INCOME TAX OFFICER -5(3)(1), MUMBAI, MUMBAI V. VERVE INDUSTRIES PRIVATE LIMITED, MUMBAI

ITA 4051/MUM/2025

AI Insights

The case involves the Income Tax Officer (ITO) challenging the decision of the CIT(A) which deleted additions made under Section 68 of the Income Tax Act, 1961, concerning unsecured loans received by Verve Industries Private Limited. The ITO contested the CIT(A)'s decision on two loans: Rs. 21.61 Crores from DN Energy Private Limited and Rs. 1.67 Crores from Sparzana Aviation Private Limited, arguing that the assessee failed to establish the creditworthiness of the lenders. The CIT(A) had deleted the additions based on the assessee's submissions and evidence provided. The ITAT upheld the CIT(A)'s decision regarding DN Energy but restored the matter concerning Sparzana Aviation to the AO for further investigation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714773 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Assessment Year: 2022-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURNA; DR
• Assessee Lawyers: MEHUL TARELA; AR
• Keywords: Set aside; Opportunity of being heard
• Section: 68; 133(6)

Judgement Text

" | आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 4051/Mum/2025 Assessment Year: 2022-23 Income Tax Officer – 5(3)(1), Mumbai Vs Verve Industries Private Limited Plot No. 16, Office No. 1 Ground Floor Aman Chamber 2, Mama Permanand Marg Opera House Mumbai - 400004 [PAN: AAHCV1577H] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Mehul Tarela, A/R Revenue by : Shri Vivek Perampurna, CIT D/R सुनवाई की तारीख/Date of Hearing : 31/07/2025 घोषणा की तारीख /Date of Pronouncement: 07/08/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the revenue is preferred against the order dated 11/04/2025 by NFAC, Delhi [hereinafter the ‘ld. CIT(A)’] pertaining to AY 2022-23. 2. The grievance of the revenue reads as under:- “1. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 21,61,00,000/- made under section 68 of the Income tax Act, 1961, on account of unsecured loans allegedly received from D N Energy Pvt.Ltd despite the assessee's failure to establish the creditworthiness of the lender during the assessment proceedings.\" 2. \"Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A)has erred in deleting the addition of Rs. 1,67,00,000/- made under section 68 of the Income tax Act, 1961, on account of unsecured loans allegedly received Printed from counselvise.com I.T.A. No. 4051/Mum/2025 2 from Sparzana Aviation Pvt Ltd despite the assessee's failure to establish the creditworthiness of the lender during the assessment proceedings.\" 3. \"Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A)has erred in deleting the fact that the assessee company failed to establish the creditworthiness of the parties, merely on the ground that the transactions were carried out through banking channels, whereas routing transactions through banking channels alone does not establish the genuineness of such transactions.\" 4. The appellant prays that the order of the CIT(A) on the grounds be set aside and confirm the order of the AO. 5. The appellant craves leave to add, amend or alter all or any of the grounds of appeal.” 3. Briefly stated the facts of the case are that the assessee filed its return of income on 31/12/2022 declaring total income at Rs. 12,56,59,590/-. The assessee engaged in the business of coal trading, handling and disposal of flyash and related activities. The return was selected for complete scrutiny under CASS and accordingly statutory notices were issued and served upon the assessee. While scrutinizing the return of income interalia, the AO noticed that the assessee has taken loan of Rs. 21.61 Crores from DN Energy Private Limited. Assessee was asked to furnish the details in the light of the provisions of Section 68 of the Act. The assessee in response furnished financials of DN Energy Private Limited from which the AO came to the conclusion that the said company does not have sufficient sources to give the loan to the assessee. The AO issued notice u/s 133(6) of the Act calling for information from DN Energy Private Limited in response to which the company submitted its audited financials for three assessment years along with bank statement marking the entry of transactions with the assessee. The AO was of opinion that the DN Energy Private Limited had no creditworthiness for providing loans to the assessee and accordingly made addition of Rs. 21.61 Crores. Printed from counselvise.com I.T.A. No. 4051/Mum/2025 3 3.1. Proceeding further, the AO also quoted the loan taken from Sparzana Aviation Private Limited amounting to Rs. 1.67 Crores. On perusing the financials of the said company, the AO came to the conclusion that it has no real creditworthiness to provide such loans to the assessee as the assessee could not furnish the bank statement of the said company. Accordingly, the addition of Rs. 1.67 Crores were made. 3.2. The assessee agitated the matter before the ld. CIT(A) and contended that the loan taken from DN Energy Private Limited was repaid during the year itself and the said company has furnished its bank statement to show its creditworthiness. After considering the facts and submissions and finding that DN Energy Private Limited has explained the source from its bank statement, the ld. CIT(A) deleted the addition of Rs. 21.61 Crores. Insofar as the loan taken from Sparzana Aviation Private Limited is concerned, the ld. CIT(A) found that, out of the borrowings of Rs. 1.67 Crores, the assessee has repaid Rs. 70.50 Lakhs and only Rs. 96.50 Lakhs is outstanding on the last day of the financial year. On the basis of the documentary evidence furnished by the assessee, the ld. CIT(A) deleted the addition. 4. Before us, the ld. D/R strongly contended that merely because the transactions have been done through bank channels, would not suffice to establish the creditworthiness of the lenders. It is the say of the ld. D/R that even if the loans are repaid, the dispute is in respect of the credit entries in the book of accounts and not the debit entry. Per contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. Printed from counselvise.com I.T.A. No. 4051/Mum/2025 4 5. We have carefully considered the orders of the authorities below. Insofar as the loan take from DN Energy Private Limited is concerned, it is an undisputed fact that the loan account was squared up during the year itself. It is equally true that in response to the notice u/s 133(6) of the Act, DN Energy Private Limited has submitted its bank account demonstrating the entry of loan given to the assessee which in our considered opinion is sufficient to show the creditworthiness of DN Energy Private Limited. Therefore, we do not find any error or infirmity insofar as the deletion of addition of Rs. 21.61 Crores is concerned. 5.1. However, insofar as the loan taken from Sparzana Aviation Private Limited amounting to Rs. 1.67 Crores is concerned; no doubt the transaction has been done through banking channels but that in itself is not sufficient to establish the creditworthiness of the loans. Since the financial statements for the lender show no business activity, the onus becomes more to demonstrate the transactions from the bank statements of the lender company. Since neither the assessee nor the lender company have submitted full bank statements, the creditworthiness cannot be established which is one of the most important ingredient of Section 68 of the Act. 6. In the interest of justice and fairplay, we deem it fit to restore the issue relating to the loan taken from Sparzana Aviation Private Limited to the file of the AO. The assessee is directed to furnish complete bank statements of Sparzana Aviation Private Limited to show that the lender company had sufficient funds to lend the money to the assessee amounting to Rs. 1.67 Crores. The AO is directed to examine the transactions of the assessee in light of the provisions of Section 68 of the Printed from counselvise.com I.T.A. No. 4051/Mum/2025 5 Act and decide the issue after affording reasonable and adequate opportunity of being heard to the assessee. 7. In the result, appeal of the revenue is allowed in part for statistical purposes. Order pronounced in the Court on 7th August, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 07/08/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u0015 थ / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai Printed from counselvise.com "