Shriganesh Kirana (P) Ltd. vs ACIT, Central Circle 32, Delhi

“1.

That the learned Commissioner of Income Tax (Appeals)-30, New Delhi has grossly erred both in law and, on facts in upholding the determination of Income made by the learned Assistant Commissioner of Income Tax, Central Circle-32, Delhi of the appellant company at Rs.1,49,54,670/- as against declared income at Rs.3,89,710/- in an order of assessment dated 4.3.2025 u/s 147/143(3) of the Act.

2.

That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserved to be quashed as such.

2.1

That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded mechanically by observing the ledger account recording entries recorded in the books of accounts constitute incriminating material or reflect no application of mind and do not constitute valid basis for assumption of jurisdiction u/s 147 of the Act.

2.2

That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that in absence of valid approval under clause (iv) of Explanation 2 to section 148 of the Act, assumption of jurisdiction is illegal.

2.3

That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that clause (iv) of Explanation 2 to section 148 of the Act has no application to the facts of the appellant company and therefore assumption u/s 147 of the Act was without jurisdiction, particularly since no incriminating material was detected as a result of search.

2.4

That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that notice u/s 148 issued without validly complying section 151 of the Act were also without jurisdiction.

2.5

That the learned Commissioner of Income Tax (Appeals) has further Tailed to appreciate that notice u/s 148 of the Act was contrary to section 151A OT the Act; and therefore the assumption of jurisdiction was not in accordance with law.

3.

That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in sustaining an addition of Rs. 1,40,00,000/- representing alleged sum received from M/s LVS Financial Services (P) Ltd. as unsecured loan and erroneously held as unexplained cash credits u/s 68 of the Act read with section 115BBE of the Act.

3.1

That while confirming the above addition, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the factual substratum of the case, statutory provisions of law and as such, addition so sustained is highly misconceived, totally arbitrary, wholly unjustified and therefore, unsustainable.

3.2

That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, addition so sustained is absolutely unwarranted.

3.3

That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sum of Rs. 1,40,00,000/-received by the appellant company had been fully substantiated by documentary evidence placed on record in the course of appellate/assessment proceedings and, therefore such sum could not in law or on fact be held to be unexplained cash credit u/s 68 of the Act.

3.4

That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sum of Rs. 1,40,00,000/- had been received through banking channels from independent party and as such, addition so sustained is not in accordance with law and untenable.

3.5

That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that even otherwise on account of lack of enquiry by the learned Assistant Commissioner of Income Tax and as such, addition so sustained is not in accordance with law and untenable.

4.

That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an addition of Rs. 1,44,956/- on account of interest paid to the creditor; and eligible for deduction u/s 36(1)(ii) of the Act

5.

That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in sustaining an addition of Rs. 4,20,000/- representing alleged commission expenditure incurred @ 3% for arranging alleged accommodation entry in the garb of unexplained income by invoking provisions of section 69C of the Act

6.

That without prejudice to the above and in the alternative, even otherwise, the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in holding that sum received by the appellant company is taxable as Income under section 68 of the Act and thereafter computed the demand in accordance with the rates specified in section 115BBE of the Act as amended by Taxation Laws (Second Amendment) Act, 2016.

7.

That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the levy of interest of Rs. 3,039/- u/s 234A of the Act, interest of Rs.67,87,130/- u/s 234B of the Act and interest of Rs.5,116/- u/s 234D of the Act which are not leviable on the facts of the appellant.

Prayer

It is therefore, prayed that, it be held that assessment made by the learned Assessing Officer and sustained by the learned Commissioner of Income Tax (Appeals) be quashed. It be further held that additions made and sustained by the learned Commissioner of Income Tax (Appeals) alongwith interest levied be deleted and appeal of the appellant company be allowed.”

33 Ground 3 to 3.5of grounds of appeal relates to addition of Rs. 1,40,00,000/- representing sums received as unsecured loan from M/s LVS Financial Services (P) Ltd. and erroneously held as unexplained cash credit u/s 68 of the Act read with section 115BBE of the Act.

