Gujarat High Court
The Principal Commissioner Of Income ... vs M/S Priya Blue Industries Pvt. Ltd on 14 October, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/602/2025 ORDER DATED: 14/10/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 602 of 2025
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THE PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL
AHMEDABAD
Versus
M/S PRIYA BLUE INDUSTRIES PVT. LTD.
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Appearance:
MR.VARUN K.PATEL, SR. STANDING COUNSEL for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 14/10/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1 Heard learned Senior Standing Counsel Mr.Varun Patel for the appellant- Revenue. By this Appeal under Sec.260A of the Income Tax Act, 1961 (for short 'the Act'), the appellant - Revenue has proposed the following substantial questions of law arising out of the judgement and order of the Income Tax Appellate Tribunal (for short 'the Tribunal') dated 28.06.2024 passed in ITA No. 39/Ahd/2022 for the Assessment Year 2020-21:
"(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred Page 1 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined in deleting the additions of Rs.11,05,94,000/-
Rs.18,05,94,000/- & Rs.4,00,00,000/- on account of unaccounted cash loans?
(b) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the additions of Rs.11,05,94,000/- Rs.18,05,94,000/- & Rs.4,00,00,000/- despite the fact that assessee failed to explain the purpose of blank cheques found during the search action and also failed to establish the entire transactions made with VHCL Industries Ltd., UIC Corp Pvt. Ltd & PMS Exports Pvt. Ltd. As well as the seized material clearly established that the amounts were deposited in lieu of cash loans advanced by the assessee without appreciating that the Hon'ble Supreme Court of India in the case of PCIT Vs. NRA Iron & Steel Pvt. Ltd. 412 ITR 161 SC has held that the burden is on the assessee that if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature and that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions, hence the initial onus of proof lies on the assessee and if the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee?
(c) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred Page 2 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined in ignoring and does not deal with the factual findings recorded by the Assessing Officer.?"
2 The brief facts of the case are as under:
2.1 A search under Sec.132 of the Act was conducted in Priya Blue Group of Companies on 19.11.2019, in which, the business premises of the respondent -
assessee was also covered. During the course of search, seven undated cheques pertaining to Axis Bank of Rs.1,00,00,000/- issued by VHCL Industries Ltd., were found. Further, four more undated cheques pertaining to Axis Bank issued by VHCL Industries Ltd., for Rs.4,05,94,000/- were found. Aggregate undated cheques of Rs.11,05,94,000/- found pertained to VHCL Ltd. In addition to these cheques, 11 other cheques issued by the UIC Corporation Pvt Ltd., group concern of VHCL Ltd., for Rs.18,05,94,000/-
were also found.
Page 3 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined 2.2 Six undated cheques issued by PMS Exports for total amount of Rs.7 crores were also found. The Assessing Officer considered the undated cheques issued by the UIC Corporation Pvt Ltd., and PMS Exports Pvt Ltd., for Rs.18,05,94,000/- and undated cheques of Rs.4,00,00,000/- issued by one Mr.Mohhamad Farhan A Sheikh which were found during the course of search and made an addition on the basis that these cheques pertains to unaccounted cash loans given by the respondent - assessee.
2.3 Being aggrieved, the respondent - assessee preferred an appeal before the CIT (Appeals) contending that the additions are made on presumptions and not supported by any cash trail or loose papers found during the course of search, and therefore, cannot be sustained. The CIT(Appeals) deleted the addition recording the following conclusion:
Page 4 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined "12. To conclude following uncontroverted facts have been observed from the record with regard to alleged addition discussed in para 11 herein above.
(i) No cash trail is found during the course of search, which substantiates the arguments of Assessing Officer that cash has been given.
(ii) No loose paper found during the course of search which proves that cash was received/paid in lieu of cheques.
(iii) Even the other party has not been confronted/confirmed of making or receiving cash from the Appellant.
(iv) Reason for making alleged addition in the current FY on the basis of undated cheque is not explained by the AO.
(v) It is apparent that AO has not made any enquiries with the parties referred supra either by issuing notice under Section 133(6) of the Act or 131 of the Act. The AO has not recorded any statement of concerned parties to support his contention that Appellant has given cash loan or the other party(s) have taken cash.
(vi) No addition can be made for cheques which are issued without name of payee. In present case, cheques of Rs 25 crore are without any name of payee. It is also observed that one of the cheques for which AO has made addition in present case is already subject matter of addition in the case of another case. The remaining cheques are in the name of wrong person and not Page 5 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined in the name of the appellant.
