DCIT, CENTRAL -4(3), KOLKATA, KOLKATA V. RAJESH AUTO MERCHANDISE PRIVATE LIMITED, KOLKATA

ITA 2610/KOL/2025

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata, which had deleted the addition of ₹7,57,50,000 made by the Assessing Officer (AO) as unexplained cash credit under section 68 of the Income-tax Act, 1961. The assessee, Rajesh Auto Merchandise Private Limited, had received unsecured loans from six parties, which the AO initially treated as unexplained cash credits. However, during the appellate proceedings, the assessee provided substantial evidence including loan confirmations, PAN details, and financial statements of the creditor companies, which led the CIT(A) to delete the addition. The Tribunal agreed with the CIT(A)'s decision, noting that the assessee had adequately demonstrated the legitimacy of the transactions and the creditworthiness of the lenders.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840980 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2021-2022
• Appeal Filed On: 11-11-2025
• Other Referred Cases: Sarogi Credit Corporation vs. ITO, PCIT vs. Sreeleathers, Rohini Builders vs. Dy. CIT, CIT vs. Derby Overseas P. Ltd., CIT vs. Natraj Album Industries P. Ltd., CIT vs. Shree Rama Multi Tech Ltd., CIT vs. Bhaval Synthetics, ACIT vs. Ravnet Solutions (P.) Ltd., CIT vs. Precision Finance (P.) Ltd., CIT vs. United Commercial & Industrial Co. (P.) Ltd., CIT vs. Sugauli Sugar Works (P.) Ltd., Chief CIT vs. Kesaria Tea Co Ltd., Bombay Dyeing & Manufacturing Co Ltd. vs. State of Bombay, J.K. Chemicals Ltd. vs. CIT, Mahabir Cold Storage vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANAT KUMAR RAHA
• Assessee Lawyers: SIDDARTH JHAJHARIA; ACCOUNT PAYEE CHEQUES DRAWN FROM; OBSERVING
• Keywords: Business expenditure; Unexplained cash credit; Unexplained expenditure; Unexplained investment; Onus to prove; Gift; Period of limitation; TDS; Accommodation entries
• Section: 132; 153A; 68; 131; 69; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No. 2610/KOL/2025 (Assessment Year: 2021-22) DCIT Central Circle 4(3), Kolkata 110 Shantipally, Aaykar Bhawan Poorva, Kolkata-700107, West Bengal Vs. Rajesh Auto Merchandise Private Limited B/2/, Kolkata GPO, Kolkata- 700001, West Bengal (Appellant) (Respondent) PAN No. AACCR9920R Assessee by : Shri Siddarth Jhajharia, AR Revenue by : Shri Sanat Kumar Raha, DR Date of hearing: 20.01.2026 Date of pronouncement: 26.02.2026 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-27 (hereinafter referred to as the “Ld. CIT(A)”] dated 19.03.2025 for the AY 2021-22. 2. At the outset, we note that the appeal of the assessee is barred by limitation by 103 days. At the time of hearing the counsel of the assessee explained the reasons for delay in filing the appeal. The Ld. D.R did not raise any objection in condoning the delay. After hearing the rival contentions and perusing the materials available on record, we find that the delay is for bonafide and genuine reasons and hence, we condone the delay and adjudicate the appeal in the ensuing paras. Printed from counselvise.com Page | 2 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 3. The issue raised in ground no.1 is against the order of ld. CIT (A) deleting the addition of ₹7,57,50,000/- as made by the ld. AO in respect of unsecured loans by treating the same as unexplained cash credit u/s 68 of the Act. 3.1. The facts in brief are that the assessee filed the return of income on 14.02.2022, showing total income at ₹5,45,16,664/-. A search action u/s 132 of the Act was conducted on 25.09.2020, at various premises of Agarwal Group and the assessee being one of the concerns of the said group was also covered into the said search. Notice u/s 153A of the Income-tax Act, 1961 was issued on 08.11.2021, and the assessee filed the return in compliance to notice issued u/s 153A of the Income-tax Act, 1961 on 16.12.2021. Thereafter, the statutory notices were issued along with questionnaire and assessee duly replied the said notices. During the course of assessment proceedings, the ld. AO noticed that the assessee has raised ₹7,57,50,000/- from six parties as unsecured loans. The assessee submitted before the ld. AO that these loans were received through banking channel and were duly recorded into the books of accounts. The assessee submitted that these loans were interest bearing, which was duly paid after deduction of tax at source. The assessee filed before the ld. AO, the copies of PANs, confirmations, ledger accounts, etc. The assessee subsequently transferred the loan to the account of M/s Sanyukt Vanijya Pvt. Ltd. as the six entities i.e. M/s Basukinath Vyapaar Pvt. Ltd, M/s Ancient Commosales Pvt. Ltd., M/s Baba Iron Industries Pvt. Ltd., M/s Bluemotion Infotech, M/s Everstrong Udyog Pvt. Ltd., M/s Lifewood Agri Farming Pvt. Ltd., routed the loan transactions on behalf of the said company and thus, the loan accounts of above six companies were squared off and the Printed from counselvise.com Page | 3 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 credit was given to M/s Sanyukt Vanijya Pvt. Ltd. The loan was confirmed by the said lender and confirmation was furnished before the AO. The ld. AO noted that the six loan creditors were shell companies being operated by operator Mr. Subhash Kumar Agarwal, Mr. Ashok Kumar Jha and Mr. Pranaw Kumar Modi and the genuineness of these loans could not be verified during post search investigation. The ld. AO noted that the summons issued u/s 131 of the Act were not responded and directors of the lender companies were not produced for examination. The ld. AO also noted that the sworn statements of the entry operators stated that they were providing accommodation entries in the form of unsecured loans from shell companies in lieu of the commission. The ld. AO noted that the lenders were non-existent companies with no office address mentioned, having negligible income or no financial capacity to advance such loans. The ld. AO further noted that the layering of transactions through multiple shell companies indicated the non-genuineness of transactions. Finally, the ld. AO treated the loan as unexplained cash credit and the ld. AO added the same to the income of the assessee. 