ITO Vs Seven Rings Education Pvt. Ltd. (ITAT Mumbai)
Mumbai ITAT: Repayment of Loan in Same Year Does Not, by Itself, Establish Genuineness Under Section 68
The Mumbai ITAT allowed the Revenue’s appeal and restored an addition of ₹25.43 crore under Section 68, holding that mere repayment of the amount in the same financial year is not sufficient to establish the genuineness of a loan transaction. The assessee must independently establish the identity, creditworthiness of the lender, and genuineness of the transaction.
The assessee-company had received ₹25.43 crore from M/s. Tulsiyat Tek Pvt. Ltd., placed the funds in short-term bank deposits, and repaid ₹25.74 crore to the lender on maturity during the same financial year. The CIT(A) deleted the addition primarily on the ground that the lender was an identifiable corporate entity and the loan had been repaid through banking channels in the same year.
The Tribunal observed that while the identity of the lender stood established, there was no material on record to demonstrate its creditworthiness to advance more than ₹25 crore. More importantly, the assessee failed to explain the object or commercial purpose of the advance. The funds were immediately invested in short-term deposits and, after maturity, returned to the lender with a small mark-up, without any evidence of a business purpose behind the transaction.
Rejecting the CIT(A)’s reasoning, the Tribunal held that repayment of the amount in the same financial year, though a relevant circumstance, cannot by itself establish the genuineness of the transaction. In the absence of evidence regarding the creditworthiness of the lender and the commercial rationale for advancing such a substantial amount, the requirements of Section 68 remained unfulfilled. The explanation regarding seizure of records by the Economic Offences Wing and the subsequent arrest of the director was also found insufficient to justify the failure to substantiate the transaction.
Accordingly, the Tribunal set aside the order of the CIT(A) and restored the addition of ₹25.43 crore under Section 68, allowing the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
By this appeal, Revenue is challenging the order dated 17.06.2025 passed by the National Faceless Appeal Centre, Delhi (NFAC) (‘CIT(A)’ for short) thereby deleting the addition of Rs.25,43,01,000/- made by the Assessing Officer (‘AO’ for short) vide order dated 31.03.2023 under Section 68 of the Income Tax Act, 1961 (‘Act’ for short) as unexplained credit. The appeal relates to assessment year 2011-12.
2. The brief facts are that the respondent-assessee is a non-filer for relevant assessment year. The case of the respondent-assessee was subjected to assessment under Section 147 of the Act in which the AO by order dated 18.12.2017 assessed the income at Rs.80,29,85,190/-. The matter reached this Tribunal in ITA No. 964/MUM/2019. By order dated 09.08.2021 the appeal came to be partly allowed thereby remitting the matter back to the AO to frame the assessment afresh after affording opportunity of hearing to the respondent-assessee.
3. It appears that by notices dated 08.02.2023 and 21.03.2023 under Section 142(1) of the Act, the assessee was required to submit the details regarding the credits in its account with Kotak Mahindra Bank. The assessee filed its reply on 26.02.2023 contending that as the Economic Offence Wing (EOW) had seized the entire records of the company in May, 2011, the Return of Income (RoI) could not be filed under Section 139(1) or even after receipt of notice under Section 148 of the Act. It was contended that the details submitted in the reply are based on provisional accounts.
4. The respondent-assessee is a private limited company and was previously registered under the name and style of ‘Lanbit India Private Limited’ which was later changed to ‘Seven Rings Education Private Limited’. The company was engaged in the business of making software for education. At the time of incorporation, the respondent-assessee had three Directors, viz. Shri Manoj Kumar Sharma, his wife, Smt. Renu Manoj Kumar Sharma and Shri Rajiv M. Mehrotra. Shri Manoj Kumar Sharma, who was instrumental in floating the company, used to look after the entire business affairs of the company. Shri Manoj Kumar Sharma passed away on 03.03.2014 after which his wife, Smt. Renu Sharma, who is a primary school teacher, became the Director of the company. However, she was not involved in any kind of day-to-day affairs of the business of the company. The whereabouts of the third Director, Shri Rajiv M. Mehrotra are not known.
5. It appears that a FIR was lodged against the respondent-assessee with Nirmal Nagar Police Station, which matter was subsequently transferred to the EOW and all the documents, computers, laptops, etc. were seized in May, 2011. MPID Special Case No. 20 of 2015 under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 is pending against the assessee before the Special Judge at Mumbai. It was contended that the assessee had made certain short term deposits with ING Vysya Bank (now known as Kotak Mahindra Bank) from the money received from M/s. Tulsiyat Tek Private Limited, which is duly reflected in the bank statement, as set out in para 3 of the assessment order.
6. Apart from the issue of unexplained credit under Section 68 of the Act there were other issues also, including transactions for purchase of immoveable properties, with which we are not presently concerned in this appeal.
7. Insofar as the receipt from M/s. Tulsiyat Tek Private Limited of Rs.25,43,01,000/- is concerned, it was contended that the same is from a known source being ‘loans and advances’. It is pointed out that the said amount was returned during the same assessment year and, therefore, no addition is called for under Section 68 of the Act.
8. The learned AO made the addition vide order dated 31.03.2023. The relevant part of the reasoning can be found in para 6 of the assessment order as under :-
“1. The total credits found in KOTAK MAHINDRA BANK A/c No: 528044000276 was Rs. 79,53,59,279/- Assessee received Rs 25,43,01,000rom TULSIYAT TEK PVT LTD in KOTAK MAHINDRA BANK A/c No 528044000276 in AY 2011-12. (In the assessment order passed on 18.12.2017, it was taken as Rs 25,70,01,000 whereas the assessee has explained that the credit was Rs 3,00,000 on 19.11.2010 and not RS 30,00,000). In respect of the credits the assessee merely submitted the name of party from whom amounts received but no details of creditworthiness, genuineness, etc were submitted by the assessee. In the absence of evidences and explanation, the amounts received from the said party remains unexplained.
2. It is well accepted fact that, the credits in bank accounts needs to be explained with the nature of transactions along with documentary evidences thereof. However, in the facts of assessee’s case, the reply is filed but documentary evidences supporting the transactions has not been filed. Accordingly, merely on the basis of reply filed by assessee, the claim of assessee cannot be accepted in its entirety. Accordingly, Rs 25,70,01,000/- is added in total income of assessee as Unexplained Credit u/s 68 of the Act. Penalty proceedings u/s 271(1)(c) are initiated separately for concealment of income.
3. Assessee in KOTAK MAHINDRA BANK A/c No 528044000276 received Rs 27,05,346/- from different parties being Tulsient Information System Growth Associates etc. Assessee during the course of proceeding was not able to furnish the nature of receipts alongwith documentary evidences thereof. In absence of explanations on nature of receipts alongwith evidences thereof, the same are unexplainable in nature. Accordingly, Rs 27,05,346/- is added in total income of assessee u/s 68 of the Act as unexplained cash credits. Penalty proceedings u/s 271(1)(c) are initiated separately for concealment of income.”
9. In appeal, the First Appellate Authority (FAA) found that the respondent-assessee could not produce the books of accounts during the assessment proceedings as they were seized by the EOW, Mumbai. Further, Smt. Renu Sharma, who was the sole Director, after the death of her husband, was arrested in 2016 and released on 17.02.2017 and as such, could not produce the essential details and documents before the learned AO. However, the FAA found that there was double addition as the maturity proceeds of the short term deposits were again added as income. It was also found that M/s. Tulsiyat Tek Private Limited, being a corporate entity with a valid Permanent Account Number (PAN) and having registered office at Oshiwara, Andheri (W), Mumbai, the identity of the creditor was established. It was also found that the genuineness of the transaction has been established as the amount received has been returned in the same year. In that view of the matter, the addition came to be deleted, which is the subject matter of challenge in this appeal.
10. We have heard parties. Perused record.
11. It is submitted by the learned DR that the genuineness of the transaction cannot be said to be established, particularly when the object and purpose for such advance has not been stated, much less established. It is submitted that the learned CIT(A) has also not examined the aspect of the creditworthiness of M/s. Tulsiyat Tek Private Limited, which was essential in the context of the impugned addition under Section 68 of the Act. It is submitted that the respondent-assessee and M/s. Tulsiyat Tek Private Limited can be said to be related entities as they were having the same Directors, viz. Shri Rajiv M. Mehrotra and Shri Manoj Kumar Dharmveer Gupta. He, therefore, submitted that the impugned addition be restored.
12. The learned AR submitted that the name of the respondent-company has been struck off from the records of Registrar of Companies (RoC). It is submitted that it is only the surviving Director, Mrs. Renu Sharma, who is contesting the appeal. It is submitted that during the lifetime of her husband, it was only Shri Manoj Kumar Sharma who was looking after the affairs of the company. On account of the raid conducted by the EOW, all the relevant documents were seized and, therefore, the respondent-assessee was incapacitated in filing the RoI or furnishing the required details. It was strenuously urged that the amount has been returned in the same financial year through banking channel, which is a strong indication of genuineness of the transaction as has been rightly held by the learned CIT(A).
13. We have given our anxious consideration to the rival circumstances and the submissions made. It is not disputed that even after the name of the respondent-assessee was struck off from the records of RoC, by virtue of Section 248 of the Companies Act, 2013, the company shall be deemed to continue in existence for the purpose of discharging its liability. This aspect is not disputed during the course of arguments at Bar.
14. The facts which are clearly brought on record are that the respondent-assessee had received an amount of Rs.25,43,01,001/- during the relevant year from M/s. Tulsiyat Tek Private Limited, which was deposited in short term deposit. On maturity of the said deposits, the maturity proceeds of Rs.28,36,64,972/- were credited to the bank account of the respondent-assessee. Out of this, the respondent-assessee repaid an amount of Rs.25,74,36,435/- to M/s. Tulsiyat Tek Private Limited on 31.03.2011. The said amount is little over the original amount received i.e. Rs.25,43,01,001/-. It is also undisputed that both the respondent-assessee as well as M/s. Tulsiyat Tek Private Limited had same common Directors and thus can be said to be related entities.
15. It is well-settled that under Section 68 of the Act, the assessee is required to establish the identity and creditworthiness of the creditor/lender and the genuineness of the transaction. So far as the identity is concerned, it can be said to be established as has been held by the learned CIT(A) as M/s. Tulsiyat Tek Private Limited is a corporate entity with a valid PAN and address at Oshiwara, Andheri (W), Mumbai. The question is about the creditworthiness of M/s. Tulsiyat Tek Private Limited and the genuineness of the transaction. The reasoning articulated by learned CIT(A) does not show that the aspect about the creditworthiness of M/s. Tulsiyat Tek Private Limited has been examined. In any case, there is nothing produced on record to show that M/s. Tulsiyat Tek Private Limited had the necessary creditworthiness to advance an amount in excess of Rs.25 crores. Coming to the genuineness of the transaction, the only fact which has weighed with the FAA in holding that the transaction is genuine is that the amount is returned in the same year. The FAA has held as under :-
“ The appellant, in its grounds of appeal, has clearly stated that during the relevant financial year, it received a sum of Rs.25,43,01,000/- from M/s. Tulsiyat Tek Private Limited. The lender is a corporate entity with a valid Permanent Account Number (PAN: AABCT3025A), and its registered office is located at 2/13, Om Hira Panna Arcade, Oshiwara, Andheri (W), Mumbai – 400 053. The said amount was credited to the appellant’s bank account maintained with ING Vysya Bank. The appellant has maintained that the source of funds was a known and identifiable corporate entity, and the transaction represents a legitimate loan or advance, not unaccounted income.
To further substantiate its claim, the appellant has presented documentary evidence indicating that a sum of Rs.25,74,36,435/- was repaid to M/s. Tulsiyat Tek Private Limited during the same financial year through the same ING Vysya Bank account. Notably, the amount repaid exceeded the initial loan received. Detailed documentation, including transaction dates, amounts received, and repayment details, has been submitted and verified with the relevant bank statements. Upon examination, it is confirmed that the entire loan amount received was duly repaid by the appellant within the same financial year.
Based on the above discussion and evidence provided, the claim of the appellant regarding the genuineness of the loan transaction has been substantiated. Hence, Ground of appeal nos. 1 and 2 are hereby allowed.”
16. We are unable to accept that this solitary circumstance about return of the amount in the same financial year is sufficient to establish the genuineness of the transaction. The assessee claims to be engaged in the business of development of education software. There is absolute nothing on record as to what was the reason or purpose for such advance by M/s. Tulsiyat Tek Private Limited to the respondent-assessee. The advance appears to have been made without any object which is brought on record. The advance so made was immediately invested in short term deposits and, after its maturity, the amount along with a little mark-up has been returned to M/s. Tulsiyat Tek Private Limited. It is not even the case made out that such advance was for a particular business purpose, much less established on record. The contention that Mrs. Renu Sharma was precluded from producing necessary record on account of death of her husband and her arrest also cannot be accepted. This is on account of the fact that admittedly Mrs. Renu Sharma was released on bail on 17.02.2017 and even thereafter no attempt is made even to show a semblance of a reason as to why such huge amount was advanced without any object or purpose, only to be kept in short term deposits and to be returned on its maturity.
17. In that view of the matter, we find that the learned CIT(A) was not justified in deleting the addition. The appeal, therefore, is allowed. The impugned order is set aside. The addition of Rs. 25,43,01,001/- stands restored with consequential legal implications.
Order pronounced in the open court on 14.07.2026.
