Stock And Bond Trading Company Vs DCIT (ITAT Mumbai)
Section 68: Missing Lenders’ ITRs Cannot Sustain Loan Addition When Primary Evidence Is Filed and AO Makes No Enquiry
Background of the Disputex
The assessee, engaged in trading in shares and derivatives, filed its return declaring nil income. During scrutiny assessment under section 143(3), the Assessing Officer made additions towards unsecured loans under section 68, along with other adjustments.
The dispute reached the Tribunal in an earlier round, when the matter was restored to the Commissioner of Income Tax (Appeals) for consideration of additional evidence furnished by the assessee.
During the proceedings following that remand, the Commissioner called for a report from the Assessing Officer. After considering the report, the Commissioner granted partial relief but sustained an addition of ₹2,06,70,000 relating to loans from six lenders.
The assessee challenged this surviving addition before the Tribunal.
Remand Report Accepted Identity and Genuineness
The assessee furnished documents concerning ten lenders, including PAN or assessment particulars, confirmations, ledger accounts and bank statements of the lenders and the assessee.
The Assessing Officer expressly accepted the identity of all ten lenders and the genuineness of the loan transactions.
He also accepted the creditworthiness of four lenders on the basis of documents such as return acknowledgements, an intimation under section 143(1), tax deduction certificates and financial statements.
However, he considered creditworthiness unproved for the remaining six lenders because their income-tax returns or other satisfactory evidence of financial capacity had not been furnished.
These six loans comprised ₹40 lakh from Anil A & Co., ₹15 lakh from Chavda Brothers, ₹25 lakh from Mihir Consultancy & Trading Co., ₹16.70 lakh from Manoj Mittal HUF, and ₹55 lakh each from Vinit Enterprises and Jay Shree Procon Pvt. Ltd.
Why the Commissioner Sustained the Addition
The Commissioner held that establishing identity and genuineness did not dispense with the requirement of proving creditworthiness.
According to the Commissioner, routing transactions through banking channels did not, by itself, demonstrate the lenders’ financial capacity. Similarly, repayment in a subsequent year could not cure a failure to explain the credit satisfactorily in the year of receipt.
The Commissioner also rejected reliance on relief granted in the assessee’s own case for assessment year 2014-15, observing that each assessment year required examination on its own facts.
Accordingly, the addition concerning the six lenders was sustained.
Assessee’s Arguments Before the Tribunal
The assessee emphasised that it had furnished the lenders’ particulars, confirmations and bank statements, together with evidence of receipt and subsequent repayment through banking channels.
Its principal objection was that the Assessing Officer had conducted no independent enquiry with the identified lenders, either during assessment or during the remand proceedings.
The assessee argued that its primary burden stood discharged and that the Revenue could not sustain the addition merely because certain lenders’ returns were unavailable. It relied on decisions including Orissa Corporation, Rohini Builders and Ayachi Chandrasekhar Narsangji.
It also submitted that the statutory requirement concerning explanation of the source of loans or borrowings introduced from assessment year 2023-24 could not be applied to the year under consideration.
The Revenue supported the Commissioner’s order but alternatively requested another remand to examine creditworthiness, including through notices under sections 133(6) or 131.
Tribunal’s Findings
The Tribunal found that the assessee had furnished almost all primary particulars. The lenders’ identities were undisputed, the transactions had passed through banking channels, confirmations and bank statements were available, and the loans had subsequently been repaid.
On the cumulative facts, the Tribunal held that the assessee had discharged its primary onus and that the burden had shifted to the Assessing Officer.
It found the absence of lenders’ ITRs insufficient to sustain the addition in these circumstances. Despite having the lenders’ PANs, addresses and confirmations, the Assessing Officer had made no effort to verify the assessee’s explanation directly with them.
The Tribunal also criticised the Commissioner’s approach. Having powers co-terminous with those of the Assessing Officer, the Commissioner could have conducted the necessary enquiries or directed the Assessing Officer to undertake them.
Merely relying on the adverse conclusion in the remand report, without addressing the supporting evidence and subsequent repayments, was held unjustified. The Tribunal particularly noted that this was already the second round of litigation.
Decision and Author’s Comments
The Tribunal set aside the appellate order on the disputed issue and directed deletion of the addition of ₹2,06,70,000. The appeal was allowed; the matter was not sent back for another enquiry.
The decision does not establish that PAN details, banking channels or repayment invariably prove every loan. Its significance lies in the combined evidentiary record and the Revenue’s failure to investigate an explanation supported by identifiable lenders and transaction documents.
Creditworthiness remains relevant under section 68, but an adverse conclusion must engage with the evidence available. Here, the Department accepted identity and genuineness yet left its remaining concern untested despite opportunities in both the original and remand proceedings.
The practical lesson is to maintain a complete lender-wise record, including financial capacity wherever available. Equally, once substantial primary evidence is furnished, the assessing and appellate authorities must examine it meaningfully before sustaining an addition.
Cases Discussed
- CIT v. Orissa Corporation (P.) Ltd., 159 ITR 78 (SC)
- CIT v. Lovely Exports (P.) Ltd., 216 CTR 195 (SC)
- Confiance Trading Pvt. Ltd., ITA No. 199/Mum/2020 (ITAT Mumbai)
- CIT v. Ayachi Chandrasekhar Narsangji, 221 Taxmann 146 (Gujarat High Court)
- Surender Singh Sangwan v. ITO (ITAT Delhi)
- CIT v. Rohini Builders, 256 ITR 360 (Gujarat High Court)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal arising from the appellate order dated 27.01.2026 is preferred by the Assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 26.02.2016 for the Assessment Year [A.Y.] 2013-14.
2. The grounds of appeal are as under:-
1. In law and in the facts and circumstances of the appellant’s case, the order passed by the learned CIT(A) u/s 250 of the Income-tax Act is bad in law.
2. In law and in the facts and circumstances of the case of the Appellant, the order u/s 250 of the Income Tax Act, 1961 passed by Ld. CIT(A) is without considering the facts of the case and responses filed by the appellant, is bad in law and deserves to be cancelled.
3. In law and in the facts and circumstances of the Appellant’s case, learned CIT(A) has erred in confirming the addition of Rs. 2,06,70,000/-under section 68 of the Income Tax Act. The Appellant has furnished all evidences to substantiate its loan transactions. Hence addition under section 68 of the Act is not justifiable and deserves to be deleted.
3. Ground nos. 1 and 2 are general in nature requiring no adjudication. The only substantive ground no. 3 pertains to the addition of Rs 2.06 cr. made u/s 68 of the Act.
4. Brief facts of the case are that the assessee engaged in the business of trading in shares and derivatives, filed its return declaring Nil income. The case was selected for scrutiny and the assessment was completed u/s 143(3) wherein the AO made, inter alia, addition of Rs.2.92 cr. u/s 68 on account of unsecured loans and assessed the income at Rs.5,59,58,524/-. This is the second round of litigation as in the earlier round, the matter was remitted by the ITAT to ld.CIT(A) to give a finding on the additional evidences submitted by the assessee. After calling for called for Remand report, the ld.CIT(A) finally confirmed the addition to Rs. 2.07 cr., giving part relief to the assessee.
5. According to the appellate order, the issue remanded for adjudication before him was confined to the above addition made u/s 68 of the Act on account of Unsecured loan from various entities. On being called a remand report on the request made under Rule 46A, the AO submitted the report, the relevant extract of which is reproduced below.
5. In view of above, the details of unsecured loans and supporting documentary evidences are called for from the assessee. The submission filed by the assessee vide letter datedi2.08.26,25has been verified. On verification, remand report is submitted as under.
6. Evidences submitted by the assessee are as under
Smt. Hinal Parekh (loan amount-Rs. 2,00,000/)- In respect of this loan, the assessee has submitted copy of PAN Card, AO details, Ledger account and Bank statement of the lender, Confirmation of account, ITR acknowledgement, Bank statement of the assessee.
