma Strips Ltd vs ACIT are passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.
That Ld. AO grossly erred in law and in facts of the case in assessing credits of Rs. 17,99,05,000/- from group entities as unexplained cash credits u/s 68 of the Act.
That Ld. AO grossly erred in law and in facts of the case in assessing credits of Rs. 17,99,05,000/- as unexplained cash credits u/s 68 of the Act merely on assumption that creditworthiness of lenders is not established.
That Ld. AO grossly erred in law and in facts of the case in assessing sundry creditors of Rs. 1,13,39,430/- as unexplained cash credits u/s 68 of the Act.
5. That Ld. AO grossly erred in law and in facts of the case in making adhoc disallowance of Rs. 3,41,72,500/- being 20% of purchases made by assessee despite the fact that the onus cast upon assessee to substantiate genuineness of purchases was duly discharged.
That the Ld. AO grossly erred in law and in facts of the case in levying taxes at enhanced rates as per amended provisions of Sec. 115BBE of the Act despite said provisions of law were not applicable to the year under consideration.
7. That the appellant craves leave to add, alter, modify, or delete any grounds of appeal
during the course of appellate proceedings.
3. Grounds 2 and 3 taken together pertain to the credits of Rs.
17,99,05,000/- from group entities as unexplained cash credits u/s 68 of the Act.
Page 2 of 11 purchase and sale of sugar. The assessee filed its e-Return on 28.11.2017 declaring Income of Rs.44,736/-. The case was selected for scrutiny through CASS. Accordingly, notice u/s 143(2) of the Income Tax Act 1961 ("the Act") dated 16.08.2018 was sent to the assessee. In response to the said notice, the assessee furnished the reply on e- assessment portal of the Income Tax Department. Thereafter notices u/s 142(1) alongwith detailed questionnaire were sent to the assessee.
The Assessing Office, during the course of scrutiny assessment proceedings, noticed that the assessee had taken unsecured loan amounting to Rs. 17,99,05,000/- from two parties namely M/s Kay Ess Enterprises (Rs 17,68,05,000/-) and M/s Sai Baba Metals Pvt Ltd ( Rs 31,00,000/-), during the year under consideration. The Assessing Officer, had information from the Investigation Wing that the assessee company was in list of Indian exporters and importers transacting with FIU listed foreign entities suspected to be involved in Hawala transactions. The AO also had information from the Wing that M/s Kay Ess Enterprises and Om Gems and Jewellery are non-genuine parties.
1. Accordingly, the AO issued notices asking the assessee to discharge its onus in proving the ingredients i.e. identity, genuineness and credit
Page 3 of 11 assessee failed to discharge its onus.
6. The AO, simultaneously, issued notices u/s 133(6) of the Act to the parties wherein he found that the first party did not make any response whereas the other party part made a part response and filed a copy of ledger and ITR acknowledgement without any bank statement supporting the transaction.
The result of the independent enquiry conducted by the AO, on the information of the Wing, was that where M/s Kay Ess Enterprises did not respond to the notices, ITR acknowledgement filed by M/s Sai Baba Metals Pvt Ltd showed that the entity had income of Rs. 58,420/- but had granted loan of Rs. 2.64 crores to the assessee company. Being unsatisfied with the response of the assessee, the Assessing Officer made an addition of Rs. 17,99,05,000/- u/s 68 of the Act to the income of assessee.
The Assessing Officer further, on perusal of balance sheet of the assessee, found an abnormal increase in trade payables for the relevant year as compared to the last year. The Assessing Officer examined the list of 14 sundry creditors by making enquiries u/s 142(1) of the Act from assessee and by way of issuance of notices u/s 133(6) of the Act from the related trade creditors. Not being satisfied by the response of the Page 4 of 11 common addresses, the AO added the amount of trade payables aggregating to Rs. 1,13,39,430/- to the income of the assessee.
It was further noted by the Assessing Officer during assessment that in FY 2011-12 the assessee company was engaged in business of sale of bullions and jewellery, while in the year under reference, the assessee was doing business of sale and purchase of sugar. This change in business activity was not clearly explained by the assessee during the assessment proceedings. Further, to verify purchases amounting to Rs.
1. 18,18,69,980/-, the Assessing Officer issued notices u/s 133(6) of the Act to the related parties. However, genuineness of purchases amounting to Rs. 6,66,00,000/- from M/s Fakirchand Vinod Kumar and company could not be verified reason being suspicious bills were produced. Similarly, purchases amounting to Rs. 10,12,62,500/- from M/s SBM and Co Pvt Ltd could not be verified in the absence of response to the said notice. Therefore, disallowance at 20% of the purchases from these parties amounting to Rs. 3,41,72,500/- was made and added back to the income of assessee.