3.2. In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee by deleting the addition after taking into these contentions and submissions of the assessee and the evidences filed during the course of appellate proceedings by observing and holding as under:- “6.2. Discussion &decision:- 6.2.1. I have perused the assessment order as well as the submissions of the assessee and observed that during the year under consideration, the assessee has received unsecured loan to the tune of Rs. 7,57,50,000/- from the six loan creditor companies, details of which are as under :- Name of Loan Creditor Amount (in Rs.) Printed from counselvise.com Page | 4 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 M/s Basukinath Vyaapaar Pvt Ltd 25,00,000/- M/s Ancient Commosales Pvt Ltd. 13,00,000/- M/s Baba Iron Industries Pvt Ltd. 44,00,000/- M/s Bluemotion Infotech Pvt Ltd. 1,66,50,000/- M/s Ever Strong Udyog pvt Ltd. 4,47,50,000/- M/s Life wood Agri Farming Pvt Ld. 61,50,000/- Total 7,57,50,000/- In the course of assessment proceeding, upon perusal of the assessee’s submissions, the AO found that the assessee failed to substantiate the identity & creditworthiness of the Creditors Companies and genuineness of the transactions made with them. Based upon such finding, the AO treated the whole amount of unsecured loan of Rs. 7,57,50,000/- as cash credit u/s 68 of the Act and added the same to the total income of the assessee. 6.2.2. In the course of appellate proceeding, the assessee submitted that all the above said loans have been received through account payee cheques/RTGS and all are recorded in the audited books of accounts as unsecured loans. The assessee also contended that the interests for these unsecured loans have duly been provided and TDS also duly deducted on such interest payments and all the relevant documents, including the loan confirmation copies, were submitted to the AO at the time of assessment proceeding. The appellant also explained the details of routing of these unsecured loans to its books which is summarized as under:- a) Loans amount of Rs. 6,75,00,000/- received from Sanayukt Vanijya Private Limited. The assessee received Rs. 1,66,50,000/- from M/s Bluemotion Infotech Pvt Ltd plus Rs. 4,47,50,000/- from M/s Ever Strong Udyog Pvt Ltd. plus Rs. 61,50,000/- from M/s Life Wood Agri Farming Pvt. Ltd. These are the sale proceeds of the unquoted shares sold by M/s Sanayukt Vanijya Private Limited ( a group company of the appellant). Instead of receiving these sale proceeds by M/s Sanayukt Vanijya Private Limited, this amount of Rs. 6,75,00,000/- was credited in the books of the assessee on behalf of M/s Sanayukt Vanijya Private Limited. As a result, the amount of 6,75,00,000/- is shown as loan received by the assessee from M/s Sanayukt Vanijya Private Limited. In this regard the confirmation filed by the assessee reflecting of Rs. 6,75,00,000/- as loan received from M/s Sanayukt Vanijya Private Limited. b) Further, loan amount of Rs. 82,00,000/- (Rs. 25,00,000/- from M/s Basukinath Vyaapaar Pvt Ltd. plus Rs. 13,00,000/- from M/s Ancient Commosales Pvt Ltd. plus Rs. 44,00,000/- from M/s Baba Iron Industries pvt ltd) was received by the assessee from these three entities. In this regard, the appellant submitted the confirmation of accounts by all the three loan creditors and also contended that transactions were completely made through cheques/banking channel. It is also observed from the related confirmation ledgers of the assessee that applicable interests and TDS thereon are also credited it its account. 6.2.3. Further, on perusal of the books of account of the M/s Sanayukt Vanijya Private Limited, it is observed that the amount of Rs. 6,75,00,000/- has been shown as ‘investment in Equity shares’ till F.Y 2020. And the same amount (which is happened to be the sale proceeds of unquoted shares) is now (in the FY 2020-21) is shown as ‘Loan and advances to Related parties’. These data indicates that the sale proceed of Rs. 6,75,00,000/- shown as Unsecured loan to the assessee by the M/s Sanayukt Vanijya Private Limited in the relevant A.Y. 2021-22. Eventually, it is the loan of Rs. 6,75,00,000/- was received by the assessee from its group company only. 6.2.4. In the course of assessment proceeding, the AO had opined that none of the aforesaid creditor parties have responded to the summons u/s 131 of the Act issued to them during the course of Printed from counselvise.com Page | 5 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 assessment proceedings. In reply to the statutory notices, the assessee made reference to the ‘COVID Period’ and furnished the PAN address of the lending entity, loan confirmation ledger and claimed that transaction was made completely through banking channel. 