Full Text
JUDGMENT
PRINCIPAL COMMISSIONER OF INCOME TAX-4 DELHI .....Appellant
For the Appellant : Mr. Abhishek Maratha, SSC, Mr. Apoorv Aggarwal, JSC, Mr. Parth Samwal, Ms. Nupur Sharma, Mr. Gaurav Singh, Mr. Bhanukaran Singh Jodha and Ms. Muskan Goel, Advocates..
For the Respondent : Mr. Sachit Jolly, Senior Advocate with Ms. Mansha Anand, Advocate.
HON'BLE MR. JUSTICE VINOD KUMAR
1. This appeal has been filed by the appellant/Revenue under Section 260A of the Income Tax Act, 1961 (the Act, hereinafter) against the order dated 08.06.2024 passed by the Income Tax Appellate Tribunal, (“ITAT”) in ITA No.3963/DEL/2019 for the Assessment Year (AY) 2014-15 whereby the ITAT has dismissed the appeals filed by the appellant/Revenue.
2. At the outset, it may be stated that though the ITAT was concerned with two appeals being ITA No.3962/DEL/2019 and ITA 3963/DEL/2019 both relating to AY 2014-15. The subject 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 on 25.08.2017 declaring a loss of Rs.3,49,55,515/-. The said returns of income were processed under Section 143(1) of the Act and a mandatory notice under Section 143(2) of the Act was issued by the Assessing Officer (“AO”) which was duly served upon the assessee.
4. The AO completed the assessment and passed the assessment order dated 31.12.2017 under Section 153A read with Section 143 (3) of the Act at an income of Rs.7,53,55,250/-. The AO made an addition of Rs.10,00,00,000/- on account of a bogus unsecured loan and a disallowance of Rs.1,03,10,760/- on account of interest paid on the alleged bogus unsecured loan. The assessee, aggrieved by the assessment order dated 31.12.2017, preferred an appeal, Appeal No. 178/17-18 for AY 2014-15 before the Commissioner of Income Tax (Appeals)-24 [“CIT (A)”], which was partly allowed vide order dated 30.01.2019. The addition of Rs.10,00,00,000/- made by the AO was deleted, and the disallowance of Rs.1,03,10,760/- was reduced to Rs.84,00,000/-.
5. The Revenue preferred an appeal against the order of the CIT(A) before the ITAT, which was dismissed vide order dated 08.06.2023, which is now under challenge before us.
6. Mr. Abhishek Maratha, learned Senior Standing Counsel appearing for the appellant/Revenue submitted that during the course of investigation into the KRBL Group, it has been found that KRBL Ltd is purchasing bogus bills from a firm controlled by one Dinesh Jain. For examination of this issue, a team of the Income Tax Department visited the office of Dinesh Jain on 06.06.2016 and a statement was also recorded. In his statement, Dinesh Jain accepted that he is providing bogus bills to parties on a commission basis; further, he accepted that the firm controlled by him is not doing any real business.
7. During the search and assessment proceedings, it was found that the assessee has received an unsecured loan of Rs.10,00,00,000/- from Shashi Foods India Pvt. Ltd. (“Shashi Foods”) during the year under consideration. Therefore, to verify the veracity of the unsecured loans taken by the assessee, the AO asked the assessee to prove genuineness of the transactions, creditworthiness and the identity of the proprietor of Shashi Foods. In this regard, a show-cause notice dated 08.12.2017 was served to the assessee. In response thereof, the assessee submitted its reply dated 13.12.2017, whereby it 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 Shashi Foods on 21.11.2017 regarding the source of funds, rate of interest charged, name of brokers, details of balance sheet and P&L A/c, etc. Shashi Foods filed its reply on 15.12.2017 wherein it was stated that the company had sufficient funds to lend the money to these companies. However, there was no reply regarding the source of these funds. However, Gian Chand Sethi, in his statement on 30.03.2016, reiterated that the source of funds was the sales proceeds corresponding to those purchases, payments of which are due. From the balance sheet submitted by Shashi Foods details of trade payables were taken and it was observed that in FY 2013-14, there were 12 parties which have been shown as creditors, and a total amount of Rs.34.96 crore was pending.