34 It is further submitted that during the course of assessment proceedings following replies were filed by the appellant and, it was submitted as under:

i) Reply dated 10.07.2024 (pages 60-63 of Paper Book)

“We are in receipt of captioned notice. In such notice on ANNEXURE [page 3 of 4] page your had self has mentioned as below:

In the above-mentioned case, information has been received from DDIT(Inv). Unit-2(1). New Delhi on the basis of the search u/s 132 of the Act conducted on 17.11.2021 on Galaxy Group. Shri Pradeep Indra Prasad Agrawalla (Founder of Galaxy Group) and entry providers Shri Deepak Agarwal & Shri Himanshu Verma Information has been analysed and it is seen that certain documents were seized during the search, containing information which reveals that the assessee Shriganesh Kirana Pvt. Ltd. (PAN: ABDCS0080R) has entered into fictitious transaction of Rs. 1,40,00,000/- with M/s LVS Financial Services Pvt. Ltd., an non-genuine entities during the F.Y. 2019-20 relevant AY 2020-21.

In this regard assessee company wishes to submit that

1.

Assessee company is a Private Limited company domiciled in India and incorporated under provision of Companies Act, 2013 as on 03/12/2019. The company is engaged in the business of to carry on the business of Wholesale Trading, Sale and Purchase of kirana items, Dry Fruits and chemicals Items. The registered office of the company is in the national capital territory of Delhi

2.

Transaction of Rs. 1,40,00,000/- with LVS Financial Services Pvt Ltd [LVS] is not fictitious transaction, it's a genuine transaction.

3.

LVS is a private limited company domiciled in India and incorporated under provision of Companies Act, 1956 as on 13th October 1994. The Company is engaged in the business of Non-Banking Financial Activity vide RBI certificate of registration no. B-1401818, refer annexure 1 (page 155 of Paper Book). The registered office of the company is in the national capital territory of Delhi.

4.

During the FY 19-20, LVS had achieved turnover of Rs. 4.46 crores (refer annexure 2 for the audited financial statements of FY 19-20) and had paid income tax of Rs. 12.12 lacs on taxable income of Rs. 46.61 lacs, refer annexure 3 for ITR AY 20-21 (pages 136-152 of Paper Book). This clearly shows that LVS is engaged in NBFC activity and proceeds from the such activity is the main source of the income. Hence the transactions with LVS of assessee company during the FY 19-20 is a genuine business transaction.

5.

During the period under consideration assessee company had taken loan of Rs. 1,40,00,000/- from LVS for its business purpose. In this regard assessee company wishes to submit the loan agreement executed between LVS and assessee company along with confirmation of accounts is attached herewith as annexure 4 (pages 134-135 of Paper Book) and annexure 5 (page 153 of Paper Book) respectively.

Further, we request your good self to kindly provide us the reasons recorded for re-opening the assessment which would enable us to file proper details/objection in this respect.”

ii) Reply dated 19.08.2024 (pages 69-72 of Paper Book)

“3.

On perusal of your last submission it is noticed that you have taken loan from LVS Financial Services Pvt. Ltd [LVS] during the year under consideration, kindly provide complete details of the loan and detail when the same was squared up. In support of the same kindly provide copy of ledger and bank statement.

During the period under consideration assessee company had taken loan of Rs. 1,40,00,000/- from LVS for its business purpose. In this regard assessee company wishes to submit the loan agreement executed between LVS and assessee company along with confirmation of accounts is attached herewith as annexure 3 (pages 134-135 of Paper Book) and annexure 4 (page 153 of Paper Book) respectively.

LVS is a private limited company domiciled in India and incorporated under provision of Companies Act, 1956 as on 13th October 1994. The Company is engaged in the business of Non-Banking Financial Activity vide RBI certificate of registration no. B-14.01818, refer annexure 5 (page 155 of Paper Book). The registered office of the company is in the national capital territory of Delhi.

