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Judgment
PER S. RIFAUR RAHMAN, AM:
The assessee has filed appeal against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 25.07.2025 for the Assessment Year 2023-24.
Brief facts of the case are, assessee has filed original return of income for AY 2023-24 on 14.10.2023 declaring total income of Rs.96,31,640/-. The case of the assessee was selected for scrutiny through CASS to primarily verify details of assets and liabilities, high creditors/liabilities and business expenses. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee. During assessment proceedings, the assessee has submitted computation of income, monthly data of sales and purchases, audit report, Balance Sheet, Profit and Loss account, Form 26AS, GST Return, copy of all bank accounts, details of secured loans from bank and details of unsecured loans. The assessee also filed ITR acknowledgement of only few lenders and ledger of expenses. Further vide letter dated 24.02.2025, assessee submitted confirmation from the creditors, ledger of all expenses and invoices. The AO observed that assessee has not furnished complete information and further observed that assessee has received unsecured loan of Rs.1.10 crores during the year under consideration and he observed that lenders do not have income during the year which is not commensurate with the loan amount advanced by them. Therefore, creditworthiness of individuals and HUF cannot be relied upon. He further observed that assessee also paid interest to various parties but failed to prove the identity of the parties listed at page 5 of the assessment order. After considering the submissions of the assessee and non-convinced with the same, he proceeded to make the addition of unsecured loan as unexplained cash credit of Rs.1.01 crores and disallowed the interest of Rs.15,88,981/-.
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. After considering the detailed submissions, ld. CIT (A) sustained the addition made by the AO.
Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
“1.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in dismissing the appeal by upholding the addition made under section 68 amounting Rs.1,01,00,000/-.
2.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in not appreciating that the assessee the Ld. A.O. had misrepresented the facts in the assessment order.
3.That having regard to the facts and circumstances of the case, Ld. CIT(A) have erred in brushing aside the documentary evidence filed by the assessee to discharge her onus to prove the identity, creditworthiness and genuineness of unsecured loans.
4.That having regard to the facts and circumstances of the case, Ld. CIT(A) have erred in ascertaining the facts that no notices were issued by the Ld. A.O. to inquire the sources and creditworthiness of lenders.
5.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in dismissing the appeal by upholding the addition made amounting Rs.15,88,891/-on account of interest paid on unsecured loans and imposing tax under section 115BBE .
6.That in any case and in any view of the matter, action of Ld. CIT(A) have erred in dismissing the appeal, is bad in law and against the facts and circumstances of the case.”
At the time of hearing, ld. AR of the assessee brought to our notice relevant facts on record and submitted as under :-
“Grounds No. 1-4: - These grounds relate to the addition of Rs. 1,01,00,000/- on account of unsecured loans received from five parties (details whereof are set out at page 9 of the assessment order), made by the Ld. AO u/s 68 and sustained by the Ld. C1T(A), on the alleged ground that the appellant failed to establish the creditworthiness of the lenders. Page 7-9 of the assessment order is the discussion by Ld. AO. Page 5 of the Ld. CIT(A) order is the discussion by Ld. CIT(A). Brief facts of the case are that the assessee is a proprietor of M/s SHH Industries, engaged in the business of manufacturing of plastic moulding products and undertaking allied job work since 2008. During the year under consideration, the assessee had raised unsecured loans for the purposes of business. The Ld. AO has alleged that, in respect of unsecured loans aggregating to Rs. 1,01,00,000/-, the income disclosed in the returns of the lenders is not commensurate with the amounts advanced by them during the relevant year. In this regard, it is respectfully submitted that the assessee has duly discharged the onus cast upon him u/s 68 by establishing the creditworthiness of the lenders through cogent documentary evidence, as detailed hereunder: PB 39-53(48) is the copy of assessee’s reply dated 06.01.2025 filed before Ld. AO stating the names, PAN, postal addresses of the lenders along with confirmations and copies of their ITRs were duly furnished. PB 54-55 is the copy of the statement furnishing party-wise details of secured/unsecured loans, inter alia containing the name, address and PAN of each lender, opening balance, amount of loan received during the year, interest paid, TDS deducted thereon, and closing balance.
1. M/s Bhagwan Machinery Store
PB 56-58 is the ledger account of said concern in the books of assessee for AY 2023-24 showing the loan amount of Rs.20,00,000/- credited during the year, interest and TDS payable thereon, and the opening balance of Rs.25,00,000/-.
PB 59 is the copy of confirmation from the said concern for the period of 01.04.2022 to 31.03.2023 submitting inter-alia the amount of loan, TDS and interest on loan.
PB 152-153 is the copy of bank statement of lender showing availability of sufficient funds in the account to advance the loan to the appellant.