M/s Anil A & Co. (loan amount-Rs. 40,00,000/-) – In respect of this loan, the assessee has submitted AO details, Ledger account of the lender representing payment and receipt of loan and Bank statement of the lender, Confirmation of account, Bank statement of the assessee
M/s Chavda Brothers (loan amount-Rs. 15,00,000/-)-In respect of this loan, the assessee has submitted AO details, Ledger accountof the lender representing payment and receipt of loan. Bank statement of the lender, Confirmation of account, Bank statement of the assessee.
M/s Mihir Consultancy & Trading Co. (loan amount Rs. 25,00,000/) – In respect of this loan, the assessee has submitted AO details, Ledger account of the lender representing payment and receipt of loan, Bank statement of the lender. Confirmation of account and Bank statement of the assessee.
Manoj Mittal HUF (loan amount-Rs. 16,70,00%) in respect of this loan, the assessee has submitted AO details. Ledger account of the lender representing payment and receipt of loan, Bank statement of the lender, Confirmation of account, Bank statement of the assessee.
M/s Rajeev Mittal HUF (loan amount Rs. 16,70,000/-)- In respect of this loan, the assessee has submitted AO details, Ledger account of the lender representing payment and receipt of loan, Bank statement of the Lender, Copy of intimation u/s 143(1), Form 16 of the lender, Confirmation of account end Bank statement of the assessee.
M/s Sanjeev Mittal HUF (loan amount Rs. 16,70,000/)- In respect of this loan, the assessee has submitted AO details, Ledger account of the lender representing payment and receipt of loan, Bank statement of the lender, Confirmation of account, Form 16A, ITR acknowledgement, Bank statement of the assessee.
M/s Pragati Gems Pvt Ltd. (loan amount-Rs. 50,00,000/-)- In respect of this loan, the assessee has submitted AO details, Balance sheet, Ledger account of the lender representing payment and receipt of loan, Bank statement of the lender for the period from 01.04.2013 to 26.10.2013 which does not reflect the payment of loan to the assessee, Bank statement of the assessee.
M/s Vinit Enterprises (loan amount-Rs. 55,00,000/-)- In respect of this loan, the assessee has submitted AO details, Ledger account of the lender representing payment and receipt of loan, Bank statement of the lender, Confirmation of account, Bank statement of the assessee.
M/s Jay Shree Procon Pvt Ltd (loan amount-Rs. 55,00,000k) – In respect of this loan, the assessee has submitted AO details, Ledger account of the lender representing payment and receipt of loan, Bank statement of the lender, Confirmation of account, Bank statement of the assessee.
7. As mentioned in Para 6 above, assessee has provided PAN Card/AO details, Ledger account of the lender representing payment and receipt of loan and Bank statement of the lender, Confirmation of account, Bank statement of the assessee etc. commonly in respect of all the above 10 lending parties. Hence, identity of the lenders and genuineness of transactions of all the above lenders in respect of these loans have been proved
7.1. However, assessee has provided ITR acknowledgement of Smt. Hinal Parekh (loan amount-Rs. 2.00.000/-), copy of intimation u/s 143(1) & Form 16 of the lender of Mis Rajeev Mittal HUF (loan amount Rs. 16.70,000/), ITR acknowledgement & Form 16A of the lender M/s Sanjeev Mittal HUF (loan amount Rs. 16.70,000/-) and audited financials & Balance sheet of M/s Pragati Gems Put Ltd. (loan amount Rs. 50,00,00W) hence creditworthiness of these lenders can be treated as proved.
But in respect of other parties, the ITR returns or any other evidences indicating creditworthiness is not submitted. Therefore, in respect of M/s AnilA & Co. (loan amount Rs. 40,00,00W-), M/s Chavda Brothers (loan amount – Rs. 15,00,00W-), M/s Mihir Consultancy & Trading Co. (loan amount – Rs. 25,00,000/) Manoj Mittal HUF (loan amount Rs. 16,70,000/), M/s Vinit Enterprises (loan amount Rs. 55,00,000/-) and M/s Jay Shree Procon Put Ltd (loan amount Rs. 55,00,000/-) creditworthiness is not established.. Therefore, it is requested that the addition made in respect of these parties may be confirmed.
