MUKHI CORPORATION,AHMEDABAD V. THE DY. CIT, CIRCLE-3(1)(1) PREVIOUS CIRCLE-3(2), AHMEDABAD

ITA 277/AHD/2025

AI Insights

The case involves Mukhi Corporation, which appealed against the order of the CIT(A) affirming the addition of Rs. 10,00,000 as unexplained cash credit under section 68 of the Income Tax Act. The Assessing Officer had initially treated the loan from Shri Shailesh Kalidas as unexplained due to lack of evidence on the identity, creditworthiness, and genuineness of the transaction. The CIT(A) upheld this decision, noting the assessee's failure to provide substantial evidence during the appellate proceedings. However, the Tribunal found merit in the assessee's argument that the loan had been repaid through banking channels, a fact not verified by the lower authorities. The Tribunal referenced several judicial precedents supporting the view that repayment of the loan within a reasonable period negates the addition under section 68.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789213 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 03-02-2025
• Other Referred Cases: CIT v. Ayachi Chandrashekhar Narsangji, PCIT v. Ambe Tradecorp Pvt. Ltd., PCIT v. Ojas Tarmake Pvt. Ltd., Rajhans Construction Pvt. Ltd. v. ACIT, JCIT (OSD) v. Mieza School Pvt. Ltd., Hit Iron & Steel Pvt. Ltd. v. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: RAHUL PATEL
• Keywords: Set aside; Opportunity of being heard; Unexplained cash credit; Principle of natural justice; TDS
• Section: 144; 142(1); 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.277/Ahd/2025 (Assessment Year: 2017-18) Mukhi Corporation, 704/1, Behind Mahammadnagar, Nr. Corporation Water Tank, Ramol, Ahmedabad-382449 Vs. Deputy Commissioner of Income Tax, Circle-3(1)(1), Previous-3(2) Ahmedabad [PAN No.AAWFM7281M] (Appellant) .. (Respondent) Appellant by : Shri Rahul Patel, CA Respondent by: Shri B. P. Srivastava, Sr. DR Date of Hearing 30.09.2025 Date of Pronouncement 24.11.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A)-3, Bengaluru vide order dated 05.12.2024 passed for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal: “1. Ld. Additional / Joint Commissioner of Income Tax (Appeals)-3, Bengaluru was not justified in dismissing the grounds of appeal relating to addition made by Id. Assessing Officer of Rs. 10,00,000 on account of unexplained cash credit in books of accounts u s 68 of the Act. 2. Ld. Additional / Joint Commissioner of Income Tax (Appeals)-3, Bengaluru was not correct in affirming the addition despite of having discharged the burden by the Appellant in respect of section 68 of the Act. Printed from counselvise.com ITA No. 277/Ahd/2025 Mukhi Corporation vs. DCIT Asst.Year –2017-18 - 2– 3. Ld. Additional / Joint Commissioner of Income Tax (Appeals)-3, Bengaluru ought to have appreciated that Id. Assessing Officer failed to conduct appropriate inquiry including the inquiry u/s 133(6) of the Act to ensure and satisfy himself about the genuineness of the claim of the Appellant. 4. Ld. Additional / Joint Commissioner of Income Tax (Appeals)-3, Bengaluru was not justified in deprecating the claim of the genuineness and bona fide of the transaction involving amount received from Shri Shailesh Kumar Kalidas. 5. Ld. Additional / Joint Commissioner of Income Tax (Appeals)-3, Bengaluru was not justified in rejecting the ground relating to violation of principles of natural justice committed by Id. Assessing Officer. 6. The Appellant prays to add, alter or delete any of ground at time of hearing.” 3. The brief facts of the case are that the assessee, M/s. Mukhi Corporation, engaged in real estate development, filed its return of income for A.Y. 2017-18 declaring income of Rs. 25,43,020/-. The case was selected for scrutiny, but the assessee did not comply with statutory notices under sections 143(2) and 142(1) of the Act. As there was repeated non-compliance and no details were furnished, the Assessing Officer proceeded to complete the assessment under section 144 of the Act. In the assessment order, the AO noted that the assessee had received an unsecured loan of Rs. 10,00,000/- from one Shri Shailesh Kalidas but failed to furnish any evidence regarding the identity, creditworthiness, or genuineness of the transaction. Accordingly, the AO treated this amount as unexplained cash credit under section 68 of the Act. The AO further held that since the assessee had not furnished any books, records, WIP workings, cost details, or project-related information, the book results were unverifiable. He therefore rejected the books under section 145(3) of the Act and estimated the net profit at 10% of the turnover of Rs. 4,16,38,000/-, resulting in an addition of Rs. 17,62,808/-. Aggrieved by these additions, the assessee raised multiple grounds before the CIT(A), Printed from counselvise.com ITA No. 277/Ahd/2025 Mukhi Corporation vs. DCIT Asst.Year –2017-18 - 3– challenging the section 68 addition, the rejection of books under section 145(3), the 10% profit estimation, and alleging violation of natural justice. 4. In appellate proceedings, the CIT(A) examined each ground individually. With respect to the addition of Rs. 10,00,000/- under section 68, the CIT(A) noted that during appeal the assessee was specifically asked to furnish the lender’s bank statement, copies of income-tax returns, and evidence of repayment of the loan. Except for a self-generated confirmation ledger, the assessee failed to produce any supporting documents. The CIT(A), relying on certain judicial precedents held that the assessee had failed to prove the identity and creditworthiness of the lender or the genuineness of the transaction. Since the initial onus under section 68 was not discharged, the CIT(A) upheld the addition of Rs. 10,00,000/- and dismissed Grounds 1 to 3. On the issue of rejection of books and estimation of net profit (Grounds 4 to 8), the CIT(A) found that the assessee had produced complete details during appellate proceedings, including the method of percentage completion, WIP valuation, booking status, cost allocation and construction details. The CIT(A) observed that the assessee’s books were audited, the net profit declared for the year (around 6.45%) was substantially higher than earlier years, and the AO had not provided any reasoning or comparative basis for estimating profit at 10%. Since the AO rejected the books solely for non-compliance during assessment, but the assessee had subsequently substantiated its accounts with detailed workings, the CIT(A) held that the estimation of 10% profit was arbitrary and excessive. After considering the fresh evidence filed, the CIT(A) deleted the addition of Rs. 17,62,808/-, and these grounds were allowed. With respect to the ground Printed from counselvise.com ITA No. 277/Ahd/2025 Mukhi Corporation vs. DCIT Asst.Year –2017-18 - 4– alleging violation of natural justice (Ground 9), the CIT(A) noted that the AO had issued multiple notices under sections 143(2) and 142(1), and also a final show-cause notice, and the assessee had more than adequate opportunity to produce details but failed to do so. Therefore, this ground was dismissed. In the result, the CIT(A) partly allowed the appeal by confirming the section 68 addition of Rs. 10,00,000/-, deleting the estimated profit addition of Rs. 17,62,808/-, and rejecting the ground relating to natural justice. 5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. 6. We have heard the rival contentions and perused the material on record. The only issue that arises for our consideration is the addition of Rs. 10,00,000/- made by the Assessing Officer under section 68 of the Act and confirmed by the CIT(A). The Assessing Officer had treated the loan received from Shri Shailesh Kalidas as unexplained cash credit on the ground that the assessee failed to establish the identity, creditworthiness of the creditor and genuineness of the transaction. The CIT(A) also upheld the addition as the assessee did not produce any substantive evidence during appellate proceedings except for a self-generated confirmation ledger. Before us, the Counsel for the assessee submitted that the entire amount has subsequently been repaid through banking channels on 19.05.2020, and therefore, in view of several binding judicial precedents, no addition under section 68 of the Act can survive where the loan has been fully repaid within a short period of time. 7. We observe that in the case of CIT v. Ayachi Chandrashekhar Narsangji (42 taxmann.com 251), Gujarat High Court held that when the Printed from counselvise.com ITA No. 277/Ahd/2025 Mukhi Corporation vs. DCIT Asst.Year –2017-18 - 5– Department has accepted the repayment of loan in the subsequent year, no addition can be made under section 68 of the Act in the year of receipt. The High Court observed that once the repayment is established and accepted by the Department, the very foundation for a section 68 addition ceases to exist. Similarly, in PCIT v. Ambe Tradecorp Pvt. Ltd. (145 taxmann.com 27), the Gujarat High Court held that where the assessee furnished necessary material to prove identity of the lenders and the loan was repaid in the subsequent year, even the ingredients of creditworthiness and genuineness were deemed satisfied, and therefore, no addition under section 68 could be made. Again, in PCIT v. Ojas Tarmake Pvt. Ltd. (156 taxmann.com 75), it was held that where the unsecured loan was repaid within the same year through banking channels, the addition under section 68 was wholly unwarranted. The Surat Tribunal in Rajhans Construction Pvt. Ltd. v. ACIT (140 taxmann.com 370) also held that repayment of loan within a short span of time, along with interest, goes to the root of genuineness and the Assessing Officer is not justified in making addition under section 68. Further, the Ahmedabad Bench of the Tribunal in JCIT (OSD) v. Mieza School Pvt. Ltd. (ITA No. 772/Ahd/2019) and in Hit Iron & Steel Pvt. Ltd. v. ITO (ITA No. 379/Ahd/2018) reiterated the settled principle that repayment of loan—especially through banking channels and accompanied by evidence of interest payment and TDS deduction—constitutes a strong mitigating circumstance and substantially establishes genuineness of the credit. The Tribunal in both decisions relied on the same judgment of the Hon’ble Gujarat High Court in Ayachi Chandrashekhar Narsangji and held that once repayment is proved, the onus under section 68 stands discharged. Printed from counselvise.com ITA No. 277/Ahd/2025 Mukhi Corporation vs. DCIT Asst.Year –2017-18 - 6– 8. In the present case, the submission of the Counsel for the assessee that the loan was fully repaid on 19.05.2020 has not been verified by the lower authorities. Since the legal position consistently laid down by the Hon’ble Gujarat High Court and the Tribunal is that repayment of the loan within a reasonable period strongly militates against an addition under section 68, it is necessary, in the interest of justice, that the factual contention regarding repayment is duly verified. 9. Accordingly, we set aside the impugned order of the CIT(A) on this issue and restore the matter to the file of the Assessing Officer for de- novo verification limited to the question of whether the amount of Rs. 10,00,000/- was in fact repaid to Shri Shailesh Kalidas on 19.05.2020 as claimed. The Assessing Officer shall examine the bank statements, repayment proofs, confirmations and any other relevant documents, and if it is found that the amount was indeed repaid as submitted by the assessee, the addition under section 68 of the Act shall be deleted in accordance with the judicial precedents discussed above. The assessee shall be afforded reasonable opportunity of being heard and of producing all relevant evidence. 10. In the result, the issue is restored to the file of the Assessing Officer for fresh adjudication in accordance with law. In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 24/11/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 24/11/2025 TANMAY, Sr. PS TRUE COPY Printed from counselvise.com ITA No. 277/Ahd/2025 Mukhi Corporation vs. DCIT Asst.Year –2017-18 - 7– आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 17.11.2025 (Hon’ble Member dictated on his dragon software) 2. Date on which the typed draft is placed before the Dictating Member 17.11.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .11.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 24.11.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 24.11.2025 7. Date on which the file goes to the Bench Clerk 24.11.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………… 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "