DCIT Vs OMGL Refinery Limited Liability Partnership (ITAT Jaipur)
Low Returned Income Cannot Eclipse Audited Financial Capacity: Jaipur ITAT Deletes ₹5-Crore Section 68 Addition
Summary:
The Jaipur Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal and upheld the CIT(A)’s deletion of a Rs.5 crore addition made under Section 68 of the Income-tax Act, 1961 in the case of OMGL Refinery Limited Liability Partnership for Assessment Year 2023-24.
The assessee, an LLP, filed its return for AY 2023-24 declaring total income of Rs.6,58,12,780/-. The return was selected for scrutiny on account of low net profit, a large-value refund claim and large squared-up loans during the year. During assessment proceedings, the Assessing Officer questioned an unsecured loan of Rs.5 crore received from M/s Synergy Tradelink, primarily because the lender had declared income of only Rs.11,57,230/-.
The assessee furnished confirmation, ledger account, bank statements, ITR acknowledgement, audited financial statements and tax audit report of Synergy Tradelink to establish the identity, creditworthiness and genuineness of the transaction. It explained that the Rs.5 crore loan was received on 13.04.2022 and was repaid through banking channels during the same financial year. The lender’s audited accounts also reflected unsecured loans of Rs.60,03,28,391/- as on 31.03.2023.
The Assessing Officer was not satisfied and added Rs.5 crore as unexplained income under Section 68 and subjected it to tax under Section 115BBE. The CIT(A), however, deleted the addition after finding that the assessee had furnished extensive documentary evidence and that the Assessing Officer had not undertaken independent verification from the lender under Sections 133(6) or 131.
The CIT(A) further noted that the loan was received through banking channels and repaid within a short period. The lender’s lower returned income could not, by itself, establish lack of creditworthiness, particularly when its balance sheet disclosed substantial unsecured loans. The CIT(A) also relied upon judicial precedents including the Gujarat High Court decision in Dy. CIT v. Rohini Builders and the decisions in Principal Commissioner of Income Tax 1 Vs. Merrygold Gems Pvt Ltd and Ayachi Chandrashekhar Narsangaji.
Before the Tribunal, the Revenue argued that the assessee had failed to establish the lender’s real financial capacity and the source of the funds. It contended that the lender’s income of Rs.11,57,230/- was grossly disproportionate to the Rs.5 crore interest-free loan and that the non-reporting of the transaction in Form 3CD cast doubt on its genuineness. The Revenue also argued that the primary burden under Section 68 remained upon the assessee and could not be shifted to the Assessing Officer merely because further enquiries were not conducted.
The assessee, represented by Senior Counsel Saurabh Soparkar, produced a paper book containing the assessee’s ledger, the lender’s ITR acknowledgement, bank statement, audited accounts and tax audit report, along with replies furnished before the Assessing Officer. It was submitted that the loan was received and repaid through banking channels within the same financial year and that various judicial precedents supported deletion of a Section 68 addition in such circumstances.
The Tribunal found it undisputed that the Rs.5 crore loan was received through banking channels on 13.04.2022. Repayment took place in three instalments: Rs.1,95,50,000/- on 21.04.2022, Rs.1,00,00,000/- on 20.05.2022 and the balance Rs.2,04,50,000/- on 08.06.2022. The Tribunal noted that the Revenue did not dispute either receipt or repayment through banking channels.
The Tribunal held that the assessee had discharged its initial burden by producing confirmation of accounts, bank statements, ITR and audited accounts. Thereafter, the burden shifted to the Revenue to establish that the documentary evidence was incorrect or unreliable. The Assessing Officer had not issued summons under Section 133(6) or called for information under Section 131 despite the documents being available before him.
Following the judicial precedents cited before it, including PCIT Vs Ojas Tarmake Pvt. Ltd., the Tribunal held that the Revenue had failed to place any relevant material warranting interference with the CIT(A)’s order. It observed that the CIT(A) had passed a detailed and speaking order and found no infirmity in the deletion of the Section 68 addition.
