Aspective Vanijya Pvt. Ltd. Vs DCIT (ITAT Kolkata)
Summary: The ITAT Kolkata allowed both appeals of Aspective Vanijya Pvt. Ltd. for AYs 2013-14 and 2015-16 and deleted additions made principally under Section 68. For AY 2013-14, the Tribunal deleted the addition relating to share capital/share premium after noting that the assessee had furnished confirmations, bank statements and income-tax return acknowledgements establishing the identity and creditworthiness of the subscribers and genuineness of the transactions. It further noted that share capital/premium from the same parties had been accepted in the preceding year after scrutiny. The Tribunal held that the Assessing Officer could not sustain the addition merely on an Inspector’s report that the subscribers were not found at the stated addresses, particularly when that adverse material had not been confronted to the assessee. For AY 2015-16, the Tribunal similarly deleted the addition of ₹12.55 crore relating to unsecured loans from group companies, observing that there were continuing business transactions, opening balances, advances and repayments and that supporting documents had been furnished. The Tribunal also allowed the assessee’s claims relating to interest expenditure of ₹7.27 lakh incurred on loans used for financial investment activities and legal/professional expenses of ₹11.83 lakh incurred in connection with business-related loan litigation. It further deleted the additional disallowance under Section 14A read with Rule 8D and corresponding adjustment to book profit under Section 115JB, noting that exempt dividend income was only ₹296 and the assessee had already made a suo motu disallowance of ₹5,810.
Analysis:
The principal controversy before the Kolkata Bench concerned whether substantial credits received by the assessee by way of share capital/share premium and unsecured loans could be treated as unexplained cash credits under Section 68 of the Income Tax Act, 1961 merely because the Revenue doubted the subscribers/lenders or they were not found at the addresses visited by the Income Tax Inspector.
For AY 2013-14, the assessee had received share capital and share premium aggregating to ₹73.36 crore from five companies. The Tribunal recorded that confirmations, relevant bank statements and ITR acknowledgements of the subscribers had been furnished. These documents, according to the Tribunal, established their identity and creditworthiness and the genuineness of the transactions.
An important factual consideration was that the same subscribers had contributed ₹29.71 crore in the preceding AY 2012-13. The assessment for that year had originally been completed under Section 143(3), subsequently revised under Section 263, and thereafter again examined in consequential proceedings under Sections 263/143(3). The share capital and premium were ultimately accepted after verification. The Tribunal therefore considered the earlier acceptance of transactions with the same parties to be materially relevant.
The Assessing Officer’s principal adverse material was the Inspector’s report stating that the subscribers were not found at their given addresses. The Tribunal held that this circumstance by itself could not displace the documentary evidence furnished by the assessee. In reaching this conclusion, it relied, inter alia, upon CIT Vs. Dwarkadhish Investment (P.) Ltd., which recognised that once the assessee establishes the requisite foundational facts, the evidentiary burden shifts to the Revenue and mere non-availability of a creditor/share applicant at the stated address does not, without additional material, justify invoking Section 68.
The Tribunal also treated the non-confrontation of the Inspector’s report as a serious procedural defect. It referred to Sections 142(2) and 142(3) and held that material gathered through an enquiry and proposed to be used adversely against an assessee must first be confronted to the assessee. Using an enquiry conducted behind the assessee’s back without providing an opportunity to respond was held to offend the statutory procedure and principles of natural justice.
The Tribunal further relied upon CIT Vs. Oasis Hospitalities Pvt. Ltd., CIT-IV Vs. Dwarkadhish Investment (P.) Ltd., Nemi Chand Kothari Vs. CIT, CIT Vs. Orissa Corporation (P.) Ltd., ITO Vs. Anant Shelters (P.) Ltd., CIT-II Vs. Kamdhenu Steel & Alloys Ltd., SPML Infra Ltd. Vs. DCIT, Peerless General Finance & Investment Co. Ltd. Vs. DCIT, Swadeshi Cotton Mills Vs. Union of India, ACIT Vs. Sur Buildcon (P.) Ltd., CIT Vs. Steller Investments Ltd. and CIT Vs. Lovely Exports Pvt. Ltd. in examining the respective evidentiary obligations of the assessee and Revenue.
Accordingly, the Tribunal concluded that the assessee had sufficiently established the ingredients required under Section 68 and directed deletion of the addition relating to share capital/share premium.
For AY 2015-16, the dispute concerned unsecured loans aggregating to ₹12,55,11,120 received from four group companies. The Tribunal recorded that similar borrowings existed in the preceding year and that the group companies regularly advanced funds to the assessee, with repayments also being made from time to time.
he assessee had furnished documents including ITRs, bank statements, audited financial statements and confirmations. Considering the continuing nature of the accounts and the documentary evidence, the Tribunal held that the loans could not be treated as unexplained cash credits and directed deletion of the addition.
Separate relief was granted in relation to ₹7,27,746 of interest expenditure on loans from JM Financial Products Ltd. and Indian Infoline Finance Ltd. Since the loans were taken for financial investment activities forming part of the assessee’s business, the Tribunal held that the interest expenditure was incurred in connection with the running and operation of the business and could not be disallowed.
The Tribunal similarly allowed legal and professional expenses of ₹11,83,000 incurred in connection with litigation arising from an ₹80 crore loan from IFCL. Since the litigation arose from the assessee’s business borrowing, the expenditure was regarded as having been incurred wholly and exclusively for business purposes.
On Section 14A, the assessee had earned exempt dividend income of only ₹296 and had already made a suo motu disallowance of ₹5,810. The AO nevertheless computed disallowance of ₹72,456 under Rule 8D and also added that amount while computing book profit under Section 115JB. The Tribunal held that no further disallowance was called for and also directed deletion of the corresponding adjustment to book profit.
List of Cases Discussed / Relied Upon
1. CIT Vs. Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Delhi High Court) — relied upon on the initial burden of establishing identity, genuineness and creditworthiness in proceedings under Section 68.
2. CIT-IV Vs. Dwarkadhish Investment (P.) Ltd. [2010] 194 Taxman 43 (Delhi High Court) — relied upon for shifting of the evidentiary onus after the assessee establishes foundational facts and for the proposition that mere non-availability at the stated address is insufficient without additional material.
3. Nemi Chand Kothari Vs. CIT (2003) 264 ITR 254 (Gauhati High Court) — considered regarding the assessee’s evidentiary burden and the shifting of onus to the Assessing Officer.
4. CIT Vs. Orissa Corporation (P.) Ltd. (1986) 159 ITR 78 (Supreme Court) — relied upon concerning the burden under Section 68 where particulars of creditors have been furnished.
5. ITO Vs. Anant Shelters (P.) Ltd. [2012] 20 taxmann.com 153 — cited regarding identity, genuineness, creditworthiness and shifting of the burden of proof.
6. CIT-II Vs. Kamdhenu Steel & Alloys Ltd. [2012] 19 taxmann.com 26 (Delhi High Court) — relied upon for the requirement that the Revenue undertake further investigation after the assessee produces prima facie evidence.
7. SPML Infra Ltd. Vs. DCIT, ITA No. 1228/Kol/2018 (ITAT Kolkata) — relied upon regarding the requirement to confront adverse material collected through enquiry before using it in assessment.
8. Peerless General Finance & Investment Co. Ltd. Vs. DCIT [1999] 236 ITR 671 (Calcutta High Court) — relied upon regarding opportunity of hearing where material gathered through enquiry is proposed to be used for assessment.
9. Swadeshi Cotton Mills Vs. Union of India, AIR 1981 SC 818 (Supreme Court) — relied upon concerning observance of principles of natural justice in the manner prescribed by statute.
10. ACIT, CC-13, New Delhi Vs. Sur Buildcon (P.) Ltd. (BBN Transportation (P.) Ltd.) [2021] 133 taxmann.com 31 (ITAT Delhi) — relied upon regarding mandatory confrontation of evidence collected pursuant to enquiry under Section 142(2).
11. CIT Vs. Steller Investments Ltd. (1991) 192 ITR 287 (Delhi High Court), affirmed in CIT Vs. Steller Investments Ltd. (2001) 251 ITR 263 (Supreme Court) — considered concerning treatment of share capital under Section 68.
12. CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (Supreme Court) — relied upon concerning share application money received from identified shareholders.
13. CIT Vs. NR Portfolio (P.) Ltd. [2014] 42 taxmann.com 339 (Delhi High Court) — relied upon by the CIT(A).
14. CIT Vs. Precision Finance (P.) Ltd. 208 ITR 465 (Calcutta High Court) — relied upon by the CIT(A).
15. ACIT Vs. BST Infratech Ltd. 161 taxmann.com 668 (Calcutta) — relied upon by the CIT(A).
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These two appeals are preferred by the assessee against the separate orders of the Commissioner of Income Tax Appeal, Kolkata-27, (hereinafter referred to as the “Ld. CIT(A)”] dated 20.11.2025 & 11.11.2025 for the AYs 2013-14 & 2015-16. Since both the appeals relate to the same assessee ,therefore for the sake of convenience, both the appeals are heard together and disposed off by this consolidated order. First of all we shall take ITA No. 146/Kol/2026 A.Y.2013-14.
ITA No.146/Kol/2026 (A.Y.: 2013-14)
2. The only issue raised by the assessee in this appeal in the various grounds of appeal is against the confirmation of addition of ₹73,35,98,115/- by ld. CIT(A) as made by the AO in respect of Share Capital/Share premium by treating the same as unexplained cash credit u/s 68 of the Act.
3. The facts in brief are that the assessee assessee-company filed its return of income on 30.09.2013 declaring total income of Rs. 10/-. The case of the assessee company was selected for scrutiny through CASS and notices u/s 143(2)of the IT Act, 1961 was issued on 02.09.2014 and was duly served upon the assessee. Subsequently notice u/s 142(1) of the IT Act, 1961 along with questionnaire were issued on different occasions to furnish the accounts/documents and in response of the same, the assessee submitted the requisite details/documents and replied to all the queries raised. The AO, on the basis of the details furnished by the assessee, noted that during the year under consideration, the assessee had received share capital and share premium aggregating to Rs. 73,36,00,000/- from various companies by issuing equity shares at a face value of ₹10/- at a premium of ₹ 714/-. The AO sent commissions u/s.131 of the Act to the Deputy Commissioner of Income Tax, Central Circle-4(3), Kolkata to verify the transactions and the DCIT deputed the Inspector in this regard, however, the Inspector reported that the subscribers were not found at the addresses given. Thereafter the AO after discussing the modus operandi of shell companies and the racket of accommodation entries in vogue , came to the conclusion that the share capital/share premium raised by the assessee is nothing but the assessee’s own money in the garb of share capital/premium brought into the books of accounts of the assessee and consequently treated the entire amount as unexplained cash credit u/s.68 of the Act and added to the income of the assessee in the assessment framed u/s.143(3) of the Act dated 31.03.2016.
4. In appellate proceedings, the ld.CIT(A) after taking into account the contentions and submissions of the assessee held that the assessee has failed to discharge its onus to prove the identity, creditworthiness of the subscribers and genuineness of the transaction and, therefore, justified the addition made by the AO.
5. After hearing the rival contentions and perusing the material on record including the written submission filed by the assessee, we observe that during the year the assessee has raised share capital/share premium from five parties aggregating to ₹73,36,00,000/-. The assessee during the course of assessment proceedings filed before the AO the copies of confirmations, relevant bank statements, ITR Acknowledgments of the parties concerned/subscribers duly establishing the identity and creditworthiness of the parties and the genuineness of the respective transactions. Copies of the same are available from pages 16 to 323 of the paper book. We note that thereafter the AO commission u/s 131 of the Act was sent the Deputy Commissioner of Income Tax Central Circle-4(3) Kolkata for serving the summons and conducting the field enquiry. The said officer deputed the Inspector of Income Tax to serve summons and conduct enquiries, who submitted his report that these parties were not found on the given addresses. The AO thereafter on the basis of the Inspector’s report came to the conclusion that the assessee has failed to prove the identity and creditworthiness of the parties and genuineness of the transactions. Consequently the AO added the same to the income of the assessee as unexplained cash credit . The Ld. CIT(A) also confirmed the order of the AO as stated hereinabove.
6. We note from the submissions of rival parties and from the examination of the records before us that the assessee has raised similar share application/share capital from the same parties amounting to ₹29,71,00,000/- in the A.Y. 2012-13 the preceding assessment year. We also note that during the instant assessment year 2013-14 , the assessee received further share application money amounting to ₹73,36,00,000/- from the same share applicants and, therefore, aggregate of share capital/premium from the said subscribers comes to ₹103,07,00,000/-. The details of share capital/premium received in A.Y.2012-13 as well as in A.Y. 2013-14 are extracted below :-
| Name of the Share applicants | Amount of share capital and share premium received in AY 2012-13 | Amount of share capital and share premium received during the year | Closing Balance of Share application money received |
|---|---|---|---|
| Rawdon India Ltd | 4,71,00,000 | 4,13,00,000 | 8,84,00,000 |
| Fraser India Ltd | 8,26,80,000 | 35,03,00,000 | 43,29,80,000 |
| Kaveri Management Services Pvt Ltd | 8,20,20,000 | 26,35,00,000 | 34,55,20,000 |
| Smart Promoters Ltd | 4,75,00,000 | 3,21,00,000 | 7,96,00,000 |
| Vinayaka Sugars Pvt Ltd | 3,78,00,000 | 4,64,00,000 | 8,42,00,000 |
| Total | 29,71,00,000 | 73,36,00,000 | 103,07,00,000/- |
7. It is also seem that the share application money received in A.Y.2012-13 amounting to ₹29,71,00,000/- was already accepted by the revenue. The copies of the ledger accounts of these parties are filed in the paper book at pages 319 to 328, wherein all these parties have opening balances coming over from the preceding assessment year. Therefore, when the share capital/premium had been accepted by the department in A.Y.2013-14 , how the same could be doubted in the subsequent year .i.e. A.Y. 2014-15. The AO has not found any fault with the documents/evidences furnished by the assessee qua the subscribers but solely relied on the inspector’s report which ,in our opinion is wrong and cannot be sustained. The case of the assessee is squarely covered by the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Del) wherein it has been held as follows :-
11. It is clear from the above that the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove:
(a) Identity of shareholder;
(b) Genuineness of transaction; and
(c) Credit worthiness of shareholders.
12. In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the AO to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc. can be furnished.
13. Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers from that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be the copies of the shareholders register, share application forms, share transfer register, etc.
14. As far as creditworthiness or financial strength of the credit/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharge the onus cast upon him. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion.
8. We also note that the assessee has proved the genuineness of the transactions by filing the bank statements of the investors/share applicant companies which proved conclusively that the assessee had received money from the said shareholders. Similarly, the creditworthiness of the share applicants is clearly established from the fact that share application money was received by the assessee company by way of account payee cheques through normal banking channels and also from the copies of the bank statements of the investor companies showing adequate availability of funds for the impugned investments. The confirmations of the share applicants are available in the paper book and examined by us. Therefore, the assessee has discharged the onus cast upon it under the Act. Therefore the onus cast on the assessee u/s.68 of the Act stood discharged where the assessee adduced sufficient documentary evidences proving the identity and creditworthiness of the shareholders and the genuineness of the transactions. The case of the assessee is squarely covered by the decision of the Hon’ble Delhi High Court in the case of CIT-IV v. Dwarkadhish Investment (P.) Ltd. [2010] 194 Taxman 43 (Delhi), wherein the Hon’ble High Court has opined as under :-
8. In any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue.
9. We have perused the decision in the case of Nemi Chand Kothari Vs. CIT (2003) 264 ITR 254 (Gau), wherein the Hon’ble Guwahati High Court has held that section 68 of the Income Tax Act has to be harmoniously interpreted with section 106 of the Evidence Act. The relevant observations of the Hon’ble High Court as under :-
“12. On a careful reading of section 106, we notice that what is the source from which an assessee has obtained the loan can be safely held to be a fact, which is actually within the special knowledge of the assessee; hence, it is the burden of the assessee to show the source(s) from which he has received the loans. Once the assessee discloses the source(s) from which he has received the loans, his burden under section 106 stands discharged and the onus, then, shifts to the Assessing Officer to show, if he wants to treat the loans as an income of the assessee from undisclosed source, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which has been received by the assessee in the form of loans, actually belonged to the assessee himself.
10. The case of the assessee also finds supports from the decision of the Hon’ble Supreme Court in the case of CIT Vs. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC). The relevant observations of the Hon’ble Apex Court in the said case are as follows:-
“Sec. 68 of 1961 Act was introduced for the first time in the Act. There was no provision in 1922 Act corresponding to this section. The section only gives statutory recognition to the principle that cash credits which are not satisfactorily explained might be assessed as income. The cash credit might be assessed either as business profits or as income from other sources.” (Para 7)
“It is not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established; butwhere the circumstances of the rejection were such that the only proper inference was that the receipt must be treated as income in the hands of the assessee, there is no reason why the assessing authority should not drave such an inference. Such an inference is an inference of fact and not of law. “(Para 10)
“The assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. It cannot therefore, be said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions souglu for. “(Paras 13 & 15)
11. Similar ratio has been laid down by the Hon’ble Delhi High Court in the case of ITO v. Anant Shelters (P.) Ltd. [2012] 20 taxmann.com 153 wherein the Hon’ble High Court has held as under :-
7(vi) In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of a/c of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and creditworthiness of the lender onus of proof shifts to the Revenue.”
