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Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal of the asse ssee is d irected against the order dated 16.09.2025 of ld. CIT(A)/NFAC passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) wherein an addition of Rs.4,50 ,00,000/- u/s 68 of the Act on account of an unsecured loan received fro m M/a Arora Fincap Ltd. has been confirmed, against the assessment order dated 26.12.2019.
Brief facts as culled out form the orders of the authorities below are that the assessee is a private limited company engaged in the business of civil construction. The asse ssee filed its return of income on 27.09 .2 017 declaring to tal income of Rs.7 ,40,59,000/-. The case was selected for limited scr utiny under CASS and, during the course of assessment proceedings, the Assessing Officer called upon the assessee to explain the unsecured loan of Rs.4 ,50,00,000/- received from M/s Arora Fincap Ltd. In response, the assessee furnished various docume ntary evidences, including confirmation fro m the lender, audited financial statements, bank state ments of the assessee and the lender, loan agreement, Income-tax Return acknowledgements, Form 16A, interest ledger and evidence of repayment of the lo an throug h normal banking channels. Thereafter , a summon u/s 131 of the Act were issued to Mr. Rajeev Singh Kushw aha, Director of M/s Arora Fincap Ltd., who appeared before the Assessing Officer and furnished the relevant documents, including confirmation, PAN, bank statements and audited financial statements of the le nder company. Howev er, notwithstanding the documentary evidences furnished by the assessee and the personal appearance of the Director of the lender company , the Assessing Officer treated the loan of Rs.4,50,00 ,000/- as unexplained and made an additio n u/s 68 of the Act. The assessee contended that the identity and cred itworthiness of the lender and genuineness of the transaction stood duly established and that the loan transaction was routed through normal banking channels, interest was paid thereon and the loan was subsequently repaid.
Aggrieved by the assessment order, the assessee preferred an app eal before the ld. CIT(A). The ld. CIT(A) , vide order dated 16.09.2025, upheld the addition made by the Assessing Officer u/s 68 of the Act.
Aggrieved by the impug ned order, the assesse e is in appeal before us and has raised the following grounds of appeal:
“1 . On the facts and circumstances of the cas e, t he order pass ed by the lear ned Commissioner Income T ax (Appeals ), {(CIT(A),}, is bad, bot h i n the eye of law and on the facts.
2.(i) On t he facts and circums tances of the cas e, t he learned CIT(A) has err ed both on fac ts and in law in co nfirming t he addition of Rs. 4,50,00,000/- made by the Assessi ng officer (A O) on account of unsecured loans rec eive d from M/s Arora Fi nc ap Li mi ted under sectio n 68 read with s ection 115BBE of the Act .
(ii)That the abovesaid additi on has been c onfirmed rej ecti ng the detailed submissi ons and expl anati ons along wi th t he e vidences brought on record by t he assessee i n t his regar d.
3.On the facts and circumstances of the cas e, t he learned CIT(A) has err ed both on fac ts and in law in co nfirming the abovesaid additi on des pite the fact t hat the unsec ured loan received by t he assess ee was repaid along wi t h the due i nt erest by the assessee i n t he subsequent years.
4.On the facts and circumstances of the cas e, t he learned CIT(A) has err ed both on fac ts and in law in co nfirming the abovesaid additi on des pite the fact t hat the same has b een made by the AO wi thout c oncl uding independ ent enqui ry conducted during the co urse of assessment proceedings to the logical end.
5.On the facts and circumstances of the cas e, t he learned CIT(A) has err ed both on fac ts and in law in co nfirming the abo ve addition rej ec ting the contenti on of the assesse e that the t ransacti on has been entered into with the proper banki ng c hannel and no shred of evide nce has be en brought on record by the AO to establis h that amount of loan amount emanated fr om the own coffers of t he ass essee compa ny.
6.On the facts and circumstances of the cas e, t he learned CIT(A) has erred both on fac ts and in law in co nfirming the above additi on despite the fac t that the additio n has bee n made by indul ging in gross c onjecture and surmises wi thout bri ngi ng any adve rse material on rec ord.