Accordingly, the Tribunal dismissed the Revenue’s appeal.
Cases Discussed
- Dy. CIT v. Rohini Builders, 256 ITR 360 (Guj).
- Principal Commissioner of Income Tax 1 Vs. Merrygold Gems Pvt Ltd, Tax Appeal No.811 of 2023, Gujarat High Court, dated 11.06.2024.
- Ayachi Chandrashekhar Narsangaji, Tax Appeal No.992 of 2013, Gujarat High Court, dated 02.12.2013.
- PCIT Vs Ojas Tarmake (P.) Ltd., [2023] 156 taxmann.com 75 (Gujarat).
- PCIT Vs Saileela Synthetics (P.) Ltd., [2024] 161 taxmann.com 713 (Rajasthan).
- Principal Commissioner of Income Tax v. Himachal Fibers Ltd., [2018] 98 taxmann.com 173 (SC).
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the Revenue as against the appellate order dated 10.10.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2023-24.
2. Brief facts of the case are the assessee is a limited liability partnership firm filed its return of income for the Assessment Year 2023-24 on 21.10.2023 declaring total income of Rs. 6,58,12,780/-. The return was taken for scrutiny assessment on account of low net profit, claim of large value of refund, large squared up loans during the year.
2.1 During the assessment proceedings, a show cause notice was issued to prove unsecured loan amounting to Rs. 5 crores received from M/s Synergy Tradelink, since it has declared income only to the tune of Rs. 11,57,230/-. Therefore, the assessee was directed to prove the credit-worthiness of the lenders, genuineness of transactions. In response, the assessee filed detailed reply by filing copies of contra confirmation, extract of bank statements, ITR Acknowledgement justifying identity, creditworthiness and genuineness of the unsecured loan from M/s Synergy Tradelink. The assessee also submitted that the above unsecured loan was availed on 13.04.2022 and repaid in the month of June, 2022. Thus, the loan was availed for a very short period i.e. for 3 months only. The assessee also filed audited accounts of Synergy Tradelink, wherein unsecured loan of Rs. 60.03 cores availed by Synergy Tradelink from various parties as on 31.03.2023. Thus, it is clear from the audited account of Synergy Tradelink, that it lent to the assessee company out of its sufficient and legitimate funds available with it. The above explanation was not accepted by the ld. A.O, thereby made addition of unsecured loan of Rs. 5 cores as unexplained income u/s 68 of the Act and also charge to tax u/s. 115BBE of the Act.
3. Aggrieved, against the assessment order, the assessee filed appeal before Ld. CIT(A). After considering the detailed submissions and repayment of loan by the assessee within the same financial year, ld. CIT(A) deleted the additions made by the A.O by observing as follows:-
“8.5 In the instant case, it is seen from the perusal of the assessment order that the AO has asked the appellant to prove the creditworthiness of unsecured loan amounting to Rs. 5,00,00,000/- taken by the appellant from Synergy Tradelink. This fact clearly demonstrates that the AO has not doubted the identity of the lender i.e. Synergy Tradelink and genuineness of unsecured loan of Rs. 5,00,00,000/- from M/s. Synergy Tradelink. With regard to the creditworthiness of lender, the appellant has furnished ledger confirmation for the period from 01.04.2022 to 31.03.2023, ITR acknowledgement of the lender for A.Y.2023-24, audited financials of the lender for F.Y.2022-23, tax audit report of the lender for A.Y.2023-24 and copy of the bank statement of the lender with HDFC Bank bearing Account No.00060340030743 for the period from 01-Apr-2022 to 30-Apr-2022, 01-May-2022 to 31-May-2022 and 01-Jun-2022 to 01-Jul-2022 during the assessment proceedings as well during appellate proceedings. From the perusal of balance sheet of the lender, M/s.Synergy Tradelink, it can be seen that it has huge unsecured loans of Rs.60,03,28,391/- as on 31.03.2023, out of which Rs.5,00,00,000/- was advanced to the appellant during the year. Further, from the perusal of the bank statement reveals that loan was given and repaid through banking channel. It is pertinent to note that the appellant has taken unsecured loan of Rs.5,00,00,000/- on 13.04.2022 and the same was repaid within a short span of two months on 08.06.2022. The said repayment was also verified from the Ledger Account and the Bank Statement. While making addition u/s 68 of the Act, the AO has misinterpreted that the lender has not reported any loan or advances in its Form-3CD. In fact, the lender has advanced loan to the appellant. which was repaid during the same financial year. No such reporting requirement is mandatory on part of the lender, Synergy Tradelink in its Form 3CD for the above transaction. Moreover, the screenshots reproduced by the AO in the assessment order are irrelevant. From the ITR acknowledgement of M/s. Synergy Tradelink for A.Y.2023-24, it has declared total income of Rs. 11,57,230/-. Merely because the profit declared in ITR of the lender was Rs. 11,57,230/- cannot be the sole ground to doubt the creditworthiness.