PB 134-151(141) is the copy of assessee’s reply dated 12.03.2025 filed before Ld. AO stating that the in the case of M/s Bhagwan Machinery Store, a sum of Rs.20,00,000/- was transferred to the assessee on 22.07.2022, and prior thereto the lender had an available balance of Rs.44,60,827/- in its bank account.
PB 88-120 is the copy of list showing TDS @10% was deducted on interest paid to said concern.
PB 190-214 is the copy of Income Tax Return along with computation of income for AY 2023-24.
2. M/s Hari Om and Sons HUF
PB 60 is the ledger account in the books of assessee for AY 2023-24 showing the loan amount of Rs. 25,00,000/- being credited, interest and TDS payable.
PB 61 is the copy of confirmation from said concern for the period of 01.04.2022 to 31.03.2023 submitting inter-alia the amount of loan, TDS and interest on loan.
PB 62 is the copy of acknowledgment of ITR of the said concern for AY 2023- 24.
PB 63,154 is the copy of bank statement of lender showing availability of sufficient funds in the account to advance the loan to the appellant.
PB 134-151(141) is the copy of assessee’s reply dated 12.03.2025 filed before Ld. AO stating that in the case of M/s Hari Om & Sons, a sum of Rs.25,00,000/- was transferred to the assessee on different dates, and prior thereto the lender had sufficient balance in its bank account.
PB 154 is the copy of bank statement of said concern for the period of 01.12.2022 to 3 1.12.2022 showing the transfer of Rs. 25,00,000/- to appellant-company out of the sufficient balance in their bank account.
PB 88-120 is the copy of list showing TDS @10% was deducted on interest paid to said concern.
PB 215-218 are the copies of the acknowledgment of ITRs along with computation of income for AY 2021-22 and AY 2022-23.
3. Sh. Krish Gupta
PB 64-66 is the copy of ledger account of said person in the books of assessee for AY 2023-24 showing inter-alia the loan amount of Rs. 11,00,000/- being credited, interest and TDS payable and opening balance of Rs. 15,00,000/-.
PB 67 is the copy of confirmation from said person for the period of 01.04.2022 to 31.03.2023 submitting inter-alia the amount of loan, TDS and interest on loan.
PB 157,220 is the copy of bank statement of said person for the relevant period showing the transfer of Rs. 11,00,000/- to appellant-company on 18.07.2022 out of the sufficient balance in his bank account.
PB 134-151(141) is the copy of assessee’s reply dated 12.03.2025 filed before Ld. AO stating that in the case of Sh. Krish Gupta, a sum of Rs. 11,00,000/- was transferred to the assessee on different dates, and prior thereto the lender had sufficient balance in its bank account.
PB 155 is the copy of Aadhar Card of said person.
PB 156 is the copy of confirmation from said person for the period of 01.04.2022 to 31.03.2023 confirming the amount of loan, TDS and interest on loan.
PB 88-120 is the copy of list showing TDS @10% was deducted on interest paid to said person.
PB 219 is the copy of Acknowledgement of ITR for AY 2022-23.
PB 221 is the copy of acknowledgment of ITR for AY 2023-24.
4. M/s Nitin Gupta HUF
PB 76-77 is the copy of ledger account of said concern in the books of assessee for AY 2023-24 showing inter-alia the loan amount of Rs. 27,00,000/- being credited, interest and TDS payable.
PB 78 is the copy of confirmation from said concern for the period of 01.04.2022 to 31.03.2023 submitting inter-alia the amount of loan, TDS and interest on loan.
PB 79 is the copy of Acknowledgement of ITR of said concern for AY 2023-24.
PB 80,158 is the copy of bank statement of said concern for the period of 01.07.2022 to 31.07.2022 showing the transfer of Rs. 27,00,000/- to appellant- company on 18.07.2022 out of the sufficient balance in their bank account.
PB 134-151(142) is the copy of assessee’s reply dated 12.03.2025 filed before Ld. AO stating that in the case of M/s Nitin Gupta HUF, a sum of Rs.27,00,000/- was transferred to the assessee on different dates, and prior thereto the lender had sufficient balance in its bank account.
PB 81 is the copy of PAN Card of the said concern.
PB 82-83 is the copy of details of interest paid to said concern for the year under consideration after deducting TDS.
PB 88-120 is the copy of list showing TDS @10% was deducted on interest paid to the above said concerns.
PB 222-223 are the copies of the acknowledgment of ITRs for AY 2021-22 and AY 2022-23.
5. Smt. Sumedha Gupta
PB 68-69 is the copy of ledger account of said person in the books of assessee for AY 2023-24 showing inter-alia the loan amount of Rs. 18,00,000/- being credited, interest and TDS payable.