5.1 It is stated that the AO re-examined the additional evidences furnished by the assessee in respect of unsecured loans and in the report, the AO recorded that in respect of all ten lending parties, the assessee furnished primary documentary evidences such as PAN/AO details, confirmations, ledger accounts reflecting receipt and repayment, and bank statements of the lenders as well as of the assessee. On verification, the AO reported that the identity of the lenders and the genuineness of the transactions stood established in respect of all the loans. He further reported that, insofar as creditworthiness is concerned, the assessee furnished return acknowledgements/ intimation u/s 143(1) / Form 16/ Form 16A/audited financial statements and Balance Sheets in respect of (1) Smt. Hinal Parekh (Rs.2,00,000/-), (ii) M/s Rajeev Mittal HUF (Rs.16,70,000/-), (iii) M/s Sanjeev Mittal HUF (Rs.16.70,000/-) and (iv) M/s Pragati Gems Pvt. Ltd. (Rs.5o,00,000/-).
In respect of these four parties, the AO treated the creditworthiness as established.
5.2 However, for the remaining six parties, namely (1) M/s Anil A & Co. (Rs.4o.00,000/-), (ii) M/s Chavda Brothers (Rs.15,o0,000/-), (iii) M/s Mihir Consultancy & Trading Co. (Rs.25.00.000/-), (iv) Manoj Mittal HUF (Rs.16.70.000/-), (v) M/s Vinit Enterprises (Rs.55.00.000/-and (vi) M/s Jay Shree Procon Pvt. Ltd. (Rs.55,o0,000/-), the AO has specifically reported that no ITRs or other reliable evidences indicating creditworthiness which was not established.
5.3 The ld.CIT(A) observed that in respect of the remaining unsecured loans aggregating to Rs.2,o6,70,000/-, the remand report clearly recorded that the assessee did not furnish ITRs, audited financial statements or other cogent material to demonstrate the financial capacity of the respective lenders. In the absence of such evidence, the requirement of establishing creditworthiness, which is a mandatory condition u/s 68, remained unfulfilled in respect of these six lenders.
5.4 In the subsequent hearings before him, the assessee reiterated that the unsecured loans were repaid in the subsequent assessment year through banking channels and, therefore, the transactions should be treated as genuine. The appellate authority stated that this contention could not be accepted as repayment of a loan in a subsequent year does not, by itself, cure the defect in the year of receipt if the assessee fails to establish the creditworthiness of the lenders at the time the loans were taken. Section 68 of the Act requires the assessee to satisfactorily explain the nature and source of the credit in the year of receipt. Besides, even before him, the assessee merely furnished Balance sheet schedules of certain lenders. However, no supporting bank statements, transaction-wise repayment details or documentary evidence evidencing the actual flow of funds had been placed on record. Such incomplete documentation did not discharge the onus of proving creditworthiness.
5.5 The appellate authority further noted that the assessee placed reliance on the appellate order passed in its own case for A.Y., 2014-15 contending that the issue was covered in its favour on the principle of consistency. This argument was not acceptable. Each assessment year is a separate and independent unit and the principle of res judicata does not apply to income-tax proceedings. The relief granted in A.Y. 2014-15 was based on the specific findings recorded in the remand proceedings for that year. In the present year, however, the remand report contained a clear finding that creditworthiness had not been established in respect of six lenders. Relief could not, therefore, be granted merely by placing reliance on the outcome of a different assessment year.
