FEDORA SEA FOODS PRIVATE LTD,NELLORE V. ACIT., CIRCLE-1, NELLORE

ITA 173/HYD/2025

AI Insights

The case involves Fedora Sea Foods Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre, Delhi, concerning the assessment year 2013-2014. The primary issue was the addition of Rs.1,65,89,135 as unexplained cash credits under section 68 of the Income Tax Act, 1961, related to the purchase of immovable property. The Assessing Officer had initially reopened the case and scrutinized the sources of funds for the property purchase, questioning the creditworthiness of the lenders and the nature of customer advances. The CIT(A) upheld the Assessing Officer's decision, leading to the appeal before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 716416 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 03-02-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIVA PRASAD SV
• Assessee Lawyers: P. ASHOK REDDY
• Keywords: Unexplained cash credit; Unexplained investment

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH: HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.173/Hyd./2025 Assessment Year 2013-2014 Fedora Sea Foods Private Limited, NELLORE. PIN – 524 003. State of Andhra Pradesh PAN AABCF8246R vs. The Asst. Commissioner of Income Tax, Circle-1, NELLORE – 524 003. State of Andhra Pradesh (Appellant) (Respondent) For Assessee : CA, P. Ashok Reddy For Revenue : Sri Siva Prasad SV, Sr. AR Date of Hearing : 11.08.2025 Date of Pronouncement : 20.08.2025 ORDER PER MANJUNATHA G. : The above appeal has been filed by the assessee against the order dated 06.12.2024 of the learned Commissioner of Income Tax-(Appeals)-National Faceless Appeal Centre [in short “NFAC], Delhi, relating to the assessment year 2013-2014. Printed from counselvise.com 2 ITA.No.173/Hyd./2025 2. Brief facts of the case are that, the appellant- company is engaged in the business of manufacture of shrimp culture and manufacture of shrimp feed, filed it’s return of income for the assessment year 2013-2014 declaring total income of Rs.50,790/-. The return of income filed by the assessee was processed u/sec.143(1) of the Income Tax Act, 1961 [in short “the Act”]. The case has been subsequently reopened u/sec.147 of the Act and notice u/sec.148 of the Act dated 20.03.2020 was issued. In response to the notice u/sec.148 of the Act, the assessee filed return of income on 08.02.2021 declaring total income of Rs.59,790/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that, the assessee had purchased immovable property for Rs.1,94,33,335/- during the previous year relevant to the assessment year under consideration. Therefore, the Assessing Officer called-upon the assessee to furnish relevant evidences including source for purchase of immovable property. In response, the assessee vide letter dated 16.09.2021 has submitted relevant details and also Printed from counselvise.com 3 ITA.No.173/Hyd./2025 explained source for purchase of property out of amount received from two Directors and interest free borrowings from Bluepark Aquatics Private Ltd. The assessee had also explained source out of advance received from customers against sales and claimed that, subsequently, the said advances has been adjusted against the sales of shrimp. In this regard, the assessee has furnished relevant ledger account along with ITR copies of the above creditors. The Assessing Officer after considering relevant submissions of the assessee observed that, on going through the ITRs, confirmations, financial statements of Bluepark Aquatics Private Ltd., who advanced a sum of Rs.1,10,65,000/-, it does not have sufficient creditworthiness to advance such a huge sum to the appellant-company. Further, advances received against sales from M/s. Anjaneya Seafoods and Mr. K. Raghu were closed after the supply of shrimp to them. Therefore, observed that, the advances received from M/s. Anjaneya Seafoods and Mr. K. Raghu are part of operating revenue of the appellant-company during the year under consideration. In view of the above, the Assessing Officer Printed from counselvise.com 4 ITA.No.173/Hyd./2025 called-upon the assessee to explain as to why addition should not be made towards unexplained investment in immovable property to the tune of Rs.1,65,89,135/-. In response, the assessee once again reiterated the submissions and claimed that, purchase of immovable property has been recorded in the books of accounts and the source has been explained out of payment made through banking channel, for which, the appellant-company has received advances from various parties and also interest free borrowings from Bluepark Aquatics Private Ltd. The Assessing Officer after considering the relevant submissions of the assessee and also taking note of relevant evidences filed in respect of interest free borrowings from Bluepark Aquatics Private Ltd., observed that, although, the said company has advanced a sum of Rs.1,10,65,000/-, but, it does not have any creditworthiness to explain such huge amount of loan given to the appellant-company. Further, out of the loan borrowed from the above Company, the assessee has repaid a sum of Rs.50 lakhs during the year under consideration and the closing balance was only Printed from counselvise.com 5 