PB 70 is the copy of confirmation from said person for the period of 01.04.2022 to 31.03.2023 submitting inter-alia the amount of loan, TDS and interest on loan.
PB 71 is the copy of Acknowledgement of ITR of said person for AY 2023-24.
PB 72 is the copy of PAN Card of the said person.
PB 73-75,159-160 is the copy of bank statement of said person for the year under consideration showing the transfer of Rs. 18,00,000/- to appellant-company out of the sufficient balance in her bank account.
PB 134-151(142) is the copy of assessee’s reply dated 12.03.2025 filed before Ld. AO stating that in the case of Mrs. Sumedha Gupta, a sum of Rs. 18,00,000/- was transferred to the assessee on different dates, and prior thereto the lender had sufficient balance in its bank account.
PB 82-83 is the copy of list showing details of interest paid to said person for the year under consideration.
PB 88-120 is the copy of list showing TDS @10% was deducted on interest paid to said person.
PB 224-225 are the copies of the acknowledgment of ITRs for AY 2021-22 and AY 2022-23.
PB 24-35 is the copy of the audited Balance sheet with Tax Auditors' Report of the assessee for the year under consideration.
PB 26 is the schedule of unsecured loans showing the detail of loan taken by the assessee from the said concern.
PB 121-127(126) is the copy of assessee’s reply dated 24.02.2025 filed before Ld. AO stating that assessee had made best efforts to obtain copies of ITRs from all lenders; however, certain parties were unwilling to share the same due to confidentiality concerns, and it was requested that the Ld. AO may carry out independent verification, as the names, addresses and PAN of the lenders had already been furnished.
PB 128-133 is the copy of show cause notice dated 03.03.2025.
PB 134-151(140) is the copy of assessee’s reply dated 12.03.2025 filed before Ld. AO stating that the creditworthiness of the lenders cannot be judged solely on the basis of their income for the relevant year, as the funds advanced may arise from their accumulated savings, investments or other assets.
PB 164-189(173-176) is the copy of submission before Ld. CIT(A) stating that creditworthiness of the lenders cannot be judged solely on the basis of their income for the relevant year, and all requisite documentary evidences establishing the three ingredients of section 68, namely identity, creditworthiness and genuineness, were duly furnished.
Further, reliance is also placed on the following judicial decisions wherein it has been held that in light of the above evidence, the genuineness of the loan and identity and creditworthiness of the lender stand duly substantiated and thus, no addition u/s 68 can be made:
•Principal Commissioner of Income Tax vs. KRBL Infrastructure Ltd. ITA No. 494 of 2024 (Delhi High Court).
•Sabbirbhai Abdeali Gangardiwala vs. ITO, ITA No. 1519/Ahd/2025
•Piyush Ashok Mehta vs. DCIT, ITA No. 909 l/MUM/2025
•PCIT vs. Overtop Marketing (P.) Ltd. [2023] 148 taxmann.com 94 (Calcutta High Court).
•CIT vs. Real Time Marketing (P.) Ltd. [2008] 173 Taxman 41 (Delhi).
•Principal Commissioner of Income-tax vs. Bairagra Builders (P.) Ltd. [2024] 164 taxmann.com 162 (Bombay).
•Pr. CIT vs. Hi-Tech Residency (P.) Ltd. (2018) 257 Taxman 335 (SC).
•Pr. CIT vs. Hi-Tech Residency (P.) Ltd. (2018) 257 Taxman 390 (Del).
In view of the above, it is respectfully submitted that the impugned addition made by Ld. AO is without any basis, material or evidence and is merely based on surmises and conjectures and may please be deleted.
Adverse observations of Ld. AO are met as under; -
1.Ld. AO in para 5.2 at page 8 of the assessment order, mentioned that the assessee has submitted bank statement of the few lenders such as Hari, Bhagawan Machinery.
In reply, it is submitted that the assessee has duly filed the bank statements of all the lender entities vide reply dated 11.03.2025 before Ld. AO (PB 134-163).
PB 180-183 is the copy of submission before Ld. CIT(A) rebutting the said observation of Ld. AO.
2.Ld. AO in para 5.2 at page 8 of the assessment order, mentioned that the assessee has not furnished ITR-V or full return along with the financial statements of the lenders.
In reply, it is submitted that the assessee has duly filed the Acknowledgement of ITR of 3 lenders out of total 5 lenders, vide reply dated 06.01.2025 before Ld. AO (PB 47-53). For the rest of 2 lenders, assessee specifically requested to Ld. AO vide reply dated 11.03.2025 to invoke inquiry and call the documents.
3.Ld. AO in para 2.4.2 at page no. 8 of the assessment order and Ld. CIT(A) in page no. 5 of the impugned order, mentioned that the lender entities don’t have income during the year under consideration which is in commensurate with the loan amount advanced by them to assessee.