12. The Hon’ble Delhi High Court in the case of CIT-II v. Kamdhenu Steel & Alloys Ltd., [2012] 19 taxmann.com 26 (Delhi) has held as under:
“Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has “created” evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 wax not sustainable.”
13. It is also seen from the records before us that the assessment has been framed in the case of the assessee for A.Y.2012-13 vide order dated 27.03.2014 passed u/s.143(3) of the Act, wherein the issue of receiving share capital/premium was examined by the Assessing Officer after conducting inquiries and not a single discrepancy has been found and thus, the share capital/premium was accepted. Thereafter the Pr.CIT Circle-2 passed an order u/s.263 of the Act dated 22.03.2016 wherein he raised the issue of identity, genuineness and creditworthiness of shareholders and, thus, revised the assessment order. Further in the consequent proceedings the AO passed assessment order u/s.263/143(3) of the Act dated 28.05.2016 for A.Y.2012-2013 wherein the share capital and premium were again accepted after doing necessary verification. Therefore, we can reasonably conclude that once the opening balances of share capital/premium from the same parties were accepted by the AO that means identity, creditworthiness and the genuineness of the transactions stood already established and no contrary view an be taken in the subsequent assessment year.
14. So far as the inspector’s report is concerned, which is primarily relied upon by the AO on making the addition, we note that the enquiry was conducted by the AO behind back of the assessee and adverse inference was drawn against the assessee on the basis of the said report. We note that the said report/enquiries was never confronted to the assessee at any stage of the assessment proceedings which is in gross violation of principle of natural justice rendering the entire assessment proceedings as bad in law. We observe from the record that the assessee has discharged his onus as casts u/s.68 of the Act by furnishing the details/evidences of the subscribers including their confirmations, relevant bank statements, ITR Acknowledgments of the parties concerned duly establishing the identity and creditworthiness of the parties and the genuineness of the respective transactions copies of which are available in the paper book and, therefore, the assessee has sufficiently discharged its onus whereas the AO has proceeded to disbelieve and demolish the details/evidences provided by the assessee mereby on the basis of inspector’s report.
15. We have also perused the provisions of Section 142(2) and 143(3) of the Act which lays down as to how the enquiries are to be conducted and the findings of the enquiry to be confronted to the assessee before being used against the assessee. The provision of Section 142(2) of the Act provides for the enquiry. Section 142(3) of the Act provides for confrontation and putting across to the assessee the evidences gathered during the course of enquiry. But in the instant case though the AO conducted the enquiry through inspector as commission u/s 131 of the Act was sent the Deputy Commissioner of Income Tax Central Circle-4(3) Kolkata for serving the summons and conducting the field enquiry. The said officer deputed the Inspector of Income Tax to serve summons and conduct enquiries. The inspector reported that these parties were not found on the given addresses. The AO thereafter on the basis of the Inspector’s report came to the conclusion that the assessee has failed to prove the identity and creditworthiness of the parties and genuineness of the transactions. Therefore, the AO has wrongly framed the assessment in the case of the assessee as the AO conducted the enquiry behind back of the assessee which was never confronted to the assessee as mandated by the provisions of Section 142(2)/143(3) of the Act which cannot be converted into a lively admissible evidence for being used against the assessee in the assessment proceedings for the want of confrontation and putting across the assessee. The case of the assessee is squarely supported by the decision of the coordinate bench of the Tribunal in the case of M/s. SPML Infra Ltd. vs. DCIT, ITA No. 1228/Kol/2018 wherein it was held that “…section 142(2) mandates that any such material adverse to the facts of the assessee collected by AO u/s 142(1) has to be necessarily put to the assessee w 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through process of assessment u/s 143(3) of the Act.” Further, the Hon’ble Kolkata High Court in the case of Peerless General Finance & Investment Co. Ltd. vs DCIT [1999] 236 ITR 671 (Cal) held that “Sub-section (3) of section 142 requires an opportunity of hearing to the assessee where any material gathered on the basis of any enquiry under sub-section (2) or any audit under sub-section (2A) is proposed to be utilised for the purposes of the assessment. Simialrly the Hon’ble Apex Court in the case of Swadeshi Cotton Mills v. Union of India, AIR 1981 SC 818 has held that “Where authority functions under a statute and the statute provides for the observance of the principles of natural justice in a particular manner, natural justice will have to be observed in that manner and no other. No wider right than that provided by the statute can be claimed nor can the right be narrowed.” In the instant case, there has been a gross lapse on the part of the A.O in following the mandatory procedure of assessment as laid down under the Income-tax Act, 1961 which mandates the provision of reasonable opportunity of being heard to the Assessee on all the adverse materials gathered by the A.O and intended to be used against the Assessee.
16. The coordinate bench of ITAT Delhi Tribunal in the case of ACIT, CC-13, New Delhi v. Sur Buildcon (P.) Ltd. (BBN Transportation (P.) Ltd.), [2021] 133 taxmann.com 31 (Delhi Trib.), has directly addressed the obligation under Section 142 and held: “Section 142(3) mandates that the information/evidence collected pursuant to the enquiry conducted under section 142(2), which is proposed to be utilized during the assessment, shall first be put to the assessee to provide him/her with an opportunity of being heard before the same is even utilized to make an addition/disallowance under section 143(3). Where Assessing Officer failed to confront the address with the evidence he had gathered under section 142(2) and had directly gone on to pass the assessment orders under section 147/143(3) to make the impugned additions under section 68, the same was in direct violation of the procedure of enquiry prescribed in the statute that inherently encompasses the Principle(s) of Natual Justice, rendering assessment order null and void.”