During the FY 19-20, LVS had achieved turnover of Rs. 4.46 crores (refer annexure 6 for the audited financial statements of FY 19-20) and had paid income tax of Rs. 12.12 lacs on taxable income of Rs. 46.61 lacs, refer annexure 7 for ITR AY 20-21 (pages 136-152 of Paper Book). This clearly shows that LVS is engaged in NBFC activity and proceeds from the such activity is the main source of the income. Hence the transactions with LVS of assessee company during the FY 19-20 is a genuine business transaction. Further, copy of ledger and relevant bank statements are enclosed as annexure 8 (pages 157-162 of Paper Book) and annexure 9 (pages 105-179 of Paper Book) respectively Hope your goodself will found the above as per your subject notice.”

iii) Reply dated 13.01.2025 (pages 82-90 of Paper Book)

“7.

Please submit the details of unsecured loans/squared up/advances loans taken during the FY 2019-20 relevant to AY 2020-21 as per the below format:

Name and address of the party with PAN & email ID	Opening balance	Amount advanced for the relevant years	Mode of advancement of the said amount	Amount received back during the relevant years	Mode of receipt of the repaid amount	Rate of interest	Interest paid or payable for the year	Mode of interest received	Closing outstanding amount	Reason for interest being not charged, if applicable

Details of unsecured loan is enclosed herewith as Annexure 15. During the period under consideration assessee company had taken loan of Rs. 1,40,00,000/- from LVS Financial Services Pvt Ltd (LVS) for its business purpose. In this regard assessee company wishes to submit the loan agreement (Refer Annexure 16) (pages 134-135 of Paper Book) executed between LVS and assessee company along with copy of ITR of LVS for AY 20-21, financial statements of LVS for FY 19-20, copy of relevant bank statements and confirmation of accounts are enclosed herewith as Annexure 17 (pages 136-152 of Paper Book), Annexure 18 (pages 157-162 of Paper Book), Annexure 19 (page 153 of Paper Book) and Annexure 20 (pages 105-179 of Paper Book) respectively.

iv) Reply dated 18.02.2025 (pages 99-103 of Paper Book)

“1.

Explanation in respect of transactions done with M/s LVS Financial Services Private Limited along with documentary evidence to discharge your onus regarding identity & creditworthiness of the source and genuineness of the transactions. Explanation as to why the amount of Rs. 1,40,00,000/- should not be treated as unexplained and should not be added to the total income as per Provision of Income Tax Act, 1961. 1. Assessee company is a Private Limited company domiciled in India and incorporated under provision of Companies Act, 2013 as on 03/12/2019. The company is engaged in the business of to carry on the business of Wholesale Trading, Sale and Purchase of kirana items, Dry Fruits and chemicals Items. The registered office of the company is in the national capital territory of Delhi.

2 Transaction of Rs. 1,40,00,000/- with LVS Financial Services Pvt Ltd [LVS] is not fictitious transaction, it's a genuine transaction

3 LVS is a private limited company domiciled in India and incorporated under provision of Companies Act, 1956 as on 13 October 1994, copy of certificate of incorporation of LVS is enclosed herewith as Annexure 2 for your kind reference and perusal

4 LVS is non-banking finance company and engaged in the business of Non-Banking Financial Activity. A certificate of registration to carry on the business of a non-banking financial institution has been obtained from Reserve Bank of India in terms of section 45 of the RBI Act, 1934 vide RBI certificate of registration no. 8-14.01818, copy of certificate of registration of LVS is enclosed herewith as Annexure 3 for your kind reference and perusal

5.

During the FY 19-20, LVS had achieved turnover of Rs. 4.46 crores (refer Annexure 4 for the LVS audited financial statements of FY 19-20) and had paid income tax of Rs 12.12 lacs on taxable income of Rs. 46.61 lacs, refer Annexure 5 for LVS ITR AY 20-21 (pages 136-152 of Paper Book) This clearly shows that LVS is engaged in NBFC activity and proceeds from the such activity is the main source of the income. Hence the transactions with LVS of assessee company during the FY 19-20 is a genuine business transaction.

6.

During the period under consideration assessee company had taken loan of Rs 1,40,00,000/- from LVS for its business purpose. In this regard assessee company wishes to submit the loan agreement executed between LVS and assessee company along with confirmation of accounts are enclosed herewith as Annexure 6 (pages 134-135 of Paper Book) and Annexure 7 (page 153 of Paper Book) respectively.