6.2.5. However, it is observed from the submissions of the assessee made in the course of appellate proceeding that the assessee has furnished evidences viz. Loan confirmation from the lending entities, ledger copy of the lending entities reflecting banking transaction, Tax audit report showing the receipt and payment of the loans etc. Further, it is observed from the submissions of the assessee that the said loan creditors are assessed to Income Tax regularly. However, no instance of cash deposit or cash trail was found and established during the assessment proceeding. It is also observed that the lending company is an active compliant as per the data of Ministry of Corporate Affairs. Further, it is observed that the appellant, in terms of establishing the identity of the loan creditors, had also submitted following information: - i) CIN numbers of all the loan creditors. ii) PAN allotted by the Income Tax Department iii) Bank statement of the creditor which is evidence of a bank account opened after due compliance of KYC norms of Reserve Bank of India. 6.2.6. The assessee placed its reliance in the case of Sarogi Credit Corporation reported in 103 ITR 344, the Patna High Court held that once the identity is established, the assessee’s initial onus is discharged. Held: “Once the identity of the third party is established before the ITO and other such evidence are prima facie placed before him pointing to the fact that the party is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors as in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts onto the department to show as to why the assessee’s case could not be accepted and as to why it must be held that the entry through purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And, in order to arrive at such a conclusion, even the department has to be in possession of sufficient and adequate materials.” In this regard, reliance was placed by the assessee in the following judicial decision wherein, it was held that CIN & PAN would be considered as valid documents in respect of establishment of the identity of the subscriber company and the assessee company. i. CIT Vs. Derby Overseas P. Ltd. (Delhi High Court) ITA No. 1497/2010 ii. CIT Vs. Natraj Album Industries P. Ltd. (Delhi HC) ITA No. 1542/2010 6.2.7 Further, as reflected in the financial parameters of the lending companies, they have adequate net- worth, as noticed from their balance sheets, to disburse the required fund for respective loan amounts. On the other side, no such event of immediate cash deposits of funds in the bank accounts of the lending companies, were noticed either in the course of assessment proceeding or at the time of appellate proceeding. A summary of respective ‘Net-worth’ of these lending companies are given below: Printed from counselvise.com Page | 6 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 Name of Loan Creditor Net Worth (Rs.) M/s Basukinath Vyaapaar Pvt Ltd 88,50,929/- M/s Ancient Commosales Pvt Ltd. 2,99,69,704/- M/s Baba Iron Industries Pvt Ltd. 95,21,80,834/- M/s Bluemotion Infotech Pvt Ltd. 18,37,50,582/- M/s Ever Strong Udyog pvt Ltd. 24,50,17,097/- M/s Life wood Agri Farming Pvt Ld. 24,50,13,861/- 6.2.8. Relying upon the same intent, reliance on the judgment of the Hon’ble bench of ITAT Allahabad order dated 11/02/2008 in the case of Anand Prakash Agarwal [6 DTR (All. - Trib.) 191] as held under: - \"The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank accounts was generated from the appellant and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read as under: \"4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam vs. Safiyabai Ibrahim AIR 1988 Bom. 361 : 1987 Mah. 725: 1987 Bank J 552.\" In view of the position of law as discussed above, it is always open for a borrower to contend, that even the \"creditworthiness\" of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention.” 6.2.9 It is relevant to mention here that as per the provisions of section 68 of the Act, the assessee is liable t prove the creditworthiness, genuineness and identity of the creditors and source of the said unsecured loans. However, the assessee is not required to prove the authenticity of the sub creditors and the source of the source of the source of the said unsecured loans etc. The source of the loans has already been proved by the assessee by submitting all the relevant details and documents in respect of the said lending companies. Hence, the onus of proving the genuineness of transaction have already been discharged by the assessee. However, the AO had not considered the same and added to the total income of the assessee. In this case, the assessee had proved the three primary limbs of the section 68 of the Act i.e., identity, creditworthiness and genuineness of the loan transactions and the loan creditor effectively hence there is no need to add it to the total income of the assessee. 6.2.10 Further, the assessee had placed its reliance on the following judicial pronouncements in support of its above contentions: a) Hon’ble Jurisdictional High Court in the case of PCIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Calcutta), FACTS - The assessee-firm was engaged in business of trading/retailing of footwear and leather and non-leather accessories. It had filed its return of income and same was selected for scrutiny. Printed from counselvise.com Page | 7 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 Subsequently, notices under sections 143(2) and 142(2) were issued on it. The Assessing Officer noted that the assessee had received certain amount of unsecured loans from various companies out of which 13 companies were allegedly claimed to be paper companies. He thus made addition of amount of unsecured loans in the assessee's total income.The Commissioner noted that the assessee had furnished various documents to prove genuineness and creditworthiness of alleged paper companies however same was rejected by the Assessing Officer. He thus held that it was not enough for the Assessing Officer to dismiss documents furnished by the assessee