10. The AO further deputed two Income-Tax Inspectors to ascertain the existence of the 12 parties named by Shashi Foods and addresses of these parties were taken from the bills which have been impounded during the course of the survey from the premises of Shashi Foods and from the MCA website. Out of these, only four parties have been found at the addresses which have been mentioned in the bills. Mr. Maratha stated that the impounded bills from one Deepak Kumar & Brothers and Asharfi Overseas (P) Ltd. were found unsigned; in the same handwriting; lacking details and appear to be bogus. His contention is that therefore, the claimed source of funds by Gian Chand Sethi is not genuine.
11. He further stated that the analysis of the bank accounts of Shashi Foods reveals that funds were routed through multiple entities, including those controlled by Dinesh Jain, who admitted to providing bogus bills to inflate purchases. This cash trail confirms that the source of funds is not genuine, and thus the AO held that Shashi Foods lacks its own funds to lend, making its creditworthiness doubtful.
12. Mr. Maratha further stated that as per Section 68 of the Act, the primary onus to prove that the loan amount is genuine is on the assessee, and as such a show-cause notice was issued as to why the unsecured loan taken from Shashi Foods should not be considered as undisclosed income and added to income under Section 68 of the Act.
13. It is the case of the appellant, as contended by Mr. Maratha that a mere submission that a loan has been received through banking channels does not mean that it is genuine. In the case 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 identity, creditworthiness and genuineness of transactions have to be explained by the assessee if the sum is found credited in its books of account. The identity, creditworthiness/ financial strength of the lenders and genuineness of such loans have to be established by the assessee. The burden of proof of these is on the assessee. It is only after the assessee submits the requisite documents to prove the identity, creditworthiness/financial strength of the lenders and genuineness of such loans, the burden of proof shifts to the AO.
15. He has also referred to the judgment of this Court in CIT v. N. R. Portfolio Pvt. Ltd. bearing ITA No. 1081 of 2021, wherein it is observed as under:
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, controls and manage them.
31. The respondent herein is a Private Limited Company. It is not the case of the respondent that the Directors or persons behind the companies making the investment in their shares were related or known to them. It is highly implausible that an unknown person had made substantial investment in a private limited company to the tune of Rs.63,80,100/- and Rs.75,60,200/- in two consecutive assessment years 2002-03 and 2003-04 respectively, without adequately protecting the investment and ensuring appropriate returns. Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by an account payee instrument. It may, as in the present case require entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and the creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not the onus is discharged depends upon the facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. These facts are basically and primarily in the knowledge of the assessee and it is difficult for the revenue to prove and establish the negative. Certificate of incorporation of the company, payment by banking channel, etc. cannot in all cases be tantamount to satisfactory discharge of onus. The facts of the present case noticed above speak and are obvious. What is unmistakably visible and apparent cannot be spurred by formal but unreliable pale 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 requisition under Section 132A of the Act was initiated, and these proceedings automatically get terminated (abated) upon the commencement of the search. He has provided the following definitions and characteristics of abated assessment as reproduced below: “An abated assessment year is one where assessment or reassessment proceedings were pending before the AO on the date of search initiation These proceedings automatically abate when search proceedings under Section 153A begin The abatement is specifically provided under the second proviso to Section 153A (1) of the Act The concept of abated assessment years is crucial in search assessments as it determines the scope of the jurisdiction of the AO and the nature of evidence required to make additions in the reassessment proceedings under Section 153A. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the AO.”
18. In this regard, he has placed reliance on the judgment of the Supreme Court in PCIT v. Abhisar Buildwell (P.) Limited bearing Civil Appeal No.6580 of 2021.
19. He submitted that the assessee has been rotating the money within its own group (KRBL) and the Dinesh Jain Group for the purpose of accommodation entries. His contention is that this is not a case where the AO is going into „source of the source‟ but had done the entire exercise to verify the correctness of the statement made by Shashi Foods and Gian Chand Sethi to prove the creditworthiness of Shashi Foods and the genuineness of the transactions.
20. Mr. Sachit Jolly, learned Senior Counsel for the respondent submitted that the order of the ITAT dated 08.06.2023 is purely factual in nature and as such does not give rise to any substantial question of law.