ITA.No.173/Hyd./2025 Rs.60,65,000/-. Further, on going through the company data, the appellant-company and Bluepark Aquatics Private Ltd., have common Directors. Further, if we compare the ledger account of the creditor and audit report in Form- 3CD, there is a discrepancy. Therefore, the Assessing Officer observed that, the assessee could not establish the creditworthiness of the loan creditor i.e., Bluepark Aquatics Private Ltd., and further failed to establish the remaining amount of advances received from M/s. Anjaneya Seafoods and Mr. K. Raghu. Therefore, the Assessing Officer observed that, the assessee could not explain the source for purchase of fixed assets, except to the extent of interest free borrowings from two Directors viz., K. Narahari Reddy and Smt. K.Vijaya Gowri aggregating to Rs.30,04,640/-. Therefore, rejected the explanation of assessee and made addition of Rs.1,65,89,135/- u/sec.68 of the Income Tax Act, 1961 as unexplained cash credits. 3. On being aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee has reiterated it’s Printed from counselvise.com 6 ITA.No.173/Hyd./2025 submissions made before the Assessing Officer along with confirmation letters from the loan creditors, their financial statements, ITRs filed for the relevant assessment year, ledger account copies. The assessee further submitted that, entire amount of loan has been received through proper banking channel from the loan creditors as well as advances from the customers for sale of shrimp. The Assessing Officer without appreciating the relevant financial statements, has simply made addition of Rs.1,65,89,135/- u/sec.68 of the Income Tax Act, 1961, even though, the assessee has explained the source for acquisition of property out of loan received from two Directors and related party i.e., Bluepark Aquatics Private Ltd. 4. The learned CIT(A) after considering the relevant submissions of the assessee and also taking note of various evidences furnished during the course of appellate proceedings held that, the appellant-company could not establish interest free loans taken from Bluepark Aquatics Private Ltd., with relevant evidences. Although, the assessee has furnished various evidences including Printed from counselvise.com 7 ITA.No.173/Hyd./2025 financial statements of loan creditors, but, on perusal of the relevant evidences, the learned CIT(A) has observed that, the appellant failed to controvert the findings recorded by the Assessing Officer in light of relevant evidences submitted during the course of assessment proceedings to prove the creditworthiness of the loan creditors. Further, the Assessing Officer has brought-out various discrepancies in the financials of the appellant-company and the loan creditors and observed that, although, the assessee claims to have received unsecured loan of Rs.1,10,65,000/- from Bluepark Aquatics Private Ltd., but, the year ending balance was only Rs.60,65,000/-, after repayment of Rs.50 lakhs during the financial year under consideration. Further, there is a difference between amount of loan claimed to have been received by the appellant-company and the amount of loan paid by loan creditors, which is evident from relevant Form-3CD report submitted by the Auditor. Therefore, observed that, the assessee could not establish the creditworthiness of the loan creditors and thus, there is no error in the reasons given by the Assessing Officer to make Printed from counselvise.com 8 ITA.No.173/Hyd./2025 the addition towards unsecured loan claimed to have been received from Bluepark Aquatics Private Ltd. The learned CIT(A) further observed that, in so far as the amount received from customers i.e., Mr. K. Raghu and M/s. Anjaneya Seafoods, admittedly, the appellant-company itself has claims that the above advance is against sale of shrimps. Further, the advance received from parties has been squared-up against sales, that means the amount received from the customers is of revenue receipts, on which, the assessee has declared a meager profit of Rs.50,790/-. Therefore, the explanation of the assessee that, purchase of immovable property is out of the advances received from customers is devoid of merit and cannot be accepted. Therefore, the learned CIT(A) rejected the explanation of assessee and sustained the addition made by the Assessing Officer. 5. Aggrieved by the order of the learned CIT(A), the is now, in appeal before the Tribunal. Printed from counselvise.com 9 ITA.No.173/Hyd./2025 6. CA, P. Ashok Reddy, Learned Counsel for the Assessee submitted that, the learned CIT(A) was erred in sustaining the addition made by the Assessing Officer towards unexplained investment in purchase of fixed assets u/sec.68 of the Act as unexplained credit, even though, the assessee has explained the source for purchase of property out of interest free borrowings from two Directors and related party and also other trade payables. Learned Counsel for the Assessee further submitted that, the Assessing Officer misread the financial statements and come to the conclusion that, there is no source for purchase of fixed assets to the extent of Rs.1,65,89,135/- and observed that, the above amount is unexplained cash credits of the assessee, even though, there is no credit in the books of accounts to the extent of Rs.1,65,89,135/-. Further, the appellant-company was incorporated on 17.10.2011 and the appellant starts commercial operations for the assessment year 2013-2014. Since it is the first year of operation, the assessee has purchased land, building and other fixed assets out of interest free borrowings from Printed from counselvise.com 10 ITA.No.173/Hyd./2025 Directors and related party and also advances from customer and the same has been reflected in the books of accounts maintained by the assessee. Although, the assessee has furnished all evidences, but, the Assessing Officer and the learned CIT(A), without appreciating the relevant evidences, have simply made additions only on the ground that assessee could not explain creditworthiness of Bluepark Aquatics Private Ltd., even though, the said company is in the business of sale of shrimp and earned revenue more than Rs.10 crores for the financial year 2012- 2013. Further, the loan creditor has furnished relevant confirmation along with their financial statements and also ITR filed for the relevant assessment year and the transactions are routed through proper banking channel and the investment in purchase of fixed assets has been recorded in the books of accounts with corresponding source. The Assessing Officer ignoring all the evidences filed by the assessee, has simply made addition only on the ground that creditworthiness of the loan creditor is not proved, even though, the assessee has discharged it’s Printed from counselvise.com 11 ITA.No.173/Hyd./2025 primary onus by filing financial statements, copy of ITR, confirmation letters from the loan creditors and receipt of amounts through proper banking channel. Therefore, he submitted that, the additions made by the Assessing Officer and sustained by the learned CIT(A) should be deleted. 7. Sri Siva Prasad, SV, learned Sr. AR for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, the assessee could not explain the source for purchase of fixed assets, except, furnishing confirmation letters from the parties along with their financial statements. The Assessing Officer on the basis of their financial statements, came to the conclusion that, Bluepark Aquatics Private Ltd., does not have creditworthiness to explain loan given to the assessee. Further, the Assessing Officer had also brought-out various discrepancies in the details submitted by the assessee. Further, in so far as the advances from M/s. Anjaneya Seafoods and Mr. K. Raghu, those advances are against sales and the same has been adjusted against sales for the year under consideration. The appellant-company has Printed from counselvise.com 12 ITA.No.173/Hyd./2025 disclosed net profit of Rs.50,790/-. Therefore, the argument of the Counsel for the Assessee that, source for purchase of property is out of advances from customers is devoid of merit. The learned CIT(A) after considering the relevant facts, has rightly sustained the addition made by the Assessing Officer and, therefore, he submitted that, the order of the learned CIT(A) should be upheld. 8. We have heard both the parties, perused the material on record and the orders of the authorities below. It is an undisputed fact that, the appellant-company had acquired fixed assets being free hold land and building valued at Rs.1,95,93,775/-. The appellant-company has explained the source for purchase of fixed assets out of interest free advances received from two Directors viz., K. Narahari Reddy and Smt. K.Vijaya Gowri to the tune of Rs.30,04,640/-. The appellant-company further explained the balance amount of fixed assets out of interest free advance from Bluepark Aquatics Private Ltd., for Rs.1,10,65,000/- and advance received from M/s. Anjaneya Seafoods and Mr. K. Raghu. Admittedly, Bluepark Aquatics Printed from counselvise.com 13 ITA.No.173/Hyd./2025 Private Ltd., is a group company having common Directors which is evident from the findings of the Assessing Officer. It means, the above company is associated/related party of the appellant-company. Therefore, it is necessary for us to examine the reasons given by the Assessing Officer and the learned CIT(A) to disbelieve the claim of the assessee towards interest free borrowings from the above Company. The appellant-company has furnished confirmation letter from the loan creditors along with their financial statements, bank statements and ITR filed for the relevant assessment year. Upon perusal of the relevant details, we find that, Bluepark Aquatics Private Ltd., is in the business of sale of shrimp and sale of seed. The above Company has achieved total turnover of Rs.10.86 crores for the financial year under consideration and declared net profit of Rs.21,75,000/-. The loan given to the appellant-company has been transferred through banking channel which is evident from the relevant bank account statement furnished by the assessee. The loan given to the appellant-company has been recorded in their books of accounts under ‘trade Printed from counselvise.com 14 ITA.No.173/Hyd./2025 receivables’. Further, out of loan borrowed of Rs.1,10,65,000/-, the appellant-company has repaid a sum of Rs.50 lakhs for the year under consideration. If we consider the