without consideration but rather should have recorded reasons in writing as to why these documents filed by the assessee did not go to establish the identity of the lender or prove the genuineness of the transaction. In the absence of any such finding, order passed by the Assessing Officer was held to be utterly perverse. The Hon. High Court of Calcutta gave the following judgment: “ This provision of section 68 deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The crucial words in the said provision are 'assessee offers no explanation'. This would mean where the assessee offers no proper, reasonable and acceptable explanation as regard the amount credited in the books maintained by the assessee. No doubt the burden of proof is on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their conformations, it has been held that the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit so as to be justified in referring to section 68. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation with regard to the cash credit, the Assessing Officer should consider the same objectively before he takes a decision to accept or reject it. If the explanation given by the assessee shows that the receipt is not of income nature, the department cannot convert good proof into no proof or otherwise unreasonably reject it. On the other hand, if the explanation is unconvincing, the same can be rejected and an inference shows that the amount represents undisclosed income either from a disclosed or an undisclosed source. The explanation given by the assessee cannot be rejected arbitrarily or capriciously, without sufficient ground on suspicion or on imaginary or irrelevant grounds. [Para 4] Further to be noted that where the assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there has been some illegalities in the assessee's transaction. Thus, more importantly, the onus of proving that the appellant was not the real was on the party who claims it to be so. Bearing the above legal principles in mind, in the instant case, it is clear that the Assessing Officer issued show cause notice only in respect of one of the lender FGD. The assessee responded to the show cause notice and submitted the reply. The documents annexed to the reply were classified under 3 categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer has brushed aside these documents and in a very casual manner has stated that mere filing PAN details, balance sheet does not absolve the assessee from his responsibility of proving the nature of transaction. There is no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee has discharged his initial burden and the burden shifts on the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression 'money laundering.' Such usage is uncalled for as the allegations of money laundering is a very serious allegations and the effect of a case of money laundering under the relevant Act is markedly different. Therefore, the Assessing Officer should have desisted from using such expression when it was never the case that there was any allegations of money laundering. Much reliance was placed on the statement of AKA which statement has been extracted in full in the assessment order and it cannot be disputed that there is no allegation against the assesseecompany in the said statement. There is no evidence brought on record by the Assessing Officer to connect the said entry operator with the loan transaction done by the assessee. Therefore, the statement is of little avail and could not have been the basis for making allegations. The Assessing Officer ignored the settled legal principle and inspite of the assessee having offered the explanation with regard to the loan transaction, no finding has been recorded as regards the satisfaction on the Printed from counselvise.com Page | 8 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 explanation offered by the assessee. Therefore, the Assessing Officer ignored the basic tenets of law before invoking his power under section 68. Fortunately, for the assessee, the Commissioner (Appeals) has done an elaborate factual exercise, took into consideration, the creditworthiness of the 13 companies the details of which were furnished by the assessee. More importantly, the Commissioner noted that all these companies responded to the notices issued under section 133(6) which fact has not been denied by the Assessing Officer. On going through the records and the net worth of the lender companies, the Commissioner (Appeals) has recorded the factual findings that the net worth of those companies is in crores of rupees and they have declared income to the tune of Rs. 45,00,000/- and 75,00,000/-. Therefore, the Assessing Officer if in his opinion found the explanation offered by the assessee to be not satisfactory, he should have recorded so with reasons. However, there is no discussion on the explanation offered by the assessee qua, one of the lenders. Admittedly, the assessee was not issued any show cause notice in respect of other lenders. However, they are able to produce the details before the Commissioner (Appeals) who had rightly appreciated the facts and circumstances of the case. As pointed out earlier, the Assessing Officer brushed aside the explanation offered by the assessee by stating that merely filing PAN details, balance sheet does not absolve the assessee from his responsibilities of proving the nature of transactions. It is not enough for the Assessing Officer to say so but he should record reasons in writing as to why the documents which were filed by the assessee along with the reply does not go to establish the identity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. In the absence of any such finding, it is held that the order passed by the Assessing Officer was utterly perverse and rightly interfered by the Commissioner (Appeals). The Tribunal re-appreciated the factual position and agreed with the Commissioner (Appeals). The tribunal apart from taking into consideration, the legal effect of the statement of AKA also took note of the fact that the notices which were issued by the Assessing Officer under section 133(6) to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materials were available on the file of the Assessing Officer and there is no discussion on this aspect. Thus, the tribunal rightly dismissed the appeal filed by the revenue. [Para 5] ” b)Rohini Builders v. Dy. CIT [2002] 76 TTJ (Ahd.) 521/[2001] 117 Taxman 25 (Mag.)