SHRI UMAKANT AGRAWAL ,MUMBAI V. DY. ASST. COMMISSIONER OF INCOME TAX TAX CENTRAL CIRCLE 25(1), MUMBAI

ITA 4524/MUM/2025

AI Insights

The case revolves around an appeal by Shri Umakant Agrawal against the order of the National Faceless Appeal Centre (NFAC), which upheld the addition of \\u20b91,00,00,000 as unexplained cash credit under section 68 of the Income-tax Act, 1961. The addition was initially made by the Assessing Officer based on the suspicion that the unsecured loan credited in the assessee's books from M/s Sai Traders represented an accommodation entry. The Tribunal examined the evidentiary materials provided by the assessee, including the lender's PAN, income tax returns, bank statements, and repayment details, and found them to be substantial and convincing. The Tribunal criticized the Assessing Officer and the CIT(A) for not adequately addressing the primary materials and for relying on general findings and suspicions without specific evidence linking the assessee to any wrongdoing.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775920 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 16-07-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITHA KAUSHIK
• Assessee Lawyers: VIMAL PUNMIYA
• Keywords: Unexplained cash credit; TDS; Accommodation entries; Bogus
• Section: 147; 148; 271(1)(c); 68; 133(6)

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORESHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA 4524/MUM/2025 (A.Y. 2011-12) Shri Umakant Agrawal, Office No. 402, Sunil Enclave, Andheri Kurla Road, Andheri – East,Mumbai –400 099, Maharashtra v/s. बनाम Dy. Asst. Commissioner of Income Tax, Central Circle – 25(1), Kautilya Bhawan, Bandra - West, Mumbai–400051, Maharashtra स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No: AAYPA7843D Appellant/अपीलार्थी .. Respondent/प्रतिवादी Appellant by : Shri Vimal Punmiya,CA Respondent by : Ms. Kavitha Kaushik (Sr. DR) Date of Hearing 26.08.2025 Date of Pronouncement 09.09.2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): This appeal by the assessee arises from the order dated 13.06.2025 passed by the National Faceless Appeal Centre (NFAC), Delhi, for the Assessment Year 2011–12. The dispute relates to the addition of ₹1,00,00,000/– made by the Assessing Officer as unexplained cash credit under section 68 of the Income-tax Act, 1961. 2. The assessee is an individual, proprietor of Sunrise Enterprises, engaged in the business of trading, commission Printed from counselvise.com P a g e | 2 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai and investment. He filed his return of income on 30.09.2011 declaring total income of ₹2,08,97,440. Subsequently, the assessment was reopened under section 147 and notice under section 148 was issued on 30.03.2018. The recorded reasons proceeded on an information note dated 26.03.2018 from the DDIT (Inv.) Unit 2(2), Mumbai, stating that enquiries in the case of Shri Rajendra Drolia, proprietor of M/s Sai Traders, revealed him to be a “hawala operator” without genuine business and allegedly providing accommodation entries. The note annexed an analysis of the said party’s bank statements reflecting the following aggregate credits and debits: FY Total Credits Total Debits 2010-11 23,31,16,163 23,22,10,053 2011-12 31,36,09,130 31,40,93,983 3. It was further recorded that summons issued to Shri Rajendra Drolia at the stated address returned unserved. Further summons at an alternative address also remained uncomplied with, and even enquiries through RTI failed to trace him. On this basis, the Assessing Officer formed the belief that the unsecured loan of ₹1,00,00,000 credited in the assessee’s books in the name of M/s Sai Traders represented an accommodation entry. 4. In the course of reassessment, the assessee furnished a compilation comprising, inter alia, (i) PAN and returns of Printed from counselvise.com P a g e | 3 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai income of the lender, (ii) the lender’s bank statements, (iii) confirmation and ledger of the loan account, (iv) details evidencing regular payment of interest with deduction of tax at source and reflection in quarterly TDS statements, and (v) proof that the loan was repaid in the succeeding year well before issuance of the notice under section 148. The assessment order, however, did not undertake a specific examination of these documents. Instead, after adverting to the investigation report and citing general propositions from judicial precedents, the Assessing Officer concluded that the assessee had routed his own unaccounted money as unsecured loan and added the sum of ₹1,00,00,000 under section 68, initiating penalty proceedings under section 271(1)(c) separately. “In view of the above facts, I have come to conclusion that the assessee had routed his own money in the form of unsecured loan from the Havala operator Shri Rajendra Drolia. Hence, I conclude that an amount of Rs. 1,00,00,000/- was accounted in the books of accounts of the assessee through fictitious transaction in the name of above bogus Hawala operator. Therefore an amount of Rs.1,00,00,000/- is hereby disallowed u/s 68 of the Income-Tax Act, 1961 and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) are hereby initiated separately for furnishing inaccurate particular of income.” 