7.

Further, copy of ledger and relevant bank statements are enclosed as annexure 8 (pages 157-162 of Paper Book) and annexure 9 (pages 105-179 of Paper Book) respectively.”

Networth of company

Evidence (pages of Paper Book)

M/s LVS Financial Services (P) Ltd.

“3.

We find that material is extensively dealt by the ld. CIT(A) and for convenience we reproduce the relevant part of impugned order here in below;

“2.

Ground No. 2: is regarding addition of Rs. 1,49,50,000/- u/s 68 of the Act made by the AO. During the year under consideration, the appellant received loan of Rs. 99,50,000/- from M/s LVS Financial Services Pvt. Ltd. and Rs. 50,00,000/- from M/s CEA Consultant Pvt. Ltd. The loans received by the appellant were treated as cash credit u/s 68 of the Act.

3.

I have carefully considered assessment order and relevant submissions filed by appellant along with paper book. The loan of Rs. 99,50,000/- from M/s LVS Financial Services Pvt. Ltd. and Rs. 50,00,000/- from M/s CEA Consultant Pvt. Ltd. received by appellant, were treated as cash credit. The findings made by AO, submissions made by appellant, counter argument of appellant on evidences relied upon by AO while making additions, other relevant facts and relevant decisions are discussed herein above while adjudicating above addition made in case of appellant.

4.

A search and seizure operation was conducted on Galaxy Group entities on 17.11.2021 and on SMC Group on 20.07.2022. Information in respect of appellant was received by AO through CRIU/VRU module. While making impugned addition, AO in the assessment order has discussed the information received, various materials found during the course of search, statements of various persons recorded during the course of search and financial analysis of various companies owned and managed by Sh. Himanshu Verma and Others (alleged entry providers). The AO has contended that appellant has taken loan from shell companies owned and managed by Sh. Himanshu Verma.

5.

The appellant submitted detailed submission. Summary of written submissions filed by the appellant and the documents placed on record is as under: -

i.

The loans from the above-mentioned entities were received by appellant through banking channels i.e. account payee cheque/NEFT/RTGS. ii. Confirmations, PAN, ITs, copy of relevant loan agreements, copy of bank statements highlighting the transactions, TDS Certificate for interest payments and audited financials of the lenders were furnished. iii. The payment of interest was made during the year after deducting relevant TDS and repayment of these loans were made in the subsequent year i.e. A.Y. 2021-22, that too by banking channels, which further evidences the genuineness of the transactions.

iv.

The AO has not demonstrated any specific cash deposit linked to the appellant or lenders to support the allegation of accommodation entry.

v.

Reliance was placed by AO on statements of third parties which were either vague, obtained under duress, or unrelated to the appellant. No opportunity for cross-examination was afforded, violating principles of natural justice.

6.

I have carefully considered the facts of the case, the contentions of the appellant, the findings recorded by the AO, and the judicial precedents relied upon. The central issue is whether the loans of Rs. 99,50,000/- from M/s LVS Financial Services Pvt. Ltd. and Rs. 50,00,000/- from M/s CEA Consultant Pvt. Ltd. received by the appellant, can be treated as unexplained u/s 68 of the Act, despite the fact that the loans were subsequently repaid through banking channels and were supported by confirmations, ITRs, financials and other documentary evidences.

7.

It is now a settled position of law that for making an addition u/s 68, the assessee is required to prove: (i) identity of the creditor, (ii) creditworthiness of the creditor, and (iii) genuineness of the transaction. Once these three pillars are duly established, the burden shifts to the revenue to bring contrary evidence to disprove the assessee's claim. In the present case, the appellant has discharged the primary onus by furnishing PAN details, income-tax returns, financial statements, confirmation letters, bank statements. Furthermore, the loans were repaid in full during the subsequent year, thereby negating the suspicion of any layering or retention of unexplained cash. ...

17.

