Case Law Details
DCIT Vs P Vijaykumar & CO (ITAT Mumbai)
In this detailed ruling arising from a search assessment under Section 153A, the ITAT Mumbai upheld the deletion of multiple additions made under Sections 68 and 69A, primarily on account of cash deposits, capital introduced by partners, and unsecured loans. The Assessing Officer had framed ex-parte best judgment assessments due to non-compliance and treated various credits as unexplained. However, during appellate proceedings, the assessee furnished comprehensive documentary evidence, which was also examined in remand proceedings.
On the issue of cash deposits, the Tribunal noted that the assessee had recorded substantial cash receipts in its books, far exceeding the amounts deposited in the bank. In such circumstances, once availability of cash is demonstrated and supported by books, no addition can be sustained in the absence of contrary material from the Revenue.
With respect to capital introduced by partners, the Tribunal reiterated a crucial legal principle that in the case of a partnership firm, the requirement to prove “source of source” does not apply. Once the identity of partners, genuineness of transactions, and primary source are established through bank statements, confirmations, and ITRs, the onus under Section 68 stands discharged. The Tribunal held that any further inquiry into the source in the hands of partners must be examined in their individual assessments and not in the firm’s hands.
On unsecured loans, the Tribunal rejected the Revenue’s stand that absence of a formal loan agreement renders the transaction non-genuine. It was held that where the loan is routed through banking channels, supported by confirmations, financial statements, and subsequently repaid, the genuineness stands established. Mere suspicion or incomplete documentation cannot override substantive evidence.
The Tribunal emphasized that once the assessee discharges its initial burden with cogent material, the onus shifts to the Revenue, which in this case failed to bring any adverse evidence.
Ultimately, the ITAT upheld deletion of all major additions (except minor unexplained portions) and dismissed the Revenue’s appeals, reinforcing that Section 68 cannot be invoked mechanically and that documentary evidence must prevail over conjecture.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals have been preferred by the Revenue against the orders dated 25-02-2025 {for the AYs 2018-19 and 2019-20 cases} and 15-04-2025 {for the AY 2020-21 case}, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the 2018-19, 2019-20 and 2020-21.
2. As these appeals under consideration are based on the same search and seizure action carried out under Section 132 of the Act on dated 18.10.2019 at the business premises of Assessee and having involved almost identical issues, therefore, for the sake of brevity and convenience, the same were heard together and are being disposed of by this composite order.
3. In these cases various issues involved, such as recovery of cash from the business premises of the Assessee during search and seizure operation, bank credits entries, loan entries in books of account and introduction of capital by the partners etc. on which the additions were made by the AO, however deleted by the Ld. Commissioner, to the extent as challenged in these appeals and therefore the parties argued the appeals simultaneously, which we will deal with, in the relevant parts of adjudication of the issues involved.
4. The Ld. CIT DR, Mr. R A Dyani, in support of the instant appeals, argued that there had been complete non-compliance by the Assessee during the assessment proceedings, as the Assessee had not only failed to file the relevant details and documents but had also failed to file its return of income in response to notice issued under Section 153A, and therefore, the best judgment assessments framed under Section 144 by the AO being fully justified, are liable to be restored. It was further contended that the Assessee had failed to discharge the initial burden cast under Section 68 of the Act during the assessment stage and also failed to properly explain the credit entries appearing in its bank accounts.
4.1 The Ld. DR further submitted that the Ld. Commissioner had wrongly admitted the additional evidences in violation of Rule 46A of the Income Tax Rules, 1962, as despite being afforded sufficient opportunities, the Assessee failed to produce the relevant evidences before the Assessing Officer.
4.2 With regard to cash deposits, the Ld. DR argued that the Assessee had failed to furnish party-wise details of commission income and therefore, the explanation offered was not verifiable and could not be regarded as reliable. Further, the Assessee had failed to explain the source of such cash during the search as well as in subsequent proceedings, and the statements recorded did not satisfactorily establish ownership or source; therefore, the addition made by the AO under Section 69A was fully justified and deserves to be restored.
4.3 In respect of capital introduced by partners, the Ld. DR contended that the Assessee had failed to explain the exact source of funds in the hands of the partners and therefore, the doubts raised regarding creditworthiness and genuineness were justified.
4.4 With regard to unsecured loans, the Ld. DR submitted that the transactions were rightly doubted due to absence of loan agreements and lack of clarity regarding the purpose and terms of the loans, and hence the same were liable to be treated as non-genuine.
4.5 With regard to large loan transactions of Rs. 2.14 crores and Rs. 57 lakhs, the Ld. DR argued that although the transactions had been routed through banking channels, however the substance of the transactions had not been established and mere documentation, in the absence of complete explanation, was insufficient.
5. On the contrary, the Assessee’s Ld. Counsel Mr. Satya Praksh Singh, Ld. CA contended that the assessments framed as ex-parte under Sections 144 r.w.s. 153A were vitiated for want of proper opportunity, as the statutory notices were received by an employee, who failed to inform the partners, thereby constituting sufficient cause within the meaning of Rule 46A(1)(c). It was thus submitted that the admission of additional evidences, being crucial for proper adjudication, was justified and had rightly been allowed by the Ld. Commissioner.
5.1 On merits, the Ld. Counsel for the Assessee submitted that the burden cast under Section 68 had been duly discharged by establishing the identity, creditworthiness, and genuineness of the transactions through cogent documentary evidences, including bank statements, ITRs, confirmations, and books of account, and that once such prima facie evidence had been furnished, the onus had shifted to the Revenue, which failed to bring any adverse material on record. It was further submitted that the cash deposits stood explained as arising from recorded cash receipts and cash-in-hand duly reflected in the books, with receipts far exceeding the deposits, and that there was no statutory requirement to maintain party-wise details.
5.2 With regard to cash found during search, the Ld. Counsel argued that cash found was duly supported by entries in the books of account and sufficient opening cash balances, thereby precluding any addition under Section 69A. It was also contended that the protective addition was unsustainable in law, as the ownership of the cash had already been accepted and assessed substantively in the hands of another entity. As regards the objection of the Revenue that certain balance credits remained unexplained even during remand proceedings, it was submitted that only such specific portions, if any, which remains to be substantiated, resulted into making the additions and affirmations thereof and have not been challenged by the Assessee in order to buy peace of mind.
5.3 With regard to capital introduced by the partners, the Counsel argued that these transactions have been routed through banking channels and were duly supported by evidences, and that in the case of a partnership firm, there was no requirement to prove the “source of source,” as the first proviso to Section 68 was applicable only to the companies.
5.4 With regard to unsecured loans, including those received from entities such as KDS Stock Management Pvt. Ltd., it was submitted that the same had duly been substantiated through confirmations, financial statements, ITRs, and banking records, and that the lenders possessed sufficient financial capacity with identifiable sources of funds; hence, mere absence of a formal loan agreement could not render the transactions non-genuine, particularly when repayment had further established their genuineness.
6. Considering the complexities of issues/additions, we deem it appropriate to decide these cases, appeal wise.
7. Thus, coming to ITA No.2993/M/2025 (AY 2018-19), we observe that the brief facts relevant for adjudication of the same are that a search and seizure action under Section 132 of the Act was carried out at the business premises of the Assessee on dated 10.2019, wherein the cash amount of Rs.2,62,30,500/- was found and seized. Out of which, the amount of Rs.1,10,00,000/-belongs to Shri Shashin H. Salva, partner of ‘Deluxe Jewel’ as claimed.
