Facts of the Case

The assessee, Pancham Marketings Pvt. Ltd., filed its return of income for Assessment Year 2022-23 on 30.09.2022 declaring total income of ₹21,96,23,000 and book profit under Section 115JB of ₹21,68,02,511. The case was selected for scrutiny and statutory notices under Sections 143(2) and 142(1) were issued. During assessment proceedings, the Assessing Officer noted that the assessee had received unsecured loans aggregating to ₹2 crores from three entities, namely Shristi Investments Pvt. Ltd., Alco Suppliers Private Limited and Scroll Merchants Pvt. Ltd. The assessee furnished complete details including confirmations, PAN, audited financial statements and bank statements. Notices under Section 133(6) were also issued to the lenders, which were duly complied with. Despite this, the Assessing Officer treated the loans as unexplained cash credits under Section 68 on the ground that the lenders allegedly lacked creditworthiness and were linked with a known entry provider. The addition was confirmed by the CIT(A), leading to the appeal before the Tribunal.

Issues Involved

Whether unsecured loans could be treated as unexplained cash credits under Section 68 when the assessee had furnished complete documentary evidence establishing identity, creditworthiness and genuineness of the lenders, whether mere suspicion or alleged association with entry operators is sufficient to invoke Section 68, and whether additions can be sustained when loan transactions are confirmed through replies under Section 133(6).

Petitioner’s Arguments

The assessee contended that all primary onus under Section 68 was duly discharged by filing complete documentary evidence in respect of the loan creditors. It was submitted that all three lenders responded to notices under Section 133(6) and confirmed the loan transactions. It was further argued that in the case of Alco Suppliers Private Limited and Scroll Merchants Pvt. Ltd., the source of funds had already been examined and accepted by the department in their respective assessments. Reliance was placed on binding judicial precedents, including the jurisdictional Calcutta High Court decision in PCIT vs Sreeleathers Ltd., holding that additions under Section 68 cannot be made on conjectures and surmises once the initial burden is discharged.

Respondent’s Arguments

The Revenue supported the order of the CIT(A) and contended that the creditworthiness of the lenders was not satisfactorily proved and that the transactions were suspicious due to common banking patterns and alleged linkage with entry operators.

Court Order / Findings

The ITAT Kolkata held that the assessee had furnished all relevant details establishing the identity, creditworthiness and genuineness of the loan transactions. The Tribunal noted that the loan creditors had duly responded to notices issued under Section 133(6) and that their assessments had also been framed by the department, wherein the sources of funds were examined. The Tribunal held that the Assessing Officer had not pointed out any defect in the evidences produced and that mere suspicion or alleged association with an entry operator could not justify an addition under Section 68. Relying on the binding decision of the Calcutta High Court in PCIT vs Sreeleathers Ltd., the Tribunal held that the assessee had discharged the initial burden and the addition was unsustainable in law. Accordingly, the order of the CIT(A) was set aside.

Important Clarification

The Tribunal clarified that once the assessee establishes identity, creditworthiness and genuineness of the loan creditors through documentary evidence and confirmations, the burden shifts to the Assessing Officer to bring cogent material to disprove the same. Additions under Section 68 cannot be sustained on suspicion, presumption or alleged third-party linkage without concrete evidence.

Final Outcome

The appeal filed by the assessee was allowed, and the addition of ₹2 crores made under Section 68 of the Income-tax Act for Assessment Year 2022-23 was directed to be deleted in full.

Source Link- https://itat.gov.in/public/files/upload/1768297931-HZ7dsY-1-TO.pdf

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