To conclude, I find that the appellant has conclusively proved all three ingredients required u/s 68. The identity and tax status of the lenders are not in doubt. The loans were received and relevant interest payments as well as repayment of loan was made through proper banking channels. The AO has not brought any credible evidence to establish that the said loans were accommodation entry. The additions are based on general observations without any direct linkage to the appellant's transaction.

18.

In view of the above facts, evidences on record, and judicial precedents cited, I am of the considered opinion that the addition of Rs. 1,49,50,000/- made u/s 68 of the Act is unsustainable in law and on merits in this case. The same are accordingly directed to be deleted. This ground of appeal is allowed.

19.

Ground No. 3: Under this ground of appeal the appellant challenged the addition of Rs. 2,65,488/- made by AO on account of treating the interest payments on the loan availed by appellant as unexplained expenditure u/s 69C of the Act. In view of the adjudication above in para no. 5.16, where it has already been held by me that ingredients to explain the transactions of loan and genuineness of interest payment is proved by appellant, the additions of Rs. 2,65,488/- made by AO is not sustainable on merits and is directed to be deleted.

4.

After giving thoughtful consideration to the material on record, we find that ld. CIT(A) has taken into account the evidence filed by the assessee or receipts of the loan through banking channel and the repayment of the loans in the subsequent years as a material fact to conclude that the loan received by the assessee were genuine. We find no reason to interfere in the conclusions drawn by the ld. CIT(A) as merely on suspicion of a transaction having some connection with Himanshu Verma all transaction do not get tainted and assessing officer has merely on the broad discussion with regard to statements of Himanshu Verma & Deepak Aggarwal considered the impugned transactions of assessee to be tainted. Assessing Officer observes that the source of loan provided is from non-descript entities whose financials do not justify huge amount transferred to shell companies but how the assessee is connected to shell companies independently in the impugned transactions is not alleged. Assessing Officer has merely relied the oral statement of Himanshu Verma and others including Shailendra Kumar and thereafter drawing suspicion of assessee also being a beneficiary had made the additions and ld. CIT(A) has rightly examined all the material evidences to conclude on facts that the loans were not mere accommodation entries to be justified as addition u/s 68 of the Act. The findings of ld. CIT(A) require no interference. Grounds are rejected. The appeal of the revenue is dismissed.”

“10.

We find that the Tribunal in the case of Nimbus India Ltd ITA Nos. 929 and 930/DEL/2019 for A.Ys 2013-14 and 2014-15, vide order dated 10.02.2020, has accepted all the three crucial factors in the case of Pabla Leasing and Finance Pvt. Ltd, namely, the identity, genuineness of the transaction and credit worthiness. We find that in the case of Nimbus India Limited, quarrel was in respect of addition of 15 crores being investment done by Pabla Leasing and Finance Pvt. Ltd towards the purchase of shares at a premium. After discussing various judicial discussions in light of the fact of investment made by Pabla Leasing and Finance Pvt. Ltd, the Tribunal came to the conclusion as under: ...

11.

As mentioned elsewhere, for the impugned A.Ys under appeal, transactions with Pabla Leasing and Finance Pvt. Ltd have been questioned by the Assessing Officer on the ground that the assessee has failed to establish the credit worthiness. We are of the opinion that since the credit worthiness of this company has been accepted in the case of flagship company of the appellant, we do not find any merit in this finding of the lower authorities. ...

17.

With this clinching evidence, there remains no doubt that the assessee has successfully discharged its onus cast upon it by the provisions of section 68 of the Act. We do not find any merit in the allegation of the lower authorities that Pabla Leasing and Finance Pvt. Ltd is only a paper company providing accommodation entries to the Nimbus India Ltd group of companies.

18.

In light of the decision of the Tribunal in the case of flagship company Nimbus India Limited, and further drawing support from the statement of the Managing Director of Pabla Leasing and Finance Pvt., Ltd, we are of the considered view that the assessee has successfully discharged the onus and, therefore, the additions made u/s 68 of the Act deserve to be deleted.”

DELHI HIGH COURT

Income Tax Appellate Tribunal

“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.

13.

In the result, appeal filed by the assessee is allowed.