Silent Creditors Cannot Turn Real Purchases Into Bogus Liabilities: ITAT Deletes ₹6.96 Crore Additions

Vinodkumar Maheshwari Vs ACIT ( ITAT Rajkot)

Silent Creditors Cannot Turn Real Purchases Into Bogus Liabilities: ITAT Deletes ₹6.96 Crore Additions

Summary:

Relevant Facts

The assessee was an individual carrying on the business of trading in ferrous & non-ferrous metal scrap through his proprietary concern, M/s Sai Metal Corporation. For AY 2022-23, he filed his return declaring income of ₹1,58,92,790 on turnover of approximately ₹166.83 crore.

The return was selected for complete scrutiny because of high liabilities compared with reported income, substantial squared-up loans & comparatively low income associated with TCS receipts from scrap transactions.

During assessment, the AO issued notices u/s 133(6) to trade creditors seeking confirmation of balances. Some creditors confirmed amounts matching the assessee’s books, while certain creditors did not respond. A difference of ₹50,000 was noticed in one account.

The AO particularly questioned long-outstanding balances, including approximately ₹48.91 lakh payable to Chetan Alloys Pvt. Ltd. & ₹2.13 crore payable to Chetan Overseas Delhi Pvt. Ltd. Since several parties did not respond directly, he treated aggregate trade creditors of ₹6,25,37,562 as unexplained u/s 68.

The AO also examined unsecured loans. Although a loan of ₹70 lakh from Harihar Cast Loan was accepted as verified, loans aggregating to ₹64,40,000 from other lenders were treated as unexplained. The AO mainly observed that the lenders’ returned income was lower than the amount advanced & complete evidence of their financial capacity was allegedly unavailable.

Interest of ₹6,39,447 paid on those loans was consequently disallowed. The CIT(A)/NFAC confirmed all three adjustments.

Issues Involved

The first issue was whether genuine trade liabilities arising from recorded purchases could be added u/s 68 merely because some suppliers failed to respond to departmental notices.

The second issue was whether lenders lacked creditworthiness solely because the loans exceeded their income disclosed for a single year.

The third issue was whether interest could be disallowed when the underlying loans were supported by banking records, confirmations & repayment evidence.

Assessee’s Submissions

The assessee submitted that the trade-creditor addition rested mainly upon non-response from seven parties. During assessment, he had furnished creditor-wise ledgers, contra-confirmations, purchase invoices, e-way bills, transportation records, ageing analysis, GST returns & other purchase-related evidence.

The remand report itself recorded that confirmations had subsequently been received from several creditors. In certain cases, the parties stated that the notices had not been received. The liabilities were later discharged through regular banking channels, further corroborating their existence.

It was also highlighted that portions of the assessment order appeared to have been copied from an unrelated proceeding. References to Axis & HDFC Bank accounts, permanent-residence certificates, the trade licence of another proprietary concern, a work order & Aadhaar card had no connection with the assessee’s scrap business. This cast doubt upon proper consideration of his actual evidence.

Regarding unsecured loans, the assessee produced PAN details, return acknowledgements, bank statements, confirmations, financial statements, capital particulars & agricultural-land records wherever applicable. Four of the five lenders had received repayments during the relevant year aggregating to approximately ₹64,53,313, against loans of ₹64,40,000.

The assessee contended that annual taxable income could not be equated with total financial capacity. A lender might advance funds from accumulated capital, past savings, investments, reserves, agricultural assets or other available sources.

Revenue’s Contentions

The Revenue maintained that the assessee bore the initial burden of establishing the identity, creditworthiness & genuineness of every credit. Confirmations or bank statements alone were insufficient when creditors failed to respond to statutory notices.

The Revenue also argued that lenders reporting modest income had not established adequate financial capacity to advance comparatively larger sums. As the loan transactions remained unexplained, the related interest was also claimed to be inadmissible.

Tribunal’s Findings on Trade Creditors

The Tribunal found that the books had not been rejected u/s 145(3). No finding was recorded that purchases were fictitious, goods were not received, corresponding sales were absent or quantitative records were defective.

In a business having turnover of ₹166.83 crore, purchase liabilities could not be examined in isolation merely because certain creditors did not initially respond. The assessee had furnished primary documentary evidence, while subsequent repayments through banks supported continued existence of the liabilities.

The Revenue produced no material showing that the invoices were fabricated, creditors were non-existent, repayments were circular or the liabilities represented the assessee’s undisclosed funds. Once the assessee discharged the initial burden, the onus shifted to the Revenue.

The CIT(A) also failed to independently assess the evidentiary value of confirmations, invoices, GST documents & repayments. The entire addition of ₹6,25,37,562 was therefore deleted.

Findings on Loans & Interest

The Tribunal rejected the AO’s approach of comparing loan amounts only with annual returned income. Creditworthiness must be evaluated from the lender’s overall financial position & actual source of funds.

The lenders were identifiable, transactions occurred through banking channels & repayments were also recorded through banks. No cash deposits, accommodation entries or routing of the assessee’s own funds was established.

Accordingly, the assessee had proved identity, genuineness & creditworthiness. The addition of ₹64,40,000 u/s 68 was deleted.

Since the loans were accepted as genuine & no independent defect was found in interest computation or TDS compliance, the consequential disallowance of ₹6,39,447 was also deleted. All three grounds were allowed.

Practical Implications

The ruling confirms that non-response to section 133(6) notices is only a trigger for further enquiry, not conclusive proof of bogus credit. Where purchases, GST trail, stock movement, sales & bank repayments are established, trade liabilities cannot be rejected selectively.

For loans, creditworthiness depends upon total resources, not merely current-year income. Assessees should preserve confirmations, financial statements, bank trails, source documents & repayment records. Once credible evidence is furnished, the Revenue must rebut it with tangible adverse material rather than suspicion.

Cases Discussed

• ACIT, Circle-5, Rajkot vs. M/s Amrut Ceramics, Morbi; ITA No. 373 & CO No. 15/Rjt/2014, dated 06.08.2019
• Chandubhai Ramjibhai Kathiriya vs. CIT(A), NFAC; ITA No. 168/Rjt/2021, dated 29.09.2023
• Dharmanandan Developers vs. ITO; I.T.A. No. 96/Ahd/2025, dated 03.07.2025
• ITO vs. Goodfarm Rearing; ITA No. 1081/Ahd/2023, dated 01.04.2025
• Pr. CIT v. Wel Intertrade (P.) Ltd.; [2023] 152 taxmann.com 663 (Delhi), dated 07.03.2023
• Parisharam Builders v. Pr. Commissioner of Income Tax, Rajkot-1, Rajkot; ITA No. 98/RJT/2021, dated 29.09.2025
• Commissioner of Income-tax, Rajkot-I v. Ayachi Chandrashekhar Narsangji; [2014] 42 taxmann.com 251 (Gujarat)
• Principal Commissioner of Income-tax v. Ambe Tradecorp (P.) Ltd; [2022] 145 taxmann.com 27 (Gujarat), dated 05.07.2022
• CIT v. Shakti Industries; [2013] 36 taxmann.com 16 (Gujarat), dated 22.03.2013
• Principal Commissioner of Income-tax v. Hareshkumar Manilal Somaiya; [2023] 154 taxmann.com 432 (Gujarat), dated 03.05.2023
• Commissioner of Income-tax V. Ranchhod Jivabhai Nakhava; [2012] 2 taxmann.com 159 (Gujarat), dated 20.03.2012
• CIT v. Orchid Industries Pvt. Ltd.; 397 ITR 136 (Bombay HC), dated 05.07.2017
• Principal Commissioner of Income-tax v. Ojas Tarmake (P.) Ltd.; [2023] 156 taxmann.com 75 (Gujarat), dated 22.08.2023

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, RAJKOT BENCH

Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2022-23, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the National Faceless Appeal Centre [hereinafter referred to as ‘NFAC’], dated 30.10.2025, which in turn arises out of an order passed by assessing officer u/s. 143(3) of the Act, dated 26.03.2024.

02. Brief facts of the case are that the assessee is an individual and proprietor of M/s Sai Metal Corporation, engaged in the business of trading in ferrous and non-ferrous metal scrap. For the assessment year 2022-23, the assessee filed his return of income on 18.10.2022 declaring total income of Rs.1,58,92,790/-. The return was selected for complete scrutiny under CASS on account of, inter alia, high liabilities as compared to low income/receipts, large squared-up loans during the year and low income from TCS receipts relating to scrap transactions. During the course of assessment proceedings, notices under sections 143(2) and 142(1) of the Income-tax Act, 1961, were issued to the assessee. The assessee furnished various documents, including bank statements maintained with Axis Bank and HDFC Bank, trade licence, GST annual return, copies of work orders and other identification and supporting documents. The assessee also furnished details relating to trade creditors and unsecured loans appearing in the balance sheet. On examination of the balance sheet, the Assessing Officer noticed substantial outstanding trade creditors. For the purpose of verification of the liabilities, notices under section 133(6) of the Act were issued to the respective creditors calling upon them to confirm the balances standing in their names in the books of the assessee as on 31.03.2022. The Assessing Officer tabulated the responses received from the concerned parties and observed that, while certain creditors confirmed the balances without any difference, in a number of cases no response was received to the notices issued through the e-filing portal. The Assessing Officer noted that, in respect of several creditors, the outstanding balances remained unverified. On the basis of the replies received under section 133(6) of the Act, certain balances were found to tally with the books of the assessee, whereas in some cases there were differences. For instance, in the case of Shree Hanuman Metal Corporation, a difference of Rs.50,000/- was noticed between the balance appearing in the assessee’s books and the balance confirmed by the party. The Assessing Officer also noticed substantial balances which remained unverified for want of response from the respective creditors. The Assessing Officer further took note of the ageing of the creditors and observed that certain substantial balances had remained outstanding for more than one year. He specifically referred to Chetan Alloys Pvt. Ltd., having an outstanding balance of approximately Rs.48.91 lakh, and Chetan Overseas Delhi Pvt. Ltd., having an outstanding balance of approximately Rs.2.13 crore, and questioned the continued existence and genuineness of such liabilities when the concerned parties had not responded to the statutory notices issued under section 133(6) of the Act. During the course of virtual hearing, the Authorised Representative of the assessee submitted that confirmations of the parties had been furnished and that the failure of certain creditors to respond to notices issued by the Department could not be attributed to any lapse on the part of the assessee. It was contended that the genuineness of the transactions could not be doubted merely because the creditors had not complied with the notices issued by the Department. The assessee also furnished ledger accounts of the respective parties and relied upon the third-party evidence available on record. The Assessing Officer, however, was not satisfied with the explanation. He observed that, apart from confirmations, the assessee had failed to furnish bills, vouchers, stock registers and other documentary evidence relating to the underlying transactions with the concerned creditors. According to the Assessing Officer, the mere furnishing of ledger accounts or confirmations could not conclusively establish the genuineness of the transactions, particularly where the concerned parties had themselves failed to respond to notices issued under section 133(6) of the Act. The Assessing Officer accordingly concluded that creditors aggregating to Rs.6,25,37,562/- remained unverified. He held that the assessee had failed to discharge the primary onus cast upon him under section 68 of the Act to establish the identity of the creditors, genuineness of the transactions and creditworthiness of the respective parties. He was of the view that the burden would shift to the Department only after the assessee had furnished adequate documentary evidence establishing all the aforesaid ingredients. The Assessing Officer also examined the unsecured loans appearing in the balance sheet. Notices under section 133(6) of the Act were issued to the lenders seeking confirmation of the loans, together with their income-tax particulars and bank statements. The assessee furnished certain documents in respect of some lenders. In the case of Harihar Cast Loan, the loan of Rs.70 lakh was supported by the lender’s bank statement and ITR particulars and was recorded by the Assessing Officer as verified. However, in respect of several other lenders, the notices issued under section 133(6) remained unanswered. The Assessing Officer noted unsecured loans aggregating to Rs.64,40,000/- from the concerned parties. He observed that, although the assessee had furnished certain ITR-Vs and bank statements, in several cases the disclosed income of the lenders was substantially lower than the amount advanced by them. Further, balance sheets or statements of affairs were not furnished to demonstrate their financial capacity to advance the respective amounts. The Assessing Officer specifically examined the cases of lenders such as Galben Beacharbhai Khandhar, Gopal Das Bhimji Jogi and Kailash Ben Gopal Bhai Shah, and noted the amounts of loans advanced, interest paid and income disclosed by the respective lenders. According to the Assessing Officer, the financial particulars did not satisfactorily establish the creditworthiness of the lenders. He consequently held that the assessee had failed to substantiate the source of the unsecured loans in accordance with the requirements of section 68 of the Act. The Assessing Officer also observed that the mere furnishing of bank statements and income-tax returns would not, in the facts of the case, by themselves establish the creditworthiness of the lenders or the genuineness of the transactions. According to him, the assessee was required to place on record adequate documentary evidence demonstrating the financial capacity of the lenders and the genuineness of the corresponding transactions. In this background, the Assessing Officer held that the assessee had failed to satisfactorily discharge the burden cast upon him under section 68 in respect of the aforesaid unsecured loans. Consequently, the aggregate amount of Rs.64,40,000/- was proposed to be treated as unexplained credits under section 68. The Assessing Officer also proposed disallowance of interest of Rs.6,39,447/- claimed to have been paid in respect of the said unsecured loans, on the ground that the underlying loan transactions themselves had not been satisfactorily established. Thus, the Assessing Officer concluded that the assessee had failed to establish the identity, genuineness and creditworthiness of the concerned creditors and that the liabilities which remained unverified or unexplained could not be accepted merely on the basis of entries recorded in the books of account. Accordingly, an addition of Rs.6,25,37,562/- on account of unexplained trade creditors under section 68 and a further addition of Rs.64,40,000/- on account of unexplained unsecured loans under section 68 of the Act, along with the consequential disallowance of interest of Rs.6,39,447/- was made. The assessment was thereafter completed under section 143(3) read with section 144B of the Act vide order dated 26.03.2024.

03. Dissatisfied with the order of the assessing officer assessee went in appeal before the Ld. CIT(A) where the appeal of the assessee was dismissed by sustain the order of the Assessing officer.

04. At the time of hearing the Ld. AR submitted that the present appeal involves principally the following three issues:

1. Addition of Rs. 6,25,37,562/- in respect of alleged bogus trade creditors,

2. Addition of Rs. 64,40,000/- under section 68 of the Act in respect of unsecured loans, and

3. Consequential disallowance of interest of Rs. 6,39,447/- relating to the aforesaid unsecured loans.

05. The Ld. AR on the issue of addition of Rs. 6,25,37,562/- on account of alleged bogus trade creditors submits that the appellant is engaged in the business of trading in ferrous and non-ferrous metal scrap. During the relevant previous year, the appellant disclosed a turnover of approximately Rs.166.83 crore and returned income of approximately Rs.1.58 crore. During the assessment proceedings, the Assessing Officer issued notices under section 133(6) to various creditors. The creditor-wise details appearing at page 3 of the assessment order itself demonstrate that, in several cases, the balances confirmed by the creditors were identical to the balances appearing in the books of the appellant. Thus, the very material relied upon by the Assessing Officer establishes that there was no discrepancy in respect of a substantial number of creditors. The alleged addition based essentially upon non-response to notices under section 133(6) of the Act. He further stated that the Assessing Officer subsequently issued a show-cause notice dated 13.03.2024 proposing disallowance of trade creditors aggregating to Rs.6,25,37,562/-, principally on the ground that replies to notices under section 133(6) of the Act had allegedly not been received from seven creditors. In this regard the Ld. AR stated that the appellant duly responded to the show-cause notice and furnished relevant documentary evidence. Even during the assessment proceedings, the appellant had furnished, inter alia creditor-wise ledger accounts; contra-confirmations; purchase invoices; e-way bills; transportation documents; creditor ageing; month-wise GST returns; and other details relating to the underlying purchase transactions. Therefore, the conclusion that the appellant had not furnished bills, vouchers or details of the underlying transactions, as recorded by the Assessing Officer at page 9 of the assessment order, is contrary to the material actually available on the assessment record. The Ld. AR stated that the position relating to the seven creditors aggregating to Rs. 6,25,37,562/- which was duly explained and substantiate by the assessee in order to same, the Ld. AR filed a copy of the such creditors here under:

He further stated that even, in the remand report itself records that confirmations were furnished in respect of most of the creditors. However, the Ld. CIT(A) has not recorded any independent finding explaining why such confirmations, invoices,

It is further submitted that in the body of the assessment order beginning with “Synopsis of all submissions” appearing at page 2, paragraph 3.2 refers to documents such as copy of bank statements of Axis & HDFC Bank, ST certificate, permanent residence certificate, trade licence of M/s Taksa Tsang Commercial (Prop. firm), GST annual return, work order and Aadhaar Card. These documents pertain to an entirely different factual matrix and have no nexus with the appellant’s trade-creditor transactions. The reference to such unrelated documents indicates that portions of the assessment order have been reproduced from a different proceeding/PAN and, consequently, the findings recorded at pages 7 and 9 of the assessment order do not correctly reflect the material actually furnished by the appellant. The impugned addition therefore deserves to be examined on the basis of the actual creditor-wise evidence available on record and not merely on the alleged non-response to notices under section 133(6) of the Act.

06. The Ld. AR further added that non-response to Notice under section 133(6) of the Act cannot, by itself, establish bogus liability. He stated that mere fact that a creditor did not initially respond to a notice under section 133(6) of the Act cannot automatically lead to the conclusion that the underlying transaction is bogus, particularly where the assessee has furnished independent documentary evidence establishing the transaction. On this issue the Ld. AR relied on the following decision;

A. Income Tax Appellate Tribunal Rajkot in the case of ACIT, Circle-5, Rajkot vs. M/s Amrut Ceramics, Morbi (PAN: AADFA7820M) – ITA No. 373 & CO No. 15 /Rjt/2014 dated 06.08.2019,

“The Assessing Officer had made addition under section 68 on account of alleged non-genuineness of creditors, inter alia, due to non-compliance of notices issued u/s 133(6). The Hon’ble Tribunal held that merely because certain parties did not respond to the notices issued u/s 133(6), the same cannot be a ground to treat the transactions as non-genuine when the assessee has furnished primary evidence such as confirmations, PAN and banking details. It was further held that in absence of any independent enquiry or adverse material brought on record by the Assessing Officer, the addition made u/s 68 is not sustainable in law and the same was accordingly deleted.”

B. Income Tax Appellate Tribunal Rajkot in the case of Chandubhai Ramjibhaí Kathiriya vs. CIT(A), NFAC – ITA No. 168/Rjt/2021 dated 29.09.2023,

“Addition made under section 68 merely on account of non-compliance of notices issued u/s 133(6) to third parties is not sustainable in law. The Hon’ble Tribunal observed that once the assessee has discharged the primary onus by furnishing necessary documentary evidence such as identity, bank statements and other relevant details, no adverse inference can be drawn solely due to non-response by third parties. In absence of any independent enquiry or corroborative material brought on record by the Assessing Officer, the addition made u/s 68 was directed to be deleted.”

C. Income Tax Appellate Tribunal, Ahmedabad in the case of Dharmanandan Developers vs. ITO (ITAT Ahmedabad); I.T.A. No.96/Ahd/2025 dated 03.07.2025 it was held that

“where the creditor has furnished details such as bank statements, ITR, and ledger accounts, the addition cannot be sustained merely on technical grounds or alleged non-response, especially when such evidences are available on record. Thus, in light of these decisions, the addition made solely on the basis of non-response to notices is liable to be deleted.

D. Income Tax Appellate Tribunal, Ahmedabad in case of ITO vs. Goodfarm Rearing ITA No.1081/Ahd/2023 dated 01.04.2025

“The Tribunal held that no addition under Section 68 can be made where the assessee has furnished sufficient evidence proving identity, creditworthiness, and genuineness of the partner’s capital contribution. Non-response of a partner to notice under section 133(6) cannot be the sole ground for addition when documentary evidences are already on record. The burden shifts to the Revenue once initial onus is discharged. Addition was deleted as no adverse material was brought by the AO.”

E. Hon’ble High Court of Delhi as in the case of Principal Commissioner of Income-tax v. Wel Intertrade (P.) Ltd. [2023] 152 taxmann.com 663 (Delhi) dated 07.03.2023 has passed the order in favor of the assessee by stating as follows-

“Where assessee had taken loan from a party, since assessee discharged its primary onus of proving identity and capacity of creditor as well as genuineness of transaction, merely because creditor had not responded to notice issued under section 133(6), such loan could not be treated as unexplained credit under section 68.”

07. The Ld. AR further brought to our notice that liabilities outstanding as on 31.03.2022 were subsequently discharged through regular banking channels. Such subsequent repayment constitutes significant corroborative circumstance supporting existence and genuineness of liabilities and materially militates against the allegation that the same were bogus or non-genuine. On this point, the Ld. AR relied on the case-law which are hereunder:

i. Income Tax Appellate Tribunal in the case of Parisharam Builders v/s. Pr. Commissioner of Income Tax, Rajkot-1, Rajkot; ITA No.98/RJT/2021 dated 29.09.2025:

“The opening balances of creditors, in the current year were the closing balances in the previous year, which were examined by the assessing officer in the previous assessment year, and these were not doubted in the previous assessment year, hence, genuineness of these creditors should not be doubted. Further, we find that these creditors belong to reputed companies and some of the creditors were repaid by the assessee in subsequent years. Hence, creditors were paid by the assessee in subsequent year, hence, genuineness of these creditors should not be doubted, for that we place reliance on the judgment of the Jurisdictional High Court of Gujarat in the case of CIT, Rajkot-1 vs. Ayachi Chandrashekhar Narsangji 42.taxmann.com 251 (Gujarat), where it was held that department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit.”

ii. Hon’ble Jurisdictional High Court as in the case of Commissioner of Income-tax, Rajkot-I v. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) dated 02.12.2023:

“Where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit.”

iii. In another instance the Hon’ble Jurisdictional High Court as in the case of Principal Commissioner of Income-tax v. Ambe Tradecorp (P.) Ltd [2022] 145 taxmann.com 27 (Gujarat) dated 05.07.2022 held that:

“Where assessee took loan from two parties and assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid_in subsequent year, no addition under section could be made on account of such loan.”

He further stated that the consistent principle emerging from the aforesaid decisions is that once the assessee furnishes credible evidence establishing the identity of the creditor and the genuineness of the transaction, an addition cannot be sustained merely because a third party did not respond to a notice under section 133(6) of the Act, unless the Revenue brings independent adverse material on record.

08. The Ld. AR further contended that the impugned creditors are trade creditors arising from purchases duly recorded in the regular books of account. Significantly the books of account have not been rejected under section 145(3) of the Act and no specific defect in the books has been identified, Moreover, the corresponding purchases have not been held to be fictitious as well as the sales corresponding to the trading activity have not been disputed, the stock records have not been rejected. Besides that no adverse finding has been recorded regarding quantitative details or movement of goods and the purchases and corresponding liabilities are reflected in the audited books. In such circumstances, the Revenue could not selectively disregard the corresponding trade liabilities merely because of alleged non-response to notices under section 133(6) of the Act. The Ld. AR reliance is placed upon Hon’ble Jurisdictional High Court as in the case of CIT v. Shakti Industries, [2013] 36 taxmann.com 16 (Gujarat), dated 22.03.2013, has held that where additions are made without rejecting the books of account and the amounts are already reflected in the audited accounts, such additions cannot be sustained. In the present case also,

without rejecting the books or demonstrating any defect in the purchase records, stock records or sales, the Assessing Officer could not have selectively disregarded the recorded purchase liabilities. Accordingly, the impugned addition is unsustainable in law as well as on facts. Accordingly, the addition of Rs. 6,25,37,562/- deserves to be deleted.

