TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 822
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....t matter of this appeal as is noted from the prayer clause is only in respect of the decision of the ITAT in ITA No. 3963/DEL/2019. The appeal was admitted on 04.08.2025 on the following two substantial questions of law:- "(1) Whether in the circumstances of the case, the ITAT has erred on facts and in law deleting the addition of Rs. 10,00,00,000/- on account of unsecured loan received from M/s Shashi Foods India Pvt. Ltd. and interest amounting to Rs. 1,03,10,760/- paid on such loan? (2) Whether on the facts and in the circumstances of the case and in law, the ITAT erred in confirming the order of the CIT(A) in the light of the decision of the Supreme Court in the case of Pro CIT (Central-3) vs. Abhisar Buildwell Pvt. Ltd. Ors (2023) 149 Taxmann.com 399(SC)?" 3. We shall narrate the facts to be noted for the consideration of this appeal. Inasmuch as, a search and seizure operation under Section 132 of the Act was carried out on KRBL Group on 30.03.2016. A warrant of authorisation under Section 132 of the Act was issued against the respondent KRBL Infrastructure Ltd., 5190, Lahori Gate, Delhi-ll0006. The respondent/ assessee had filed the return of its income ....
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....claimed that the loan had been taken for the purpose of business through proper banking channels. Interest was paid on the amount and TDS was deducted. 8. It is the contention of Mr Maratha that the reply of the assessee was considered but not found tenable as enquiries conducted during the course of search, post search, and in the course of assessment proceedings show that the loan taken from Shashi Foods is not genuine. 9. During the course of the search and survey operation, Gian Chand Sethi, Director of Shashi Foods was asked about the source of loans and advances given by Shashi Foods of Rs. 2.45 crore and Rs. 10 crore to KRBL Foods Ltd and KRBL Infrastructure Ltd ('KRBL Group') respectively in the FY 2013-14. He stated that these loans were given to the KRBL Group when one Mr. Anil Mittal approached him through one Mr. K V Kapoor. He offered this loan with interest at the rate of 9%. For the source of the loan, Gian Chand Sethi stated that these are sales proceeds corresponding to purchases, payments of which are due. In order to verify the statements of Gian Chand Sethi, a notice under Section 133(6) of the Act was issued during the course of assessment proceedings to ....
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....e of the assessee, the lenders do not appear to have the financial worth to lend such huge sums, and there is also no explanation as to its relationship with the lenders. Further, there was no collateral security taken in lieu of the loans, which leads to the conclusion that the loan is not genuine. Further, the assessee has also submitted in its reply that "Oral understanding was made and the loans were guaranteed for repayment, personally by the directors of KRBL Ltd., to the said lenders." As per Mr. Maratha, this is factually wrong as during the search proceedings, statements of the directors of KRBL Ltd. were recorded on oath, in which they categorically denied any knowledge of these lenders. 14. He has referred to the judgment of this Court in CIT v. Nova Prompters and Finlease (P) Ltd., 342 ITR 169 (Del) to contend that as per Section 68 of the Act, where any sum is found credited in the books of the assessee, and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not found to be satisfactory in the opinion of the AO, the sum credited may be charged to tax as the income of the assessee of the relevant year. The ....
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....stment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into consideration that the assessee might find it difficult to unimpeachably establish the creditworthiness of the shareholder. 30. What we perceive and regard as the correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three facts is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos, or the fact that third persons or a company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paperwork or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage companies. It is the people behind the company who take the decisions, contro....
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....ale evidence ignoring the patent and what is plain and writ large." 16. The submission of Mr. Maratha is that in terms of Section 68 of the Act, the 'triple test' of establishing the identity, genuineness and creditworthiness, must be satisfied before any addition is made, and the burden of proof in this regard lies with the assessee, as the applicability of these tests depends upon the facts and circumstances of each case. 17. It is stated that the case of the assessee was selected under CASS for the AY 2014-15 for the reason that there was a large increase in unsecured loans during the year, low income in comparison to high loan advances, investment in shares and a high increase in the annual lettable value of the house property. As the search and seizure action had taken place, the proceedings abated as per the second proviso to Section 153A of the Act. Accordingly, notice dated 02.05.2017 under Section 153A of the Act was issued to the appellant company requiring it to file the return for AY 2014-15. An abated assessment year refers to an assessment year for which the assessment or reassessment proceedings were pending on the date when a search under Section 132 or requis....