In reply, it is submitted that both the authorities failed to appreciate the fact that investments are generally made out of past savings, idle funds and by liquidating earlier investments and not out of the current year’s returned income.
Further, it is pertinent to submit that, perusal of bank statements of the lender entities clearly shows that they have already sufficient balance to provide loan to assessee.
PB 152-153, 154 and 157-163 are the copies of bank statements of the lender parties.
PB 62, 71, 79, 190, and 221 are the copies of Acknowledgement of ITR of the lender parties for AY 2023-24.
Reliance may be placed on following judgements: -
•PCIT vs. Agson Global Pvt. Ltd., [2022] 13 4 taxmann.com 25 6 (Delhi)
•Garima Polymers (P.) Ltd. vs. ACIT, [2021] 131 taxmann.com 4(Delhi- Trib.)
•Surender Singh Sangwan vs. ITO, ITA No. 1639/Del/2025, order dated 12.12.2025
•KB J Developers Pvt. Ltd. vs. ACIT, ITA No. 1837/MUM/2024
4.Ld. AO at page no. 9 of the assessment order mentioned that the assessee has failed to discharge onus of proving the creditworthiness of the lenders along with documentary evidence.
In reply, it is submitted that the assessee has furnished complete documentary evidence, including the confirmations & PAN, TDS returns, bank statements, ledger accounts and ITR, clearly establishing the identity, creditworthiness of the lender, and the genuineness of the transaction.”
On the other hand, ld. DR of the Revenue brought to our notice page 8 of the assessment order and submitted that assessee has not proved creditworthiness of the lenders, therefore, he heavily relied on the detailed findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that ld. CIT (A) has sustained the addition of unsecured loan u/s 68 of the Act on the basis of earning capacity of the lenders. Various Courts have held that to determine the creditworthiness of the lenders, earning capacity is one of the criteria and ability to arrange and make the payment is relevant. We observed that lenders have made the payment through banking channel and all the lenders have filed the confirmations of the same and assessee has brought to our notice bank statements and ledger account for payment of interest as well as repayment of loan subsequently. The above details clearly show that the assessee has taken unsecured loans and also paid the relevant interest and returned the relevant loan subsequently.
We observed that the coordinate Bench in the case of Real Innerspring Technologies Pvt. Ltd. in ITA No.647/Del/2023 order dated 27.03.2025 held as under :-
“10.Considered the rival submissions and material placed on record. We observed that the AO has initiated reassessment proceedings on the basis of information received from the Investigation Wing and search proceedings in the case of Shri Verma. It is brought on record that these two companies were found to be controlled by the accommodation entry providers, Shri Verma and Shri Anil Agarwal. Merely because the assessee has taken the unsecured loan from the companies controlled by them, the addition was made rejecting the various supporting documents provided by the assessee relating to transactions.
11.In our considered view, the additions were made only on the basis of alleging that the loan taken by the assessee from the above said two companies are only accommodation entries and assessee’s own money was routed through these companies with the help of accommodation entry providers. On careful note, the accommodation entries are taken which will remain in the books of account and they will ultimately written off over the period of time. These loans were normally not repaid. In the given case, it is brought to our notice that the assessee has received the unsecured loan through the banking channel and repaid thru the banking channel as under :-
Name of the Lender Amount of the Loan Date on which loan taken Date of interest payment Date of repayment of loan M/s. Citzy Infraheights Pvt. Ltd. 50,00,000 09.07.2015 (Pg 38 of the PB) 30.12.2017 (Pg 40 of the PB) 06.12.2017 30.12.2017 (Pg 39 & 40 of the PB) M/s. CEA Consultants Pvt. Ltd. 50,00,000 18.03.2016
(Pg 81 of the PB)
27.04.2016 28.03.2017
(Pg 81 of the PB)
17.03.2017 18.03.2017 21.03.2017 (Pg 83 & 84 of the PB) 12.From the above, it is clear that the assessee has repaid the loan even before the assessment was reopened. When the assessee takes the loan and repaid along with the interest clearly shows that the transactions are genuine. By returning the loan, the assessee has only utilised the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs and all the transactions cannot be labelled as non-genuine. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. Therefore, in this case, the assessee has submitted all the documents in support of the transaction before the AO and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion. Therefore, we are inclined to allow the grounds raised by the assessee.”
Respectfully following the above decision and even in the present case, the assessee has taken unsecured loan and repaid the same along with interest proves the genuineness of the transaction. Accordingly, following the aforesaid order, we are inclined to allow the grounds raised by the assessee.
In the result, the appeal filed by the assessee is allowed as indicated above.