7.1 Thus, in order to examine the source of generation of cash of the said cash amount, the case of the Assessee was reopened under Section 153A of the Act and consequently, a show cause notice under Section 153A of the Act was issued on dated 17.03.2021. However, the Assessee did not file any return of income in response to the said notice. Therefore, the AO again issued a notice dated 23.09.2021 under Section 153A of the Act and show caused the Assessee, as to why the assessment proceedings should not be proceeded under Section 144 of the Act i.e. ‘Best Judgment Assessment’, in absence of any compliance, however, the Assessee still made no compliance.
7.2 Thus, the AO in the constrained circumstances proceeded with the case to make the assessment as ex-parte and ‘Best Judgment Assessment’, as per the provision of Section 144 of the Act.
7.3 The AO, on perusing the case record, as well as the data system of the Department observed that the Assessee is engaged in providing courier (angadia) services and during the year under consideration was holding the bank account in Union Bank Ltd. Bearing A/c No. 3198 0101 0039 458, wherein the Assessee during the year under consideration held the credit entry of Rs.1,21,66,800/- through bank transfer/NEFT/cheque/any other mode of banking channel.
7.4 As the Assessee neither furnished any document nor made any compliance and therefore, as per the AO, the Assessee failed to discharge its onus cast upon it under the provisions of Section 68 of the Act, and hence he held that the funds credited to the tune of Rs.1,21,66,800/- in the books of Assessee has remained unexplained and therefore, the same is added in the income of the Assessee under Section 68 of the Act being unexplained cash credit, vide assessment order dated 30-09-2021 under Section 153A r.w.s. 144 of the Act.
8. The Assessee being aggrieved challenged the aforesaid addition of Rs.1,21,66,800/-and the assessment order as well, by filing first appeal before the Ld. Commissioner. The Assessee during the 1st appellate proceedings, in order to substantiate its claim, filed following documents:
a) Copy of Cash book from April 2017 to March 2018.
b) Copy of Bank book from April 2017 to March 2018.
c) Copy of Bank statement of Union Bank of India of Assessee for FY.2017-18.
d) Copy of Bank Statement of Jigneshkumar S Patel for FY.2017-18.
e) Copy of Bank Statement of Ashokbhai M Patel for FY.2017-18.
f) Copy of Income Tax Return of Jigneshkumar S Patel for FY.2017-18.
g) Copy of Income Tax Return of Ashokbhai M Patel for FY.2017-18.
h) Copy of Ledger Confirmation of Jigneshkumar S Patel for FY.2017-18.
i) Copy of Ledger Confirmation of Ashobhai M Patel for FY.2017-18.
9. The Ld. Commissioner in order to examine such additional evidences and ssimultaneously, to ensure fairness and to provide fair opportunity, forwarded the evidences to the Assessing Officer {AO} for verification and comments. Pursuant thereto, the AO conducted remand proceedings, examined the evidences, and reiterated his objection to their admissibility, though partly accepting the claims on merits by submitting remand report 25.07.2024. however, the AO objected to the admission of the additional evidences under Rule 46A of the Income-tax Rules, 1962.
10. Thus, the Ld. Commissioner examined the claim of the Assessee that it was prevented by sufficient cause from producing the relevant evidences before the AO. It was submitted that statutory notices issued during assessment were received by an employee, Shri Parmar Dinaji , who failed to communicate the same to the partners in time. As a result, the Assessee became aware of the non-compliance only upon receipt of the assessment order. In support of this contention, an affidavit of the concerned employee was filed. The Assessee accordingly pleaded that its case fell within the ambit of Rule 46A(1)(c), which permits admission of additional evidence, where sufficient cause is demonstrated. It was further submitted that the evidences were crucial for proper adjudication, and reliance was placed on judicial precedents to support the claim.
11. The Ld. Commissioner, after considering the submissions of both parties and the facts of the case, observed that the assessment had been completed ex parte under section 144 read with section 153A of the Act, without the benefit of relevant details. Taking into account the reasons furnished by the Assessee and the supporting affidavit, the Commissioner found the explanation to be reasonable and satisfactory. It was also noted that the additional evidences were directly relevant and material to the issues under consideration.
12. Accordingly, in the interest of justice and in adherence to the principles of natural justice, the Commissioner admitted the additional evidences under Rule 46A. Ultimately, the Commissioner upheld the admissibility of the additional evidences, holding that the Assessee had demonstrated sufficient cause for non-production during assessment proceedings, and proceeded to adjudicate the appeal on merits.
13. The AO in the remand proceedings bifurcated the amount of addition Rs.1,21,66,800/- in following heads:
(a) addition of 1609200/- made on account of cash deposit.
(b) addition of 98,07,600/- (capital introduced by partners)
(c) addition of 7,50,000/- on account of unsecured loan.
14. During the course of appellate proceedings before the Ld. Commissioner, the Assessee firm furnished the details of total credits of Rs.121,16,680/- which was added to the income of the Assessee by the AO. As per the details furnished, the bifurcation of the said amount as claimed by the Assessee, is as under:
(a) an amount of Rs.1609200/- represented as commission income received in cash and subsequently deposited in the bank account on various dates;
(b) an amount of Rs. 9807600/- represented capital introduced by the partners, viz. Shri Jigneshkumar S. Patel and Shri Ahokbhai M. Patel; and
(c) an amount of Rs. 7,50,000/- represented the unsecured loan obtained from Shreeji Jewelers.
15. The Assessee further submitted that the cash deposited in the bank account, was out of cash in hand, which was also reflected in the cash book. Further, the capital introduced by the partners was through account payee cheques, as is evident from the bank statements. The Assessee in order to support its contentions, also filed following documents/details: –
(i) Cash book of the Assessee firm for the relevant period;
(ii) Copy of bank book of the Assessee firm;
(iii) Copy of bank statement of the Assessee firm;
(iv) Copy of thhe bank statements of the partners- Shri Jigneshkumar S. Patel and Shri Ashok Y. M. Patel;
(v) Copy of ITRs of the partners- Shri Jigneshkumar S. Patel and Shri Ashok Y. M. Patel;
(vi) Ledger confirmation copy of the partners – Shri Jigneshkumar S. Patel and Shri Ashok Y. M. Patel
16. The Assessee further submitted that it had received an amount of Rs.16,09,200/-in cash for providing money mobilization services being commission, which was usually deposited by the Assessee in its bank account and therefore, the same was so deposited.
17. The Assessee further claimed that it has during the year declared gross receipts of Rs.88,26,909/-from such services, which include the above amount of Rs.16,09,200/-.
18. The Assessee further submitted that the amount of Rs.98,07,600/-was received from the partners, as capital introduced through banking channels, as evident from the bank statements, ledger confirmation and ITRs of the partners of the partners, reflecting the transactions and therefore, the addition made by the AO on account of capital introduced by the partners, should be deleted.
19. With regard to the addition of Rs.7,50,000/- being unsecured loan, the Assessee claimed that the said amount has been received on dated 25.04.2017 through banking channels from M/s Shreeji Jewelers and subsequently been repaid by the Assessee firm on dated 08.11.2019 as reflects from the bank statements of Union Bank Ltd. and Bank of Baroda having been received and repaid respectively.
20. The Assessee thus, with the above, before the Ld. Commissioner contended that the onus to prove the identity and credit worthiness of the creditors and genuineness of the transactions cast upon, it stood discharged.
21. We observe from the impugned order that the Ld. Commissioner adjudicated the total credited amount of Rs.1,21,66,800/- in following components: –
(a) addition of Rs.1609200/- made on account of cash deposit.
(b) addition of Rs.98,07,600/- (capital introduced by partners)
(c) addition of Rs.7,50,000/- on account of unsecured loan.