17. Even if the AO’s allegation with respect to non-existence of the investor companies at the given addresses is correct but the same would not give the AO a right to invoke the provisions of Section 68 of the Act without any material that too when the assessee has filed sufficient documentary evidences establishing the share capital/share premium from the said parties which remained uncontroverted by the Assessing Officer. In our opinion the action of the revenue in treating the share capital/share premium as unexplained cash credit without any enquiry is bad in law and can not be sustained. The ratio laid down by the Hon’ble Delhi High Court in the case of CIT-II v. Kamdhednu Steel & Alloys Ltd. (2012) 19 taxmann.com 26 (Delhi) is squarely applicable to the case of the present assessee. The relevant observation of the Hon’ble Delhi High Court as under :-
“From the various decisions, it is clear that the initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. At the same time, it is also well established principle of law that in any matter, the ones brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either furnishing Permanent Account Numbers or copies of bank accounts and shows the genuineness of the transaction by showing that money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the revenue. (Para 3)
In the instant case, it is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies, confirmation from the share applicants: bank accounts details and had shown payment through account payee cheques, etc. With these documents, it can be said that the assessee had discharged its initial onus. With the registration of the companies, their identity stands established, the applicant companies were having bank accounts, they had made the payment through account payee cheques. [Para 12/
No doubt, what the Assessing Officer observed may make him suspicious about such companies, either their existence, which may be only on papers and/or genuineness of the transactions, when he found that investing companies are not available at given addresses or that the issuance of the cheque representing share application money preceded by the deposit of cash in the bank account of these investment companies. [Para 13]
The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove source of the money. It is the submission of the assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. The assessee appears to be correct on this aspect. Something more which was necessary and required to be done by the Assessing Officer was not done. The Assessing Officer failed to carry his suspicion to logical conclusion by further investigation. After the registered letters sent to the investing companies had been received back undelivered, the AO presumed that these companies did not exist at the given addresses. No doubt, if the companies are not existing, i.e. they have only paper existence, one can draw the conclusion that the assessee had not been able to disclose the source of amount received and presumption under Section 68 for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non -existence. [Para 14]
The AO did not bother to find out from the office of the Registrar of companies, the addresses of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the AO wanted to arrive at, that, by itself, cannot be treated as the conclusive factor. The applicant companies have PAN and assessed to income tax. No effort was made to examine as to whether those companies were filing the income tax return and if they were filing the same, then what kind of returns those companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake. This could yet another be contributing factor in the direction the AO wanted to go. Likewise, when the bank statements were filed, the AO could find out the addresses given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the and the bank accounts operated. This kind of inquiry would have given some more material to the Assessing Officer to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and or companies were also bogus and were treated for namesake. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue a right to invoke section 68 without any additional material to support such a move. [Para 15]
In the instant case, it is projected by the revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant in bank and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability [Para 17]
A delicate balance has to be maintained while walking on the tight rope of sections 68 and 69. On the one hand, no doubt, such kind of dubious practices are rampant and on the other hand, merely because there is an acknowledgement of such practice would not mean that in any of such cases coming before the Court, the Court has to presumethat the assessee in question are indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessee herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. [Para 18]
In conclusion, once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it is ‘created evidence’ the revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with a liability under Section 68 and 69. [Para 19].”
18. Similarly, the Hon’ble Delhi High Court in the case of CIT Vs. Steller Investments Ltd. (1991) 192 ITR 287 (Del) has held as under:
“4. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names share had been issued and the money may have been provided by some other persons. If the assessment of the persons, who are alleged to have really advanced the money is sought to be reopened, that would have madte some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.”
The aforesaid decision was upheld by the Hon’ble Supreme Court in the case of CIT vs. Steller Investments Ltd. (2001) 251 ITR 263.
19. Similarly,, the Hon’ble Delhi High Court in the case of CIT Vs Lovely Exports Pvt. Ltd. (2008) 229 ITR 263 has held that:
“In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber: (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels: (3) the creditworthiness or financial strength of the creditor/subscriber: (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department alongwith copies of the shareholders register, share application forms, share transfer register etc. it would constitute acceptable proof or acceptable explanation by the assessee, (3) the Department would not be justified in drawing adverse inference only because the creditor/subscriber fails or neglects to respond to its notices, (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessee Officer take such repudiation at face value and construe it, without more against the assessee, and (7) the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the Income-Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee: if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, to carry out thorough Investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company”
Attention is further invited to the judgment of the Hon’ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) wherein the special leave petition filed by the Department against the order of the Hon’ble Delhi High Court was dismissed with the following remarks:
“We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the Assessee Company from alleged bogus shareholders, whose names are given to the AO then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.”
20. We further find that the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) wherein the special leave petition filed by the department against the order of the Hon’ble Delhi High Court was dismissed with the following remarks :-
“We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.”
21. Therefore, considering the facts of the assessee’s case in the light of the aforesaid decisions as discussed and extracted hereinabove, we are inclined to hold that the assessee has sufficiently proved the ingredients of the provisions of Section 68 of the Act particularly when the share capital/share premium had been accepted by the revenue for the assessment year 2012-2013 even in the assessment framed u/s.143(3) and 263/143(3) of the Act. Consequently, we set aside the order of the ld. CIT(A) and direct the AO to delete the addition. Accordingly, the appeal of the assessee is allowed.
ITA No.147/Kol/2026(A.Y. 2016-16)
22. The issue in ground No.1 is against the confirmation of the addition made by the AO of ₹12,55,11,120/- being the aggregate unsecured loans taken from four loan creditors during the year as unexplained cash credit u/s.68 of the Act.
23. The facts in brief are that during the course of assessment proceedings, the AO on the basis of information filed by the assessee observed that the assessee has received unsecured loans aggregating to ₹12,55,11,120/-. The assessee filed before the AO copies of ITRs, bank statements, audited balance sheets, bank confirmations of the loan creditors etc. to prove the identity and creditworthiness of the lenders and genuineness of the transactions however, the AO added the entire amount on the ground that the assessee has not furnished the details as called for and, thus, treated the same as unexplained cash credit.