5. In first appeal, the learned CIT(A) affirmed the addition primarily on the footing that (i) the assessee did not produce the creditor for examination despite opportunity, (ii) enquiries under section 133(6) by the Assessing Officer did Printed from counselvise.com P a g e | 4 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai not establish the genuineness of the transaction, (iii) the investigation findings described the creditor as a hawala operator with the VAT TIN allegedly cancelled for irregularities, and (iv) the case laws cited by the assessee were distinguishable on facts. The appellate order, while extensively referring to decided cases, did not engage with the assessee’s evidentiary set comprising PAN, ITRs, banking trail, interest payment with TDS, and repayment particulars. “5.2 Ground No. 3: It relates to addition of Rs. 1,00,00,000/- on account of unsecured loan purportedly received by assessee from Sh. Rajendra Drolia. In the assessment order, Assessing officer has duly recorded that assessee was given an opportunity to produce Shri RajendraDrolia along with his books of accounts to establish genuineness of the loan transaction. Assessing officer further made enquiries under Section 133(6) and could not establish the genuineness of the transaction. Now before me, the assessee has made a submission that this loan amount was received through account payee cheque and interest on the same was paid by account payee cheque and subjected to TDS. In support of his claim assessee has filed certain case laws. However, the cited case laws are distinguished in facts. In the instant case AO has made due enquiries to establish genuineness of the transaction and has arrived at the conclusion that Shri Rajendra Drolia is a Hawala operator having no genuine business and only providing accommodation entries in form of sale-purchase to beneficiary parties. The TIN of Messrs Sai Trader which is proprietary concern of Shri Rajendra Drolia is also cancelled because of irregularities. Therefore, the assessing officer has arrived at the conclusion of amount of Rs. 1,00,00,000/-being fictitious transaction and adding the same under section 68 of the IT Act. In light of assessing officer’s findings and assessee’s Printed from counselvise.com P a g e | 5 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai submission before me, I find no reason to disturb the findings in assessment order. Therefore, addition of Rs. 1,00,00,000/- is confirmed and appeal of the assessee is dismissed.” 6. We have heard the rival submissions, carefully perused the material placed on record, and considered the legal position governing section 68. The central question is whether the addition of ₹1,00,00,000 as unexplained cash credit is sustainable in the facts and circumstances of the case. 7. The law under section 68 obliges an assessee, when a credit appears in his books, to satisfactorily explain its nature and source. Jurisprudence has crystallised a three- fold enquiry: (i) identity of the creditor, (ii) creditworthiness or capacity of the creditor, and (iii) genuineness of the transaction, typically demonstrated through a verifiable banking trail and commercial incidents such as interest accretion and repayment on arm’s-length terms. Once the assessee places cogent primary material on all three facets, the onus shifts to the Revenue to marshal contrary material or draw a reasonable adverse inference from specific facts and not mere suspicion, conjecture, or generalised reports. 8. Tested on this anvil, the assessee’s evidentiary showing is substantial: (a) Identity stands established by the lender’s PAN and returns of income on record. There is no dispute that M/s Printed from counselvise.com P a g e | 6 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai Sai Traders (proprietary concern of Shri Rajendra Drolia) was on the tax rolls during the relevant period. (b) Creditworthiness emerges from the lender’s bank statements reflecting regular fund movements through RTGS and trading flows, and a sufficient positive balance preceding each disbursement. The record shows that the loan was advanced in three tranches between 12.03.2011 and 15.03.2011. Immediately prior to each transfer, the lender’s account carried adequate cleared funds. No material has been brought to show that such balances were artificially created by cash deposits or by circular layering traceable to the assessee. (c) Genuineness is borne out by an unimpeached banking trail. The loan was received through account-payee instruments. Interest was regularly paid at a commercial rate of 18% with TDS duly deducted and reflected in quarterly statements. The entire principal stood repaid on 20.04.2012 and 26.04.2012, nearly six years before the notice under section 148 was issued. These are strong, objective indicators of an arm’s-length borrowing rather than a colourable self-funding device. 9. The Assessing Officer’s case, in substance, rests on the investigation wing’s general finding that Shri Rajendra Drolia was not traceable years later and was described in third-party enquiries as a hawala operator, coupled with the Printed from counselvise.com P a g e | 7 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai assessee’s inability to produce the creditor for examination at that later point in time. While such information may legitimately trigger reopening, it cannot, in and of itself, constitute conclusive proof to sustain an addition if the assessee’s primary evidence remains unshaken. Two aspects are telling: (i) Temporal distance and practical burden: The loan transaction belongs to March 2011. It was fully repaid by April 2012. The reopening occurred in March 2018. Non- production of the creditor for physical examination years after the transaction, post complete closure of the account, cannot eclipse contemporaneous documentary evidence, especially when the banking trail, interest-TDS compliance, and repayment are on record. (ii) Absence of a demonstrated cash-trail or round-tripping: There is no finding that cash emanated from the assessee and, by a proximate chain of events, found its way into the lender’s bank account before re-emerging as loan cheques. Neither the reasons recorded, nor the assessment order, nor the appellate order point to any such specific trail. Nor is there identification of deposits or conduit accounts that could reasonably sustain the inference of a colourable device. In the absence of such connecting tissue, the general label of “hawala” does not, by itself, rebut the assessee’s documentary case. Printed from counselvise.com P a g e | 8 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai 10. It is equally significant that the assessment order does not grapple with, let alone dislodge, the assessee’s primary materials: the lender’s tax returns, bank statements establishing pre-existing funds, the ledger confirmation, the contractual rate of interest (18%) with TDS deduction, and proof of full repayment. These are not peripheral or formalistic documents; they go to the heart of identity, capacity, and genuineness. Once placed on record, the evidentiary burden moved to the Revenue to undertake independent verification and bring contra material such as demonstrable cash introductions, immediate cash-cheque patterns, intra-group circulation, or adverse statements confronted to the assessee. That exercise is conspicuously absent. 11. The learned CIT(A)’s reliance on later-period irregularities such as cancellation of VAT TIN in the creditor’s proprietary concern (assuming so) cannot retroactively taint a transaction which, on its own contemporaneous record, bears all indicia of commercial reality. A subsequent administrative status under State VAT law does not per se invalidate a prior loan documented through banking channels, serviced with interest (subjected to TDS), and squared-up within a year. 12. We also note, as a matter of fact found on record, that the loan was advanced in three tranches between 12.03.2011 and 15.03.2011, and the entire principal was Printed from counselvise.com P a g e | 9 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai repaid on 20.04.2012 and 26.04.2012 along with interest at 18%. These specific dates and commercial terms, contemporaneously evidenced, fortify the assessee’s explanation. In such circumstances, and in the absence of a rebuttal by the Revenue on any of the three core prongs of section 68, the addition rests only on surmise. 13. On this conspectus, we hold that the assessee has satisfactorily discharged the onus under section 68 by establishing the identity of the creditor, its capacity, and the genuineness of the loan transaction through banking channels, interest-TDS compliance, and timely repayment. The Revenue, in turn, has not marshalled cogent material to displace this explanation. The impugned addition of ₹1,00,00,000 under section 68 is, therefore, unsustainable and is directed to be deleted. 14. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 9th September 2025. Sd/- (PRABHASH SHANKAR) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Place: म ुंबई/Mumbai दिनाुंक /Date.09.09.2025 Lubhna Shaikh / Steno Printed from counselvise.com P a g e | 10 ITA No. 4524/Mum/2025 A.Y. 2011-12 Shri Umakant Agrawal, Mumbai आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अतधकरण/ ITAT, Bench, Mumbai. Printed from counselvise.com "