That on the second issue relating to addition of Rs. 64,40,000/- under section 68 of the Act income relating to unsecured loans the Ld. AR stated that the assesse furnished all necessary evidence in respect of unsecured loans during the assessment proceeding itself. However, the Assessing Officer made an addition of Rs. 64,40,000/- under section 68 of the Act in respect of unsecured loans received from five lenders. Since, at the assessment stage itself, the appellant had furnished ITR-V, signed contra-confirmations, bank statements and details of loans received, repaid and interest paid. Even, during the appellate and remand proceedings, further documentary evidence was furnished, including lender-wise bank statements, acknowledgments of replies to notices under section 133(6) of the Act, evidence regarding non-receipt of notices under section 133(6) of the Act, wherever applicable lender wise ITR-V and computations, signed confirmations, Balance Sheets and Profit & Loss Accounts, details of loan transactions, details of loans received and repaid, details of interest paid and TDS details relating to interest. These documentary evidence establishes all three essential ingredients contemplated by section 68 of the Act, namely:

(i) Identity is established through PAN, name, address and income-tax records;

(ii) Genuineness by established through confirmations, bank statements and banking-channel transactions; and

(iii) Creditworthiness by established through bank statements, capital/net-worth reflected in Balance Sheets and financial statements and, wherever applicable, agricultural land/assets. However, the Assessing Officer’s observation that the returned income of the lenders was not commensurate with the amount advanced cannot, by itself, establish absence of creditworthiness. The Ld. AR stated that the creditworthiness cannot be judged merely by comparing the loan advanced with the taxable income declared in the ITR for a particular year. Financial capacity may arise from accumulated capital, savings, assets, agricultural income, reserves and other sources duly reflected in the lender’s financial position.

Thus, the lenders possessed financial resources substantially exceeding the amounts advanced to the appellant. In this regard the Ld. AR relied on the decisions of following judgement;

A. Hon’ble Jurisdictional High Court as in the case of Principal Commissioner of Income-tax v. Hareshkumar Manilal Somaiya* [2023] 154 taxmann.com 432 (Gujarat) dated 03.05.2023:

“Where assessee received unsecured loans and produced confirmation of lenders and other relevant documents such as copy of PAN, ledger account, bank statement and audited books so as to establish creditworthiness, genuineness and identities of lenders in transactions, impugned addition made under section 68 on account of said unsecured loan by AO without considering such documents/details produced by assessee was unjustified.”

B. Hon’ble Jurisdictional High Court as in the case of Commissioner of Income-tax V. Ranchhod Jivabhai Nakhava [2012] 2 taxmann.com 159 (Guj.); dated 20.03.2012 wherein it was held that,

“Section 68 of the Income-tax Act, 1961 – Cash credits – Assessment year 2006-07 – Whether once assessee has established that he has taken money by way of account payee cheques from lenders who are all income tax assessees whose PAN have been disclosed, initial burden under section 68 is discharged and then, it is Assessing Officer’s duty to ascertain from Assessing Officer of those lenders, whether in their respective returns they have shown existence of such amount of money and have further shown that those amount of money had been lent to assessee Held, yes Whether if Assessing Officers of those creditors are satisfied with explanation given by creditors as regards those transactions, Assessing Officer in question has no justification to disbelive transactions reflected in account of creditors – Held, yes -“.

C. Hon’ble Bombay High Court as in the case of CIT v. Orchid Industries Pvt. Ltd. – 397 ITR 136 (Bombay HC) dated 05.07.2017-

Where “Section 68 of the Income-tax Act, 1961 Cash credit (Share application money) assessee had produced on record documents to establish genuineness of party such as PAN of all creditors along with confirmation, their bank statements showing payment of share application money, only because those persons had not appeared before Assessing Officer would not negate case of assessee so as to invoke section 68 [In favour of assessee]

The Ld. AR further added that the lender-wise account also demonstrates that four out of the five lenders made repayments during the relevant year.

The aggregate repayment was approximately Rs. 64,53,313/- as against loans availed of Rs. 64,40,000/-.The repayments were made through regular banking channels and are duly reflected in the respective accounts and bank statements. Therefore, the allegation that the loans were not genuine merely because the returned income of the lenders was comparatively lower than the amounts advanced is unsustainable when the actual fund trail, capital position, bank statements and repayment transactions are considered.

09. The Ld. AR relied on the decision of the Hon’ble Jurisdictional High Court as in the case of Principal Commissioner of Income-tax v. Ojas Tarmake (P.) Ltd. [2023] 156 taxmann.com 75 (Gujarat) dated 22.08.2023 held that:

Where assessee showed unsecured loans received during relevant assessment year and AO made addition on ground that assessee failed to dischargeonus of liability as laid down under section 68, since amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.

Accordingly, the material on record establishes that all three ingredients-identity of the lender, genuineness of the transaction and creditworthiness-stand supported by independent documentary evidence in respect of each of the five lenders. The mere comparison of the amount of loan with the income disclosed in the ITR, without considering the capital balance, bank statements, Balance Sheet, Profit & Loss Account, agricultural assets/landholding and actual fund trail, cannot by itself justify an adverse conclusion regarding creditworthiness.

The Ld. AR on the issue of disallowance of interest of Rs. 6,39,447/- as made in the case of assessee he stated that this issue is a purely consequential to the addition made under section 68 of the Act in respect of the unsecured loans. Once the underlying loans are found to be genuine and the addition under section 68 of the Act is deleted, there remains no independent basis for disallowing the interest paid on such loans. The interest expenditure was duly recorded in the books and the applicable tax was deducted at source wherever required. Therefore, the consequential disallowance of Rs. 6,39,447/- cannot survive independently and deserves to be deleted.

