Case Law Details
Unique Finance & Securities Private Limited Vs ACIT (ITAT Kolkata)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Kolkata has set aside an order by the National Faceless Appeal Centre (NFAC), Delhi, thereby deleting an addition of ₹7,22,90,000/- made to the income of Unique Finance & Securities Private Limited. The appeal, pertaining to Assessment Year 2013-14, centered on an unsecured loan received by the assessee.
Unique Finance & Securities Private Limited had challenged both the reopening of its assessment under Section 147 read with Section 148 of the Income Tax Act, and the subsequent confirmation of the addition by the Commissioner of Income Tax (Appeals) [CIT(A)]. The ITAT, however, primarily focused on the merits of the addition.
The background to the case involves the assessee filing its return of income for AY 2013-14, declaring a total income of ₹51,27,060/-. Subsequently, the Assessing Officer (AO) reopened the assessment, possessing information that the company was a beneficiary of accommodation entries in the form of unsecured loans totaling ₹8,42,26,643/-.
During the assessment proceedings, the assessee provided extensive documentation to the AO, including audited balance sheets, profit and loss accounts, ITR acknowledgements, bank accounts, ledger accounts related to the loans, bank statements of third parties, audited statements, ITRs, trade licenses, and loan confirmations from the third parties.
A specific loan of ₹7,22,90,000/- from Ratio Distributors Pvt. Ltd. came under scrutiny. Despite the assessee furnishing comprehensive details regarding this lender, the AO noted that Ratio Distributors Pvt. Ltd. had declared nil income in its ITR, claiming a loss of ₹26,103/-, and showed share capital of ₹1,11,00,000/- with expenses of ₹25,232/-. These factors led the AO to conclude that the lender lacked the creditworthiness to advance such a substantial loan. The AO further suspected that the assessee was a beneficiary of accommodation entries through Ratio Distributors Pvt. Ltd., which allegedly received funds from various other entities.
Crucially, the AO issued a notice under Section 133(6) of the Act to Ratio Distributors Pvt. Ltd. for independent verification, but no response was received. Based on this, the AO treated the loan amount as an unexplained cash credit and added it to the assessee’s income. The CIT(A) upheld this addition, concluding that the assessee was a beneficiary of accommodation entries.
Before the ITAT, the Authorized Representative (AR) for the assessee strongly argued that the issue was already decided in the assessee’s favor in its own case for Assessment Year 2017-18. In that instance, the ITAT Kolkata, in ITA No. 355/KOL/2024 dated April 1, 2025, had deleted an addition of ₹1,74,00,000/- from Ratio Distributors Pvt. Ltd., along with other loans, totaling an aggregate deletion of ₹3,49,00,000/-.
The AR highlighted that the ₹7,22,90,000/- loan from Ratio Distributors Pvt. Ltd. was partially repaid during the year and the remaining balance in subsequent assessment years. The AR emphasized that the assessee had provided all necessary evidence to the AO, including loan confirmations, audited financial statements, ITRs, assessment orders framed in the lender’s case under Section 143(3), and bank statements of Ratio Distributors Pvt. Ltd. The AR contended that neither the AO nor the CIT(A) had found any infirmity in these pieces of evidence. The sole basis for the addition, the AR asserted, was the non-compliance to the Section 133(6) notice by the lender, which, according to the AR, is an insufficient ground when the assessee has submitted all details.
The Departmental Representative (DR), however, defended the orders of the lower authorities, reiterating that the assessee was a beneficiary of accommodation entries from a company suspected of being a shell company receiving funds from other such entities.
The ITAT, after considering the submissions and available records, observed that the assessee had indeed provided substantial evidence regarding the identity and genuineness of the loan from Ratio Distributors Pvt. Ltd., including confirmation, audited financials, ITR, and the lender’s assessment order under Section 143(3) for the same assessment year. The Tribunal noted that neither the AO nor the CIT(A) commented on the veracity of these evidences, instead relying solely on the non-compliance with the Section 133(6) notice by the loan creditor. The ITAT emphatically stated that an addition cannot be made merely on the ground of non-compliance to a Section 133(6) notice when the assessee has furnished all required details.