22. Coming to the addition of Rs.16,09,200/- which was made by the AO on account of cash deposited, we observe that the AO during the remand proceedings after examining the additional evidences filed by the Assessee, during the appellate and remand proceedings, reported that as per the ITR of the Assessee, the Assessee has declared gross receipts/sale of services amounting to Rs.88,26,909/- and has also shown total cash equivalents amounting to Rs.96,71,771/-. Further in the ledger account of commission income, the Assessee has also recorded commission income in cash amounting to Rs.88,26,909/- for the period from 01.04.2017 to 31.03.2018. The AO however doubted the claim of the Assessee by cited the reason that the Assessee has not furnished the party wise details of commission income earned during the year under consideration. Whereas, the Assessee before the Ld. Commissioner claimed that there is no requirement to maintain such details.
23. The Ld. Commissioner thus, considering the peculiar facts and circumstances in the context of the addition of 16,09,200/-observed that once it is established by the Assessee that it had sufficient receipts in cash during the period under consideration to explain the source of cash deposits in its bank account, then no adverse inference can be drawn against it, in the absence of any cogent material. The Ld. Commissioner further observe that in the present case, the cash deposit made by the Assessee in its bank account during the entire year amounting to Rs.16,09,200/-only, as against the same the Assessee firm had receipts in cash (by way of commission) amounting to Rs.88,26,909/- during the year under consideration. And therefore, the total receipts in cash were far in excess of the total cash deposits made in the bank account during the year and in such a situation, it cannot be said that the sources of cash deposits are not explained.
24. The Ld. Commissioner, thus, on the aforesaid peculiar fact and circumstances and observation of the AO in remand report, was of the view that since the Assessee has established that it had sufficient cash receipts to make the cash deposits in question, the onus cast upon it u/s. 68 of the Act stands discharged. The AO has not brought on record any material to show that the cash deposits in question represented unaccounted income earned by the Assessee during the year over and above the cash receipts already recorded in its books of accounts.
Thus, the Ld. Commissioner ultimately found no justification for sustaining the addition under consideration and consequently, deleted the same.
25. We have given thoughtful consideration to the peculiar facts and circumstances of the case, the claim lodged by the Assessee, the documents available on record, remand report and the decisions rendered by the AO and the Ld. Commissioner in the assessment order and impugned order respectively, with regard to the addition of 16,09,200/- and/or the issue under consideration. As observed above, the Assessee in the return of income filed for the AY under consideration had declared gross receipts on account of sales of services amounting to Rs.88,26,909/- and has also shown total cash and cash equivalents amounting to Rs.96,71,771/- and has also established the deposit of Rs.16,09,200/- during the year under consideration has been made from the receipts of the cash by way of commission income amounting to Rs.88,26,909/- having been earned during the year under consideration, which goes to show that total receipts in cash were far in excess of the total cash deposits made in the bank account during the year, as independently verified by the Ld. Commissioner in the appellate proceedings and the AO in the remand proceedings. Further, the AO has failed to produce any contrary material in this regard to prove that the said cash deposits of Rs.16,09,200/- in question, represented unaccounted income earned by the Assessee during the year over and above the cash receipts shown in the books of accounts.
26. Thus, on the aforesaid analyzations, we are of the considered opinion that the Ld. Commissioner has rightly deleted the addition under consideration by holding that the Assessee has discharged its onus cast under Section 68 of the Act and there was no justification for sustaining the addition under consideration. We even otherwise do not find any material and/or reason to contradict the decision of the Ld. Commissioner on the issue/addition under consideration and thus, the order of the Ld. Commissioner in deletion of the addition of Rs.16,09,200/, is sustained.
27. Coming to the addition of 98,07,600/- on account of capital introduced by the partners of the Assessee firm, we observe that the Assessee before the Ld. Commissioner has claimed that out of said amount, the amounts of Rs.55,57,600/- and Rs.42,00,000/- have been received by the Assessee from Shri Jigneshkumar S. Patel (in short Mr. Jignesh) and Shri Ashokbhai M. Patel (in short Mr. Ashokbhai ) respectively, whereas, the AO after verification of the additional evidences, reported in the Remand Report that as per the bank book of the Assessee firm, the total amount received from Mr. Jignesh was Rs.42,00,000/- only and therefore, the Assessee has failed to explain the credits amounting to Rs.9,00,000/- (51,00,000 – 42,00,000).
28. The Assessee thus, in rejoinder before the Ld. Commissioner claimed that the AO has not considered the amount of 6,00,000/- received in the bank account of Assessee firm from Mr. Jignesh.
29. Thus, the Ld. Commissioner by verifying the facts from the bank statements of Assessee and Jignesh found the contention of the Assessee as correct. The Ld. Commissioner also considered the remand report in the context of reporting by the AO that the total amount received from Mr. Jignesh was Rs.51,00,000/- instead of Rs.55,57,600/- as claimed by the Assessee. As the Assessee has claimed that out of total credits amounting to Rs.1,21,66,800/-appearing in its bank account, an amount of Rs.55,57,600/- represented capital introduced by one of the partners of the firm Mr. Jignesh therefore, the onus was on the Assessee to substantiate the claim.
30. The Ld. Commissioner further observed that however, from the remand report, it is evident that the Assessee could not establish that an amount of Rs.4,57,600/- had also been received from Jignesh. Further, the Assessee during the remand proceedings and first appellate proceedings has also not given any explanation in this regard. Thus, the nature and sources of credits to the extent of Rs.4,57,600/- also remains unexplained. Thus, the Ld. Commissioner ultimately held that out of Rs.55,57,600/-, the Assessee has received only Rs.48,00,000/- during the year under consideration from Mr. Jignesh and consequently in effect Ld. Commissioner sustained the addition to the extent of Rs.7,57,600/-, deleting the addition of Rs.48,00,000/-.
31. We further observe that the AO, with regard to the capital introduced Ashokbhai to the tune of Rs.42,50,000/- as claimed by the the Assessee, has observed that Assessee firm had received the amount of Rs. 40,50,000/- as per bank account statements of the Assessee firm during the year under consideration, whereas the Assessee has claimed to have received the amount of Rs.42,50,000/- from him.
32. However, the Assessee in rejoinder claimed before the Ld. Commissioner that the finding of the AO was incorrect, as he has not considered the amount of 2,00,000/- having been received by the Assessee firm on dated 14.03.2018 from Shri Ashokbhai.
33. The Ld. Commissioner by verifying the aforesaid facts from the bank account statements of the Assessee firm and Shri Ashokbhai, found the contention of the Assessee with regard to the amount of Rs.2,00,000/- having been received on dated 14.03.2018 as correct as reflected in the said statements. The ld. Commissioner in effect found the contention of the Assessee with regard to the receipt of Rs. 42,50,000/- from Shri Ashokbhai as correct, by verifying the bank account statements of both.
34. The Ld. Commissioner further, examined the sources of funds of Rs.90,50,000/- (Rs.48,00,000 from Mr. Jignnesh and Rs.42,50,000/- from Mr. Ashokbhai) in the hand of partners and observed that in the remand report, the AO has reported that Jignesh had received the total amount of Rs.65,00,000/- from KGSSM. Further, Mr. Jignesh during the year under consideration had also taken loans amounting to Rs. 48,00,000/- and had revenue from operations amounting to Rs.17,22,369/-. Further the AO also reported that Mr. Ashokbhai had also received loan of Rs. 65,00,000/- from KGSSM during the year under consideration. However, the AO still treated the said amounts as unexplained, doubting the same mainly on the reason that the Assessee has not furnished the copy of loan agreements between KGSSM and the partners. Whereas, the Assessee has specifically claimed that that this cannot be reason for treating the credits as unexplained.