above facts, the observation of the Assessing Officer that, there is a discrepancy in the submissions of the assessee that, it has received loan of Rs.1,10,65,000/-, whereas, as per the financial statements, the loan outstanding was Rs.60,65,000/- only, is in our considered view, a misreading of the financial statements by the Assessing Officer, but, nothing else. The Assessing Officer without appreciating the relevant financial statements, has simply made a sweeping observation that, there are certain discrepancies in the details submitted by the assessee, even though, the transactions between the appellant-company and loan creditors are properly explained with relevant evidences. Therefore, we are of the considered view that, the observation of the Assessing Officer and the learned CIT(A) that, appellant-company has failed to discharge creditworthiness of Bluepark Aquatics Private Ltd., is not Printed from counselvise.com 15 ITA.No.173/Hyd./2025 based on any evidence, but, purely on misreading of the financial statements and thus, cannot be accepted. 9. Coming back to the advances received from M/s. Anjaneya Seafoods and Mr. K. Raghu. Admittedly, the appellant-company has received advances against sale of shrimp which is evident from relevant ledger accounts furnished by the assessee. As per the ledger account of Mr. K. Raghu in the books of the appellant-company, the appellant-company has received advance starting from 17.11.2012 through Oriental Bank of Commerce. The above advance has been subsequently adjusted against sale of shrimp. From the details submitted by the assessee as on the date of investment in purchase of fixed assets, the appellant-company was having sufficient funds in the form of advances received from Mr. K. Raghu. Although, the same has been subsequently adjusted against sale of shrimp, but, the corresponding deficit in source has been explained out of trade payables and other short term borrowings from Directors and other parties, which is evident from the balance-sheet filed by the assessee, where, the short term Printed from counselvise.com 16 ITA.No.173/Hyd./2025 borrowings has been increased from Rs.1.02 crores to Rs.1.38 crores. Likewise, trade payables and other current liabilities has been increased for Rs.74 lakhs. 10. Similarly, the appellant-company has explained source out of funds received from M/s. Anjaneya Seafoods which is evident from the ledger account which is part of order of the learned CIT(A), where, the appellant-company has received advance of Rs.50 lakhs on 10.02.0212 through proper banking channel. The Assessing Officer without understanding the financial statements of the assessee has reached to a conclusion that since advance received from above two parties is for sales and the appellant-company has declared meager profit of Rs.50,790/-, the question of availability of source for investment in fixed assets, is not possible. In our considered view, the cash flow analysis of any entity should be made on the basis of dates of investment in assets and corresponding source for said investments. Although, the said source may be repaid in the subsequent period of the financial year, but, whether the appellant-company is having sufficient source to explain the Printed from counselvise.com 17 ITA.No.173/Hyd./2025 said repayment can be understood by the books of accounts and financial statements prepared for the relevant assessment year. In the present case, upon perusal of the relevant bank statements filed by the appellant-company, we find that, the investment in fixed assets has been explained out of increase in current liabilities being short term borrowings, trade payables and other current liabilities and also decrease in other current assets which is evident from Schedule-2 of the balance-sheet where other current assets as on 31.03.2012 was at Rs.1 crore and the same has been reduced to Rs.18 lakhs as on 31.03.2013. From the above, it is undisputedly clear that, the appellant is having sufficient source to explain the investment in fixed assets being free hold land and buildings. The Assessing Officer and the learned CIT(A) without appreciating the relevant facts, has simply made addition towards source for purchase of fixed assets as unexplained cash credits u/sec.68 of the Income Tax Act, 1961. Thus, we set-aside the order of the learned CIT(A) and direct the Assessing Officer to delete the additions made towards source for Printed from counselvise.com 18 ITA.No.173/Hyd./2025 acquisition of fixed assets as unexplained cash credits u/sec.68 of the Income Tax Act, 1961 for Rs.1,65,89,135/-. Accordingly, the grounds of appeal of the assessee are allowed. 11. In the result, appeal of the Assessee is allowed. Order pronounced in the open Court on 20.08.2025. Sd/- Sd/- [VIJAY PAL RAO] [MANJUNATHA G] VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 20th August, 2025 VBP Copy to 1. Fedora Sea Foods Private Limited, No.16-08-201, Ramalingapuram, NELLORE – 524 003. State of Andhra Pradesh 2. The Asst. Commissioner of Income Tax, Circle-1, NELLORE – 524 003. State of Andhra Pradesh 3. The Pr. CIT, Tirupati 4. The DR ITAT “A” Bench, Hyderabad. 5. Guard File. //By Order// //True Copy// Printed from counselvise.com "