(vii) As held by various courts as discussed herein above, It is settled law that suspicion, however strong cannot take the place of legal proof.."
12.1 Considering facts discussed herein above and relying upon decisions referred supra, all the three additions made by AO for Rs.11,05,94,000/- (Ground No. 7), Rs.18,05,94,000/- (Ground No. 8) and Rs.4,00,00,000/-(Ground No. 9) are deleted. Thus, the grounds of appeal no. 7, 8 & 9 are allowed."
2.4 Being aggrieved, the Revenue preferred an ITA No. 39/Ahd/2022 before the Tribunal. The Tribunal, after considering the findings of the CIT(Appeals), dismissed the appeal of the Revenue by observing as under:
"34 We have heard the rival submission and perused the materials available on record. The Ld.AO has made additions of Rs. 11,05,94,000/-, Rs. 18,05,94,000/- and Rs.4,00,00,000/- based on the undated cheques found during the course of search. The AO made the entire addition on presumption, as the AO has not establish any nexus between his presumption of giving cash loan with such cheques. During the course of search, no incriminating evidences were found which prove that the assessce-company has Page 6 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined given cash loans to the above referred parties namely VHCL Industries Ltd., ULC Corporation & PMS Export Ltd. Further, no cash trial loose paper were found by the Revenue which support contention of the AO. Further, the cheques found during the course of search are un-dated and corroborated by the Ld.AO that his presumption of giving cash loan by the assessee-company. Further, the AO has not made any inquiries with the above said parties nor has recorded any statement of such parties before making such additions. The Ld.CIT(A), has considered the submission of the assessee and also reproduced the blank cheques without name of the assessee- company in his order thereby deleted the addition made by the AO which is based on mere presumption. Further, the Ld.DR could not site any infirmity in the order passed by the Ld. CIT(A). Thus, the ground nos. 1 to 3 raised by the Revenue is devoid of any merit and same is liable to be rejected."
3 Learned Senior Standing Mr.Varun Patel appearing for the appellant- Revenue submitted that the respondent - assessee in the reply filed before the Assessing Officer did not provide the information and the details and explanation regarding the undated cheques found during the course of search, but on the contrary submitted that the cheques were received by Page 7 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined the respondent - assessee during the course of the business.
3.1 Learned Senior Standing Counsel Mr.Varun Patel, referred to and relied upon the reply filed by the assessee, reproduced in para 8.3 of the Assessment Order, which reads as under:
"8.3 In this regard, a show cause notice was issued to the assessee to which the assessee has replied and the relevant part of its reply is as below
"4.2 In response to the same, it is submitted that during and in post search proceeding, it was categorically stated to the income tax authorities that no cash loan was given by any of the assessee of the group to the companies whose cheques in question were found during search. The assessee in the normal course of its business, and on account of mutual understanding with the parties involved, had taken such cheques which were in fact not required to be deposited.
4.3 In this connection, it is submitted that no evidence pointed out by Assessing Officer except cheques on question to allege the impugned addition. It is well settled position of law that suspicion doubt no matter how strong, cannot take place of the evidence. Reliance in this case Page 8 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined is placed on the Judgment of Supreme Court in the case of Omar salay Mohamed Sait v. CIT (37 ITR 151), wherein it was held that assessments cannot be made or sustained on the basis of suspicions or surmises as a matter of fact, the Supreme Court has gone to the extent of saying that even if circumstances were such as to justify great suspicion, that would not be enough to make or sustain an assessment.
.... .... ...
We are aware that the Income - tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusion of fact after due consideration of the evidence before it this court will not interfere. It is necessary however that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicious, conjectures or surmises and if it does anything of the sort, its Page 9 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined findings, even though on questions of fact, will be liable to be set aside by this Court.
In the result, we set aside the order of the Appellate Tribunal in ITA No. 3254 of 1951-52 dated August X, 1955, and remand the matter back to the Income-tax Appellate Tribunal, Madras 'A' Bench, to reconsider the same in accordance with law, in the light of the observations made above. Both the parties, i.e. the Revenue as well as the assessee, will have liberty to adduce before the Appellate Tribunal such further evidence as they may be advised.
4.4 Reliance in this case is also placed on the decision of Sri Laxmi Narayan Agarwal Vs. ACIT ITA NO. 1392/HYD2010/2015, wherein on similar set of facts, Honourable Tribunal held that in the absence of any conclusive material, no addition of unaccounted loan can be made merely on the basis of impugned cheques. In that case some promissory notes were found, however in the present case no such promissory notes were found and therefore the facts of assessee's case are on better footing and therefore applying ratio of the aforesaid judgement, even on merit no addition is called for."
3.2 It was submitted that considering the aforesaid reply, the Assessing Officer arrived at the following conclusion:
"8.4 Conclusion The assessee's reply is considered but not Page 10 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined acceptable as i In above paras it has been proved that the assessee is not able to explain satisfactorily its entire transactions related with VHCL Industries Ltd.
ii During the search 11 cheques for a total amount of Rs.11,05,94,000/- issued by VHCL Industries Ltd to Priya Blue Industries Pvt. Ltd were found from the locker installed at Conference Hall of the Mumbai office of the group for which substantiating explanations are not been given.
iii As per the seized materials it has been established that business relations of the assessee was there with VHCL Industries Ltd and the said amounts were deposited in lieu of cash loans advanced by the assessee. iv The assessee has again relied on various case laws but no facts are given.
Therefore, it is hereby concluded that this sum (cash loans) of Rs.11,05,94,000/- advanced by Priya Blue Infrastructure Pvt Ltd is from its undisclosed source of income and the same is added to the total income of the assessee u/s. 69 r.w.s 115BBE of the IT Act, 1961. Therefore, the same needs to be added in the hands of the assessee accordingly. The said is tabulated below Sr Issue Amount(Rs.) Remarks No. 1 Unaccounted cash loans (VHCL) 11,05,91,000/- Tax to be calculated u/s. 115BBE of the Act.
Moreover, the tax has to be calculated as per the provisions of section 115BBE of the Act. Penalty Page 11 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined proceedings u/s.271AAB(1A)(b) of the Act is hereby initiated accordingly."
3.3 It was also pointed out that similarly, the additions were made by the Assessing Officer by relying on the common reply filed by the respondent -
assessee. It was submitted that both, the CIT (Appeals) and the Tribunal have committed an error in not considering the reasons given by the Assessing Officer for the presumption of cash loan given by the assessee against the undated cheques found during the course of search from the premises of the respondent - assessee.
3.4 It was submitted that in absence of any explanation given by the assessee and on the contrary accepting the fact that the assessee has received the undated cheques during the course of business, the assessee has failed to discharge the burden and therefore both, the CIT (Appeals) and the Tribunal, Page 12 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined could not have shifted the burden upon the Assessing Officer to prove that there was unaccounted cash loan given by the assessee for the addition made for the undated cheques not in the name of the assessee found during the course of search.
3.5 It was, therefore, submitted that the matter requires consideration and should be admitted for the substantial questions proposed by the Revenue.
4 Having heard the learned Senior Standing Counsel for the appellant - Revenue and on perusal of the reasons assigned by the CIT (Appeals) and the Tribunal, it appears that there are concurrent findings of fact and more particularly, if the Tribunal has considered that during the course of search, no incriminating evidence was found which prove that the respondent - assessee company had given cash loans to any of the parties who have issued the Page 13 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined cheques and no cash trail or loose papers were found to support the presumption drawn by the Assessing Officer. The Tribunal has also taken note of the fact that the cheques found during the course of search are undated and not corroborated by the Assessing Officer who arrive at a presumption of giving cash loan by the assessing company and in absence of any inquiry made by the Assessing Officer with the parties who have issued the cheques or recording the statements of such parties, no addition could have been made on the basis of such documents found during the course of search.
4.1 It appears that both, the CIT (Appeals) and the Tribunal have heavily relied upon the presumption drawn by the Assessing Officer of making addition on the ground of inference drawn in absence of the cash loan given by the assessee company on the basis of the undated cheques which are not in the name of the Page 14 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025 NEUTRAL CITATION C/TAXAP/602/2025 ORDER DATED: 14/10/2025 undefined assessee company.
4.2 In view of such concurrent findings of facts, the CIT (Appeals) and the Tribunal has rightly deleted the addition made by the Assessing Officer based merely on the presumption. Even the Tribunal has also recorded that the learned departmental representative could not cite any infirmity in the order passed by the CIT (Appeals) during the course of hearing.
5 In view of the foregoing reasons, the appeal being devoid of merit is dismissed as no question of law, much less any substantial question of law arises from the impugned order of the Tribunal.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) BIMAL Page 15 of 15 Uploaded by BIMAL B CHAKRAVARTY(HC01089) on Tue Nov 04 2025 Downloaded on : Fri Nov 07 22:20:55 IST 2025