Furthermore, the ITAT emphasized that the loan was partially repaid in the current year and the remainder in subsequent assessment years, lending credence to the genuineness of the transaction.
Judicial Precedents
The ITAT’s decision was heavily influenced by its own prior ruling in the assessee’s case for AY 2017-18. The operative part of that decision, quoted in the current order, highlighted that the assessee had proved the identity and creditworthiness of the loan creditors and the genuineness of the transactions. In that instance, the AO’s reliance on an investigation wing report and a statement by Shri Pankaj Agarwal was disregarded, as Shri Agarwal had not made any allegations against the assessee. The ITAT in the 2017-18 case also referred to several judicial precedents that supported its stance:
1. PCIT vs. Sreeleather: This case established that reliance cannot be placed on a statement of a person who has not made any allegation against the assessee, and no evidence was brought on record to connect the entry operator to the assessee’s loan transactions.
2. CIT vs. Dataware: The Hon’ble jurisdictional High Court held that once the identity of the creditor and the genuineness of the transaction through account payee cheque are established, and the creditor is an income tax assessee with a PAN, the AO of the assessee cannot unilaterally brand the creditor’s return as unworthy of credence without making inquiries from the creditor’s own Assessing Officer. The court emphasized that the AO of the assessee cannot take the burden of assessing the profit and loss account of the creditor when the creditor is an assessee themselves.
Building on these principles, the ITAT in the current case reiterated that all ingredients of Section 68 of the Act (cash credits) were proven by the assessee. The Tribunal further cited several other judicial pronouncements to underscore that an addition cannot be made merely due to non-compliance with notices issued under Section 133(6) or Section 131 of the Act:
1. CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC):A Supreme Court decision often cited to emphasize the assessee’s burden of proving identity, genuineness, and creditworthiness, and that once these are established, the burden shifts.
2. CIT Vs. Orchid Industries Ltd. 397 ITR 136 (Bom):A Bombay High Court ruling.
3. Crystal Networks Pvt. Ltd. Vs. CIT 353 ITR 171 (Kol):A Kolkata High Court decision.
4. ITO Vs. M/s. Cygnus Developers India Pvt. Ltd. (ITA No. 282/Kol/2012):An ITAT Kolkata decision.
5. Joy Consolidated Pvt. Ltd. Vs. ITO (ITA No. 547/Kol/2020):Another ITAT Kolkata decision.
Given the similar facts and the binding precedent of its own co-ordinate bench in the assessee’s own case for AY 2017-18, coupled with the consistent judicial pronouncements, the ITAT concluded that the addition of ₹7,22,90,000/- was unwarranted.
Consequently, the ITAT set aside the order of the CIT(A) and directed the AO to delete the addition. The appeal of the assessee was allowed. The order was pronounced in open court on May 13, 2025.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 13.12.2024 for the AY 2013-14.
2. The assessee has challenged the reopening of assessment u/s 147 read with section 148 of the Act, beside challenging on merit the confirmation of addition by ld. CIT (A) as made by the ld. AO of ₹7,22,90,000/-. First of all, we are inclined to adjudicate the issue on merit.
3. The facts in brief are that the assessee filed the return of income within time allowed u/s 139(1) of the Act, declaring total income of ₹51,27,060/-. The case of the assessee was reopened u/s 147 of the Act after the AO has information in his possession that the assessee company was a beneficiary of accommodation entries in the form of unsecured loan to the tune of ₹8,42,26,643/-. Accordingly, the statutory notices were duly issued along with questionnaire and assessee complied with the same by furnishing the details comprising audited balance sheet, audited Profit and Loss account, copy of ITR acknowledgement, audited report, bank accounts, ledger accounts in the books of the assessee qua the loan received, bank statement of third party ,audited statements, ITR, trade license of the third parties and also confirmation of loans from third party. The ld. AO on the basis of said information/ details observed that the assessee has taken a loan of ₹7,22,90,000/- from the Ratio Distributors Pvt. Ltd. qua which the assessee furnished the loan confirmation, audited accounts, ITR acknowledgement, bank statements, etc. and the ld. AO on the perusal of the same observed that the said lender has shown nil income in the ITR by claiming the loss of ₹26,103/-. Besides, in the balance sheet, the said company has shown share capital of ₹1,11,00,000/- as share capital and expenses of ₹25,232/- during the financial year under consideration and all these facts cumulatively proved that the said entity was not having creditworthiness to advance loan of ₹7,22,90,00,000/- to the assessee. The ld. AO also observed that the assessee is beneficiary of accommodation entry through Ratio Distributors Pvt. Ltd. in whose account money was transferred from various other entities. As mentioned in last para on page no.4 and first para to page no.5, the ld. AO, in order to independently verify the transactions of loan, issued notice u/s 133(6) of the Act to M/s Ratio Distributors Pvt. Ltd. but there was no response from the said party. Finally, the ld. AO treated the amount of loan as unexplained cash credit and added the same to the income of the assessee in the order framed u/s 147 read with section 144B of the Act dated 27.05.2023.