35. The Ld. Commissioner by considering peculiar facts and circumstances of the case on the issue under consideration and the specific observation of the AO in the remand report and the claims lodged by the Assessee and by considering the relevant provisions of Section 68 of the Act held that in the present case, the Assessee is a partnership firm and hence the only requirement under Section 68 of the Act in its case, is to explain the nature and sources of the sums found credited in its own books of account. The requirement of explaining the nature and source of funds in the hands of person, in whose name the credit is recorded in the books of the Assessee, as per the first proviso to Section 68, is not applicable to this case, as the proviso is applicable only in cases, where any such sum is found to be recorded in the books of companies, in which the public are not substantially interested.
36. The ld. Commissioner further observed that during the remand proceedings and appellate proceedings, the Assessee has furnished documentary evidences to show that the total amount of 90,50,000/- was received by it during the year under consideration from its partners. The AO has also confirmed this position in the remand report thus, the requirements under Section 68 are met by the Assessee.
37. The ld. Commissioner further observed that before him the Assessee has also filed copy of balance sheet of KGSSM, which shows that the said company has reserves of 10,00,26,935/- as on 31.03.2018. Further, the loan transaction, cannot be doubted in the absence of formal written agreement only. Further, the Assessee firm and its partners in any case, are separate and independent taxable entities and the issue regarding genuineness of the transactions of receipt of funds by the partners of KGSSM, is to be examined in the hands of the partners and not in the case of the Assessee firm.
38. The ld. Commissioner, thus, on the aforesaid analyzations, ultimately deleted the addition of such amount of 90,50,000/-by holding as under:
“That the Assessee with supporting documentary evidences, has explained the immediate source of the funds found credited in its bank accounts to be from its partners and also the source of funds in the hands of the partners and thus, the Assessee has discharged the onus cast upon it under Section 68 of the Act and has been able to explain the nature and sources of credits amounting to Rs.90,50,000/- appearing in its bank account. Thus, out of addition of Rs.12166800/- made by the AO under Section 68 of the Act, addition to the extent of Rs.90,50,000/- also cannot be sustained.”
39. We have given thoughtful consideration to the peculiar facts and circumstances and the documents available on record and the remand report and the decisions of the authorities below on the issue under consideration. Admittedly, the AO in the remand proceedings verified the claim of the Assessee with regard to the capital introduced by the Assessee’s partners, amounting to Rs.98,07,600/- and noted that out of said amount, the Assessee during the year under consideration has received Rs.42,00,000/-from Mr. Jigneshkumar Patel and Rs.40,50,000/- from Mr. Ashokbhai. The AO thus, impliedly approved the said transaction of Rs.92,50,000/- in total.
40. The Ld. Commissioner while considering peculiar facts and circumstances of the case, in the context of the addition under consideration, not only considered the bank statement of the Assessee and its partners, but also considered the source of credited amount received by the Assessee from the partners, as well as the financial of the KGSSM from whom the Assessee’s partners have received the loan amounts. Further it is a fact that the Assessee in order to discharge its onus cast under Section 68 of the Act, not only provided the relevant documents but also submitted plausible explanation, demonstrating the amounts depicted in the bank accounts and/or the amounts received during the year under consideration.
41. Further, the ld. Commissioner not only considered the determinations made by the AO in the Assessment order and remand report, but also thoroughly examined the relevant documents filed by the Assessee viz-a-viz ITRs of the Assessee and its partners in the context of the addition made by the AO and the issue under consideration in the context of the relevant provision of law as applicable thereto and the fact that the Assessee was not supposed to establish the source of source, however, still the KGSSM from whom the Assessee’s partners have taken loan amounts, had reserves of 10,00,26,935/- as on 31.03.2018 meaning thereby, KGSSM was having creditworthiness to extend the loan amounts under consideration to the Assessee’s partners, who in turn invested in the Assessee’s firm as capital. And thus on the said verification, determinations and analyzations the Ld. Commissioner, ultimately deleted the addition of Rs.90,50,000/- by treating the same as explained.
42. The Revenue before us, even otherwise could not controvert the findings of the Ld. Commissioner in the context of the addition under consideration. Even otherwise, we also could not find any material and /or reason contrary to the determination made by the Ld. Commissioner on the issue/addition under consideration. Thus, the decision of the ld. Commissioner on the issue under consideration, does not require any interference and hence, the decision of the ld. Commissioner in deleting the addition of Rs.92,50,000/- is upheld.
43. Coming to the addition of 7,50,000/-, it is observed that the amount of Rs.7,50,000/- which was found credited on 25.04.2017 in the bank account of Assessee’s firm represented unsecured loan received from M/s. Shreeji Jewelers. The AO doubted the said transaction mainly on the reason that the Assessee has not submitted the copy of the loan agreement between the Assessee and Shreeji Jewelers and therefore, the nature of the receipt remains unexplained. Whereas, the Assessee before the Ld. Commissioner has claimed that it has filed the relevant details in the form of additional evidences, in relation to the said unsecured loan and the AO duly verified the documents filed by the Assessee in the remand proceedings and has not pointed out any discrepancy in the same. Therefore, the Assessee had established the identity and credit worthiness of the parties and genuineness of the loan transaction, thus the loan transaction cannot be treated as non-genuine.
44. We observe that the AO doubted the loan transaction merely on the ground that the Assessee has not furnished copy of the loan agreement, which according to the ld. Commissioner was not justified and therefore, the ld. Commissioner by considering the peculiar facts and circumstances and the documents and the claim of the Assessee in the context of the addition of 7,50,000/- being unsecured loan, examined the bank statements of Assessee and M/s. Shreeji Jewelers, wherein the receipt of said amount reflects, ledger confirmation, audited financial statements and ITR acknowledgment of M/s. Shreeji Jewelers respectively for the AY 2018-19 wherefrom the loan amount has been established, as explainable, by observing and holding as under:
“Further, the fact that the AO himself also reported that M/s. Shreeji Jewelers had a net profit of Rs.13,12,319/- for the year ended on 31.03.2018, held that the identity and credit worthiness of the party is established. Further, M/s. Shreeji Jewelers had also confirmed the transaction to be a loan. Further as per the bank statement of Bank of Baroda, the Assessee has already repaid the said loan on dated 08.11.2019 thus, it is evident that the transaction in question was in the nature of loan. The nature of such transaction has also been explained and he found no reason to sustain the addition to the extent of Rs.7,50,000/-.”
45. Thus, the ld. Commissioner on the aforesaid reasons, deleted the addition of 7,50,000/-.
46. We have given thoughtful consideration on the issue/addition of 7,50,000/- being unsecured loan. It is not in controversy that the Assessee had received the said amount through banking channel and duly confirmed by the lender by producing the relevant documents, such as confirmation ledger, financials and ITR of the relevant AY. Further, it is a fact that the Assessee has also repaid the loan amount of Rs.7,50,000/- on dated 08.11.2019 i.e. in the subsequent assessment year. The AO, admittedly not doubted the documents submitted by the Assessee, such as bank statements depicting the receipt of loan and repayment thereof, confirmation issued by the lender, audited financials and ITR of the lender and the net profit of Rs.13,12,319/- earned by the lender for the year ended on 31.03.2018 but doubted the loan transaction simply on the ground that the Assessee failed to furnish the copy of the loan agreement and therefore, the ld. Commissioner found such doubt, as non-justifiable.
47. In our considered view, the ld. Commissioner not only considered the loan transaction in the context of the relevant documents but also adjudicated the same by considering the peculiar facts that the Assessee discharged its onus by producing the relevant documents, which were also verified by the AO and no defect was found in the same by the AO and the fact that the Assessee has already repaid the loan amount in the subsequent year, which strengthen the genuineness of loan transaction.