The Ld. AR contended that the addition of Rs. 6,25,37,562/- towards alleged bogus trade creditors has been made substantially on the basis of alleged non-response to notices under section 133(6) of the Act, without properly examining the creditor-wise confirmations, invoices, e-way bills, GST records, ledger accounts, repayment details and other documentary evidence and the assessment order itself contains references to material pertaining to an entirely different factual matrix, indicating non-application of mind and in the remand proceedings further demonstrate that confirmations and other documentary evidence were furnished by the appellant, but the evidentiary value thereof has not been properly adjudicated by the appellate authority He further added that the trade creditors arose from genuine purchases recorded in the regular books of account, the corresponding sales have not been disputed and the books of account have not been rejected under section 145(3) of the Act and the subsequent repayment of the trade liabilities through regular banking channels provides further corroboration of their genuineness of the transaction, on the issue in respect of the unsecured loans of Rs. 64,40,000/- since the appellant has discharged the primary onus under section 68 of the Act by establishing the identity, creditworthiness and genuineness of each lender through independent documentary evidence, therefore the mere fact that the returned income of a lender is lower than the amount advanced cannot, by itself, establish lack of creditworthiness when the lender’s capital, net worth, bank statements, assets and actual fund trail establish sufficient financial capacity and regarding the consequential interest disallowance of Rs. 6,39,447/- cannot survive once the

underlying loans are held to be genuine. He therefore prayed that delete the addition of Rs. 6,25,37,562/- made on account of alleged bogus trade creditors, delete the addition of Rs. 64,40,000/- made under section 68 of the Act in respect of unsecured loans and consequently delete the disallowance of interest of Rs. 6,39,447/- relating to such unsecured loans.

10. On the other hand the Ld. DR. relied of the decision of the authority below.

11. We have carefully considered the rival submissions, perused the assessment order, the order of the Ld. CIT(A), the material placed in the Paper Book and the submissions filed on behalf of the assessee. The first issue for our consideration relates to the addition of Rs. 6,25,37,562/- made by the Assessing Officer on account of alleged bogus trade creditors. The present assessee is engaged in the business of trading in ferrous and non-ferrous metal scrap and, during the year under consideration, has disclosed turnover of about Rs. 166.83 crore and returned income of approximately Rs. 1.58 crore. The impugned liabilities represent trade creditors arising in the ordinary course of the assessee’s business. The Assessing Officer has essentially proceeded to treat the aforesaid liabilities as non-genuine on the ground that the creditors had allegedly not responded to notices issued under section 133(6) of the Act. We considering the submission of the parties and material available on record we find considerable force in the contention of the assessee that mere non-response to a notice issued under section 133(6) of the Act by itself, cannot be treated as conclusive evidence that the underlying liability is bogus, particularly when the assessee has furnished independent documentary evidence in support of the transactions. Section 133(6) of the Act merely enables the Assessing Officer to call for information from third parties. Failure of a third party to respond to such notice may justify further enquiry, but it does not, in the absence of corroborative adverse material, automatically establish that the transaction recorded in the assessee’s books is fictitious.

In the present case, the material placed before us demonstrates that the assessee had furnished creditor-wise ledger accounts, confirmations, purchase invoices, e-way bills, transportation details, creditor ageing and GST-related records. The assessee has also placed on record GSTR-2A extracts, GSTR-1 and GSTR-3B and other supporting documents. These documents are relevant pieces of evidence for examining the genuineness of the purchase transactions and the corresponding trade liabilities. More importantly, the creditor-wise details require consideration rather than a general conclusion based merely upon non-response to notices under section 133(6) of the Act. In the case of Chetan Overseas Delhi Pvt. Ltd., against the outstanding balance of Rs.2,64,60,581/-, the notice under section 133(6) of the Act was received and complied with on 04.03.2024, i.e. prior to issuance of the show-cause notice dated 13.03.2024. The assessee has further demonstrated that the liability was subsequently discharged through banking channels. Similarly, Chetan Trade Exim Pvt. Ltd., having an outstanding balance of Rs.1,47,19,341/-, also responded to the notice on 04.03.2024 and the liability was subsequently repaid through banking channels. In the case of Shree Hanuman Metal Corporation, the alleged difference of Rs.50,000/- has been explained as arising on account of a clerical error in the opening balance. The creditor had also responded to the notice issued under section 133(6) of the Act. The assessee has placed material showing that the discrepancy was subsequently rectified. Thus, such a minor accounting discrepancy, without any independent evidence indicating a bogus transaction, cannot justify addition of the entire liability. Further, in the case of Ace International, the creditor responded to the notice under section 133(6) of the Act on 05.04.2024. Though the response was after completion of the assessment, the same constitutes relevant evidence and cannot be ignored merely because it was furnished subsequently, particularly when the assessee has also produced the underlying transaction documents and evidence of subsequent repayment through banking channels. similarly, as in the case of Krishna Traders, against the balance of Rs.5,17,140/-, furnished its response on 24.04.2024. In respect of Dynamic Extrusion and Namo Alloys Pvt. Ltd., the assessee has specifically stated that the respective creditors did not receive the notices issued under section 133(6) of the Act. Therefore, mere absence of a response in such circumstances cannot reasonably lead to an inference that the liabilities are fictitious, particularly when the assessee has furnished transaction-wise documentary evidence and has also demonstrated subsequent repayment through banking channels.