0.4 In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee by upholding the assessment order after taking into account the contentions and submissions of the assessee by observing that the assessee is a beneficiary of accommodation entry and AO has given a very detailed finding in the assessment order by relying on various decision from page no.8 to 25 of the Paper Book.
0.5 The ld. AR vehemently submitted before us that the issue is squarely covered in favour of the assessee in its own case by the decision of the co-ordinate Bench in the A.Y. 2017-18 in ITA No. 355/KOL/2024 vide order dated 01.04.2025, wherein the addition made by the ld. AO and confirmed by the ld. CIT (A) on account of unsecured loan taken from Ratio Distributors Pvt. Ltd. of ₹1,74,00,000/- was deleted by the tribunal while deleting other loans from four parties of ₹1,75,00,000/-thereby deleting the aggregate addition of ₹349,00,000/- made by the ld. AO. The ld. AR submitted that the assessee has taken loan from the same party of ₹7,22,90,000/- which was partially repaid during the year and the remaining balance was repaid in the subsequent assessment years. The ld. AR stated that the assessee has filed in the assessment proceedings, the copies of loan confirmation from lender, copy of audited financial statement, copy of ITR, copy of assessment order framed in the case of the lender u/s 143(3) of the Act, copy of certificate of enlistment, copy of municipal tax receipt, Copy of MCA Master Data, copy of bank statement of Ratio Distributors Pvt. Ltd. and AO has not pointed out any infirmity in the said evidences. The ld. AO has made the addition on the ground that the notice u/s 133(6) of the Act issued to the lender was not complied with. Similarly, the ld. CIT (A) has confirmed the finding of the ld. AO without giving any cogent finding on the evidences filed by the assessee . The ld. AR therefore prayed that the order of ld. CIT (A) is wrong and against the facts on record as no addition can be made on the ground that there was no compliance to notice issued u/s 133(6) of the Act by the lender when assessee has furnished all the evidences/ details qua the lender before both the authorities below. The ld. AR therefore, prayed that in view of the decision of the co-ordinate bench in assessee’s own case as referred to above order of ld. CIT (A) may be set aside and the ld. AO may be directed to delete the addition.
0.6 The ld. DR on the other hand relied heavily on the orders of the authorities below by submitting that the addition was righty made by the AO and confirmed by the ld. CIT (A) by giving a clear-cut finding that the assessee is a beneficiary of accommodation entries in the form of unsecured loan from Ratio Distributors Pvt. Ltd., who received funds from other shell companies and therefore, the appeal of the assessee may kindly be dismissed by upholding the order of ld. CIT (A).