48. The Hon’ble Apex Court in the case of PCIT Vs. High-tech Residency Pvt. Ltd. (2018) 257 com335 (SC) has also considered the case, wherein the Assessee discharged its onus cast u/s 68 of the ACT and therefore held as under:
“ That where an Assessee company had discharged the onus of establishing identity, genuineness of transactions and creditworthiness of investors, then no additions could be made u/s 68 of the Act”.
49. We further observe that the Hon’ble High Court of Gujrat in the case of PCIT vs. Ambe Tradecorp (P.) Ltd. [2022] 145 com27 (Guj.), has also dealt with a situation wherein the loans were repaid and therefore the Hon’ble High Court has held that once the identity of the lenders stood proved and loans were also paid subsequently, then no addition is permissible u/sec. 68 of the Act.
50. Further, the Hon’ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji [2014] 221 Taxman 146 (Guj.) as well, has also considered the identical issue, wherein the loan amounts have been repaid by the Assessee in the immediate next financial year and the Department has accepted the repayment of loans, without disputing it and, therefore, the Hon’ble High Court approved the decision of the Tribunal in holding that the matter is not required to be remanded, as no other view would be possible.
51. Thus, on the aforesaid analyzations, we are of the considered view, the ld. Commissioner has taken a considerable view in the context of the relevant documents and as per the legal parameters as applicable to the issue under consideration and hence, the decision of the ld. Commissioner is liable to be upheld. Even otherwise, we could not find any material and/or reason contrary to the findings of the ld. Commissioner, in deleting the addition under consideration. Resultantly, the decision of Ld. Commissioner is deleting the addition of Rs. Rs.7,50,000/- is upheld.
52. Thus, in view of above decisions on the issues/additions as adjudicated by us, the appeal filed by the Revenue Department is liable to be dismissed and therefore, the same is dismissed.
53. In the result, Revenue’s appeal i.e. ITA No.2993/M/2025 (AY 2018-19), is dismissed.
ITA No.2994/M/2025 (AY 2019-20)
54. Coming to ITA no. 2994/M/2025, it is observed that the Assessing Officer, on perusal of the bank statements of the Assessee, observed that certain credit entries were reflected in its accounts such as 2,39,00,000/- in Bank of Baroda and Rs. 6,44,000/- in Union Bank of India. Further, the total credits appearing during the year under consideration were aggregated at Rs. 2,45,11,400/-. Thus, the AO in order to examine such bank credit entries, issued a show-cause notice to the Assessee requiring it to explain the nature and source of the said credits. The Assessing Officer also cautioned that non-compliance would result in completion of assessment under section 144 of the Act.
55. However, despite being afforded sufficient opportunities, the Assessee neither filed its return of income nor complied with the statutory notices issued. Consequently, the Assessing Officer proceeded to complete the assessment as ex-parte under section 144 of the Act, on the basis of material available on record. And in the absence of any explanation or supporting evidence, the Assessing Officer held that the Assessee failed to discharge the onus cast upon it under section 68 of the Act. Accordingly, the AO treated the entire sum of 2,45,11,400/-as unexplained cash credit and consequently added to the total income of the Assessee.
56. The Assessee being aggrieved with such addition made by AO, preferred 1stappeal before the Ld. Commissioner and, during appellate proceedings, furnished additional evidences, including cash book, bank books, bank statements, income tax returns, and ledger confirmations of relevant parties, such as Mr. Jignesh and Mr. Ashokbhai and KGS Stock Management Pvt. Ltd.
57. The Ld. Commissioner, thus, in order to examine documents (evidences) filed by the Assessee and to afford an opportunity to the AO, forwarded the same to AO, who conducted the remand proceedings and filed its report verifying the claims lodged and documents filed by the Assessee and accepted in part, however, objected to the admission of additional evidences filed by the Assessee, contending that the same were not admissible in view of Rule 46A of the Income Tax Rules, 1962.
58. Thereafter the said documents were admitted by the Ld. Commissioner u/s 46A of the Rules, mainly on the ground that the additional evidences were directly relevant to the issues involved and that the Assessee was prevented by sufficient cause from producing the same before the Assessing Officer. The Ld. Commissioner accordingly proceeded to decide the appeal on merits.
59. The Ld. Commissioner observed that the total credits of 2,45,11,400/-appearing in the bank accounts of the Assessee were claimed to be on account of commission income received in cash and deposited in bank, cash in hand, capital introduced by partner, and unsecured loans. For the purpose of adjudication, the additions were bifurcated as under:
| Rs. 6,44,000/- | – Cash deposits |
| Rs. 10,00,000/- | – Cash deposits |
| Rs. 15,00,000/- | – Capital introduced by partner |
| Rs. 2,14,00,000/- | – Unsecured loans |
60. While adjudicating the addition of 6,44,000/-on account of cash deposits, the Ld. Commissioner observed that the Assessee had declared gross receipts of Rs. 1,22,67,691/- as commission income for the period 01.04.2018 to 31.03.2019, stated to have been received in cash and subsequently deposited into the bank account. The total cash receipts recorded by the Assessee were substantially higher than the cash deposits made in the bank account during the relevant year. Specifically, the Assessee had declared cash receipts of Rs. 1,22,67,691, whereas the impugned cash deposit amounted to only Rs. 6,44,000/-. Accordingly, the Commissioner held that the said deposit could not be treated as unexplained, as sufficient cash availability was duly demonstrated. Consequently, the primary onus cast upon the Assessee under Section 68 of the Act stood discharged.
61. The Ld. Commissioner also considered the observations of the Assessing Officer doubting the genuineness of the receipts, primarily on the ground that the Assessee failed to furnish party-wise details of the commission income earned during the year. In response, the Assessee contended that there is no statutory requirement mandating the maintenance of such party-wise details. Upon consideration of the peculiar facts and circumstances of the case, the Ld. Commissioner noted that the cash deposits were duly supported by corresponding entries and recorded cash receipts in the books of account. In the absence of any cogent or corroborative material brought on record by the Assessing Officer to establish that the impugned cash deposits represented unaccounted income over and above the recorded receipts, the addition is unsustainable.
62. Accordingly, the Commissioner found no justification for sustaining the addition of Rs. 6,44,000 made under Section 68 of the Act and directed its deletion.
63. We have carefully considered the facts of the case, the findings of the learned Commissioner, and the material available on record. It is an admitted position that the Assessee had cash receipts of 1,22,67,691/- during the year, as against the impugned cash deposit of Rs. 6,44,000/- and the Assessee, by furnishing relevant documentary evidence before the Commissioner, had duly discharged its prima facie onus cast under Section 68 of the Act. Thereafter, the burden shifted upon the Assessing Officer to establish that the impugned deposits represented unexplained income. However, the Assessing Officer failed to bring any material on record to substantiate such a claim or to demonstrate that the deposits were over and above the recorded cash receipts. Thus, in view of these facts, we find that the Ld. Commissioner has rightly deleted the addition. Resultantly, we do not find any infirmity or reason to interfere with the said findings and hence the decision of Ld. Commissioner in deleting the addition of Rs. 6,44,000/- is upheld.
64. Coming to the addition of 10,00,000 made by the Assessing Officer on account of cash deposits, it is observed that the Learned Commissioner, after considering the remand report, recorded that the Assessing Officer himself had accepted the contention of the Assessee that the said cash deposit was made out of cash-in-hand available with the firm. Upon verification of the additional evidences furnished, it was noted by the AO that the Assessee firm had cash-in-hand of Rs. 1,00,69,822/- as on 01.04.2018. Further, as per the return of income for A.Y. 2018–19, the Assessee disclosed cash and cash equivalents amounting to Rs. 96,71,771. The Assessing Officer also reported that, as per the bank statement of the Assessee’s account with Bank of Baroda, cash withdrawals aggregating to Rs. 1,63,50,000/- were made during the period from 21.06.2018 to 05.11.2018.