12. We also find significance in the fact that the remand report itself records that confirmations or responses were furnished in respect of several creditors. Thus, the factual foundation on which the addition was originally made has materially changed in the course of appellate and remand proceedings. Once subsequent material was brought on record, it was incumbent upon the appellate authority to examine the same on merits and record a specific finding as to why such evidence was insufficient or unreliable. Merely summarising the documents without examining their evidentiary value does not amount to proper adjudication of the issue. We further note that the assessee has pointed out an apparent discrepancy in the assessment order. At page 9, the Assessing Officer has observed that the assessee failed to furnish bills, vouchers, stock records and details of the underlying transactions. However, the assessee has demonstrated that purchase invoices, e-way bills, creditor ledgers, GST records and other supporting documents had already been furnished during the assessment proceedings. Further, certain documents referred to in the “Synopsis of all submissions”, such as documents relating to Axis & HDFC Bank, ST certificate, permanent residence certificate, trade licence of M/s Taksa Tsang Commercial, work order and Aadhaar Card, admittedly pertain to a different factual matrix. Such references cast doubt upon the proper appreciation of the material specific to the assessee’s case. Another important aspect is that the impugned liabilities are admittedly trade creditors arising from purchases recorded in the regular books of account. The Assessing Officer has not rejected the books of account under section 145(3) of the Act. No specific defect in the books has been identified. There is also no finding that the corresponding purchases are fictitious, that the goods were not received, or that the corresponding sales were not effected. The quantitative details and stock records have not been shown to be defective. In a business having turnover of Rs.166.83 crore, the liabilities arising from purchases cannot be examined in isolation merely because certain creditors did not initially respond to notices under section 133(6) of the Act. It is also relevant that the subsequent repayment of the impugned liabilities through regular banking channels provides substantial corroboration regarding their existence. While subsequent repayment cannot, in every case, by itself conclusively establish genuineness, it is certainly a material circumstance which has to be considered along with confirmations, invoices, banking transactions, GST records and other evidence. In the present case, there is no material brought on record by the Revenue to demonstrate that the subsequent repayments were fictitious, circular transactions or represented return of the assessee’s own undisclosed money. The assessee has relied upon various decisions of co-ordinate Bench including ACIT v. M/s Amrut Ceramics, ITA No.373/Rjt/2014, Chandubhai Ramjibhai Kathiriya v. CIT(A), NFAC, ITA No.168/Rjt/2021, Dharmanandan Developers v. ITO ITA No.96/Ahd/2025 and judgment rendered by the Hon’ble High Court of Delhi in the case of Pr. CIT v. Wel Intertrade (P.) Ltd., [2023] 152 taxmann.com 663 (Delhi). The ratio emerging from these decisions is that non-response or non-appearance of a creditor cannot, in isolation, justify an adverse conclusion where the assessee has discharged the primary burden by furnishing relevant documentary evidence and the Revenue has not brought any independent adverse material on record. As in the present case, the Revenue has not brought on record any material establishing that the concerned creditors were non-existent, that the purchase invoices were fabricated, that goods were not received, that the payments were returned to the assessee, or that the assessee had introduced its own undisclosed funds in the guise of trade liabilities. The addition is therefore founded substantially upon an inference drawn from the alleged non-response to notices under section 133(6) of the Act which, in the facts of the present case, is insufficient to sustain the addition. We are conscious that the initial burden to establish the genuineness of liabilities rests upon the assessee. However, considering the documents furnished by the assessee, including creditor confirmations, purchase invoices, e-way bills, GST records, ledger accounts and evidence of repayment through banking channels, we are of the considered view that the assessee has discharged the initial burden. Thereafter, the onus shifted upon the Revenue to bring some credible contrary material on record. No such material has been demonstrated before us. We therefore hold that the Assessing Officer was not justified in treating the entire amount of Rs.6,25,37,562/- as bogus trade creditors merely on the basis of alleged non-response to notices under section 133(6) of the Act. The Ld. CIT(A) also failed to record an independent finding on the evidentiary value of the creditor-wise documents and the subsequent repayments. In the totality of the facts and circumstances, and having regard to the documentary evidence available on record, we find the impugned addition to be unsustainable. Accordingly, the addition of Rs.6,25,37,562/- made on account of alleged bogus trade creditors is deleted. This ground of appeal is accordingly allowed.

13. The another issue relating to the aggregate addition of Rs. 64,40,000/- under section 68 of the Act in respect of unsecured loans we find considerable merit in the assessee’s contention that the Assessing Officer has principally examined the returned income of the lenders and has inferred lack of creditworthiness merely because the loan amounts were comparatively higher than the income disclosed in the respective returns. Such an approach, by itself, is not sufficient to determine creditworthiness. Income earned during one particular financial year cannot be equated with the total financial capacity of a person. A lender may possess accumulated capital, savings, reserves, agricultural assets, investments or other sources of funds reflected in the bank account and balance sheet. The concept of creditworthiness has to be examined with reference to the totality of the financial circumstances of the creditor and the actual source of the funds advanced. If the lender’s bank statement demonstrates availability of funds and the transaction is carried out through normal banking channels, the mere fact that the returned income is lower than the loan amount cannot, without further enquiry, establish that the lender lacked financial capacity.

The lenders were identifiable, transactions occurred through banking channels & repayments were also recorded through banks. No cash deposits, accommodation entries or routing of the assessee’s own funds was established.