24. Ld.CIT(A) in the appellate proceedings confirmed the addition by dismissing the appeal after taking into account the submission and contention of the assessee by observing and holding as under :-
“6.2. Discussion and decision:
6.2.1. I have gone through the asst. order and submissions of the assessee. On perusal of the same it is noticed that during the year under consideration, the assessee had taken fresh unsecured loans to the tune of Rs.12.55,11,120/- from four entities namely M/s Arihant Dealers Pvt. Ltd. (Rs.10,61,96,120/-), M/s Octal Suppliers (P) Ltd. (Rs.40,80,000/-), M/s Sangita Securities (P) Ltd., M/s SKG Flour Mills (P) Ltd. (Rs.71,00,000/-). During the asst. proceedings, the assessee was requested by the AO to provide the source of the credits made by these aforesaid entities and also to prove the financial capacity of these loan creditors. However, it is noticed that the assessee had not responded to the notices issued and had not explained the financial authenticity of the said loan creditors satisfactorily before the AO. Consequently, the AO had treated the fresh loan taken by the assessee (supra) of Rs. 12.55 crores as bogus and made the addition u/s 68 of the Act in the form of unexplained cash credit.
6.2.2. During the appellate proceedings, the assessee had contended that it had already taken loans from the aforementioned parties in the preceding years as can be evidenced from the ledger accounts of the aforementioned parties for the financial year 2013-14, which was included in its submission in the appellate proceedings. It had also contended that the said loans were taken from the said parties from preceding assessment years which were all accepted vide intimation order u/s.143(1) of the Act for the A.Y.2014-15 evidencing the fact that loans continuing from the same alleged parties were all accepted in that year. It was also claimed by the assessee that in response to notice u/s.142(1) of the Act dated 20/10/2017, the assessee vides its reply dated 08/11/2017, provided all the details of all the unsecured loan creditor companies. However, on requiring further details regarding the source of fund of the loan creditor companies making fresh unsecured loans during the relevant financial year, the assessee was gathering relevant details and documents which took some time, while in the meantime the AO completed the assessment u/s. 143(3) of the Act making addition of the entire sum of fresh unsecured loans to the tune of Rs.12,55,11,120/- received from the alleged 4 parties during the relevant financial year. It is also claimed by the assessee that the loan creditors were its group companies. Hence, the assessee had claimed that the addition is bad in law and liable to be deleted.
6.2.3. However, the submission and explanation of the assessee are not found logical and true to the facts. The financial parameters of the aforesaid four loan creditors had neither any consistent tangible activities to generate financial resources to survive nor any business rationale with credible operations. As an instance, if we go through the financials of M/s Arihant Dealers (P) Ltd. (ADPL), it is noticed that the said entity had authorized share capital at Rs. 15,00,000/- and its paid-up capital at Rs.12,90,000/-only who had credited by an abnormal and astronomical amount to the appellant assessee which is next to impossible in the taste of any probabilities. The aforesaid entity M/s ADPL has been shown as creditor by the appellant assessee to the extent of Rs.271,91,07,134/- on 01.04.2014 which has been inflated further credit by Rs. 10,61,96,120/- during the period (year) under consideration and closing credit balance in the books of appellant assessée in respect of Mis ADPL has been shown by Rs.280,46,03,254/- as on 01.04.2015. As per records from Ministry of Corporate Affairs (MCA). Its balance sheet was last filed on 31.03.2017. It was involved in wholesale on a fee or contract basis’. [Includes commission agents, commodity brokers and auctioneers and all other wholesalers who trade on behalf and on the account of others. Activities of self-employed auctioneers are included in MCA business code 749911. Further, financial parameters such as PAT, PBT, EPS for the last 5 years from the subjected AY are very low in comparison to the loan extended to the appellant assessee. For the AY 2015-16, total income filed by M/s ADPL is a loss of Rs.40,650/-, where revenue from operation was Rs. Nil. It proves that the said entity has no self-worth or strength to provide such huge amount of loan of Rs.10.61 Crores to the assessee during the year and gross total extended in this regard to Rs.280,46,03,254/- who had neither own worth or creditworthiness (even including share capital) or had capacity to generate revenue which is even a nano part of such abnormal amount of loan provided to the appellant assessee. It proves that the said loan was provided by M/s ADPL to the assessee only by way of absorbing entries from other entities who existed only papers like M/s. ADPL.
6.2.3.1. The appellant assessee has failed to provide further details regarding the source of fund of the loan creditor M/s. ADPL for making such fresh unsecured loans to the extent of Rs.10,61,96,120/- to the appellant assessee during the relevant financial year, at the appellate stage also, after taking so many years of time which could not be provided to the AO due to acute shortage of time as contended by the appellant assessee itself. Simultaneously, the appellant assessee has not shown an iota of interest to justify the creditworthiness of so-called loan creditor M/s. ADPL even after providing sufficient opportunities with the specific queries annexed with the hearing notice(s). Hence, other method of enquiries is sought and current status of the M/s. ADPL in MCA database confirms ‘Strike Off’. It is further verified through www search in Google which confirms identically with all other details, discussed above, precisely and leaving no scope to check by way of issuing summon u/s.131 of the Act, 1961 at the appellate stage to adjudicate the issue of creditworthiness, genuineness as well as identity also. However, a screen-shot of the status of M/s. ADPL company, downloaded from zauba.com is annexed herewith for ready reference:
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6.2.9. In the light of the aforesaid judicial pronouncements as well the provisions of the section 68 of Act and above discussed facts, it can be inferred that whether any sum credited in the accounts of the assessee through banking channel or not and whether any loan confirmation from such lending entities are present on record or not, whether any interest was paid against such loan or not, the “onus” to prove the identity, Genuineness & creditworthiness of the creditors and authenticity of the transaction is on the assesses but in the instant case this “onus” was not discharged by the assessee in an effective manner. It is to be reiterated that assessee has completely failed to give any explanation and/or to substantiate the creditworthiness & genuineness of the aforesaid lenders. The explanation offered was not found satisfactory as it was verified from Income Tax Returns of the creditors that the amount of funds transferred to the assessee in the form of unsecured loans were grossly disproportionate to their gross total income & known sources of income. Further, assessee also has failed to produce the Loan creditor parties, in spite of being duly requested, for examination and/or cross examination of the aforesaid money receipt transactions. Further, assessee has also has failed to explain and substantiate the sources of the funds of the lender & no explanation has offered in respect of credit entries in the account of lenders. Hence, the addition of Rs. 12,55,11,120/- is confirmed and subsequently the initiation of penalty proceedings u/s 271(1)(c ) of the Act is highly justified as there are inviolable inaccurate furnishing particulars of income on the part of the assessee for the year under consideration. Subsequently, these appeal grounds raised by the assessee are conclusively dismissed.”