0.7 After hearing the rival contentions and perusing the materials available on record, we find that the assessee had taken a sum of ₹7,22,90,000/- during the year from M/s Ratio Distributors Pvt. Ltd. as unsecured loan. The assessee has filed before the ld. AO the copy of confirmation from the loan creditor, copy of audited financial statements, copy of ITR, assessment order u/s 143(3) framed in the case of loan creditor for A.Y. 2013-14 and bank statement etc. We note that neither the ld. AO nor the ld. CIT (A) has commented on the evidences filed by the assessee and merely made the addition on the ground that the notice u/s 133(6) of the Act was not complied with by the loan creditor. In our opinion, the addition cannot be made merely on the ground that there was no compliance to the letter issued u/s 133(6) of the Act when assessee has filed all the details/ evidences before the ld. Assessing Officer. We also note that the loan has been repaid partially in the current year and remaining in the subsequent assessment years. Further, we note that the assessee has also taken ₹1,74,00,000/- from Ratio Distributors Pvt. Ltd. in A.Y. 2017-18, which were added by the ld. AO to the income of the assessee as unexplained cash credit u/s 68 of the Act and also confirmed by the ld. CIT (A) and the co-ordinate Bench vide order dated 01.04.2025 in ITA No. 355/KOL/2024 for A.Y. 2017-18, in assessee’s own case deleted the addition. The operative part of the decision is as under:-
“06. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has raised unsecured loans from five parties which are mentioned by the AO in the assessment order from whom aggregate amount of ₹3,49,00,000/- was raised during the impugned financial year. We also note that the assessee has taken the said loans on interest which has been paid after deduction of tax at source. Besides the loans were raised through banking channels. The assessee has filed before the ld. AO various documents with respect to the above loan creditors which are available from page no.2 to 172 of the Paper Book. We have also examined the comparative statement in which the details as to capital and reserves, profit declared and turnover of the loan creditors were available and find that the parties have creditworthiness to advance loans to the assessee. Even the notices were issued u/s 133(6) of the Act to these lenders by the ld. AO were duly responded and all the information/details were furnished. The only ground on which the ld. AO made the addition was the report of the investigation wing and the statement of Shri Pankaj Agarwal, however we note that the nowhere Shri Pankaj Agarwal has ever mentioned or uttered about the assessee. Therefore, we do not subscribe to the conclusion drawn by the ld. CIT (A) that these loans were taken from shell companies by routing assessee’s own money. The case of the assessee find support from the decision of PCIT vs. Sreeleather (supra), wherein the Hon’ble court has held that the reliance cannot be placed on the statement of person who has never made any allegation against the assessee in his statement and no evidence was brought on record by the ld. AO to connect the entry operator to the assessee that loan transactions done with the assessee. The Hon’ble High Court has also noted that the assessee in that case had filed all the evidences before the ld. AO qua the loan creditors and even the notice issued u/s 133(6) of the Act were duly responded. Similarly, in the case of CIT vs. Dataware (supra), the Hon’ble jurisdictional High Court has held as under:-
“After hearing the learned Advocate for the appellant and after going through the materials on record, we are of the view that no substantial question of law is involved in this appeal. Both the Commissioner of Income Tax (Appeal) and the Tribunal below have in details considered the fact that the share application money was paid by account payee cheque, the creditor appeared before the Assessing Officer, disclosed its PAN number and also other details of the accounts but in spite of that the Assessing Officer did not enquire further from the assessing officer of the creditor but in stead, himself proceeded to consider the profit and loss account of the creditor and opined that he had some doubt about the genuineness of such account. In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax(Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. The appeal is thus devoid of any substance and is summarily dismissed. In view of dismissal of the appeal, the connected application has become infructuous and the same is disposed of accordingly. Urgent photostat certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.”
07. Considering these facts of the assessee in the light of the above decisions, we are inclined to hold that the assessee has duly proved the identity and creditworthiness of the loan creditors and the genuineness of the transactions and the AO has not brought any material on record to prove to the contrary. Therefore, we set aside the order of the ld. CIT (A) and direct the AO to delete the addition.
08. In the result, the appeal of the assessee is allowed.”
08. In the above decision the coordinate bench has held that the all the ingredients of section 68 were proved. Besides the addition can not be made merely on the ground that there was no compliance to the notices issued u/s 133(6) or 131 of the Act as has been held in the following decisions:
(i) CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC);
(ii) CIT Vs. Orchid Industries Ltd. 397 ITR 136 (Bom);
(iii) Crystal Networks Pvt. Ltd. Vs. CIT 353 ITR 171 (Kol);
(iv) ITO Vs. M/s. Cygnus Developers India Pvt. Ltd.(ITA No. 282/Kol/2012) and
(v) Joy Consolidated Pvt. Ltd. Vs. ITO (ITA No. 547/Kol/2020.
09. Since, the facts of the case of the assessee in the present year are quite similar to the facts in A.Y. 2017-18 beside the case of the assessee being squarely covered by the above decisions, therefore, we are inclined to set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition.
010. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 13.05.2025.
Author Bio
