Sanraj Hospitality Pvt Ltd Vs ITO (ITAT Delhi)
Delhi ITAT Deletes Section 68 Addition as Assessee Proved Identity, Genuineness and Creditworthiness; AO Failed to Conduct Independent Enquiry
The Delhi ITAT deleted the addition under section 68 in respect of unsecured loans after holding that the assessee had successfully discharged the initial onus of proving the identity of the lenders, their creditworthiness and the genuineness of the transactions. Although the assessee had not furnished complete details during the assessment proceedings, it produced comprehensive evidence before the CIT(A), including confirmations, financial statements, bank statements, GST registrations, ROC records and MCA data, which were forwarded to the Assessing Officer in remand proceedings. The Tribunal observed that the Assessing Officer neither pointed out any defect in these documents nor conducted any independent enquiry under section 133(6) to disprove the evidence. It further noted that a substantial portion of the loans had been repaid through banking channels during the same year, indicating the genuineness of the transactions, and held that the amendment requiring proof of the “source of source” was not applicable to AY 2017-18. Relying on the decisions of the Supreme Court in CIT v. Orissa Corporation (P.) Ltd. and CIT v. Daulat Ram Rawatmull, as well as the Delhi High Court’s ruling in PCIT v. KRBL Infrastructure Ltd., the Tribunal held that once the assessee had discharged its burden, the onus shifted to the Revenue, which had failed to bring any contrary material on record. Accordingly, the addition under section 68 and the consequential taxation under section 115BBE were deleted. The Tribunal, however, remanded the claim for deduction under section 80G for verification of the donation receipt and directed that the ROC fee paid for increase in authorised share capital be allowed only by way of amortisation under section 35D, and not as a revenue deduction.
Cases Discussed
- PCIT vs KRBL Infrastructure Ltd. (Delhi High Court), [2025] 180 taxmann.com 506 (Del.)
- PCIT Vs Ojas Tarmake Pvt Ltd (Gujarat High Court), 156 Taxmann.com 75
- NTPC Ltd. (Supreme Court), 229 ITR 383 (SC)
- CIT vs Orissa Corporation P. Ltd. (Supreme Court), 159 ITR 78 (SC)
- Commissioner of Income Tax vs. Daulatram Rawatmull (Supreme Court), [1964] 53 ITR 574 (SC)
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal is filed by assessee against the order dated 10.09.2025 passed by Ld. Commissioner of Income Tax (A)-30, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-8/10836/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 27.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
2. Brief facts of the case are that the assessee is deriving income from providing onboard catering services in trains. The return of income was filed on 29.03.2018, declaring total income of INR 28,28,080/-. The AO observed that the assessee has received loans of INR 2,13,29,429/- taken from 05 (five) companies/partnership firms/individual which remained outstanding at the end of the year and assessee had failed to establish their creditworthiness and genuineness of the transactions. Accordingly, the AO made the addition of the same u/s 68 of the Act and charged special rate of tax u/s 115BBE of the Act. Besides this, expenditure of INR 1,96,800/- claimed towards ROC fee for increase in authorized capital was held as capital in nature and disallowance was made. Likewise, donation of INR 1,10,000/- was paid which was added as it is not pertained to the business activity. Moreover, interest of income tax of INR 65824/- claimed as expenditure was also disallowed. Accordingly, total income was assessed at INR 2,45,30,230/-.
3. Aggrieved by the order of AO, the assessee is in appeal before the ld. CIT(A) wherein the assessee has filed all the evidences to establish the genuineness of transactions and creditworthiness of the lenders as additional evidences under Rule 46A of Income Tax Rules, 1962 (“the Rules”). After obtaining Remand Report from the AO, the ld. CIT(A) confirmed the additions made by the AO and dismissed the appeal of the assessee on other issues as well.
4. Aggrieved by the order of ld. CIT(A), assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
5. During the course of hearing, assessee take additional Ground of appeal wherein the assessee has raised the issue of invocation of section 115BBE of the Act and requested for the admission of additional Ground of appeal being legal in nature. Reliance is placed on the judgment of Hon’ble Supreme Court in the case of NTPC reported in 229 ITR 383 (SC).
6. After careful consideration of the facts and circumstances of the case and hearing both the parties, it is observed that additional Ground Nos. 7 & 8 taken by the assessee are with respect to the levy of tax u/s 115BBE of the Act. This issue is purely legal in nature and requires no verification of the facts from the AO therefore, the same is admitted for adjudication by following the judgments of Hon’ble Supreme Court in the case of NTPC Ltd. (supra).
7. Ground of appeal Nos. 1 to 3 raised by the assessee are with respect to the confirmation of addition made u/s 68 of the Act of INR 2,13,29,429/-.