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.... that non-availability of creditors of Shashi Foods cannot be the ground for doubting the creditworthiness of the lender and genuineness of the transaction, more so when its creditors pertain to the FY 2013-14, whereas, the spot inspection was carried out on 31.12.2017 i.e., there is a big hiatus between the date of the transactions and the date on which the inspection was carried out. He further stated that in any case, this Court in CIT v. Victor Electrodes Ltd. (2010) 329 ITR 271 (Delhi) has held that the assessee, in the context of Section 68 of the Act, is under no obligation to produce the directors or representatives of the companies who invested in the share capital of the assessee therein. The mere fact that a party was not found at a given address would not vitiate the genuineness of the transaction. 23. According to him, this Court has held that the source of the funds in the hands of the lender can only be analysed in the assessment proceedings of the lender and not in the assessment proceedings of the recipient of the loan. He has drawn our attention to the judgment in the case of Sheela Overseas Private Ltd. v. Principal Commisisoner of Income-Tax, Delhi-08 and Ors....
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....7. M/s Padam Shri Enterprises 8. M/s Vishal Food Products 9. M/s Shri Ganga Sales Corporation 10. M/s Neki Ram Overseas 11. M/s Jain Foods Products 5.2 Investigation of unsecured loan from M/s Shashi Food India Pvt. Ltd : 5.2.1 Statement of Sh Gian Chand Sethi: Statement of Sh. Gian Chand Sethi, Director of Shashi Foods (India) Pvt. Ltd and father of Sh Shashi Bhushan Sethi, & Sh. Chandan Sethi, Directors of M/s Gautam Techagro \ India Private Limited, was recorded during the survey proceedings u/s 133A on 31/03/2016 at 357, Tarun Enclave, Pitampura, Delhi. Sh Gian Chand Sethi stated that M/s Shashi Foods (India) Pvt Ltd is in the business of wholesale trading of rice and pulses with its registered office at 2737, 1st Floor Naya Bazar New Delhi. 5.2.2 During the course of search & survey operation, Shri Gian Chand Sethi was asked about the source of loans and advances given by M/s Shashi Foods (India) Pvt Ltd of Rs. 2.45 Crs and Rs. 10 Crs given to MIs KRBL Foods Ltd and MIs KRBL Infrastructure Ltd respectively in FY 2013-14, Sh Gian Chand Sethi stated that he has given these loans to KRBL group when Sh Anil Mitta....
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....mpounded during the course of survey from premise of M/s Shashi Foods India Pvt. Ltd. and from MCA site. 5.2.5 The report submitted by the ITIs is reproduced as below: Inspector's report As directed by the Assistant Commissioner of Income Tax, Central Circle-7, New Delhi vide letter dated 20,12.2017 we were assigned duty to enquiry about the existence of parties which have been shown Trade Payables in the case of M/s Shashi Foods (India) Pvt. Ltd. In connection with this report is as under:- (1) M/s Asharfi Overseas Pvt. Ltd. AAACK5823G 264/1B, Chadha Market, Naya Bazar, Delhi. We went to Naya Bazar on 20.12.2017 and found nowhere this address i.e. 2640/1B in Chadha Market. When enquired at the address 2640 /1 where the shop in the name of Ram Swaroop Rajendra Prasad is situated and there, some Shri Rajendra Prasad Singla, owner of the shop (as stated by him) said that M/s Asharfi Overseas Pvt. Ltd. is also exists at this address, However there was no such address and also there was not any mentioning of the name which shows that this company is working at this address. Even nearby owners of the business entities at Chadha Market do n....
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....f Bank Accounts of M/s Shashi Foods India Pvt Ltd and fund movement: On Analysis of bank account of M/s Shashi Foods India Pvt. Ltd it has been observed that fund has been routed through banking channel and layering has been done with bank accounts of many entities. A cash trail has also been made in case of M/s Shashi Foods India Pvt Ltd by investigation department. In this cash trail it has been observed that money has been received by M/s Shashi Foods Ltd from M/s Gautam Tech Agro Pvt Ltd and M/s Gautam Tech Agro had transactions with the entities which are controlled by Shri Dinesh Jain such as Haryana Agro Food Product, M/s Giriraj Traders. Firms Controlled by Shri Dinesh Jain are engaged in providing bogus bills to M/s KRBL Ltd and other entit ies. And same has been accepted by Shri Dinesh Jain in his statement recorded u/s 131 of the act on 06.06.2016. In which he admitted that he provides bogus bills to M/s KRBL Ltd and other entities who wants to inflate their purchases . Thus, from the cash trail it is established that source of fund is not genuine and from bank statement of M/s Shashi Foods India Ltd it can easily concluded that it does not have its own fund to ....