65. Thus, in view of the above and relying upon the categorical findings of the Assessing Officer in the remand report, the Ld. Commissioner, held that sufficient cash-in-hand was available with the Assessee firm to explain the impugned cash deposits and having accepted the explanation by the AO in remand report, ultimately deleted the addition of Rs. 10,00,000/-. We find that the order of the Learned Commissioner is based on proper verification and cogent findings recorded by the Assessing Officer in the remand proceedings. The conclusion reached is well-reasoned and supported by material on record. Accordingly, we see no reason to interfere with the findings of the Learned Commissioner, and therefore the deletion of the addition of Rs. 10,00,000/- is hereby sustained.
66. Coming to the addition of Rs. 15,00,000/- being capital introduced by the partner, we observe that the Assessee, during the year under consideration, had received an amount of Rs. 15,00,000/- from its partner namely Shri Jignesh Kumar S. Patel, towards capital contribution. The Assessing Officer, during remand proceedings, verified the relevant documents and confirmed that the said partner had introduced capital in the Assessee firm, which is duly reflected in the bank statements of both the Assessee and the partner. It was further observed that the partner had received funds aggregating to Rs. 40,00,000/- from KGS Stock Management Pvt. Ltd. (KGSSM) through banking channels. However, according to the Assessing Officer, the Assessee failed to furnish adequate explanation regarding the purpose of such funds advanced by KGSSM to the partner and therefore the amount of Rs. 15,00,000/- remained unexplained and thus, he recommended sustaining the addition to that extent.
66.1 The Ld. Commissioner thus, after considering the remand report, submissions of the Assessee, and documentary evidences on record, noted that the Assessing Officer himself admitted that sufficient funds were available with the partner to introduce capital in the Assessee firm. The identity of the partner, genuineness of the transaction, and availability of funds were thus not in dispute. Further, the Ld. Commissioner examined the applicability of Section 68 of the Act, particularly, the First proviso thereto, and rightly observed that the said proviso applies only to the companies and not to partnership firms. Therefore, the Assessee firm is not required to explain the “source of source” in the hands of the partner. Thus, the Ld. Commissioner in view of the above facts and legal position, held that the Assessee had duly discharged the onus cast upon it under Section 68 by establishing the identity of the partner, genuineness of the transaction, and creditworthiness and therefore he deleted the addition of Rs. 15,00,000/- accordingly.
67. We have given thoughtful consideration to the facts and circumstances of the case. It is observed that the Assessing Officer himself, in the remand report, has accepted the availability of sufficient funds with the partner. Once the capital contribution is duly supported by banking transactions and the partner is identifiable, no addition can be sustained in the hands of the firm merely on the ground that the source of funds in the hands of the partner was not fully explained. Accordingly, we find no infirmity in the order of the Ld. Commissioner in deleting the addition of 15,00,000/-. The same is hereby upheld.
68. Coming to the addition of Rs. 2,14,00,000/- made by the AO under Section 68, we observe that this addition pertains to a sum of Rs. 2,14,00,000/- found credited in the Assessee’s bank account maintained with Bank of Baroda, treated as an unsecured loan received from M/s KGS Stock Management Pvt. Ltd.
69. The AO, in the remand proceedings, acknowledged the facts that the loan transactions were duly reflected in the bank statements of both the Assessee and the lender for the relevant period (01.04.2018 to 31.03.2019). The lender company possessed substantial reserves and surplus during the year under consideration. However, the Assessee failed to furnish a copy of the loan agreement. Consequently, the purpose and nature of the transaction remained unexplained.
70. On the contrary, the Assessee in rejoinder contended that complete documentary evidences were furnished, including bank statements of both parties, ledger confirmations, audited financial statements and Income Tax Return (ITR) acknowledgment of the lender. And the AO did not point out any discrepancy in the documents submitted. And therefore the three essential ingredients i.e. Identity of the lender, Creditworthiness of the lender, Genuineness of the transaction as mandated in Section 68 were duly satisfied. Even otherwise, mere non-submission of a loan agreement cannot render, an otherwise genuine transaction, as unexplained.
71. The Ld. Commissioner after examining the remand report, submissions, and documentary evidence, observed that the receipt of Rs. 2,14,00,000/- was duly reflected in the bank accounts of both parties. The lender had sufficient financial capacity, supported by its reserves and surplus. The source of funds was explained as proceeds from redemption of mutual funds and other receipts. And therefore the Assessee has successfully discharged the onus under Section 68 and therefore the transaction was genuine and properly explained. Further the AO also did not dispute the creditworthiness of the lender. The Ld. Commissioner thus, on the above findings held the addition of 2,14,00,000/- as unsustainable and therefore deleted the same.
72. Having heard the parties and giving thoughtful consideration to the material available on record and determinations made by the Authorities below on the addition in hand, it is observed that the Assessee has duly discharged the initial burden of proof by furnishing all relevant documentary evidence. Once the Assessee establishes identity, creditworthiness, and genuineness, the onus shifts upon the AO, which remained undischarged. And it is a fact that the AO himself admitted: the financial strength of the lender, the availability of sufficient funds and the receipt of the loan amount and has neither made any adverse observation not brought on record any adverse material or discrepancy. The AO doubted the loan transaction of Rs. 2,14,00,000/- solely due to absence of a loan agreement, which is not sufficient to disregard, otherwise substantiated by cogent evidence. Thus, on the aforesaid analyzations, we are of the considered view, that the order of the learned Commissioner is well-reasoned order and based on proper appreciation of facts and evidence and free from perversity or infirmity or illegality. Accordingly, the decision of the Ld. Commissioner in deletion of the addition of Rs. 2,14,00,000/- is upheld.
73. Thus, in view of above decision on the issues/additions as adjudicated by us, the appeal filed by the Revenue Department is liable to be dismissed and therefore, the same is dismissed.
74. In the result, Revenue’s appeal i.e. ITA No.2994/M/2025, is dismissed.
4342/M/2025
{Assessment Year 2020–21}
75. Brief facts relevant for adjudication of this appeal are that on the basis of a search and seizure action under Section 132 of the Income-tax Act, 1961 conducted on 18 October 2019 at the business premises of the Assessee, cash amounting to 2,62,30,500 was found and seized. Out of which, Rs. 1,10,00,000/- has been claimed as belongs to Shri Shashidhar H. Salva. However, the remaining amount of Rs. 1,52,30,500 was not explained, with any supporting evidence.
76. Since the source of the cash was not properly explained, proceedings were initiated under Section 153A, and a notice dated 17 March 2021 was issued. The Assessee failed to file a return of income in response to this notice. Subsequently, a show-cause notice dated 23 September 2021 was also issued, asking why the assessment should not be completed under Section 144 (best judgment) due to non-compliance. In response, the Assessee submitted a letter along with a physical return on 28 September 2021 but failed to file the return electronically as required. Thus, another notice was also issued regarding unexplained credits in following bank accounts:
- Bank of Baroda : Rs. 87,04,094 (approx.)
- Union Bank : Rs. 1,04,340 (approx.)
77. The Assessee still did not provide any explanation or supporting documents for these amounts. Therefore, these amounts of 88,08,431/- in total were treated as unexplained cash credits under Section 68 by the AO and subjected to addition, in the assessment order.
78. Further with regard to the cash amount of Rs. 1,52,30,500/-found during the search proceedings, the statement of Shri Prajapati Parveenbhai Mangalbhai was recorded, but he failed to explain the source of such cash. The Assessee also did not produce any evidence during the assessment proceedings. Accordingly, the Assessing Officer concluded that the Assessee failed to explain the nature and source of 1,52,30,500/- and therefore he accordingly added the same to the total income of the Assessee under Section 69A of the Act on a substantive basis.
79. The Assessee, being aggrieved by the additions made in the assessment order, preferred 1stappeal before the Ld. Commissioner and during the course of the appellate proceedings, filed the following documents to substantiate its claim:
i. Copy of cash book for the period April 2019 to March 2020;
ii. Copy of bank book of Bank of Baroda for the period April 2019 to March 2020;
iii. Copy of bank statement of Bank of Baroda for the Financial Year 2019–20;
iv. Copy of interrelated accounts of KDS Stock Management Private Limited for A.Y. 2020–21;
v. Copy of ledger confirmation of KDS Stock Management Private Limited for A.Y. 2020–21;
vi. Copy of bank statement of KDS Stock Management Private Limited for A.Y. 2020–21.
80. The Ld. Commissioner, thus, in order to examine documents (evidences) filed by the Assessee and to afford an opportunity to the AO, forwarded the same to AO, who conducted the remand proceedings and filed its report verifying the claims lodged and documents filed by the Assessee and accepted in part, however, objected to the admission of additional evidences filed by the Assessee, contending that the same were not admissible in view of Rule 46A of the Income Tax Rules, 1962.
81. Thereafter, the said documents were admitted by the Ld. Commissioner u/s 46A of the Rules, mainly on the ground that the assessment has been made under section 153A read with section 144 of the Income-tax Act, 1961, and additions were made in the absence of relevant details/additional evidences, which were directly relevant to the issues involved and that the Assessee was prevented by sufficient cause from producing the same before the Assessing Officer. The Ld. Commissioner accordingly proceeded to decide the appeal on merits.
82. The Assessee before the Ld. Commissioner with regard to the addition of 88,08,434/-made by the AO submitted that the total credits in its bank account maintained with Bank of Baroda during the year under consideration amounted to Rs. 76,01,000/- and no amount was credited in the Union Bank account. Thus, as against the total credits of Rs. 88,08,434/- considered by the AO, the actual credits were of Rs. 76,01,000/- in the Bank of Baroda account alone. The Assessee further explained that out of the aforesaid amount of Rs. 76,01,000/- a sum of Rs. 19,00,000/- represented cash deposits made on various dates, out of cash withdrawals by the Assessee firm during the relevant year as well as preceding years. The balance amount of Rs. 57,00,000/- was stated to have been received from M/s KDS Stock Management Pvt. Ltd. as unsecured loan through banking channels. In support of the above contentions, the Assessee furnished documentary evidences, including the cash book, bank book, bank statements, and confirmation along with financial details of M/s KDS Stock Management Pvt. Ltd.
83. On the basis of the aforesaid documents, the Assessee contended that it had duly discharged the onus cast upon it to establish the identity and creditworthiness of the creditor and the genuineness of the transactions. It was further submitted that as per the cash book, the Assessee had an opening cash balance of 3,45,35,143/- as on 01.04.2019and had also withdrawn cash during the year, thereby demonstrating sufficient availability of cash to explain the deposits of Rs. 19,00,000/-.
84. With regard to the unsecured loan of 57,00,000/-the Assessee submitted that the same was received through proper banking channels from M/s KDS Stock Management Pvt. Ltd. To substantiate the same, the Assessee furnished its own and lender bank statements reflecting the credit entries, along with ledger accounts, confirmation, ITR acknowledgements, computation of income, and audited financial statements of the lender/said company.
85. We further observe from the remand report that the AO also acknowledged that the Assessee had furnished explanations regarding the nature and source of the credits along with supporting documents, including the cash book, bank book, commission ledger, and return of income for A.Y. 2020–21. The AO also observed that the actual cash deposits during the year amounted to Rs. 19,00,000/-only and not Rs. 31,08,434/- as erroneously recorded in the assessment order passed under section 153A of the Act. The AO further accepted the availability of the opening cash balance of Rs. 3,45,35,143/- as on 01.04.2019 and the fact that in return of income filed, the Assessee had disclosed cash and cash equivalents to Rs. 3,46,74,575/-. The Assessing Officer, in the remand report, further observed from the bank statement of the Assessee maintained with Bank of Baroda for the period 01.04.2019 to 31.03.2020 that the Assessee had withdrawn cash aggregating to Rs. 12,00,000/- during the year under consideration, as detailed below:
(a) 09.08.2019 – Rs. 6,00,000
(b) 14.08.2019 – Rs. 6,00,000
Total – Rs. 12,00,000
86. The AO thereafter examined the claim of the Assessee regarding unsecured loan of Rs. 57,00,000/- received from M/s KDS Stock Management Pvt. Ltd. and noted that during the remand proceedings, the Assessee had furnished the following documents:
i. Bank statement of the Assessee for the period 01.04.2019 to 31.03.2020;
ii. Confirmation from M/s KDS Stock Management Pvt. Ltd.;
iii. Audited financial statements of M/s KDS Stock Management Pvt. Ltd. for F.Y. 2019–20;
iv. ITR acknowledgement of M/s KDS Stock Management Pvt. Ltd. for A.Y. 2020–21.
87. On perusing the bank statement, the AO observed that the Assessee had received funds through banking channels during the year. It was further noted that M/s KDS Stock Management Pvt. Ltd. had received an amount of Rs. 2,38,00,986/- in its bank account on account of redemption of mutual funds, out of which a sum of Rs. 57,00,000/- was advanced to the Assessee.
87.1 We further observe that the AO not doubted the documents filed by the Assessee but simply pointed out that the Assessee had not furnished any loan agreement or documentary evidence specifying the terms and purpose of the loan transaction. In the absence of such supporting evidence, the AO held that the nature of the funds remained inadequately explained. Accordingly, the AO, in the remand report, recommended sustaining the addition of Rs. 57,00,000/- as made in the assessment order passed under section 153A of the Act.
87.2 The Assessing Officer in the remand report, further observed that during the year under consideration, total credits amounting to Rs. 87,04,094/- were reflected in the bank account of the Assessee maintained with Bank of Baroda. The Assessee furnished explanations only in respect of Rs. 19,00,000/- (cash deposits) and Rs. 57,00,000/- (unsecured loan) only. However, no explanation or supporting evidence was provided for the balance amount of Rs. 11,03,094 (i.e., Rs. 87,04,094 minus Rs. 57,00,000/- minus Rs. 19,00,000/-). Accordingly, the AO held that the nature and source of the said balance amount of Rs. 11,03,094/- remained unexplained.
87.3 Further, the AO also observed that a sum of Rs. 1,04,340/-was credited in the Assessee’s bank account maintained with Union Bank of India during the relevant year, for which no explanation or supporting evidence was furnished during the remand proceedings.
87.4 In view of the above, the AO in fact recommended that the addition aggregating to Rs. 12,07,434/- (Rs. 11,03,094/- + Rs. 1,04,340/-) be sustained, as the Assessee failed to satisfactorily explain the nature and source of the said credits.