7.Witho ut prej udice to t he above , the learned C IT(A ) has erred i n l aw in confir mi ng the retr ospecti ve applicati on of the amendment brought by The Taxati on Laws (Second Amendment) Act, 2016 under Sec ti on 115BBE, despite the fact that the same is effective from AY 2018-19. ”
We have heard the ld. AR and the ld. DR. T he ld. AR has argued that the assessee has fully discharged the onus u/s 68 of the Act establishing the identity , creditworthiness and genuineness of the transaction. In that regard, he has referred confirmatio n from M/s Arora Fincap Ltd. at page 72, ledger account at page 107 and copy of bank statement of M/s Arora Fincap Ltd. evidencing the advancing of the loan to assessee placed at page 109-113 of the paper book. He also further referred balance shee t placed at page 93 of the paper book. It is further sub mitted that the proof of interest paid by the assessee is as at page 109-113 of the paper book. Lastly, it is argued that the AO did not co nduct any inquiry with respect to the transaction concerning the loan. In that regard, he has filed written submissions. In support of our arguments to the fact that onus upon the assessee u/s 68 of the Act has been duly discharged and the impugned addition is based merely on n d suspicio ns and the 2 Amendment Act, 2016 u/s 115BBE of the Act cannot be applied retrospectively and the Assessing Officer has erred in that regard by proposing @ 60% plus sur charge instead of normal rate s. It is also argued that the sole basis of additio n is the allegation that Mr. Rajeev Sing h Kushwaha, Director of M/s Arora Fincap Ltd. was allegedly arrested by Enforcement Directorate in connection with an investigation relating to money laundering and conversion of demonetized curre ncy but the ld. Assessing Officer d id no t point out any defect in the documentary evidence fur nished by the assessee and no material has been brought on record to establish any nexus between the alleged investigatio n and the loan advance to the assessee. The written submissions in that regard from paras 15 to 25 are extracted belo w as under:
“15.The assess ee respectful ly submit s that it has discharged the entire burden cast upon it under s ection 68 of the Act.
16.The identi ty of the l ender sta nds established thr ough i ts:-
Copy of c onfirmation from Arora Fi ncap L td. (PB Pg 72)
Copy of A udited Fi nancial Stateme nt of M/s Arora Fi ncap Limit ed AY 2017-18 (PB Pg 93-103)
Copy of ITR Ac knowledgement of M/s Arora Fi ncap Ltd. f or A Y 2016-17 t o 2018-19 (PB Pg 153-155)
17.The cr editwor thiness of the lender stands establ is hed thro ugh its:-
•Copy of B ank st atem ent of the assess ee refl ecti ng the loan re ceived and the s ubs eque nt repaym ent of loan. (PB Pg 74-92 ).
•Copy of Bank St ateme nt of M/s Ar ora Fi ncap Ltd.
evidenci ng the advanci ng of lo an t o assessee (PB Pg 109-113)
•Copy of A udited Fi nancial Stateme nt of M/s Arora Fi ncap Limit ed AY 2017-18 (PB Pg 93-103)
18.The genui neness of the trans action stands establ is hed thro ugh:
Loan A greeme nt ent ered wit h Ms Aror a Fi ncap Limited. (PB Pg 123-125)
Form 16A for AY 2017-18 in r espec t of interest paid to M/s Ar ora Fincap Ltd.(PB Pg 143-150)
Ledger A/c of i nterest paid to M/s A ro ra Fi ncap Ltd.
in the books of the assessee. (PB Pg 151-152)
Copy of B ank st atem ent of the assess ee refl ecti ng the loan re ceived and the s ubs eque nt repaym ent of loan. (PB Pg 74-92 ).
Copy of Bank St ateme nt of M/s Ar ora Fi ncap Ltd.
evidenci ng the advanci ng of loan to assessee. (PB Pg 109-113)
19.Furthermore, t he Mr. R aj eev Singh K ushwaha (Direct or of t he M/s Arora Fi ncap Limited) perso nally appeared before t he L d. AO i n respons e to s ummons issued unde r sec tion 131 and confirmed the tra nsac tio n.