(Affirmed by Gujarat high court), “in respect of all the 21 creditors, the assessee had furnished their complete addresses along with GIR Nos./PAN as well as confirmations along with the copies of assessment orders passed in the cases of some creditors. In the remaining cases, where the assessment orders passed were not readily available, the assessee furnished the copies of returns filed by the creditors with the department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans had also been made by account payee cheques along with the interest in relation to those loans. It was rather strange that although the Assessing Officer had treated the cash credits as non-genuine, he had not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which had been claimed as business expenditure and had been allowed by the Assessing Officer. It was 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 was clear that the assessee had discharged the initial onus which lay on it in terms of section 68 of the Act by proving the identity of the creditors by giving their complete addresses, GIR Nos./PAN and the copies of assessment orders wherever readily available. It also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank account of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law, the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held in Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723 (Bom.). The genuineness of the transaction was proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors was made by account payee cheques and the interest was also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to appear before the Assessing Officer, same cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they admitted having advanced loans to the assessee by account payee cheques and in case the Printed from counselvise.com Page | 9 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69 of the Act; CIT v. Orissa Corpn. (P.) Ltd. [1986] 25 Taxman 80F (SC) was relied on. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit \"may be charged to income-tax as the income of the assessee of that previous year\". In this case, the legislative mandate is not in terms of the words \"shall be charged to income-tax as the income of the assessee of that previous year\". Thus, unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee. Thus, taking into consideration the totality of the facts and circumstances of the case and in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years and TDS had been deducted out of the interest paid/credited to the creditors, it was held that the departmental authorities were not justified in making the addition which was directed to be deleted. CITv. Smt. P.K. Noorjehan [1990] 11 SCC 198 was applied. The assessee having discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR Nos./PAN as well as confirmations along with the copies of assessment orders of individual creditors wherever readily available, cash credits could not be treated as non-genuine on the ground that summons issued to some of the creditors could not be served or they failed to appear before the Assessing Officer. The High Court also confirmed the same in Dy. CIT v. Rohini Builders [2003] 127 Taxman 523 (Guj.).” The ratio of Rohini Builders’ case (supra) was also relied upon in the following cases : (a) Mohar Singhv. Dy. CIT [2002] 77 TTJ (Agra) 218 . (b) Dy. CIT v. Sahara India Financial Corpn. Ltd. [2003] 81 TTJ(Lucknow) 389. (c) ITO v. Matadin Snehlata (HUF) [2003] 81 TTJ (All.) 995. (d) Jagadamba Construction Co. v. ITO [2004] 3 SOT 670 (Jodh.). (e) SumakPowercap Ltd. v. Asstt. CIT [2005] 90 TTJ (Lucknow) 420. c). The Calcutta High Court in Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.), the assessee has to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes (a) proof of the identity of his creditor(s), (b) the capacity of such creditor to advance the money, and (c) the genuineness of the transaction. If these things are proved prima facie by the assessee, the onus shifts to the Department. d)Similar views were expressed in CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596 (Cal.) and CIT v. Precision Finance (P.) Ltd. [1994] 121 CTR (Cal.) 20. “ In this case, the assessee had discharged the initial onus by proving the identity of the creditors by giving their complete addresses. PAN/GIR numbers. It had also proved the capacity of the creditors by showing that the amounts were received by ‘account payee’ cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under the law, the assessee can be asked to prove the source of credits in its books of account but not the source of the source - Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523 (Guj.) If the assessee proves the identity and creditworthiness of the creditors as well as genuineness of the transaction, then there was no occasion to treat same as non-genuine - Asstt. CIT v. Mahavir Metals & Alloys [2002] 75 TTJ 256 (Asr.), Subhas Dal Mill v. Asstt. CIT [2002] 124 Taxman 169 (Agra)(Mag.); Mohar Singh v. Dy. CIT [2002] 77 TTJ (Agra) 218 . Printed from counselvise.com Page | 10 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 Since such lender has positive net worth and duly shown “source of source”, the essential ingredients of sec. 68 (being identity, creditworthiness & genuineness of transaction) is duly satisfied and hence also addition so made by AO u/s 68 is bad in law and is liable to be deleted.” We also rely on the following judicial pronouncements to support our contention: 1. Crystal Networks (P) Ltd vs CIT reported in 353 ITR 171 (Cal) 2. CIT Kolkata III vs M/s Dataware Private Limited in ITAT No. 263 of 2011 dated 21.9.2011 3. In VSP Steel P Ltd (formerly M/s Tikmani Metal P Ltd) in ITA No. 741/Kol/2014 4. ITO vs Wiz-Tech Solutions Pvt Ltd in ITA No. 1162/Kol/2015 dated 14.6.2018 5. M/S Madura Stones Pvt. Ltd. vs ITO, Ward-9(1),Kolkata, Kolkata on 28 November, 2018 6. DCIT, Cir.-11(1), Kolkata vs M/S Jagannath Banwarilal dated on 26 October, 2018 We also rely on the following judicial pronouncements in support of our contention: i. Deem Roll Tech Ltd. v. DCIT [2018] 92 taxmann.com 72 (Ahmedabad - Trib.) ii. CIT v. Bhaval Synthetics [2013] 35 taxmann.com 83 (Rajasthan) iii. ACIT v. Ravnet Solutions (P.) Ltd. [2018] 93 taxmann.com 59 (Delhi - Trib.) iv. CIT v. Shree Rama Multi Tech Ltd. [2013] 40 taxmann.com 540 (Gujarat) v. ITO v. Chiripal Poly Films Ltd. [2019] 104 taxmann.com 172 (Mumbai - Trib.) vi. PCIT v. Hi-Tech Residency (P.) Ltd. [2018] 96 taxmann.com 403 (SC) vii. PCIT v. Chain House International (P.) Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh) viii. Hon’ble Bombay High Court in Orchid Industries (397 ITR 136); ix. Hon’ble Delhi High Court in Softline Creation Pvt Ltd (387 ITR 636); x. Hon'ble Delhi High Court in Rakam Money Matters Pvt. Ltd. (order dated 13/10/2015) xi. Hon’ble Delhi High Court in Goodview Industries order dated 21//11/2016; 6.2.11. In view of the above judicial pronouncements and discussions, it can be inferred that the assessee had received unsecured loan of Rs. 7,57,50,000/- from above mentioned lending companies through banking channel and the same is well reflected in the books of account. The three ingredients of the Section 68 of the Act i.e identity, genuineness and creditworthiness of the lenders are also established. Hence, the addition of Rs.7,57,50,000/- made by the AO u/s 68 of the Act is deleted. Therefore, these grounds raised by the assessee are allowed.” 3.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has received loan to the Printed from counselvise.com Page | 11 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 tune of ₹7,57,50,000/- from six loan creditors as has been noted above. The assessee received ₹ 6,75,00,000/- from M/s Sanyukt Vanijya Pvt. Ltd. which is a group of company of the assessee. The loan was received by the assessee through three companies namely ₹1,66,50,000/- from M/s . Infotech Pvt. Ltd., ₹4,47,50,000/- from M/s Everstrong Udyog Pvt. Ltd. and ₹61,50,000/- from M/s Life Wood Agri Farming Pvt. Ltd. The ld. CIT (A) noted that these were sale proceeds of unquoted shares sold by M/s Sanyukt Vanijya Pvt. Ltd. to these companies. The ld. CIT (A) recorded the finding that instead of receiving ₹6,75,00,000/- from the sister concern, M/s M/s Sanyukt Vanijya Pvt. Ltd. the amounts were received from three companies as stated above and credited in the books of the assessee on behalf of M/s Sanyukt Vanijya Pvt. Ltd. We note that the remaining amount was received from three entities namely 25,00,000/- from M/s Basukinath Vyapaar Pvt. Ltd. ,₹13,00,000/- from Anicient Commosales Pvt. Ltd. and 44,00,000/- from Baba Iron Industries Ltd. and these loans were confirmed by these entities in the confirmation letters and also explained that the interest was paid after deduction of tax at source. The ld. CIT (A) also noted that in Para no.6.2.3 that the quoted shares were held by M/s Sanyukt Vanijya Pvt. Ltd. till F.Y. 2019-20 and thereafter these were sold in F.Y. 2020-21 and shown as loan and advances to the related parties. Thus, the loan was received by the assessee from the group company M/S Sanayukt Vanijya Pvt Ltd. . The ld. CIT (A) in Para no.6.2.4 referred to the finding of the ld. AO that none of the creditors have responded to the summons u/s 131 of the Act but noted that the summons were issued during covid period. We , however , note that the assessee furnished the PANs, addresses, loan confirmations etc. of the lending entities besides claiming that Printed from counselvise.com Page | 12 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 the same were through banking channels. In Para no.6.2.7, the ld. CIT (A) also referred to the financial net worth of the lending companies which is extracted above. Finally, the ld. CIT (A) noted that the assessee has proved all the three limb of section 68 of the Act, therefore, no need to add this amount u/s 68 of the Act. The ld. CIT (A) while allowing the appeal of the assessee relied on the decisions of PCIT vs. Sreeleathers [2022] 143 taxmann.com 435 (Calcutta)/[2022] 448 ITR 332 (Calcutta)[14-07-2022] and Rohini Builders Vs. DCIT [2001] 117 Taxman 25 (Ahmedabad - ITAT) (Mag.), which was confirmed by the Gujarat High Court and therefore, we do not find any infirmity in the order of ld. CIT (A) who has passed a speaking and reasoned order. Therefore, we are inclined to uphold the same on this issue by dismissing the ground no.1 in Revenue’s appeal. 