ACIT vs Polyace India Pvt. Ltd.

“8.1

I have carefully considered the facts of the case, submission of the appellant and findings of the assessing officer in the assessment order. It is seen that the appellant took loan of Rs.2,00,00,000/- from M/s Satsai Finlease Pvt. Ltd. in March, 2017 and repaid back the same in April, 2017. The loan was taken on interest and interest was paid after due deduction of TDS. Before the AO, the appellant has filed the various documentary evidences which include the confirmation of loan creditor, ITR of the loan creditor, bank statement of the loan creditor, Audited Financial Statement of the Loan Creditors and also the evidence of repayment of the loan within next month. The AO has not pointed any discrepancy in any of the above documentary evidences furnished by the appellant. The AO has merely relied upon the so-called incriminating material including the whatsapp chat found during the course of search.

8.2

On careful perusal of the assessment order, I find that there is no adverse material brought on record by the assessing officer relating to the appellant or its transactions. The assessing officer was not justified in making the addition on the basis of generic allegation in respect of the loan creditor without pointing out anything specific incriminating relating to the appellant or transactions. As per financial, the appellant received loans from M/s Satsai Finlease Pvt. Ltd., which is NBFC registered with RBI u/s 45-IA of RBI Act 1934 engaged in financing and investment. M/s Satsai is incorporated in the year 1996. The appellant has duly discharged its onus u/s 68 of the Act by proving the identity of creditor, creditworthiness of the creditor and genuineness of the transaction. The appellant has explained the source of the amount credited in its books, by furnishing the documentary evidences including the bank statement and audited financial statement of the loan creditor. The appellant was not required to explain the source of source of the amount as it was not required under the law for the year under appeal. The bonafide and genuineness of the transaction is also established from the fact that the loan was taken on interest, the loan was for a very short period and the same was repaid in the next month i.e., April, 2017. As is apparent from the assessment order the assessing officer has also issued notice u/s 133(6) to the loan creditor which has been responded and replied by the loan creditor. The AO has not pointed out anything adverse that may have been replied by the loan creditor in relation to the transaction of the appellant.

8.3

The remarks of the assessing officer that the loan creditor could not provide the designation of its employees cannot be a ground for making addition in the case of the appellant as the appellant cannot be expected to be responsible for the number of employed by the loan creditor or their designation. The various whatsapp chat and images referred to by the assessing officer in the assessment order have been perused by me and in my considered opinion the same cannot be ground for making addition in the case of the appellant as these whatsapp chat/images have no relation or nexus with the appellant or its transactions. The evidence in the form of whatsapp chat scanned in the assessment order not pertaining to FY 2016-17. The assessing officer has not brought on record any statement of any person which may be containing any adverse remarks relating to the appellant or its transaction. Considering aforesaid discussion and judicial precedents, the addition of Rs.2,00,00,000/- made by the assessing officer cannot be sustained and accordingly the addition made is directed to be deleted. Therefore, the ground of appeal no.V is allowed.” He further deleted the interest expenditure and commissions.

“1.

The Ld. CIT(A) has erred in deleting the addition to the amount of Rs.2,00,00,000/- made u/s 68 of the Act, without appreciating that M/s Satsai Finlease Pvt. Ltd. is a shell company controlled by an identified entry operator, Sh. Ankit Bhageria, and that the assessee failed to substantiate the genuineness and creditworthiness of the lender.

2.

The Ld. CIT(A) has erred in deleting the addition of Rs.6,00,000/- u/s 69C of the Act, on account of unexplained commission expenditure, ignoring the material findings recorded during the search in Filatex Group and statements of entry operators.

3.

The Ld. CIT(A) has erred in deleting the disallowance to the tune of Rs.88,767/- made u/s 37, ignoring that such interest pertains to non-genuine loans are not allowable as business expenditure.

4.

The Ld. CIT(A) has erred in ignoring the corroborative evidences and statements of Shri Ankit Bhageria, Shri Purrshottam Bhageria and others recorded during search operation and post-search proceedings which conclusively established that unsecured loans were accommodation entries.

5.

The Ld. CITCA) has erred in not appreciating that the assessee had failed to discharge the primary onus under section 68 of the Act to prove the identity, genuineness and creditworthiness of the creditor beyond paper submissions.”

8.

Considered the rival submissions and material placed on record. On careful consideration, it is fact on record that assessee has received unsecured loan from Rabik Exports Pvt. Ltd. only through banking channel. In support of that, assessee has submitted confirmation letters and Balance Sheet and further we observed that assessee has returned the same within three months from the receipt of the above unsecured loan. Since the transactions were only routed through banking channels and assessee has submitted relevant documents as required by the AO. It is also fact on record that the AO has verified the existence of the company as per the address available on ROC records and as per the Inspector’s physical report and also jurisdictional AO has confirmed that Rabik Exports Pvt. Ltd. has not filed return of income for Assessment Years 2017-18 & 2018-19, however there is no mention about the return of income filed by them for earlier AYs i.e. 2015-16 & 2016-17. From the record, it is clear that even the Director of the assessee company has confirmed the transaction, receipt of unsecured loan and repayment of the same. Merely because the AO could not trace the company as per the address available on ROC records and non-filing of return of income for the assessment year under consideration, the transactions carried on by the assessee through banking channel cannot be nullified. It is a fact on record that the transactions are taken place through the banking channel and the same was repaid within three months also through banking channel.

9.

We observed that on the similar facts on record, coordinate Bench in the case of Signature Global India Pvt. Ltd. (supra) held as under :-

“18.

With regard to ground no.ii(a), we observed that the Assessing Officer observed that the assessee has taken unsecured loan from 9 parties and assessee has submitted copies of ITR acknowledgement, confirmation of the loan creditors and copy of bank statement of all the loan creditors and with regard to Basera Realtech Private Limited submitted a copy of the Hon’ble High Court order. The Assessing Officer has made the addition after analyzing loan creditors. He came to the conclusion based on the declaration of meager income in the return of income and observed how can they lend huge amount to the assessee as unsecured loans, therefore, he raised doubt of the creditworthiness of these parties. In appellate proceedings, ld. CIT (A) considered the detailed submissions of the assessee and he deleted the addition with the observation that the assessee has submitted all the relevant details/documents in respect of securing unsecured loans from all the nine parties. After considering the details filed on record, he observed that Assessing Officer has not pointed out any discrepancy in the abovesaid documents and not made further enquiries. Further he observed that based on the balance sheet of these lender companies, he observed that the status of own funds/total funds available with these lender companies are much higher than the amount lend by them and he negated the findings of the Assessing Officer on the basis of lending the money merely on the basis of earning of income. He relied on the decision of coordinate Bench in the case of Addl.CIT vs. Prayag Polytech Pvt. Ltd. (supra), ITO vs. Computer Home Information Plus Pvt. Ltd. (supra) and the decision of Hon’ble Delhi High Court in the case of Pr.CIT vs. Goodview Trading Pvt. Ltd. (supra) and came to the conclusion that income alone is not the criteria for making the loan and also negated the findings of the Assessing Officer that the loan was given immediately after it was received by them and cannot be the ground for making addition u/s 68 of the Act. Finally, he deleted the addition by observing that the assessee has taken loans from these companies for short duration and almost all the loans were repaid during the year itself and only some small amount is outstanding as at the year end and that too is mainly on account of interest. He has reproduced the following chart in his order :-

S.No.	Name of the Party	Loan amount added by A.O. (Rs.)	Outstanding balance as at the year end (Rs.)
1	Ace Stone Craft Limited	20000000
2	Arise Infotech Private Limited	5900000	1346065
3	Basera Realtech Private Limited	5200000	NIL
4	Multiplex Fincap Limited	163456456	NIL
5	Radhay Portfolio Limited	2950000	4361540
6	SRK Tradelinks Pvt. Limited	15500000	NIL
7	Syala Buildwell Private Limited	2500000	2590369
8	Tia Enterprise Private Limited	4000000	NIL
9	Umang Leasing and Credit Co. Ltd.	11750000	NIL

19.

Based on the above finding, ld. CIT (A) came to the conclusion that assessee has proved the conditions imposed u/s 68 of the Act that assessee has found identity, creditworthiness and genuineness of the transactions. Further, he observed that the Assessing Officer has merely rejected the submissions of the assessee on the basis of doubt without bringing any material to discredit the document or information on record. Further he observed that the provisions of section 68 of the Act as existed at that point out time there is no requirement of proving the source of source in the case of loan transactions. Accordingly, he deleted the addition made by the Assessing Officer.

20.

At the time of hearing, ld. DR relied on several decisions in his arguments. We heard the same and we are of the opinion that those case laws are distinguishable to the facts in the present case. Therefore, we are not inclined to disturb the findings of the ld. CIT (A). Accordingly, ground no.ii(a) is dismissed.”

10.

The facts in the present case are exactly similar to the above and assessee has submitted all the relevant information to prove the identity, creditworthiness and genuineness of the transactions and it is also fact on record that assessee has repaid the unsecured loan within three months and all the transactions were routed through banking channel. Therefore, respectfully following the aforesaid decision, we do not find any reason to disturb the findings of the ld. CIT (A) and accordingly, the grounds taken by the Revenue are dismissed.”

“11.

We have heard the rival submissions and have perused the relevant material on record. In the present case, the sole dispute is with respect to the genuineness of the unsecured loans taken by the assessee from four companies which were alleged to be bogus accommodation provider entities. The assessee received total amount of loans of INR 2.46 crores from four companies during the year and the Assessing Officer made addition of Rs. 2.51 crores which included commission for providing the entries.

12.

We find that the co-ordinate bench in the case of Filatax India Limited vide order dated 30.06.2025 has decided the bunch of appeals. Like assessee in the present case, Filatax India Ltd had also taken loans from the same parties which have been found to be genuine loans by the co-ordinate bench(supra). The coordinate bench of ITAT found that these parties were genuine and their loans were genuine. It would be pertinent to refer to the findings of the order in the case of Filatax India Ltd which read as under:

36.

In view of above facts and the circumstances of the case, we are of the considered view that the decision of the Ld. CIT(A) deleting the additions made is based on the appreciation of fact that all the relevant documentary evidences were produced by the Assessee to establish the identity and creditworthiness of the lender companies and genuineness of the transactions. Further based on the legal precedents and the fact that the loans were received and repaid through banking channel had deleted the additions under consideration. We further observed that that Hon'ble Jurisdictional High Court in various cases has dealt with the fact that where assessee has discharged its burden by filing all the necessary evidences to prove the loans, provisions of section 68 cannot be invoked. Further Hon'ble Gujarat High Court in the case of PCIT Vs. Ojas Tarmake Pvt. Ltd. (supra) has held that where major portion of the credit has been repaid and also looking to the facts that in the instant case the AO had accepted the debit entries as genuine, the Hon'ble Court on the said facts ultimately affirmed the decision of the Tribunal in deleting the addition. Further the Hon'ble Gujarat High Court re-affirmed this view in the case of PCIT Vs. Merrygold Gems Pvt. Ltd. Similar view is also expressed by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Karaj Singh [2011] 15 taxmann.com 70.

37.

In case of Andaman Timber Industries Vs. CCE (SC) reported in 281 CTR 241(SC), the Supreme Court found that the Adjudicating Authority had not granted an opportunity to the assessee to cross examine the witnesses and the tribunal merely observed that the cross examination of the dealers in that case, could not have brought out any material which would not otherwise be in possession of the appellant- assessee. The Supreme Court set aside the impugned order and observed that it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross examination and make the remarks such as was done in that case.

38.

Thus, the denial of opportunity to cross examine which goes to the root of the matter and strikes at the very foundation of the assessment and, therefore, renders the assessment order passed by the AO not sustainable. Thus the additions made by the AO on the basis of such statement without any tangible material is not sustainable in law and liable to be deleted.

39.

In view of the above discussion and further looking to the fact that when all the relevant details and documentary evidences produced by the assessee to establish the identity, creditworthiness and genuineness of the transactions, the said evidences cannot be rejected based on the statements without any contrary documentary evidence. It is seen that transactions have been done through banking channels and on the date of making of loans, there was balance available in the accounts of the lenders, which proves the creditworthiness and genuineness of the transactions. It is also relevant that out total amount of loans of 24.50 crores received from these lender companies, the AO has despite of doubting their creditworthiness, had made the addition of INR. 5.90 crores only meaning thereby the creditworthiness for the remaining amount is not doubted though the facts and the circumstances while granting these loans remained the same. This creates serious doubts about the mode and manner of the additions made by the AO. Once it is accepted that the lender has creditworthiness for part of the amount, the remaining amount cannot be held as unexplained. There is no case of any cash deposition in the account of any of the lender companies at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, Appellant has duly discharged the burden casted upon it u/s 68 of the Act.

40.

It is trite law that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw & Bros. vs. CIT (1959) 37 ITR 271 (SC). The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax (1954) 26 ITR 775 (SC) has observed that powers given to the Revenue authority, howsoever, wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law & and one should avoid presumption of evasion in every matter. The assessee, in the instant case, has sufficiently demonstrated the genuineness of transaction and creditworthiness of the loan creditors. On a broader reckoning, the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. Accordingly, we find no infirmity in the order of ld. CIT(A) in deleting the additions made u/s 68 towards the unsecured loans of Rs. 5.90 crores by holding the same as accommodation entries. Further since we have already held the loans taken from all four companies as genuine transaction question of treating the interest paid to them as ingenuine does not arise and therefore, disallowance of interest on such loans has rightly been deleted by ld. CIT(A) which order is hereby confirmed. Regarding the addition towards commission @ 2% as made by AO by alleging the loan transactions as accommodation entries, as has been observed above, we have already hold these loan transactions as genuine transactions thus question of payment of any commission for obtaining such loan does not arise. In view of these facts, we hereby uphold the order of ld. CIT(A) deleting the addition made on account of alleged commission payments. Accordingly, all the grounds of appeal of the revenue are dismissed.

13.

We, therefore, finding the facts and circumstances being identical, respectfully following the decision of the co-ordinate bench [supra], we hold that the loans from the said four lenders were genuine. Accordingly, Grounds 1 to 4 of Revenue are dismissed. 14. In view of our decision taken above in the appeal of the Revenue, the cross objection of the assessee is rendered academic and thus not adjudicated and is dismissed.”