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....Infra 50,00,000 09-11-15 Gautam Techagro India Pvt Ltd 45,00,000 09-11-15 Mahesh Agro Pvt Ltd 50,00,000 09-11-15 Mahesh Agro Pvt Ltd 5,00,000 10-11-15 KRBL Infra 5000000 10-11-15 KRBL Infra 5000000 10-11-15 Gautam Techagro India Pvt Ltd 70,00,000 12-11-15 Mahesh Agro Pvt Ltd 30,00,000 17-11-15 KRBL Infra 5000000 17-11-15 KRBL Infra 5000000 18-11-15 Mahesh Agro Pvt Ltd 65,00,000 18-11-15 Mahesh Agro Pvt Ltd 35,00,000 24-12-15 KRBL Infra 3000000 27-01-2016 KRBL Infra 6350400 27-01-2016 Gautam Techagro India Pvt Ltd 64,00,000 10,63,50,400 10,49,00,000 Out of the total funds of Rs. 10,63,50,400 received from M/s KRBL Infrastructure Ltd Rs. 9.70 Crs was transferred to M/s KRBL Ltd as shown below by Gautam Techagro India Pvt. Ltd. Further out of total fund of Rs. 80,00,000 received by G A Grain Merchant on 30-10-20 15, it transferred Rs. 75,00,000 to M/s Gautam Techagro India Pvt....
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.... 49,94,999 12-11-2015 KRBL Ltd 35,00,000 14,94,999 12-11-2015 KRBL Ltd 65,00,000 -50,05,001 18-11-2015 Bhatia Finvest 50,00,000 -5,001 18-11-2015 KRBL Ltd 60,00,000 -60,05,001 18-11-2015 S S Enterprise 50,00,000 -10,05,001 18-11-2015 KRBL Ltd 40,00,000 -50,05,001 9,70,00,000 The above fund trails establish that the unsecured loan advanced by M/s Shashi Foods India Pvt Ltd to the KRBL group of companies are rotating between the companies managed by KRBL Group & companies & Sh. Gian Chand Sethi and Sh. Dinesh Jain is connecting link between them in transfer ring the fund. It is relevant to mention that M/s Gautam Techagro India Pvt Ltd has huge transaction with firms/companies which are generating bogus/fake bills of M/s KRBL Ltd. It is pertinent to mention that the firms/companies like M/s Haryana Agro Food Products, M/s Giriraj Traders, which proprietor's Sh, Dinesh Jain have stated that he only generate bogus/fake bills, have sale and purchase transaction with M/s Gautam Tec....
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....d. Since Sh. Gian Chand Sethi stated in his statement on 31.03.2016 that the source of funds was sale proceeds corresponding to those purchases payments of which are due, the AO investigated the outstanding creditors of such company and deputed Inspectors to make enquiries about such creditors. Inspectors reported that out of 12 creditors only four parties were found on their address. The AO also observed that some of the bills of creditors of M/s Shashi Foods India Pvt. Ltd. are suspicious. The AO also made analysis of the bank statement of M/s Shashi Foods (India) Pvt. Ltd. and observed that M/s Shashi Foods (India) Pvt. Ltd has received funds from M/s Gautam Tech Agro Pvt. Ltd which in turn had transactions with the entities controlled by Shri Dinesh Jain. Thus, the AO made the addition for the said loan by holding that the appellant failed to establish the identity, creditworthiness and genuineness of the transaction and also disallowed the interest paid on the said loan. 5.2.3 On due consideration, I find that loan was undisputedly received from M/s Shashi Foods (India) Pvt. Ltd. through banking channels and interest was also paid on such loan. The Director of M/s Sha....
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....the addition of Rs. 10,00,00,000/- on account of the loan taken from M/s Shashi Foods (India) Pvt. Ltd. u/s 68 of the Act made by the AO. Since the loan has been treated as explained, the interest paid on the said loan cannot be disallowed and hence the disallowance of addition of Rs.19,10,760/- for interest paid to M/s Shashi Foods (India) Pvt. Ltd. on the loan of Rs. 10,00,00,000/- is hereby also deleted. Thus Ground Nos. 1 and 2 are allowed." (emphasis supplied) 29. In the impugned order, the ITAT agreeing with the conclusion drawn by the CIT(A) has in paragraphs 6, 7 and 8 stated as under: "6. We have considered rival submissions and perused the materials on record. Undisputedly, in the year under consideration, the assessee had availed unsecured loan of Rs. 10 crores from M/s. Shashi Foods India Pvt. Ltd. The Assessing Officer has treated the unsecured loan as unexplained cash credit u/s. 68 of the Act. The primary reason for doing so is, as per the post search investigation carried out in case of M/s. Shashi Foods India Pvt. Ltd., it was found that the said entity has availed bogus purchase bills from some other entities controlled by Shri Dinesh Jain. Th....
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....the unsecured loan was sourced from the amounts received on sales corresponding to the purchases, payment for which is outstanding. On scrutiny of the assessment order, we have not found any adverse observation of the Assessing Officer with regard to the sales effected by M/s. Shashi Foods India Pvt. Ltd. In fact, the Assessing Officer has not conducted any enquiry with regard to the sales made by M/s. Shashi Foods India Pvt. Ltd. as to whether they are genuine or not. It is also relevant to observe, on examination the balance sheet of M/s. Shashi Foods India Pvt. Ltd., the Assessing Officer has noticed outstanding trade creditors of more than Rs. 34 crores. Though, the Assessing Officer has observed that enquiry conducted could find only four creditors available in the given addresses, however, that does not conclusively prove that the rest of the trade creditors are non-existing. When the creditor has stated that unsecured loan was funded out of the sale proceeds available with it and there are outstanding trade creditors, without any contrary material brought on record by the Assessing Officer, such statement cannot be rejected merely on conjectures and surmises. More so, when t....
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....the Act, the primary onus to prove that the loan amount is genuine is on the assessee and the mere fact that the loan was received through banking channels does not mean that it is genuine. Further there was no collateral security taken. According to him, all of these would lead to the conclusion that the loan was not genuine. 35. We are not in agreement with the submission made by Mr. Maratha. The loan advanced was in the FY 2013-14, i.e., AY 2014-15. The identity of the creditor has been proved by documentary evidence and also through the statement of the Director of Shashi Foods recorded during the survey proceedings and also in reply to the notice under Section 133(6) of the Act. It has also been established that Shashi Foods advanced the loan out of the funds credited in its bank account, proving the creditworthiness of the entity. Though the AO had held that Shashi Foods did not have the necessary funds in its bank account to provide the loan, the findings of the CIT(A) and the ITAT are at variance with the observation of the AO inasmuch as that the loan has been advanced from the bank account of Shashi Foods. In any case, the Revenue has not placed on record anything to s....
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....ax v. Rohini Builders, (2002) 256 ITR 360 (Guj) in paragraph no.7 has stated as follows: "7. xxx xxx All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. xxx xxx It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors....
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....ons of this Court in Nova Prompters and Finlease (P) Ltd (supra) and N. R. Portfolio Pvt. Ltd. (supra) relied upon by Mr. Maratha would not be applicable to the facts of this case, in view of our finding that the assessee has duly discharged the onus of proving the identity and creditworthiness of the creditor and also the genuineness of the transaction. 46. Mr. Maratha has endeavored to assert that money is being circulated amongst the Dinesh Jain Group and KRBL Group in the guise of payment against purchases, by relying upon the transactions of the FY 2015-16, between Shashi Foods, Gautam Techagro India Ltd. and KRBL Ltd. His case is that out of the amount of Rs. 10.63 crore received by Shashi Foods as repayment of the loan Rs. 9.70 crore was transferred to KRBL Ltd. through Gautam Techagro India Ltd. Further, an amount of Rs. 75 lakhs was transferred by GA Grain Merchant to Gautam Techagro India Ltd, which then routed the funds to KRBL Ltd. Suffice it to state, the present issue relates to the genuineness of the loan transaction of the FY 2013-14, i.e., AY 2014-15. The issue whether the transaction was a genuine loan or an accommodation entry, which is a pure question of fact....