88. We have considered the rival submissions and perused the material available on record. With regard to the cash deposits of 19,00,000/-, it is an admitted position that the Assessing Officer, in the remand report, accepted the contention of the Assessee that such deposits were made out of cash available with the Assessee. It is further noted that the Assessee had an opening cash balance of Rs. 3,45,35,143/- as on 01.04.2019, and in the return of income for A.Y. 2019–20, cash and cash equivalents of Rs. 3,46,74,575/- were reflected. Additionally, the AO also recorded a finding that the Assessee had withdrawn cash aggregating to Rs. 12,00,000/- during the year from its bank account maintained with Bank of Baroda. These facts clearly demonstrate that sufficient cash was available with the Assessee to explain the deposits in question, which position has not been disputed by the AO.
88.1 Thus, in view of the above, we find that the addition of Rs. 19,00,000/- made by the AO on account of cash deposits was unsustainable and therefore the Ld. Commissioner has rightly deleted the same based on factual verification and the remand report. Accordingly, we find no reason to interfere with the order of the Learned Commissioner on this issue.
89. Coming to the addition of 57,00,000/- on account of unsecured loan, we observe that the said amount was received during the year through banking channels from M/s KDS Stock Management Pvt. Ltd. The AO, in the remand proceedings, examined the documents furnished by the Assessee and recorded a categorical finding that the lender had sufficient funds, sourced from redemption of mutual funds, to advance the loan. The AO has also not disputed the identity of the lender, its creditworthiness, or the genuineness of the transaction as the loan transaction is duly reflected in the books of account of the Assessee, supported by confirmation, bank statements, and financial statements of the lender. The sole basis for doubting the transaction by the AO is the absence of a formal loan agreement. We are in concurrence with the findings of the Ld. Commissioner that mere non-furnishing of a loan agreement, in the presence of substantial documentary evidence establishing the transaction, cannot be a ground to treat the amount as unexplained. We further observe that the Assessee has discharged the initial onus cast upon it under section 68 of the Act by establishing the identity and creditworthiness of the creditor and the genuineness of the transaction. Once such onus is discharged, the burden shifts upon the Revenue to bring contrary material on record. In the present case, apart from raising a technical objection regarding the absence of a loan agreement, the AO has failed to bring any adverse material to rebut the evidences furnished by the Assessee. Therefore, the addition cannot be sustained. Thus, the Ld. Commissioner, after considering these aspects, rightly held that the nature and source of the loan stood duly explained and therefore he deleted the addition of Rs. 57,00,000/-. Thus, we find no infirmity in the said findings.
89.1. Accordingly, the order of the Learned Commissioner in deleting the additions of Rs. 19,00,000/- and Rs. 57,00,000/- is upheld, as the same are based on proper appreciation of facts and evidence on record and thus call for no interference.
90. Coming to the addition of Rs. 1,52,30,500/- made on a substantive basis, u/s Section 69A (cash found during search), it is observed that during the course of search and seizure action under section 132 of the Act, cash amounting to Rs. 2,62,30,500/- in total was found at the business premises of the Assessee. Out of the said amount, Rs. 1,10,00,000/- was claimed to belong to Shri Shashidhar S. Salva. However, in the statement recorded during the course of search, Shri Prajapati Parveenbhai Maganlalbhai, an employee of the Assessee, expressed inability to explain the source of the cash. Thus, in the absence of satisfactory explanation during the assessment proceedings, the Assessing Officer treated the cash of Rs. 1,52,30,500/- as unexplained and made the addition of such amount under section 69A of the Act on a substantive basis in the hands of the Assessee. The balance amount of Rs. 1,10,00,000/-was added on a protective basis.
91. During the 1stappellate proceedings, the Assessee furnished additional evidences, including the cash book and relevant books of account. The AO, in the remand proceedings, examined these documents and recorded a finding that the Assessee had an opening cash balance of 3,45,35,143/- as on 01.04.2019. It was further noted that in the return of income for A.Y. 2019–20, the Assessee had disclosed cash and cash equivalents amounting to Rs. 3,46,74,575/-. Thus, based on the verification carried out, the AO, in the remand report, acknowledged that availability of sufficient cash balance with the Assessee to explain the cash found during the course of search.
92. Thus, in light of the above factual findings, the Ld. Commissioner held that the Assessee had satisfactorily explained the source of cash found and, accordingly, therefore he deleted the addition of Rs. 1,52,30,500/- made under section 69A of the Act.
93. We find that the decision of the Ld. Commissioner is based on proper appreciation of facts, duly supported by documentary evidences and the remand report of the AO. Once the availability of sufficient cash balance stands established from the books of account and accepted by the AO, no addition under section 69A can be sustained. Accordingly, we find no infirmity in the order of the Learned Commissioner in deleting the addition of 1,52,30,500/- and thus the decision on Ld. Commissioner on the issue/addition in hand is hereby upheld.
94. Coming to the protective addition of 1,10,00,000/-it is observed that the Ld. Commissioner, as well as the Assessing Officer in the remand report, have recorded that the said amount has already been assessed on a substantive basis in the hands of M/s Deluxe Jewels. The AO, in the remand report, further submitted that M/s Deluxe Jewels has preferred an appeal against the assessment order passed in its case, and in the event the addition is not sustained therein, the protective addition in the hands of the Assessee may be considered.
95. The Ld. Commissioner, after examining the factual matrix and material available on record, observed that during the search proceedings under section 132, Shri Shashidhar S. Salva was found present at the premises of the Assessee with cash of Rs. 1,10,00,000/- and in the statement recorded under section 132(4), he stated that he was working as a sales manager with Deluxe Diamond, owned by Shri Hari Salva. However, he could not satisfactorily explain the source of the cash. Subsequently, in the proceedings under section 131, Shri Salva stated that the said cash belonged to Deluxe Diamond and that further details could be provided by Shri Hari Salva. He also furnished the PAN of the concern, which, as noted by the AO, pertained to M/s Deluxe Jewels. This established that Deluxe Diamond and M/s Deluxe Jewels are one and the same entity. Based on the above, proceedings under section 153C were initiated in the case of M/s Deluxe Jewels for A.Y. 2020–21, and the amount of Rs. 1,10,00,000/- was added in its hands on a substantive basis, as the said concern failed to explain the source of the cash. It is further noted that M/s Deluxe Jewels did not dispute the ownership of the said cash either during assessment proceedings or in appellate proceedings.
96. Thus, in view of these facts, the Ld. Commissioner held that there was a clear and consistent admission that the cash in question belonged to ‘M/s Deluxe Jewels’. Once the ownership of the cash stands established in the hands of another entity, the question of making any addition—either on substantive or protective basis—in the hands of the present Assessee does not arise, Thus the Ld. Commissioner on the aforesaid reasons, ultimately deleted such addition of Rs. 1,10,00,000/-
97. We have given thoughtful consideration to the above findings. It is evident that right from the inception, ‘M/s Deluxe Jewels’ has accepted the ownership of the cash of Rs. 1,10,00,000/- and has not disputed the same either during the assessment or 1stappellate proceedings carried out in its case. Thus, in such circumstances, the protective addition made in the hands of the Assessee was unwarranted and un-sustainable and thus, in our considered view has rightly been deleted by the Ld. Commissioner. Hence we find no infirmity in the order of the Ld. Commissioner in deleting the protective addition of Rs. 1,10,00,000/- made in the hands of the present Assessee. Resultantly, the decision of Ld. Commissioner in deleting the protective addition of Rs. 1,10,00,000/- under consideration, is upheld.
98. Thus, in view of above decision on the issues/additions as adjudicated by us, the appeal filed by the Revenue Department is liable to be dismissed and therefore, the same is dismissed.
99. In the result, Revenue’s appeal i.e. ITA No.4342/M/2025 (AY 2020-21, also is dismissed.
100. In the result, all Revenue’s appeals under consideration stands dismissed.
Order pronounced in the open court on 20.04.2026.
Author Bio