4. The issue raised in ground no.2 is in respect of deletion of addition of ₹3,78,750/- by the ld. CIT (A) as made by the ld. AO in respect of unexplained expenditure incurred in connection with raising of above loans. The ground is consequential to ground no.1. Therefore, we uphold the order of ld. CIT (A) by dismissing the ground no.2 of Revenue’s appeal. 5. The issue raised in ground no.3 is against the deletion of addition of ₹4,38,246/- as made by the ld. AO u/s 36(1)(ii) of the Act in respect of interest on the above loans which is consequential to ground no.1 and hence, deleted. The ground no. 3 is accordingly allowed. 6. The issue raised in ground no.4 is against the deletion of addition of ₹2,58,47,638/- by the ld. CIT (A) as made by the ld. AO u/s 41(1) of the Income-tax Act, 1961 (the Act) for cessation of liability. Printed from counselvise.com Page | 13 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 6.1. The facts in brief are that the ld. AO during the course of assessment proceedings noticed that the assessee has sundry creditors payable aggregating to ₹2,58,47,631/- on account of purchases made in the earlier years from two parties namely International Enterprises of ₹2,47,77,631/- outstanding since F.Y. 2012-13 and M/s Global Traders ₹10,70,000/- for F.Y. 2014-15. The ld. AO noted that the liability in respect of said purchases were consistently shown in the balance sheets of the assessee and was not written back or transferred to the profit and loss account. The ld. AO treated the said creditors to be no more payable and treated the same as income of the assessee u/s 41(1) of the Act on the ground that it was outstanding for more than 7 years. 6.2. The ld. CIT (A) allowed the appeal of the assessee by observing and holding as under:- “8.2. Discussion and discussion: - 8.2.1. I have perused the assessment order as well as submission of the assessee. The AO disallowed credit balance of Rs. 2,47,77,631/- belongs to M/s International Enterprises and credit balance of Rs. 10,70,000/- belongs to M/s Global Traders. Credit balance Rs. 2,47,77,631/- belongs to M/s International Enterprises was pending from the year 2012. Credit balance of Rs. 10,70,000/- belongs to M/s Global Traders was pending from the year 2014. In this regard, the assessee was asked by AO to explain the reasons for long outstanding payment to these creditors company. Explanations submitted by the assessee were not accepted by the AO and invoked provisions of section 41(1) of the Act. The AO treated these outstanding payments as ‘ceased liability’ and added the amount of Rs.2,58,47,631/- to the total income of the assessee. 8.2.2. In the course of appellate proceeding, the assessee contended that merely because these amounts were outstanding since 2012 & 2014 and payments for those were not made till date, addition u/s 41(1) of the Act is not justified. The appellant also submitted that these trading liabilities of Rs. 2,58,47,631/- are payable to the said parties and reflected in Audited books of account, hence it is not correct to invoke the section 41(1) of the Act. 8.2.3. Further, it is observed that during the assessment proceedings, the assessee had submitted relevant audited ledger copies of the aforesaid parties viz. M/s International Enterprises and M/s Global Traders for the relevant periods. Only, confirmations from Printed from counselvise.com Page | 14 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 these parties were not furnished by the assessee. In business, there are circumstances where a person might have incurred a liability but later on, he had not paid it till date for one or other reason that may be fund crunch, legal dispute in demand and supply agreement, prohibitory orders for any statutory obligations etc. However, that doesn’t mean such liabilities are no more payable. It is worth mentioning that the section 41(1) brings in to its ambit benefit in cash or in kind obtained by a person by remission or cessation of liability. The only condition is that the person must have obtained a deduction or allowance in his computation of income for the said liability in any previous years without recording the same in the liability side of his balance sheet of the impugned year. To illustrate the same, the following mandatory points need to be considered: 8.2.4. Hence, the section is mainly focused upon the fact that the said liability was really ceased and the person had not written back or not considered the ceased liability in computing the total income for the year in which the liability actually had ceased. In the present case, the AO could not brought any corroborative evidence on record to prove that the said liabilities of the assessee had really ceased and not payable in future. He had opined that the same liabilities from the two parties have been seized only for the sole reason that there were no confirmations submitted by the assessee from these two parties. It is evident that the AO had not done any independent enquiry at his end to ascertain the genuineness of the aforesaid two parties and also authenticity of the said purchase transactions with the same. Moreover, the AO had also not obtained the outstanding credit balances from the aforesaid parties by sending verification notices u/s 133(6) of the Act. 8.2.5. However, during the appellate proceedings, the assessee had submitted all the relevant details and documents in respect of the said liabilities from the said two parties viz. relevant ledger copies of the said two parties (year wise), where the said ledgers are clearly observed to be having credit balances i.e., not paid and still pending. Additionally, the said unpaid liability had duly reflected by the assessee in his balance sheet as a liability under the sub