8. Before us, ld.AR submits that during the course of assessment proceedings, assessee could not file the details of lender however, during the course of appellate proceedings, assessee has filed every precise detail in order to establish the genuineness of the transactions and creditworthiness of the lenders. All these documents were filed alongwith prayer under Rule 46A vide letter dated 17.03.2025, placed at page 12 to 162 of the Paper Book. Ld.AR further file their financial statements for three Financial Years from FY 2015-16 to FY 2017-18 before the ld. CIT(A), placed at pages 168 to 234 of the Paper Book. Ld.AR submits that by filing such details, assessee has discharged the burden casted upon it of establishing the genuineness of transaction and identity and creditworthiness of the lenders. As per Ld.AR, if the AO has any doubts about the details so filed, he should have made direct and independent inquiries from the lenders however, no notice whatsoever issued u/s 133(6) of the Act. For this, he placed reliance on the judgment of Hon’ble Supreme Court in the case of CIT vs Orissa Corporation P. Ltd. reported in 159 ITR 78 (SC). AR submits that once the assessee has discharged the burden casted upon it and AO has failed to bring on record any contrary material therefore, no addition is required to be made in the hands of the assessee company. Ld.AR further submits that vide Finance Act, 2022, a duty was casted upon the assessee to prove the source of source of the funds received however, the year under appeal is Assessment Year 2017-18 thus such amendment is not applicable. Ld.AR further drew our attention to the facts that out of the total addition made of INR 2,13,29,429/-, a sum of INR 16,09,463/-was on account of interest paid/credited during the year to the accounts of the respective lenders. He further stated that in the case of ST construction P. Ltd., a sum of INR 1.67 crores was received during the year under appeal, out of which a sum of INR 1,34,55,034/- were repaid and closing balance alongwith interest was of INR 43,54,966/- which was added u/s 68 as unexplained credit. Ld.AR stated that the AO has not doubted the total credits of INR 1.67 crores nor has doubted the repayments made and had made the addition for the closing balance only. He further submits that in case of some of the parties, loans were repaid in subsequent years for which necessary confirmations alongwith bank statements were filed. Therefore, no addition is required to be made for the loans taken during the year under appeal. With respect to the repayment of the loans taken, reliance is placed on the judgment of Hon’ble Gujarat High Court in the case of PCIT Vs Ojas Tarmake Pvt Ltd reported in 156 Taxmann.com 75 has held that “where appellant showed unsecured loans received during relevant assessment year and AO made addition on ground that appellant failed to discharge onus of liability as laid down under section 68, since amount of loan received by appellant was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.” Ld.AR thus, requested for the deletion of the addition so made by the AO.
9. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has failed to file any details during the course of assessment proceedings before the AO. Thereafter, before the ld. CIT(A), certain details were filed as additional evidences. In the Remand Report submitted by the AO, it was observed that the assessee has failed to give any justifiable reason for not filing those details during the course of assessment proceedings, therefore, such evidences should not be admitted. With respect to the merits of the documents filed as additional evidences under Rule 46A, ld. Sr. DR drew our attention to the Remand Report dated 01.09.2025 filed by the AO and placed at page 165 to 167 of the Paper Book wherein AO has clearly observed that the assessee has failed to prove the creditworthiness of the lenders nor filed any loan agreements with the lenders and therefore requested that the AO has rightly made the addition u/s 68 of the Act which deserves to be uphold. She prayed Accordingly.
10. Heard the contentions of both the parties at length and perused the material available on record. In the instant case, the assessee has received total loans of INR 3,31,75,000/- from Five lender parties out of which total sum of INR 1,34,55,034/- were repaid during the year under appeal itself. The AO made the addition by observing that the assessee has failed to furnish any details to discharge the burden casted upon it u/s 68 of the Act. It is observed that during the course of appellate proceedings before ld. CIT(A), the assessee has filed all the necessary details in order to establish the identity and creditworthiness of the lenders and further submits details with respect to the transactions being carried out through banking channel so as to establish the genuineness of the transactions. It is further observed that all such documents were sent to the AO for Remand Report who had submitted the Remand Report on 01.09.2025 wherein primarily AO was of the view that once the assessee was provided sufficient opportunity and no case was made out to admit such details under Rule 46A of the Rules to hold that the assessee was prevented with sufficient reasons for not filing these details before the AO. It is further observed that in the Remand Report, AO has not stated whether any inquiries were carried out from the lenders in order to examine their creditworthiness to advance the loans to the assessee. It is further observed that AO has alleged that assessee has failed to file loan agreements and ITRs of the lenders however, he has not commented upon the documents filed such as financial statements, bank statements, confirmations and GST Returns, ROC certificates filed by the assessee to establish the identity as well as creditworthiness of the lenders. It is also a matter of fact that out of loan taken of INR 1.67 crores from M/s ST Construction P. Ltd., assessee has already paid INR 1,31,55,034/- during the year itself and as against the total receipt of INR 1.67 crores, AO has made the addition for closing balance of INR 43,54,966/-(including interest payable of INR 8,10,000/-) meaning thereby, the AO has accepted the creditworthiness of the lender to the extent of amounts repaid during the year under appeal itself.