20.Thus, all the three essential ingredi ents req uired under section 68, namely identity, creditwort hi ness and genui neness, stood fully est ablis hed.
iii.The impugned additio n is ba sed mere ly on suspic io n
21.It is pertinent to note that the impugned addi ti on is not suppo rted by any evi denc e whats oever . Notwi ths tanding, t he e xtensive documenta ry evidence and the pers onal appea rance of the Director of t he lender company , t he Ld. AO proc eeded to treat the uns ec ured loan as unexplai ned cash credit under section 68 of t he Act.
22.In t he ass essme nt order, t he L d. AO does not poi nt out any de fect i n the docum entary evid ence fur nished by the assessee. The s ol e basi s of t he additi on is t he allegati on t hat Mr . Raj eev Si ngh Kushwaha , Dir ector of M/s Arora Fi ncap Ltd., was allegedly arrested by t he Enforc ement Directorate in c onnecti on wit h an investigati on relati ng to money launderi ng and conversi on of dem onetised cur renc y.
- No s earch or s urvey has ev er been conducted i n t he case of M/s Ar ora Fi ncap Ltd.
- No com petent authority has declared the l ender company to be a bogus c onc ern or an accommodation e ntry provi der.
- No s tat ement has be en b r ought on r ecord wher ei n the lender admitted t hat the loan advanced t o t he assessee was a n accommodation entry .
- No evidenc e has been produc ed to establi sh that any cas h moved fr om the assessee t o the le nder company .
- No i nves tigati on re port, stat ement or adverse mat erial allegedly relied upon was confront ed to the assessee.
23.No mat erial has been bro ught o n record to establish any nexus between the alleged investigati on and the l oan adv ance d to the assess ee. The addi tion has thus been made merely on suspicion and wi thout any evidenc e to demonstrate t hat the impugned loan repres ente d t he assessee's own unexplai ned money.
24.The Revenue has thus failed to establish any live nex us betwee n the alleged i nvestigati on agai nst t he Direct or and t he loan transaction wi th the assessee.
25.It is well settled that suspici on, ho wever strong, cannot s ubstitute legal evidence. An addition under section 68 cannot be s ustai ned merely on the basis of thir d-party alle gations unconnect ed with t he assess ee.”
The ld. AR further submitted that the present case is covered by the case of Delhi Tribunal where the similar loan transaction subject matter of ITA No. 2157/Del/2025 order dated 28.01 .2026 has been dealt with w here also the similar additio n were made on the sole ground of involvement of Mr. Rajeev Singh Khushwaha, Directo r of M/s Arora Fincap Limited. in an alleged money laundering case reg istered by ED.
The ld. DR on the other hand argued that the assessee has miserably failed to fulfill the three conditions to show the genuineness of the transaction involved in this case. It is further argued that the facts of the covered case in IT A No. 2157/Del/2025 are distinguishable from the present case as there is less income allegedly shown for the se years subject matter of the present appeal and further in the present case, the AO has filed his remand report whereas in the case relied as covered by the assessee as there was no remand report submitted by the AO. Hence, the observation in para 5.2 recorded in the covered case are not applicable to the case of the assessee.
We have considered the rival submissions and e xamined the re cord. T he ld. DR has tried to distinguish the case relied by the ld. AR on the ground that in this case the detailed remand report was submitted by the AO with respect to the request of the assessee/appellant under Rule 46A for admission of additional evidence. Before proceeding further, we have considered these submissions and admittedly, no remand report was called for in the case w hich is relied as covered case by the appellant before us. Now, the que stio n before us is whether the application under Rule 46A o f the Income Tax Act Rules, after seeking the re mand report and submission of the remand report by the AO, w hich find recorded in the imp ugned order, the ld. CIT(A) has considered the said application or whether he has decided or dismissed the same. In that regard, w e have noticed that the submission of the remand report and its consideration and disposal of the application under Rule 46 A has been considered and adjudicated upon in paras 9.5 , 9.6 and 9.7 of the impugned order extracted below as under:
“9 .5 Subsequently , t he matt er was remanded for exami nati on of the additio nal evidenc es submitted by t he appellant under Rule 46A of the Income Tax R ul es. The remand report submitt ed by t he AO af fi rms t hat the appellant was gr anted ample opportunities duri ng the assessment pr oceedings to prod uce evidence to discharge its o nus. H owever , despite suc h opportuni ties, t he appellant failed to produce sufficient and satisfactory’ evidence in s upport of the genui ne ness and creditwo rthi ness of M/s Ar ora Fincap Ltd. The AO furt her not ed t hat summo ns u/s 131 of t he Act wer e issued to M/s Ar ora Fincap Ltd. and its director, S hri Raje ev Si ngh Kushwa ha, but the director fai led t o appear and file a ny submissi ons i n these proc eedi ngs. The remand report concluded that the additi onal documents submitt ed did not establish the genui neness or creditwort hi ness of t he lender c ompa ny, particularly consi deri ng the very’ low to tal i nco me sho wn by M/s Ar ora Finc ap Ltd. for A.Y. 2016-17, A.Y. 2017-18, and A. Y. 2020-21, raising seri ous doubts on its ability’ to adv anc e such a signi ficant loan. The ED's descripti on of S hri Kushwaha as the mastermind behi nd alleged money launderi ng operations t hrough shell compani es furthe r supports the AO’s r eas oni ng i n confirmi ng t he addition.