8.6 As such, in so far as the appellant is concerned, it has provided all possible documentary evidence to prove creditworthiness of the creditor from whom the impugned loan of Rs.5,00,00,000/- was obtained. Thus, it has to be said that the appellant had done everything in its power to prove the three ingredients required to prove the satisfactory nature of the loan transaction. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged lender by summoning the party. However, as seen from the assessment order, he did not do any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The AO never asked for any further material, which leads to the inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant’s claims. The AO has not brought out any contrary evidence to disprove the evidences filed by the appellant or conducted independent verification from the lender under section 133(6) of the Act or u/s 131 of the Act. The unequivocal conclusion is that all the three ingredients having been satisfied, the impugned loan of Rs.5,00,00,000/-have to be treated as explained satisfactorily and the AO was wrong in having disregarded supportive evidence. No cogent material was adduced by him, to show that loan was unexplained. Therefore, the impugned addition made in the Assessment Order fails on account of failure to recognise the nature of the explanation/evidence tendered by the appellant to explain creditworthiness of the creditor.
8.7 With regard to repayment of loan within the same financial year, it would be pertinent to place reliance on the decision of the Hon’ble Gujarat High Court in case of Dy. CIT v. Rohini Builders reported in 256 ITR 360 (Guj), wherein it is held as under:
………………………
The ratio of the above judgement of the Hon’ble Gujarat High Court in the case of Rohini Builders has been laid down in its recent judgement delivered on 11.06.2024 in the case of The Principal Commissioner of Income Tax 1 Vs. Merrygold Gems Pvt Ltd in Tax Appeal No.811 of 2023.
8.8 The Hon’ble Gujarat High Court in case of Ayachi Chandrashekhar Narsangaji TA 992 of 2013 dtd. 02.12.2013 has held that “It has also come on record that the said loan amount has been repaid by the assessee to ‘IA’ in the immediately next year and the Department had accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible, there was no reason to interfere with the impugned order passed by the Tribunals”.
