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Judgment
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 06.01.2026 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/250/2025-26/1084459506(1)arising out of the assessment order dated 23.12.2017 u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the ITO, 17(3) New Delhi for AY: 2010-11.
Heard and perused the records. Based on the investigation wing report that assessee has taken an entry of Rs.40,00,000/- from companies under the control of Pradeep Kumar Jindal the entry operator. The assessee’s case was reopened and after taking explanation of the assessee addition of Rs.40,00,000/- was made and the relevant findings of ld. Assessing Officer in para 23 is reproduced below:
“23.In view of the above facts & circumstances of the case and the settled legal position, the sum of money received by the assessee company during the year, shown as unsecured loan from M/s Prasandi Leasing and Finance Pvt.Ltd amounting to Rs.20,00,000/- and Instant Travel & Tours Pvt.Ltd. amounting to Rs.20,00,000/- is hereby added to the income of the assessee company u/s 68 of the Income Tax Act., 1961 being unexplained credit found in the books of the assessee company. After having perused and considered the facts and circumstances of the case, I am satisfied that the assessee has concealed its income and has furnished inaccurate of particulars of its income in respect of aforesaid sum of Rs. 40,00,000/- and thereby provisions of section 271(1)(c) of the Act are attracted in this case and therefore, penalty proceedings u/s 271(1)(c) is being initiated separately.”
The same stand sustained by the Ld. CIT(A) for which assessee is in appeal and has raised following grounds:
“1.That on the facts and circumstances of the case and in law, the order passed by the Ld. AO under section 147 of the Income Tax Act, 1961 hereinafter referred to as the IT Act, is bad in law, contrary to facts, and liable to be quashed.
2.That the Ld. AO erred in reopening of assessment under section 147 of the IT Act solely based on borrowed satisfaction from the Investigation Wing without any independent application of mind by the Assessing Officer.
3.That the reassessment proceedings are void ab initio as the mandatory notice under section 148 of the Act was not properly served upon the appellant within the limitation period.
4.That the Ld. AO failed to provide the appellant with a meaningful opportunity for cross-examination of the third parties whose statements were relied upon to make the additions, thereby violating the principles of natural justice.
5.That on the facts and circumstances of the case, the Ld. AO erred in making addition of Rs. 40,00,000 as unexplained cash credit even though the Appellant had borrowed only a sum of Rs. 20,00,000 from the alleged entry providers.
6.That on the facts and circumstances of the case, Ld. AO erred in making addition of Rs. 40,00,000 under section 68 of the Act as unexplained cash credits, despite the appellant having proved identity, creditworthiness, and genuineness of loan transactions through banking channels.
7.That on the facts and circumstances of the case, Ld. AO erred in making addition of loans borrowed under section 68 of the Act as unexplained cash credits, despite the Appellant having repaid the sums to lender and there being no income emanating from the said transactions.
8.That the Ld. AO erred in making an addition of Rs.1,00,000 under section 69C of the Act on account of alleged commission paid, based on mere surmises and conjectures without any evidence of such payment.
9.The Appellant craves leave to add, alter, amend, OR vary any of the aforesaid grounds of appeal at OR before the time of hearing.”
Ld. AR has primarily questioned reasons as stand recorded and it was submitted that reasons as stand recorded are not sustainable in law as they are founded on borrowed satisfaction and without application of mind, the same are rebutted by ld. DR by submitting that reasons are quite descriptive and have all the necessary facts to reopen the case. Further, ld. AR has submitted that vital evidences were filed to establish that only a loan of Rs.20,00,000/- was taken from Parsandi Finance & Leasing Pvt. Ltd. which was subsequently merged with M/s Focus Industrial Resources Ltd. and the interest and loans were paid subsequently.
Having considered the rival submission and on perusal of material as with regard to the Ground No. 1 and 2, by which assessee has challenged the reassessment Order u/s 147 alleging same to be bad in law as reopening based on borrowed satisfaction, we find that the reasons recorded under section 148 of the Act for reopening assessment is made available at Pg 46 of Paper book, wherein, there is reference of Annexure-A, available at Pg 52 of Paperbook and perusal of same shows that it has been alleged that Rs.40,00,000/- was borrowed by Appellant during the year under consideration. The annexure shows that only the name and address of certain entities is mentioned without any reference to the transactions entered by the Appellant with any of the stated entities.
Factually it can be seen that during AY 2010-11 the Appellant had taken a loan of Rs. 20,00,000 from Parsandi Finance & Leasing Private Limited (subsequently merged with Focus Industrial Resources Limited) on 31.12.2009 through banking channel - Canara Bank RTGS (@ Pg 162 of Paperbook).
Further, the reasons recorded by Ld. AO for reopening the assessment are mere reproduction of the report/information received from the Investigation Wing, without conducting any independent enquiry or analysis. Further, Ld. AO has failed to make any independent analysis/ verification of the material received. Accordingly, the reassessment order, premised on such borrowed satisfaction, is void ab initio and deserves to be quashed.
Then with regard to the merits of addition, vide Ground No. 5-7, addition of Rs.40,00,000/- as unexplained cash credit under section 68 of the Act, has been challenged and in this regard we find that During AY 2010-11 the Appellant had taken a loan of Rs. 20,00,000 from Parsandi Finance & Leasing Private Limited (subsequently merged with Focus Industrial Resources Limited) on 31.12.2009 through banking channel -Canara Bank RTGS (@ Pg 162 of Paperbook). On perusal of the ledger accounts (@ Page 132 of Paperbook) maintained by the Appellant for Parsandi Finance & Leasing Pvt. Ltd, it can be seen that interest of Rs. 45,000 was paid by the Appellant on 31.03.2010 on which TDS of Rs. 4500 was also deducted. Further, the loan was repaid by the Appellant in during AY 2010-11 and AY 2011-12 as can be seen from the ledger account of Parsandi Finance & Leasing Pvt. Ltd. Documentary evidence, including the ledger account of Parsandi Finance & Leasing Pvt. Ltd. @Pg 132 of Paperbook), confirmation from Focus Industrial Resources Ltd. (successor entity pursuant to merger) @Pg 134 of Paperbook), bank statements evidencing receipt (@Pg 161 of Paperbook) and subsequent repayment of the loan (@Pg 150 of Paperbook) through banking channels, and ledger confirmation from the lender @Pg 134 of the Paperbook) corroborating the transaction and reversal of excess payment (Annexures H to K of the Paper Book), were very much there before ld. Tax authorities.
Our, attention in this regard was invited to the decisions of ACIT vs. Kind Building Solutions (P.) Ltd. [2026] 186 taxmann.com 977 (Delhi -Trib.)[20-05-2026] {Para 4.1), Deputy Commissioner of Income-tax vs. ACE Infracity Developers (P.) Ltd. [2026] 185 taxmann.com 600 (Delhi -Trib.)[17-04-2026] {Para 6.4-6.5} and Vedic Foundation (P.) Ltd. vs. /TO [2024] 160 taxmann.com 1216 (Delhi - Trib.)[25-01-2024] {Para 10-11) wherein the Hon'ble Delhi Bench of Tribunal has held that the assessee had duly discharged the onus cast u/s 68 by furnishing confirmations, income-tax particulars, bank statements etc and since the assessee had repaid the loans through banking channels and satisfactorily explained the source of such repayments. It was further held that since Ld. AO did not conduct any independent enquiry or bring any adverse material on record to rebut the evidence furnished by the assessee, the addition made u/s 68 was liable to be deleted.
We find that ld. Tax authorities have primarily relied the statements of Shri Pradeep Kumar Jindal and other third parties but despite assessee, specifically praying for opportunity of cross examination Ld. AO failed to provide the Appellant an opportunity to cross-examine persons, whose statements were relied upon in order to make the impugned additions. It is settled law that no adverse material can be used against assessee without first giving the assessee an opportunity to cross-examine as has been held by Hon'ble Supreme Court in Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II [2015] 62 taxmann.com 3 (SC)[02-09-2015] {Para 6-9) which has been followed by Hon'ble jurisdictional Delhi High Court in Principal Commissioner of Income-tax (Central) -3 vs. Pavitra Realcon (P.) Ltd. [2025] 481 ITR 663 (Delhi)[29-05-2024] {Para 31}. The repayment of the loan is the strongest evidence of the genuineness of the transaction and negates any inference that unaccounted income was introduced in the guise of a loan. This Hon'ble Tribunal in the case of KTM Impex Private Limited vs. ITO: ITA No.2377/Del/2025 dt.09.01.2026 {Para 5-13} while relying on the decision of Real Innerspring Technologies (P.) Ltd. vs. ACIT [2025] 174 taxmann.com 1130 (Delhi - Trib.)[27-03-2025] {Para 11} has held that when assessee had received loans through normal banking channels, paid interest thereon, and repaid the entire loan amounts through banking channels even prior to reopening of the assessment, merely because the lenders were allegedly connected with entry operators, every transaction involving such entities could not automatically be treated as non-genuine.
At the same time the Ld. AO also erred in casting an onus on the Appellant to produce the individuals whose statement was sought to be used against the Appellant without appreciating that the Appellant did not have any power to produce witness before the Ld. AO..
Ld. AO erred in making an addition of Rs. 40,00,000/- as unexplained cash credit u/s 68 of the Act without appreciating that the Appellant had, in fact, borrowed only Rs. 20,00,000/- from Parsandi Finance & Leasing Private Limited (subsequently merged with Focus Industrial Resources Limited) during the year under consideration and did not have any other transaction with any of the entities stated in Annexure-A to the reasons for re-opening. Ld. AO erred in also adding Rs. 20,00,000/- which was reversal of payment made to another creditor on 31.12.2009, Lucky Exports. Attention in this regard was invited to Bank confirmation attached herewith at Annexure K(@ Pg 162 of Paper book) evidencing reversal of the said amount. However, the Ld. AO erred in attributing the reversal of transaction by bank to a loan obtained from M/s Instant Tours and Travels Private Limited (@Para 6 of the Assessment Order) without any cogent basis and adding the said amount as unexplained cash credit to the total income of the Appellant. Thus corresponding grounds deserve to be sustained and further ground No. 8, by which the addition of Rs. 1,00,000/u/s 69C of the Act on account of Commission is was made also becomes unsustainable in law.
As a sequel to aforesaid determination of grounds in favor of assessee, the appeal is allowed and impugned additions are quashed.