In appeal before the CIT(A), the assessee did not succeed and hence the aggrieved assessee is before us.
Page 5 of 11 vehemently argued that the loan was taken from group entities, one loan was from the Director Shri Amit Gupta of the assessee company and that all the loan transaction are genuine. The ld AR stated that Shri Amit Gupta is Proprietor of M/s Kay Ess Enterprise and is also a major shareholder in M/s Sai Baba Metals Pvt Ltd. It is submitted that these two entities have extended loan to the assessee and their confirmations and ITR details as well as the bank statements were submitted to the AO. The ld AR submitted that M/s Kay Ess Enterprise had obtained a Loan in its O/D account with Axis Bank of an amount of Rs 6.60 crore against mortgage of his residential property and this loan was extended to the assessee.
With respect to ground 4, the ld AR vehemently argued that the trade creditors are all family members with whom the assessee had an MoU for commodities contracts on silver and copper as the assessee was a member in MCX. As the creditors were all family members, they had same account and used the emails of the accountant Vimal Gupta and their reply were similar as they emanated from same MoU. The liability amount is similar as the MoU had fixed a certain fixed percentage as profit from the trade of future contract. It is the say of the Ld AR that all details were furnished before the AO.
Page 6 of 11 total purchase, the ld AR vehemently contested that the assessee was not given due opportunity to explain. It is stated that when the evidences were furnished by the assessee before the CIT(A), he called for a remand report from the AO who instead of examining and verifying the submissions, opposed the submission of additional evidence which was cryptically accepted by the CIT(A).
On the other hand, the ld DR pointed to the report of the Investigation Wing that the lender of the assessee is not genuine. The ld DR submitted that the supporting documents furnished are self serving and the explanation of the assessee is not plausible. Finally, the ld DR reiterated that the credit worthiness is not proved.
We have heard the rival submissions and have perused the relevant material on record. We find that the assessee has explained the genuineness of loan from M/s Key Ess Enterprise as being from the O/D account. We also find that the assessee has filed before the AO as well as the CIT(A), ITR, Confirmations, bank statements, audited financial statements of M/s Key Ess Enterprise and M/s Sai Baba Metals Pvt Ltd which have not been properly examined by the AO. We also find that both the entities have responded to the notices u/s 133(6).
Page 7 of 11 suppliers M/s Faquir Chand Vinod Kumar and Company and M/s SBM and Co Pvt Ltd, have responded to the notices u/s 133(6) and furnished reply, ledger accounts and ITRs. The reply of M/s Faquir Chand Vinod Kumar and Company was dismissed as being suspicious while the response from M/s SBM and Co Pvt Ltd has not been considered at all.
Though the CIT(A) called for the remand report from the AO, on the additional documents submitted before him, we feel that he should obtained comments on the merits of the case instead of rejecting the documents on mere technicality. The documents submitted by the sellers have neither been properly examined nor the assessee was given adequate opportunity to explain the position of the assessee.
Considering the entire conspectus of the instant case, we are of the view that the issue of loan and disallowance of purchase be set aside to the file of the AO for a fresh adjudication. The AO shall afford a reasonable opportunity to the assessee to explain the genuineness, creditworthiness and identity of the lenders. The AO shall also provide access to the Investigation Wing report to the assessee where the assessee company is suspected to be involved in Hawala transactions and M/s Kay Ess Enterprises is found to be a non-genuine entity before taking an adverse view on the assessee. Needless to add that the assessee shall
Page 8 of 11 required by the AO. The ground 2,3 and 5 are allowed for statistical purposes.
As far as the trade liability on account of unverified trade payables of Rs 1.13 crore is concerned, we find that the assessee was also a member of MCX and it was making self-dealings as well as dealing through brokers. The transaction regarding trade payables, emanated from MOU it had done with the family members for MCX dealing. Further, we find that each trade payable parties have separately replied to the notices u/s 133(6) and explained that they entered into an MoU with the assessee for trading in commodities for Silver and Copper contract wherein profit at a fixed margin was pre-determined as per the MoU. We are of the considered view that, in the peculiar facts of the case where all trade payables are towards family members, merely because their replies are from similar email ids and from same address, doesn’t permit the AO to make addition u/s 68 of the Act. We find that given the assessee’s explanation, corroborated by the parties themselves with evidences, the addition of trade payable u/s 68 of the Act cannot be legally justified. We accordingly, direct the AO to delete the said addition. Ground 4 is allowed.
Page 9 of 11 academic. partly allowed.
The order is pronounced in the open court on 17.12.2025.