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Judgment
PER YOGESH KUMAR US, JM
This appeal by the Assessee is directed against the order of learned CIT(A), NFAC, Delhi dated 12th November, 2025 for the assessment year 2014-15.
Brief facts of the case are that the Assessee is a company and filed its return of income for the assessment year 2014-15 on 28th November, 2014 declaring total income of Rs.58,68,690/-. Thereafter, the case was selected for scrutiny and assessment was completed under Section 143(3) of the Income-tax Act, 1961 on 22nd September, 2016 assessing total income at Rs. 59,17,944/- after making an addition of Rs. 49,254/- to the total income returned. Subsequently, the Principal Commissioner of Income Tax, Hisar by exercising the power conferred under Section 263 of the Act, set aside the assessment and directed a fresh assessment. Accordingly, order u/s 143(3) r.w.s. 263 of the Act was passed by the AO on 26.04.2021 by making addition of unexplained cash credit u/s 68 of the Act on account of share application: Rs.1,95,00,000/- and made Disallowance of interest expenses : Rs.4,73,786/-.
Aggrieved by the assessment order, the Assessee preferred an appeal before the learned CIT(A) and the learned CIT(A), in the first round, vide order dated 30th October, 2023, dismissed the appeal of the Assessee. As against the order of learned CIT(A) dated 30th October, 2023, Assessee preferred an Appeal before this Tribunal and vide ITA No.2990/Del/2024, Coordinate Bench of the Tribunal, vide order dated 18th March, 2025, remanded the matter to the file of the learned CIT(A) for fresh adjudication. During the second round before the CIT(A), Assessee participated in the first appellate proceedings and produced the Documents to substantiate its claim, however the Ld. CITA(A) vide order impugned dated 12-11-2025, dismissed the Appeal of the Assessee. As against the Order of the CIT(A), Assessee preferred the present Appeal.
Ground No. 1 to 8 are regarding the addition of Rs. 1,95,00,000/-made by the A.O. under Section 68 of the Act which has been sustained by the CIT(A) in the 2nd round as well Learned Counsel for the Assessee vehemently submitted that the Assessee has discharged its onus as per Section 68 of the Act by producing copies of PAN card of shareholders, income tax returns of the parties to prove the creditworthiness and genuineness of the transaction. Assessee has also produced the bank statements of the shareholders showing the funds transferred to the Assessee, ROC filings, board resolution for allotment of shares to the shareholders and list of the shareholders. However, learned CIT(A) neither disputed those documents nor made any further enquiry, but proceeded to confirm the Addition, therefore sought for deletion of the addition.
Per contra, the Learned DR submitted that, mere submission of the documents cannot establish the genuineness of the transaction and the creditworthiness of the investees in order to discharge the onus cast upon the Assessee, thus relying on the findings and the conclusion of the CIT(A), sought for dismissal of Ground No. 1 to 8 of the Assessee.
We have heard the parties and perused the multiracial available on record. During the First round, the Ld. CIT(A) dismissed the Appeal of the Assessee in-limine and the Co-ordinate bench of the Tribunal in ITA. No. 2990/Del2024, vide Order dated 18-03-2025, remanded the issue to the file of the CIT(A) for fresh adjudication. During the Second round before the Ld.CIT(A), in order to prove the genuineness of the transaction and the creditworthiness of the investors as per Section 68 of the Act, Assessee produced PAN Card of shareholders, ITR filed by the investors for last 2 and 3 years, Bank statements of shareholders showing the funds transferred to the Assessee, ROC filings PAS-3 form filled with MCA, Board resolution for allotment of shares to shareholders and the List of shareholders. The Assessee has once again produced those documents before us in the paper book. However, learned CIT(A), without conducting any further enquiry, confirmed the said addition; while doing so, the Ld. CIT(A) has neither doubted the genuineness of the documents produced by the Assessee nor conducted further inquiry by issuing summons under section 131 of the Act to the shareholders or under section 133(6) of the Act calling for confirmation or further details disputed the same. The Ld. CIT(A) has not brought any material to suggest that the shareholders are fictitious, non-exist or accommodation entry provider. The Ld. CIT(A) simply brushed aside the evidence placed by the Assessee without making any further enquiry.
Though initial burden is upon the Assessee, once he proves the identity of credits/share application by furnishing Permanent Account Numbers, ITRs, copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove would shift to the Revenue. The Hon'ble Jurisdictional High Court in the case of CIT Vs. Kamdhenu Steel & Alloys Ltd. (Reported in MANU/DE/7557/2011) held as under:-
"2.It is, thus, clear that initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee. It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. The manner in which such a burden is to be discharged has been explained in various judgments and noted by us above. At the same time, it is also well-established principle of law that in any matter, the onus brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either furnishing Permanent Account Numbers or copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the revenue. The question which assumes importance at this stage is to what the Revenue is supposed to do to dislodge the initial burden discharged by the assessee and to throw the ball again in the assessees court demanding the assessee to give some more proofs, as the documents produced earlier by the assessee either become suspect or are rendered insufficient in view of the material produced by the Department rebutting the assessees documentary evidence. This is the aspect which has to be gone into in all these cases. Before that, we would like to refer to the observations of some Courts touching the core issue relating to discharge of burden.”
The said judgment of Hon'ble Delhi High Court in the case of Kamdhenu Steel & Alloys Ltd (supra) has been affirmed by Hon'ble Supreme Court in Diary No.19000/2012.
In the present case, as stated earlier, in order to prove the genuineness of the transaction and the creditworthiness of the investors as per Section 68 of the Act Assessee has produced various documents before the CIT (A), which are once again produced before us. We have gone through those documents. As the Ld. CIT(A) has not doubted the genuineness of the Documents and also not found it fit to make further enquiry, committed error in confirming the addition by brushing aside those documents. By following the ratio lied down by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Kamdhenu Steel & Alloys Ltd. (Supra), we delete the addition of Rs. 1,95,00,000/- made by the A.O. under Section 68 of the Act, which has been sustained by the CIT(A). Accordingly Ground No. 1 to 8 are allowed.
Ground No. 9 of the Assessee is on account of the disallowance of the expenditure of Rs. 4, 73,786/-.
Before us, Ld.AR for the assessee submits that AO has made the disallowance by observing that the assessee has taken personal loan from the bank by pledging the property of his wife. However, the said loan was taken for work-in-progress in the plant & machinery and the funds were applied which facts has not been doubted therefore, once the funds were used for the purpose of business, corresponding interest deserves to be allowed.
On the other hand, Ld.Sr.DR for the Revenue placed reliance on the order of AO and submits that the assessee has not filed any justification or documentary evidences in support of his claim therefore, the AO has rightly made the disallowance. He prayed accordingly.
Heard both the parties and perused the material available on record. As observed by the AO himself at page 2 of the assessment order that assessee has taken new term loan corresponding to the work-in-progress in plant & machinery was 32.67 Lakhs on which interest @ 14.5% was paid. Accordingly, the AO computed the disallowance at Rs.4,73,786/-. From the order of Ld.CIT(A), it is observed that Ld.CIT(A) has confirmed the disallowance by observing that assessee has failed to demonstrate that borrowed funds were utilized wholly and exclusively for the purpose of business. Both the observations of the lower authorities are contradictory to each other where AO himself observed that the loan was taken for work-in-progress of the plant and machinery. On the other hand, Ld.CIT(A) observed contradictory to these facts. Once the AO himself had admitted that loans were taken for the purpose of business, the corresponding interest being related to such loans, cannot be disallowed by holding that same was not incurred for the purpose of business.
In the light of these facts and overall discussions made herein above, we hereby delete the disallowance made u/s 36(1)(iii) of the Act by the AO of Rs.4,73,786/-.
In the result, appeal of the assessee is allowed.