11. As could be observed, the assessee has filed all the details to discharge the burden casted upon it of proving the identity and creditworthiness of the lenders by filing their MCA data/GST registration and further field their confirmations, financial accounts etc. which were supplied to the AO by ld. CIT(A) who had not pointed out any defect in the said details. It is further observed that no inquiry whatsoever was made by the AO from the lender parties by issuing summons u/s 133(6) of the Act. In this regard, we may refer the judgement of Hon’ble Supreme Court in the case of Orissa Corporation wherein Hon’ble Supreme Court has held as under:-
“The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. The scope of that power has been explained over and over again by this Court.
The Agricultural Income-tax Tribunal gave no reasons in its order for affirming the decision of the Asstt. Collector. It appears to have been of the view that once the assessing authorities reject the material placed before them as being unreliable those authorities can proceed to levy whatever tax they may levy. It failed to bear in mind the scope of the power of the assessing authorities to levy assessment on the basis of best judgment. Therefore, the Tribunal was clearly in error in confirming the decision of the Asstt. Collector. Hence, the High Court was justified in interfering with the order of the Tribunal.”
12. Further, the Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Daulatram Rawatmull reported in [1964153 ITR 574 (SC) has held that when the assessee has discharged the burden of proving the genuineness of the loans availed, the onus shifted upon party to hold what is the apparent is not real who alleges so. In the instant case, as observed above, the assessee has discharged the burden casted upon it to prove all the three ingredients of section 68 of the Act such as identity of lender, genuineness of the transaction and creditworthiness of the lenders. Once the assessee has discharged the burden casted upon it, the AO should have made independent inquiries to hold that the details filed by the assessee are not acceptable by placing on record any contrary material which has not been done in the instant case.
13. The Hon’ble Jurisdictional High Court in the case of PCIT vs KRBL Infrastructure Ltd. reported in [20251180 com 506 (Del.) has held that “once the assessee has discharged the burden of proving the genuineness of the transaction and creditworthiness of the lenders, the assessee could not be burdened with the requirement of expenditure as source of source. The assessee has filed the financial statement according to which all the loans creditors have sufficient net worth to give the loans to the assessee and it is a matter of fact that the loans were repaid in subsequent years. Once the assessee has established the creditworthiness of the lenders and further such loans were repaid in subsequent year, it cannot be held that the loans were unexplained credit u/s 68 of the Act”. In view of above discussion and by respectfully following the aforesaid judgements of hon’ble Apex court and of the hon’ble high courts, the addition made by the AO is hereby, deleted. Thus, Ground of appeal Nos. 1 to 3 raised by the assessee are allowed.
14. Ground of appeal No.4 raised by the assessee is with respect to the confirmation of disallowance of INR 1.10 lakhs on account of donation expenses.
15. Heard the contentions of both the parties at length and perused the material available on record. The claim of the assessee is that assessee has made donation to the party eligible for deduction u/s 80G of the Act. However, in absence of the receipt, the same could not be verified. Under these circumstances, this issue is remanded to the file of AO with the direction to the assessee to file receipt of donation in order to claim the deduction u/s 80G of the Act. With these directions, Ground of appeal No.4 raised by the assessee is allowed for statistical purposes.
16. Ground of appeal No.5 raised by the assessee is with respect to confirmation of disallowance of INR 1,96,800/- towards ROC fee paid for increase in authorized share capital which was held as capital expenditure.
17. Heard the contentions of both the parties at length and perused the material available on record. In the instant case, a sum of INR 1,96,800/- were paid to the Ministry of Corporate Affairs for increase in share capital which are charged to Profit & Loss Account as revenue expenditure. As per the assessee, increase was made in the authorized capital to avail the credit facilities and therefore, the same is allowable as revenue expenditure. However, under the Act, special provision is provided u/s 35D of the Act, according to which the said sum would be amortized in terms of the provision of section 35D of the Act in ten consecutive years beginning with the previous year in which the expenses are incurred. In the instant case, the assessee has paid the amount for increase in share capital and therefore, the amount should be amortized as per section 35D of the Act. Accordingly, we direct the AO to allow the amount of ROC paid on increase in authorized share capital as per section 35D of the Act. Thus, the Ground of appeal No.5 raised by the assessee is partly allowed.
18. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 24.07.2026.