head ‘Sundry Creditors’ since the creation year of the said liability i.e., FY 2008-09 till the current FY 2020-21. Hence, there is no place to doubt the genuineness of the said outstanding liabilities for the said two parties. Reliance was placed by the assessee on the following judicial pronouncements: a) in the case of ‘CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518/102 Taxman 713 (SC)’, the Hon’ble Apex Court had held the following: “unless the assessee has obtained in cash or in any other manner any amount in respect of loss, expenditure or some other benefit in respect of a trading liability, it cannot be subjected to tax. The mere fact that the assessee-debtor has made an entry in the books of account unilaterally will not bring cessation of liability, Readers may note that the law has been amended by inserting the Explanation 1 to section 41(1) to tax such unilateral book entries.” However, with regard to expiry of the period of limitation, the Hon’ble Apex Court has heldthat “the Limitation Act cannot extinguish the debt and it can only prevent the creditor from enforcing the recovery of the debt. Printed from counselvise.com Page | 15 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 If the debtor does not contest the payment due and payable to the creditor in spite of the limitation, the debt remains and can be paid. The law does not bar payment of time- barred debt by the debtor, though it puts the creditor in some disadvantageous position.” b) Further, in the case of ‘Chief CIT v. Kesaria Tea Co Ltd. [2002] 254 ITR 434/122 Taxman 91 (SC)’ the assessee disputed the purchase tax liability and transferred the same to profit and loss account However, it was argued that there was no cessation of liability in spite of such book entry and, therefore, could not be taxed. The Apex Court has held that “a statutory liability, though unilaterally written off by the assessee in its accounts, still would not cease in the eye of law.” Thus, the Apex Court held that “a statutory liability even on unilateral transfer or when written off by the taxpayer cannot be subjected to tax where the finality with regard to the existence of liability was not reached.” c) In the case of ‘Bombay Dyeing & Manufacturing Co Ltd. v. State of Bombay AIR 1958 SC 328’ inwhich it was observed as under. \"When a debt becomes time-barred, it does not become extinguished but only unenforceable in a Court of law. Indeed, it is on that footing that there can be statutory transfer of the debts due to the employees, and that is how the Board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them.\" d) In the case of ‘J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 (Bom.)’, wherein it was held by the Hon’ble High Court Bombay that “a debtor by his own unilateral act cannot bring cessation or remission of liability. Only the creditor can grant remission and the cessation of liability may arise by operation of law, say on the liability becoming unenforceable by the creditor and the debtor declaring his intention not to honour his liability when demanded by the creditor. However, expiry of the period of limitation to enforce payment does not by itself constitute cessation of liability.” e) In the case of ‘Mahabir Cold Storage v. CIT [1994] 188 ITR 91/56 Taxman 42F (SC)’, wherein it was held by the Hon’ble Apex Court that \"the entries in the books of account of the appellant would amount to an acknowledgement of the liability to Messrs. Prayagchand Hanumanmal within the meaning of section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt” 8.2.6. In view of the aforesaid judicial pronouncements as well as the discussions held above, it can be inferred that when the assessee's liability to creditors had not been remitted or waived off and also when the assessee also had not transferred the credit balances to profit and loss account, they do not fall within the domain of section 41 of the Act and the assessment of such credit balances under section 41(1) was not acceptable. Hence, the addition of Rs. 2,58,47,631/- is liable to be deleted. Therefore, these grounds of appeal raised by the assessee are allowed.” Printed from counselvise.com Page | 16 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 6.3. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO treated the sundry creditors outstanding for more than 7 years aggregating to ₹2,58,47,631/- as income of the assessee u/s 41(1) of the Act. The ld. CIT (A) noted that the assessee has been regularly making purchases from the said parties. It was also noted the ld. AO has not issued any notice u/s 133(6) of the Act. The ld. CIT (A) also noted that the assessee has shown such credit balances in the balance sheet and therefore, the ld. AO has no authority to doubt the genuineness of the sundry creditors. Finally, the ld. CIT (A) deleted the addition by relying on a series of decisions as discussed in the appellate order as extracted above that where the assessee has not written back the liability and the same continue to be shown as sundry creditors, then the same does not fall within the ambit of Section 41 of the Act. Considering the facts of the case and in the light of the various decisions relied on by the ld. CIT (A) we do not find any infirmity in the order of ld. CIT (A) and accordingly, uphold the same on this issue by dismissing the ground no.4. 7. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 26.02.2026. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 26.02.2026 Sudip Sarkar, Sr.PS Printed from counselvise.com Page | 17 ITA No. 2610/KOL/2025 Rajesh Auto Merchandise Private Limited; A.Y. 2021-22 Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "