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Judgment
PER ANUBHAV SHARMA, JM:
These cross appeals are preferred by the assessee and revenue against the order dated 06.10.2025 of the Ld. National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN& Order No.: ITBA/NFAC/S/250/2025-26/1081483264(1) arising out of the order dated 27.12.2019 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the ITO, Ward -58(7), Delhi for AY: 2017-18.
Heard and perused the records. The assessee had filed return declaring total income of Rs.5,53,171/- and the case of the assessee was selected for scrutiny. During the year assessee was engaged in the business of petrol pump operations situated at G.T. Road, Shahdara. It comes up upon the hearing that the case of assessee is that in the present financial year where partner of the firm Shri Ajay Kumar had retired from the firm and his capital balance was Rs.3,35,90,369.54/- at the time of retirement. The said balance was lying in his capital account and was transferred to his unsecured loan account. As such the unsecured loan outstanding as on 31.03.2016 was Rs.7,21,51,688/- which rose to Rs.10,52,50,277/- as on 31.03.2017. During the demonetization period assessee was permitted to accept specified bank notes of old denominations and assessee had deposited the same in cash sales and assessee deposited Rs.15,64,900/- in his corporation bank account and Rs.80,000/- in Punjab National Bank account total thus, being Rs.16,44,900/.
Assessment was completed by making addition of Rs.16,44,900/- being cash deposited during 03.12.2016 to 31.12.2016 and addition of unsecured loan Rs.3,30,90,589/- was made. Additional evidence were filed by the assessee in the form of partners capital account before the ld. CIT(A) and thereupon the impugned order was passed wherein ld. CIT(A) has sustained the addition on account of unsecured loan u/s 68 of the Act and deleted the addition on account of cash deposits. Assessee is in appeal against the addition sustained and department is also in appeal against the order of ld. CIT(A) wherein it was held that in regard to addition u/s 68 Section 115BBE is not applicable to the present assessment year as the amendment is prospective in nature.
At the outset, we find that the issue with regard to applicability Section 115BBE of the Act prospectively is covered against the department by decision of Hon’ble Madras High Court in S.M.I.L.E. Microfinance Ltd. Vs. ACIT, (2025) 179 taxmann.com 65 (Madras) and the same could not be controverted by Ld. DR, therefore, there is substance in the appeal of department and same is dismissed.
As with regard to the appeal of the assessee we find that at page 51-53 of the paper book assessee has provided copy of application for additional evidences under Rule 46A filed by the assessee. At page 51 there is extract of e-proceeding response acknowledgment wherein this application is shown to be filed by the assessee. We find that in the form of additional evidence, assessee filed the copy of ledger account of unsecured loan for Assessment Year 2017-18 as on 31.03.2017 and copies of relevant audited balance sheet as on 31.03.2017 were filed before ld. CIT(A) alongwith partner’s capital account statement for AY; 2016-17 & 2017-18. However, in the impugned order of NFAC we find that remand report for assessing officer was called on these documents and no verification of the evidences by way of remand report was received from the assessing officer. There was no adverse comment upon the same still NFAC has left these evidences out of consideration with very superfluous discussion which reproduce below:
“With regard to the addition of Rs. 3,30,98,589 on account of unsecured loans, the appellant has furnished certain ledgers, confirmations, and partial details of the parties. However, on a careful perusal, it is evident that complete documentary evidence has not been provided. The appellant has not filed verifiable bank statements of all the creditors to establish the inflow of funds, nor has independent confirmation been received from them. The explanation that these were brought-forward balances from earlier years remains unsubstantiated in the absence of reconciliation statements and supporting evidence from prior assessments. Merely producing ledger extracts without corroboration does not discharge the onus cast under section 68 to prove identity, creditworthiness, and genuineness of the creditors. The Hon'ble Supreme Court in CIT v. Devi Prasad Vishwanath Prasad (72 ITR 194) and CIT v. Daulat Ram Rawatmull (87 ITR 349) has held that the burden to explain the nature and source of credit lies upon the assessee, and in the absence of credible proof, the addition must be sustained. Accordingly, the explanation furnished by the appellant in respect of unsecured loans is not satisfactory. The Assessing Officer was justified in treating the same as unexplained cash credit under section 68. The addition of Rs. 3,30,98,589 is therefore confirmed.’
After taking into consideration the additional evidence which were before ld. CIT(A) we are of the considered view that as for making an addition u/s 68 of the Act there should be some credit entries in the books of account and what we find here is that the capital account balance of one of the partner Ajay Gupta was converted into unsecured loan on his retirement. Ld. Counsel has established that this has resulted into reduction of the partner’s capital account balances. NFAC has paid no attention to this material and erroneously has sustained the addition. There being merely a journal entry without any cash involvement and that too on account of capital account balance on being converted to unsecured loan, the addition u/s 68 could not have been sustained.
We thus, sustain the grounds raised by the assessee in its appeal and consequently allow the appeal. The impugned addition is deleted.
Resultantly, the appeal of the assessee is allowed and that of department is dismissed.