8.9 In the instant case, the appellant has furnished all the documentary evidence to prove creditworthiness of the creditor from whom it had obtained unsecured loan of Rs.5,00,00,000/- thereby discharging its onus to prove satisfactory nature of the loan transaction. Now, the onus shifts to the AO. If he was still not satisfied, then he had the option to conduct inquiries from the lender but no such independent enquiries u/s 133(6) or u/s 131 of the Act were conducted by the AO in the present case. The Hon’ble Supreme Court of India in the case of Principal Commissioner of Income Tax v. Himachal Fibers Ltd. [2018] 98 taxmann.com 173 (SC) held as under-
“7. Further, the case of assessee is also covered on facts noted in learned CIT (A) order by Hon’ble Apex court decision in case of Mehta Parikh, 30 ITR 181 that without examining the deponent affidavits cannot be straightway rejected. Also noted here is the aspect of lack of enquiry by AO from share holders u/s.68 which is repeatedly held in various decisions by Jurisdictional Delhi high court in decisions mentioned in assessee’s paper book at sr no. 13 namely Hon’ble Delhi high court decisions in cases (a) N.C.Cables 391 ITR 11 (b) Softline creations 387 ITR 636 and c) Gangeshwari Metals 361 ITR 10. Further, we note recent full bench of Hon’ble P&H high court decision in case of Jawahar Lal Oswal reported at 382 ITR 453 in context of section 68 additions, wherein it is lucidly held that:
“… The principle that governs a deeming provision is that the initial onus lies upon the revenue to raise a prima facie doubt on the basis of credible material. The onus, thereafter, shifts to the assessee to prove that the gift is genuine and if the assessee is unable to proffer a credible explanation, the Assessing Officer may legitimately raise an inference against the assessee. If, however, the assessee furnishes all relevant facts within his knowledge and offers a credible explanation, the onus reverts to the revenue to prove that these facts are not correct. The revenue cannot draw an inference based upon suspicion or doubt or perceptions of culpability or on the quantum of the amount, involved particularly when the question is one of taxation, under a deeming provision. Thus, neither suspicion/doubt, nor the quantum shall determine the exercise of jurisdiction by the Assessing Officer Further a deeming provision requires the Assessing Officer to collect relevant facts and then confront the assessee, who is thereafter, required to explain incriminating facts and in case he fails to proffer a credible information, the Assessing Officer may validly raise and inference of deemed income under section 69-A. As already held, if the assessee proffers an explanation and discloses all relevant facts within his knowledge, the onus reverts to the revenue to adduce evidence and only thereafter, may an inference be raised, based upon relevant facts, by invoking the deeming provisions of Section 69-A. It is true that inferences and presumptions are integral to an adjudicatory process but cannot by themselves be raised to an adjudicatory process but cannot by themselves be raised to the status of substantial evidence or evidence sufficient to raise an inference. A deeming provision, thus, enables the revenue to raise an inference against an assessee on the basis of tangible material and not on mere suspicion, conjectures or perceptions.”
8.10 Keeping in view of the above facts and discussion and also placing reliance on various judicial pronouncements as detailed above, I find that the addition of Rs.5,00,00,000/-made by the AO u/s 68 of the Act is not maintainable. Hence, the addition made by the AO u/s 68 of the Act is hereby deleted. The grounds of appeal No.1 & 2 raised by the appellant are allowed.”
4. Aggrieved against the appellate order, Revenue is in appeal before us, raising following Grounds of Appeal:-
1. Whether on the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals has erred in law and on facts in deleting the addition of Rs 50000000 made by the Assessing Officer under section 68 of the income tax Act 1961 without appreciating that the assessee failed to discharge the primary onus of establishing the genuine creditworthiness of the lender Synergy Tradelink in respect of the alleged unsecured loan. Whether on the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals failed to appreciate that the lender had declared a meagre income of only Rs 1157230 which is grossly disproportionate to the alleged financial capacity required to advance an unsecured loan of Rs 50000000 thereby rendering the transaction inherently doubtful and unexplained.
2. Whether on the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals erred in accepting the assessee submissions based solely on confirmations bank statements ITR acknowledgements and audited financial statements of the lender without verifying the real source of funds the authenticity of unsecured loans reflected in the lender balance sheet OR the genuineness of the financial capacity claimed. Whether on the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals has wrongly shifted the burden upon the Assessing Officer to conduct further enquiries under section 133 6 OR section 131 whereas the legal obligation to substantiate the nature and source of the credit including the creditworthiness of the lender and the genuineness of the transaction squarely rests upon the assessee under section 68.