25. The ld. CIT(A) while dismissing the appeal relied on various decision such as CIT Vs. NR Portfolio (P) Ltd. [2014] 42 taxmann.com 339 (Delhi HC); CIT Vs. Precision Finance (P) Ltd. 208 ITR 465 (Calcutta-HC) and ACIT Vs. BST Infratech Ltd., 161 taxmann.com 668 (Cal).
26. After hearing the rival contentions and perusing the material on record including the submissions filed by the assessee, we find that the assessee has received unsecured loans of ₹12,55,11,120/- from four parties. We note that the assessee has also made similar borrowings from these parties by way of unsecured loans in the assessment year 2014-2015. We note that the assessee filed before the AO as well as the CIT(A) the details as called for which are available from pages 1 to 7 of the paper book. We also note that the unsecured loans received from the group companies who used to make advances from time to time in normal course of business and the assessee used to make repayments from time to time. The chart of loans taken in the preceding year and repayment made and other receipt during the year reads as follows :-
| Name of the loan creditor | Opening Balance As on 01.04.2014 | Amount paid during the year | Amount received during the year | Closing Balance as on 31.03.2015 |
|---|---|---|---|---|
| M/s Arihant Dealers (P) Ltd | 2,71,91,07,134 | 2,07,00,000 | 10,61,96,120 | 2,80,46,03,254 |
| M/s Octal Suppliers (P) Ltd | 13,65,82,466 | 31,62,466 | 40,80,000 | 13,75,00,000 |
| M/s Sangita Securities (P) Ltd | 23,00,000 | 23,00,000 | 81,35,000 | 81,35,000 |
| M/s SKG Flour Mills (P) Ltd | 7,95,25,000 | 15,00,000 | 71,00,000 | 8,51,25,000 |
| Total | 293,75,14,597 | 2,76,62,466 | 12,55,11,120 | 303,53,63,254 |
27. In our opinion, the loans taken from the group companies in the regular course of business from year to year and also repayment thereof cannot be treated as unexplained cash credit u/s.68 of the Act. For the sake of ready reference the facts qua the individual loan lenders are discussed in pages 6 & 7 of the written submission as under :-
- M/s. Arihant Dealers (p) Ltd.
During the relevant assessment year, the assessee took fresh loan of Rs. 10,61,96,120/- from its group company, M/s Arihant Dealers (P) Ltd., whose opening balance continuing from previous assessment year was appearing at a figure of Rs. 271,91,07,134/-. Relevant copy of ledger account of the said party as appearing in the books of assessee is enclosed at pages 22-23 of the P/b.
The company is a regular tax assessee. Relevant copy of PAN, ITR acknowledgement establishing the identity of the loan creditor company, Audited accounts for the FY 2014-15, relevant copy of the bank statement evidencing the advancement of loan through banking channel, confirmation of account are enclosed at page nos. 24-44 of the P/b.
On a perusal of the Balance Sheet enclosed at page 31 of the P/b, it is evident that the said company was into the business of giving/taking loans as it has shown an amount of Rs. 420,79,76,098/- under short term borrowings and an amount of Rs. 422,71,84,098/- under short term loans and advances.
Further, in the details of loan given during the year, the name of the assessee is duly appearing.
-
- M/s. Octal Suppliers (p) Ltd.
During the relevant assessment year, the assessee took fresh loan of Rs. 40,80,000/- from its group company, M/s. Octal Suppliers (P) Ltd., whose opening balance continuing from previous assessment year was appearing at a figure of Rs. 13,65,82,466/-. Relevant copy of ledger account of the said party as appearing in the books of assessee is enclosed at page 45 of the P/b.
The company is a regular tax assessee. Relevant copy of PAN, ITR acknowledgement establishing the identity of the loan creditor company, Audited accounts for the FY 2014-15, relevant copy of the bank statement evidencing the advancement of loan through banking channel, confirmation of account are enclosed at page nos. 46-73 of the P/b.
On a perusal of the Balance Sheet enclosed at page 53 of the P/b, it is evident that the said company was into the business of giving/taking loans as it has shown an amount of Rs. 4,38,50,000/- under short term borrowings and an amount of Rs. 46,36,35,000/- under short term loans and advances.
Further, in the details of loan given during the year, the name of the assessee is duly appearing.
More so, the company possessed sufficient shareholders fund to the tune of Rs. 72,87,55,386/- which sufficiently establishes the creditworthiness of the said loan creditor company.
-
- M/s. Sangita Securities (P) Ltd.
During the relevant assessment year, the assessee took fresh loan of Rs. 81,35,000/- from its group company, M/s. Sangita Securities (P) Ltd., whose opening balance continuing from previous assessment year was appearing at a figure of Rs. 23,00,000/-. Relevant copy of ledger account of the said party as appearing in the books of assessee is enclosed at page 74 of the P/b.
The company is a regular tax assessee. Relevant copy of PAN, ITR acknowledgement establishing the identity of the loan creditor company, Audited accounts for the FY 2014-15, confirmation of account are enclosed at page nos. 75-91 of the P/b.
On a perusal of the Balance Sheet enclosed at pages 82 of the P/b, it is evident that the said company was into the business of giving/taking loans as it has shown an amount of Rs. 23,37,86,964/- under short term borrowings and an amount of Rs. 1,80,45,963/- under short term loans and advances.
M/s. SKG Flour Mills (P) Ltd.