9.6It is als o note worthy t hat no r ejoi nde r or respons e to the remand report was filed by the a ppellant withi n the c ompliance dat e despite bei ng afforded t he opportunity. Thi s inacti on furt her supports t he correctne ss of the AO’s fi ndi ngs as no fresh mat erial or subst antive expla nation was provided by the appella nt in rebuttal.
9.7To concl ude, i n vi ew of t he above facts, fi ndings of the AO as affirmed i n t he remand report, and t he abs ence of any r ej oinder fr om the appel lant, t he creditwo rthi ness o f lender remained unsubstantiated. Ther efore, the addition of Rs .4,50,00,000/- treati ng the unsec ured loan from M/s Arora Fi nc ap Ltd. as unex plained c redi t u/s 68 read wit h sectio n 115BBE of the Act is just ified and liabl e to be confirmed. Accordi ngly, this gr ound of appeal is dismissed.”
On perusal of this finding, it is clear that the ld. CIT(A) has tried to escape from giving any find ing on the admission of the additional evidence sought to be relied by the assessee/appellant to prove the creditworthiness, identity of the party and genuineness of the transaction, and he has simply concluded that in view of the facts, finding of the AO as affirmed in the remand report, and in the absence of any rejoinder fro m the appellant, the creditworthiness of the lender remained unsub stantiated and accordingly, proceeded to confirm the addition of Rs.4,50,000/- treating the unsecured loan from M/s Arora Fincap Ltd. as unexplained credit u/s 68 r.w.s. 115BBE o f the Act. From the above find ing, we have noticed that the ld. CIT(A) has neither admitted nor rejected the admission of additional evidence and has no t disposed of the application under Rule 46 A of the Act. The additional evidence which is sought to be filed is the crucial material relied by the assessee/appellant for proving the creditworthiness of the parties and genuine ness of the transaction in question. To that extent, the case relied by ld. AR is d istinguishable on facts. Further, the ld. CIT(A) because of the above factual matrix, has not decided the issue before him as per requirement of section 250(6) of the Act, which lays down as under:
Procedur e i n appeal.
250...
...
(6 ) The order of the Joi nt Commissi oner (Appeals) or the Commissi o ner (Appeals) disposing of the a ppeal shall be in writi ng and shall state t he poi nts for determi nation, the decision thereon and the re aso n for the decision.”
In view o f these facts, since the sole issue involved in the case is addition of Rs.4,50,00,0 00/- u/s 68 r .w.s. 115BBE of the Act, the additional evidence which was sought to be produced by the asse ssee/appellant before the ld. CIT( A) remained to be considered or rejected in the absence of any finding having not been returned on the application under Rule 46A of the Act by the ld. CIT(A). The ends o f justice requires that the ld. CIT(A) needs to decide the said application after considering the submissions and the rejoinder, if any, to be filed by the assessee/appellant, which he has failed to file during the appellate proceedings before the ld. CIT(A). Accordingly, the impugned order is set aside by remitting the case to the file of the ld. CIT(A) for decid ing the same as per requirement of sectio n 250(6) of the Act. The appellant shall be afforded an opportunity to file evidence/mater ial or rejoinder to the Remand Report of the AO.
In the result, the appeal of the assessee is allowed for statistical purposes.