21. His argument is that the onus on the assessee to prove the identity, creditworthiness and genuineness of the creditor and the transaction was duly discharged by the assessee. He laid stress on the fact that Shashi Foods has confirmed extending the loan to the respondent and that it is also not in dispute that the loan was repaid in the Financial Year (FY) 2015-16.
22. He submitted 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., ITA No. 546/2023 decided on 28.05.2025 to contend that the requirement for the assessee to prove the „source of the source‟ would not extend to unsecured loans taken prior to the year 2022, as the said requirement was only brought in through an amendment to Section 68 of the Act made via the Finance Act, 2022.
24. In support of his submissions, Mr. Jolly has relied upon the judgments in CIT v. Fair Finvest Ltd., (2013) 357 ITR 146 (Delhi), CIT v. Dwarkadhish Investment (P.) Ltd., (2011) 330 ITR 298 (Delhi) and CIT v. Kamdhenu Steel & Alloys Ltd., ITA No. 972/2009 decided on 23.12.2011.
25. Having heard the learned counsel for the parties and perused the record, there is no dispute that the search and seizure operation under Section 132 of the Act was carried out on KRBL Group on 13.03.2016. Pursuant thereto an assessment order dated 31.12.2017 under Section 153A read with Section 143(3) of the Act was passed on an income of Rs.7,53,55,250/-.
26. The AO made an addition of Rs.10,00,00,000/- on account of a bogus unsecured loan and a disallowance of Rs. 1,03,10,760/- on account of the interest paid on the said alleged bogus loan.
27. Before we come to the order passed by the ITAT, it is necessary to refer to the order passed by the AO highlighting the relevant considerations which made the AO make addition of Rs.10,00,00,000/- and also the disallowance of Rs.1,03,10,760/-, in paragraphs 5.[1] to 5.[3] of the assessment order, in the following manner:- “5.[1] Investigation in respect of Sh. Dinesh Jain: 5.1.[1] During the course of Investigation in cases of KRBL group, it has been found that KRBL Ltd is purchasing its purchase by taking bogus bills from firm control by Shri Dinesh Jain. For examination of this issue, team of Income Tax Department visited the office of Shri Dinesh Jain on 06.06.2016 and statement of Sh. Dinesh Jain also recorded. In his statement Shri Dinesh Jain accepted that he is providing bogus bills to parties on commission basis, further he accepted that the firm controlled by him are not doing any real business. The firm controlled by Shri Dinesh Jain are as under.-
┌────────────────────────────────────────────────────────────────────────────────────────┐ │
┌───────────────────────────────────────────────────────────────────────────────────────────────┐ │ details of these parties are as under:- │ │ Sl. Name of the Party Amount payable (in Rs) │ │ No. │ ├───────────────────────────────────────────────────────────────────────────────────────────────┤ │ 1. Asharfi Overseas P. Ltd. 2,87,60,975.75 │ │ 2. Asutosh Foods 29,03,966.40 │ │ 3. Dawat Foods Ltd. 3,86,37,600.00 │ │ 4. Deepak Enterprises 3,66,02,713.65 │ │ 5. Deepak Kumar & Brothers 3,35,89,374.28 │ │ 6. Garg Trading Corporation 5,37,15,481.00 │ │ 7. L T International Ltd. 35,41,350.00 │ │ 8. L T Foods Ltd. 3,25,21,000.00 │ │ 9. Mahesh Agro P. Ltd. 6,02,51,452.75 │ │ 10. Narain Foods 1,29,34,362.50 │ │ 11. S. K. Agro Pvt. Ltd. 3,89,08,380.00 │ │ 12. Vijay Shree Enterprises 72,69,213.00 │ │ Total 34,96,35,844.33 │ │ 5.2.4 To examine whether the existence these parties and │ │ source of fund as expla ined by Shri Gian Chand Sethi are │ │ genuine or not ITIs of this charge Shri Rohit Raj & Shri Dinesh │ │ Kumar were deputed to enquire about these parties. Address as │ │ of these parties has been taken from the bills which have been │ │ impounded during the course of survey from premise of M/s │ │ Shashi Foods Ind ia PVI. 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 │ └───────────────────────────────────────────────────────────────────────────────────────────────┘
V. KAMESWAR RAO, J
VINOD KUMAR, J NOVEMBER 13, 2025 rt