5.6 The assessee further argued that PAN details, ledger accounts and bank statements had been furnished for all lenders and that the transactions were routed through banking channels. While these documents may establish identity and genuineness, they did not by themselves, establish creditworthiness. Mere routing of funds through bank accounts does not demonstrate the financial capacity of the lenders to advance substantial sums. As noted in the remand report, the absence of income-tax returns or financial statements for six lenders leaves the issue of creditworthiness unproved. The reliance placed by on judicial precedents was misplaced. In the present case, the remand report contained a categorical finding that creditworthiness had not been proved for six lenders. In the result, the ground on this issue was partly allowed, by deleting the addition u/s 68 to the extent of Rs. 85,40,000/- and sustaining the balance addition of Rs. 2,06,70,00:1h
6. Before us, the ld.AR has reiterated the same contentions as made before the ld.CIT(A) emphasizing that the loans were repaid subsequently to the lenders. The transactions both for taking loan and repayment thereof in the subsequent had been through banking channels and the assessee had provided PAN, confirmation of each of the parties and the bank statement evidencing such payment and repayment of the loan. It also submitted the bank statement of the lenders when the loan was advanced. The AO had not carried out any independent inquiry with regard to any of the said six parties even while submitting the remand report. The ld.AR has further submitted that under section 68, onus to prove source of source of a loan or borrowing is mandatory w.e.f. 01.04.2023 i.e. from A.Y 2023-24.By submitting these documents, the initial onus of proof shifts completely on the Revenue as the assessee had provided the lender’s PAN card, confirmation letter, and bank summaries showing that transactions happened via proper banking channels.
6.1 Reliance has also been placed on various judicial decisions i.e. Orissa Corporation (159 ITR 78) (SC), CIT vs. Lovely Exports Pvt. Ltd. (216 CTR 195) (SC),M/s. Confiance Trading Pvt. Ltd. (ITAT Mumbai in ITA No. 199/Mum/2020),CIT vs. Ayachi Chandrasekhar Narsangji (221 Taxmann 146) (Guj HC), Surender Singh Sangwan v. ITO (ITAT Delhi)etc. It is claimed that the assessee fully discharged its initial legal burden under Section 68 by providing explicit identity particulars (names, addresses, PANs), loan account confirmations, and bank statements of the three lending entities. Both the procurement and repayment of the unsecured loans were routed entirely through proper banking channels. Crucially, the loans were fully repaid Hon’ble Gujarat High Court in case of Rohini Builders [2002] 256 ITR 360 (Guj), in which it was held that genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.
7. The ld.DR relied on the appellate order. However, he requested to remand the case back to the AO for making necessary enquiries as deemed fit for examining the creditworthiness of the lenders. The assessee be directed to submit the respective tax details, financials of the lenders etc. to show their credit worthiness. He would examine the lenders to find out the same as nothing prevented him from issuing notices u/s 133(6)/131 of the Act independently.
8. We have carefully considered the relevant facts of the case. As discussed above, it appears that the assessee has submitted almost all primary details in respect of all the lenders. The respective identity has not been doubted by the AO. The transactions have all been done through banking channels and the assessee has submitted the respective bank statements and confirmations. The said loans have also been repaid by the assessee. Therefore, in so far as the assessee is concerned, we are of the considered opinion that it has discharged its primary onus which now shifted to the AO who repeated the additions on the ground that ITRs were not filed. However, such a ground does not appear convincing enough for holding the assessee as a defaulter. We also find that despite such basic details made available by the assessee,the AO did not make any effort to cross verify the contentions of the assessee from respective lenders neither in the original nor in the remand proceedings, whose confirmations, PAN adderesses etc. were already with him.
8.1 It is noted that the ld. AR in support of the contention has relied upon the various judicial precedent which we have considered and taking into account the overall aspect of the case we are of the considered view that the assessee has discharged its initial burden to prove the transaction. Once, the assessee has placed on record all the details of the immediate source and the details of the source of the source and there is no reason to doubt that source when other material have been filed with supporting evidence. Even the ld.CIT(A) has failed to adjudicate the issue in judicious manner and solely depended on the Remand report of the assessee. Having co-terminous powers of an Assessing officer, he is duly empowered to make necessary enquiries himself or get it done by the AO. He has also not appreciated the fact that the amounts were repaid in the subsequent years. Thus, we are of the considered view that the ld. CIT(A) was not justified in upholding the addition made by the to the extent of Rs 2.06 cr. without realising that the proceedings before him was second round of litigation and therefore, it was all the more expected of him to adjudicate the issue in hand in a fair and judicious manner.
8.2 Considering the entirety of the matter, we hold that the appellate order is not sustainable. Accordingly, the same is set aside and the AO is directed to delete the impugned addition, thus allowing the ground of appeal in this regard.
9. In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 13/10/2026.