During the relevant assessment year, the assessee took fresh loan of Rs. 71,00,000/- from its group company, M/s. SKG Flour Mills (P) Ltd., whose opening balance continuing from previous assessment year was appearing at a figure of Rs. 7,95,25,000/-. Relevant copy of ledger account of the said party as appearing in the books of assessee is enclosed at page 92 of the P/b.
The company is a regular tax assessee. Relevant copy of ITR acknowledgement establishing the identity of the loan creditor company. Audited accounts for the FY 2014-15, relevant copy of the bank statement evidencing the advancement of loan through banking channel, confirmation of account are enclosed at page nos. 93-111 of the P/b.
On a perusal of the Balance Sheet enclosed at page 101 of the P/b, it is evident that the said company was into the business of giving/taking loans as it has shown an amount of Rs. 106,74,03,880/- under short term borrowings and an amount of Rs.8,74,79,367/- under short term loans and advances.
Further, in the details of loan given during the year, the name of the assessee is duly appearing.
More so, the company possessed sufficient shareholders fund to the tune of Rs. 187,43,44,985/- which sufficiently establishes the creditworthiness of the said loan creditor company.
Thus, taking into consideration the above details, it is clear that the identity and creditworthiness of the alleged four loan creditor companies as well as the genuineness of the transactions is proved beyond doubt.
Hence, no addition can be made alleging the loan transactions to be bogus unless the AO brings on record documentary evidences to dispute the facts and details furnished by the assessee, especially when it is not mandatory till 01/04/2023 to give explanation regarding the source of the source of the receipts in the nature of loan.
The said claim finds strength from the following:
- The Delhi High Court in case of Commissioner of Income –tax v. Lovely Exports P. Ltd. [299 ITR 268] held that “In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transactions, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders’ register, share application forms, share transfer register, etc. it would constitute acceptable proof or acceptable explanation by the assessee;” SLP filed by the Revenue against the aforesaid judgement was dismissed by the Supreme Court (216 CTR 195).
28. The decision discussed in the earlier assessment year i.e. A.Y.2013-2014(supra) are squarely applicable to the facts of the current year also. Therefore, considering the facts in the light of the said decisions, we are inclined to set side the order of the ld. CIT(A) and direct the AO to delete the addition. Consequently, ground No.1 is allowed.
29. The issue raised in ground No.2 is against the confirmation of addition of ₹7,27,746/- made by the AO on account of interest on loan from JM Financial Products Ltd.
30. After hearing the rival contentions and perusing the material on record including the submissions filed by the assessee, we find that the assessee has incurred interest expenditure on loan taken from JM Financial Products Ltd. and M/s Indian Infoline Finance Ltd. The copy of ledger accounts of both the parties are available at pages 112 to 116 of the paper book. We observe that these loans were taken for the purpose of financial investment activities which are part of the business activity. Therefore, the interest is incurred in connection with a running and operation of the business of the assessee and the same cannot be disallowed. Accordingly , we set aside the order of the ld.CIT(A) and direct the AO to delete the addition made. Ground No.2 is allowed.
31. The issue raised in ground No.3 is with regard to upholding of disallowance of expenditure of ₹11,83,000/- incurred on legal & professional charges to defend the loan litigation cases lodged by IFCL before the Hon’ble Delhi High Court.
32. We find that the assessee during the relevant financial year, has incurred the expenses on account of legal and professional charges to the tune of ₹11,83,000/- details of which are as under :-
| Name | Amount | Purpose |
|---|---|---|
| SAS & Associates | 1,000 | In connection to Income Tax Matter |
| Ravinder Sethi | 1,75,000 | For conference and appearance relating to case of M/s Aspective Vanijya vs. IFCI at Delhi High Court. |
| SNG Consultants | 10,00,000 | For conference and appearance relating to case of M/s Aspective Vanijya vs. IFCI at Delhi High Court. |
| VK Sharma & Associates | 2,000 | In connection to ROC Compliance |
| RKS Corporate Advisory Pvt Ltd | 5,000 | In connection to Income Tax Matter |
33. We observe that the expenditure of legal and professional charges were incurred during the financial year in connection with High Court litigation by the assessee company. We note that the assessee has taken loan of ₹80 crores from IFCL. Due to some dispute between the assessee and IFCL, the IFCL recalled the entire loan amount. Therefore, litigation arose and then assessee had to file cases in Delhi High Court and, thus, these expenses are duly and exclusively expended for the purpose of business of the assessee. Consequently we set aside the order of the ld.CIT(A) and direct the AO to delete the addition. Ground No.3 is allowed.
34. The issue raised in ground No.5 is against the disallowance/addition of ₹66,646/- over and above ₹5810/- suo moto disallowed bythe assessee u/s.14A of the Act read with Rule 8D of the Rules under the normal provisions of the Act and further addition of the aggregate amount of ₹72,456/- to the book profit u/s.115JB of the Act.
35. After hearing the rival contentions and perusing the material on record including the submissions filed by the assessee, we find that the assessee has received dividend income of Rs. 296/- only which was claimed exempt from tax u/s 10(34) of the Act. The assessee made suo moto disallowance of Rs. 5,810/- in its computation of income. In spite of the above, the Ld. A.O. mechanically proceeded to make disallowance u/s 14A of the Act without establishing any nexus between the expenditure incurred and exempt income earned during the relevant year and calculated the figure of disallowance of Rs. 72,456/- by applying the provisions of Rule 8D of the Rules r.w.s. section 14A of the Act. Similarly the added a sum of ₹72,456/- in the book profit u/s.115JB of the Act. We find that the assessee has already disallowed ₹5810/- whereas the income earned by the assessee is only ₹296/-. The assessee has already claimed exempt for dividend income u/s.10(34) of the Act and no further disallowance is called for. Similarly in the case of addition to the book profit u/s.115JB of the Act, we are of the view that the same cannot be added to the book profit u/s.115JB of the Act. Consequently, we set aside the order of the CIT(A) and direct the AO to delete the addition made on the above heads. The ground no. 5 is allowed.
36. In the result, both appeals of the assessee are allowed.
Order pronounced in the open court on 18.05.2026.