3. Whether on the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals failed to appreciate that the assessee did not furnish any commercial business OR economic justification for receiving a large interest free loan for a short duration and such unexplained interest free accommodation indicates lack of genuineness. Whether on the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax Appeals erred in disregarding the Assessing Officer finding regarding non reporting of the loan transaction in the lender Form 3CD which is a material fact casting doubt on the genuineness and transparency of the alleged loan.
4. The appellant craves leave OR reserves right to amend, modify, alter, add OR forego any ground(s) of appeal at any time before OR during the hearing of this appeal.”
5. Ld. CIT-DR, Sh. Shravan Kumar Meena, appearing for the Revenue supported the order passed by the Assessing Officer and filed a written submissions as follows:-
1. Ld. CIT(A) has failed to appreciate that the assessee had not satisfactorily discharged the burden cast upon it u/s 68 of Income Tax Act, and failed to establish the genuineness and creditworthiness of the lender Synergy Tradelink. (entry of 5.00 Cr.)
2. Ld. CIT(A) has erred in accepting the assessee explanation merely on the basis of ledger confirmation, ITR acknowledgment, audited financial statements and bank statements. Without critically examining the abnormal mismatch between the lender’s meagre return income of Rs. 11,57,230 in the year concerned. Income Rs. 11.57 lakhs – loan given 5.00 Cr. A big mismatch credit worthiness is mainly based on what are earning on regular basis.
3. Ld. CIT(A) has overlooked the AO’s finding that such low-income entities do not posses real capacity to advance high value interest free loans and the assessee failed to demonstrate any business compulsion, commercial justification or credible source of funds at the lender’s end.
4. Ld CIT(A) further erred in concluding that the assessee had proved creditworthiness merely because the lender’s balance sheet reflected unsecured loans, however, no solid evidences was produced to substantiate the authenticity, genuineness or source of such unsecured loan standing in the lender’s books.
5. The Ld. CIT(A) also ignored that fact that the assessee failed to explain why a completely unrelated entity would advance a large, interest free, short-term loan without any consideration or benefit
6. Moreover, Ld. CIT(A) was not justified in holding that the AO should have exercised powers u/s 133(6) or 131 of the Act, since the primary onus to explain the nature and source of the credit lies squarely on the assessee and the failure of the AO to pursue the further enquiry can not absolve the assessee from proving the lender’s real capacity.
7. 3CD-non reporting the loan in the highly doubtful and Id. CIT(A) has wrongly held it irrelevant. Such non-reporting is a clear hint towards the genuineness and transparency of the transaction.
8. Thus by placing undue reliance on documents whose authenticity and substantiate value was not independently verified and by ignoring (So many) in consistency. The Ld. CIT(A) accepted the assessee’s submissions uncritically and deleted the additions without any cogent reason. Therefore, the finding of CIT(A) findings are perverse, unsustainable and liable to be set-aside
9. The assessee has failed to discharge his primary onus to give conclusive evidence in his support/the AO could have conducted more enquiries but who has stopped Ld. CIT(A). He also could have conducted such enquiries. He just accepted the submission given by the assessee during appeal proceedings.
10. The Hon’ble ITAT is the last fact-finding authority and the fact is of a clear cut tax evasion instance. The assesee has brought 5 Cr. entries from unknown/ unrelated entity whose credit worthiness is not sufficient to lend 5 Cr while it is earning 11.50 lakhs in the said years. More enquiries by AO or CIT(A) at this stage can made the things clear and tax evasion planned in this case would be detected conclusively.
In view of the above discussion, the decision of ld. CIT(A) is not acceptable on merits.”
6. Per contra, Ld. Senior Counsel, Mr. Saurabh Soparkar appearing for the assessee filed a paper book running to 73 pages, wherein ledger account of the assessee, ITR Acknowledgment, Bank Statement, Audited Annual Accounts and tax audit report of M/s Synergy Tradelink and Audited Annual Accounts of the assessee and various replies filed by the assessee before ld. AO. Ld. Counsel also filed before us, a case laws compilation wherein it was held that when the loans were repaid by the assessee, during the same financial year, No question of addition be made u/s 68 of the Act.
7. We have heard rival submissions and perused the materials available on record. It is undisputed fact that the assessee received unsecured loan of Rs. 5 cores through banking channel on 13.04.2022 and repaid the loans on 21.04.2022 a sum of Rs. 1,95,50,000/-, on 20.05.2022 a sum of Rs. 1,00,00,000/- and balance loan amount of Rs. 2,04,50,000/- repaid on 08.06.2022. Copy of ledger account is placed on record at page no. 41 of the paper book and corresponding bank account entries are also filed at page no. 16 to 20 of the paper book. The Revenue is not in dispute about the receipt of loan and repayment of loan through banking channel. The above documents were very much produced by the assessee before ld. A.O, whereas he has not taken any efforts to verify the same by issuing summon u/s 133(6) of the Act or calling for information u/s 131 of the Act. Thus the initial burden cast upon the assessee is fully discharged by producing the confirmation of accounts, bank statement, ITR and audited accounts by the assessee. It is thereafter, the burden shifts to the Revenue, to prove the documents filed by the assessee either incorrect or not reliable, which was not been done by the AO. Further, repayment of loan has also not disputed by the Revenue, which is done through banking channels. It is well settled principle of law by the various Courts that repayment of loan is done through banking channel within the same year, no question of addition liable to be made u/s 68 of the Act.
7.1. The Hon’ble Gujarat High Court in the case of PCIT vs. Ojas Tarmake (P.) Ltd reported in [2023] 156 taxmann.com 75 (Gujarat) held as follows:
Section 68 of the Income-tax Act, 1961 Cash credits (Unsecured loan) – Assessment year 2013-14 – During assessment proceedings it was noted that assessee had shown particulars of unsecured loan received during relevant assessment year – Assessing Officer issued letters under section 133(6) on creditors of unsecured loans – Thereafter, Assessing Officer made additions with respect to unsecured loan on ground that assessee failed to discharge onus of liability as laid down under section 68 – On appeal, Commissioner (Appeals) upheld additions on ground that assessee failed to produce any of creditors before Assessing Officer – Whether since Tribunal found on facts that amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, no error of law was committed by Tribunal by deleting addition made under section 68 – Held, yes [Paras 3 and 4] [In favour of assessee]
7.2. Jurisdictional Rajasthan High Court in the case of PCIT vs. Saileela Synthetics (P.) Ltd. reported in [2024] 161 taxmann.com 713 (Rajasthan) in the context of share application money deleted the addition made u/s 68 of the Act by observing as follows:
Section 68 of the Income-tax Act, 1961 – Cash credit (Share application money) – Assessment year 2015-16 Assessee-company was engaged in manufacturing and trading of synthetic fabric – During relevant year, assessee raised its share capital by allotment of equity shares to 11 companies and received certain sum on allotment of shares – Assessing Officer treated amount received by assessee on allotment of shares as unexplained cash credit under section 68- It was noted that assessee had furnished ali relevant and requisite documents to prove identity and creditworthiness of companies to whom shares were allotted – Assessing Officer passed assessment order only on basis of suspicion and doubt – Whether, on facts, impugned addition made by Assessing Officer deserved to be deleted Held, yes [Para 7.2] [In favour of assessee]
7.3. Respectfully following the above judicial precedents and the Revenue could not place on record any other relevant material to sustain the addition made u/s 68 of the Act. Further, the Revenue except raising the Grounds of Appeal could not point out any infirmity in the order passed by ld. CIT(A). Therefore, in our considered view, ld. CIT(A) has passed a detailed and speaking order which does not require any inference. Thus, the grounds raised by the Revenue are devoid of merits liable to be dismissed.
8. In the result, the appeal filed by the Revenue is hereby dismissed.
Order pronounced in the open court on 25-08-2026