We also note that the assessee has furnished acknowledgments/responses to notices issued under section 133(6) of the Act in respect of the lenders and, wherever the lender claimed not to have received the notice, the assessee furnished supporting material in that regard. The fact that a lender may not have responded to a notice under section 133(6) of the Act cannot, in the circumstances of the present case, be treated as determinative of the genuineness of the loan. The Assessing Officer had the power to make further enquiry from the concerned lender or the lender’s Assessing Officer. However, no independent adverse enquiry or material has been demonstrated before us which disproves the documentary evidence furnished by the assessee. The principle is well settled that the assessee’s initial burden is not discharged merely by filing a confirmation, but where the confirmation is supported by PAN, income-tax records, bank statements and evidence of actual banking transactions, the Revenue cannot reject such evidence merely because the creditor did not personally appear or did not respond to a notice, unless there is some material indicating that the documents are unreliable. The assessee has placed reliance upon Pr. CIT v. Hareshkumar Manilal Somaiya, [2023] 154 taxmann.com 432 (Gujarat), wherein the Hon’ble Gujarat High Court considered the evidentiary value of confirmations, PAN, ledger accounts, bank statements and audited books in examining an addition under section 68 of the Act. Also, reliance has also been placed upon CIT v. Ranchhod Jivabhai Nakhava, [2012] 21 taxmann.com 159 (Gujarat), wherein the Hon’ble Gujarat High Court recognised that where the assessee establishes the identity of the lenders and the transactions are through banking channels, the initial burden under section 68 stands discharged and further enquiry, if any, is required to be undertaken by the Revenue. The assessee has further relied upon PCIT v. Ojas Tarmake (P.) Ltd., [2023] 156 taxmann.com 75 (Gujarat), in which the Hon’ble Gujarat High Court considered the significance of loans received and repaid through banking channels during the relevant period. The decision in CIT v. Orchid Industries Pvt. Ltd., 397 ITR 136 (Bombay) has also been relied upon for the proposition that production of PAN, confirmations and bank statements constitutes relevant evidence in establishing the genuineness of the transaction and that mere non-appearance of the creditor does not, by itself, justify an addition under section 68. We have considered the aforesaid judicial principles in the factual context of the present case. The decisions relied upon by the assessee cannot be applied mechanically; however, the underlying principle that the evidence regarding identity, financial capacity and actual movement of funds has to be examined objectively is clearly applicable. On an overall consideration of the evidence, we find that the assessee has discharged the primary onus in respect of the three essential ingredients of section 68 of the Act. First, identity as the lenders are identifiable persons/entities having PAN and income-tax records. Their identities have not been found to be fictitious or non-existent. Second, genuineness of the transactions are supported by signed confirmations and corresponding banking transactions. The loans were received through banking channels and, in several cases, were repaid through banking channels. No cash transaction has been shown to exist in relation to the impugned loans. Third, creditworthiness of the lenders’ bank statements, capital balances, Balance Sheets/financial statements and, where applicable, agricultural land records demonstrate financial resources and assets. The mere comparison of the loan amount with the returned income does not negate such financial capacity.

We are therefore unable to accept the approach of the Assessing Officer that the lenders’ creditworthiness can be rejected merely because their returned income was not commensurate with the amount of loan advanced. The relevant enquiry is not confined to the income disclosed in the ITR but extends to the actual financial position and source of funds of the lender. It is equally significant that no contrary material has been brought on record to establish that the lenders did not possess the funds advanced. There is no finding that the lenders’ bank statements were manipulated, that the capital balances were fictitious, or that the funds were provided by the assessee itself. Once the assessee produced the aforesaid documentary evidence, the burden shifted to the Revenue to rebut the same by bringing tangible material on record. In the absence of such rebuttal, the documentary evidence furnished by the assessee cannot be brushed aside merely on the basis of suspicion or on a comparison between the loan amount and the returned income of the lenders. It is well established that an addition under section 68 of the Act cannot rest merely upon conjecture or surmise. The Assessing Officer may certainly examine the surrounding circumstances and make appropriate enquiries, but where the assessee furnishes credible documentary evidence, an adverse conclusion must be supported by some material demonstrating why such evidence is unacceptable. In the present case, the assessment order does not demonstrate any independent finding that the lenders were accommodation-entry providers, that the funds originated from the assessee, or that the banking transactions were merely colourable entries. The assessment also does not establish any discrepancy in the confirmations, PAN details, bank statements or lender-wise accounts sufficient to discredit the transactions. The addition is primarily founded on the perceived mismatch between the returned income of the lenders and the amounts advanced. Such mismatch may justify further enquiry, but, without more, it cannot be elevated into conclusive evidence of lack of creditworthiness.

In the present case fact is that the four of the five lenders had repayments during the relevant year, aggregating to approximately Rs.64,53,313/-, through regular banking channels, further corroborates the genuineness of the transactions. The Revenue has not brought any material on record to establish that such transactions were accommodation entries or that the funds represented the assessee’s own undisclosed money. We also find that the Assessing Officer has not brought any independent adverse material sufficient to displace the documentary evidence furnished by the assessee. The mere non-response to notices under section 133(6) of the Act, wherever applicable, or the alleged disparity between the returned income and the loan amount, cannot, in the facts of the present case, constitute sufficient basis for invoking section 68 of the Act. We, therefore, hold that the addition of Rs.64,40,000/- under section 68 of the Act is not sustainable and the same is hereby deleted.

The next issue relates to the disallowance of interest of Rs. 6,39,447/- claimed by the assessee in respect of the aforesaid unsecured loans. The interest expenditure is directly connected with the loans in question. The assessee has furnished details of interest paid and tax deducted at source in respect of the relevant lenders. The Assessing Officer has not demonstrated any independent defect in the computation of interest or in the deduction of tax at source. The disallowance has essentially followed from the conclusion that the underlying loans were unexplained under section 68 of the Act .Once we have held, on the basis of the material discussed above, that the assessee has satisfactorily established the identity of the lenders, genuineness of the transactions and their creditworthiness, the very foundation for treating the loans as unexplained ceases to exist. Consequently, the interest expenditure incurred on such genuine borrowings cannot be disallowed merely because the corresponding loans were earlier treated as unexplained. Since the principal addition under section 68 of the Act is deleted, the consequential interest disallowance also cannot survive on the same basis. We accordingly direct the Assessing Officer to delete the disallowance of Rs. 6,39,447/-, subject, of course, to the fact that the said disallowance has been made solely as a consequence of the addition under section 68 of the Act and that there is no separate finding rendering the interest expenditure inadmissible under any other provision of the Act. Since the disallowance of interest of Rs.6,39,447/- is consequential to the aforesaid addition and no independent infirmity in the interest claim has been established, the consequential disallowance is also deleted.

14. Accordingly, the three grounds of appeal relating to the addition of Rs. 6,25,37,562/- in respect of alleged bogus trade creditors, addition under section 68 of the Act of Rs.64,40,000/- and the consequential disallowance of interest of Rs.6,39,447/- are allowed and directed to the AO to delete the same.

Order pronounced in the open court on this 28th day of August, 2026.