No Cross-Examination + Retracted Statement = Section 69 Addition Collapses- Mumbai ITAT Deletes Alleged Cash Loan Additions

Navin Shamji Vira Vs DCIT (ITAT Mumbai)

No Cross-Examination + Retracted Statement = Section 69 Addition Collapses- Mumbai ITAT Deletes Alleged Cash Loan Additions

denial of cross-examination fatally vitiates the addition.

The assessee’s assessments for AYs 2014-15 and 2017-18 were reopened based on search proceedings conducted in the case of M/s. Evergreen Enterprises and its partner Nilesh Bharani. During the search, statements were recorded from Mr. Bharani and certain employees allegedly admitting receipt of cash loans from various persons, including the assessee. Based on this material, additions of ₹55 lakh and ₹56 lakh were made u/s 69.

However, throughout the proceedings, the assessee consistently denied having advanced any cash loans and repeatedly requested complete copies of materials relied upon as well as an opportunity to cross-examine the persons whose statements were used against him.

The Tribunal noted that despite repeated requests, the AO neither furnished complete information nor granted cross-examination. More importantly, the assessee had produced an affidavit of Nilesh Bharani retracting his earlier statement and categorically stating that the alleged loan entries actually represented his own money and that figures had been exaggerated by adding extra zeros.

The ITAT observed that once the assessee denied advancing any cash loans, the burden shifted entirely to the department to prove the allegation with cogent evidence. The Bench sharply remarked that “the assessee certainly cannot be expected to prove the negative.”

The Tribunal further held that when adverse third-party material is relied upon, the Revenue is duty-bound to confront the assessee with such material and grant effective cross-examination. Failure to follow these fundamental principles of natural justice rendered the additions unsustainable.

The ITAT also noted that in the assessee’s own case for AY 2012-13, similar additions had already been deleted earlier on the same ground of denial of cross-examination. Accordingly, the additions for both AYs were deleted.

Additionally, for AY 2017-18, the Tribunal separately quashed the reassessment itself on the legal ground that notice u/s 148 was issued after three years with approval of the PCIT instead of the authority prescribed u/s 151(ii). Relying on the Bombay High Court ruling in Alag Property Construction Pvt. Ltd. and the Supreme Court judgment in Rajeev Bansal, the ITAT held that sanction by an incorrect authority vitiates jurisdiction itself.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These appeals by the assessee arise out of two separate orders, both dated 28.10.2025 passed by National Faceless Appeal Centre (NFAC), Delhi pertaining to Assessment Years (AYs) 2014-15 and 2017-18.

2. The common issue arising in the appeals relates to addition made under section (u/s.) 69 of the Income Tax Act, 1961 (in short the ‘Act’).

3. Briefly the facts, common in both the appeals are, the assessee is a resident individual. For the assessment years under dispute, assessee had filed his return of income u/s. 139(1) of the Act. Subsequently, a search and seizure operation u/s. 132 of the Act was carried out in the case of M/s. Evergreen Enterprises and one of its partners Mr. Nilesh Bharani. In course of search and seizure operation, certain incriminating materials allegedly indicating loan availed by Mr. Nilesh Bharani from various parties were unearthed. In this context, statements of Ms. Nilesh Bharani and Mr. Ashwin Rathod and Mrs. Vibha Sachin Rawate, stated to be employees of Mr. Evergreen were recorded u/s. 132(4) of the Act. In the said statements, the concerned persons admitted receipt of cash loans from various persons. Based on the incriminating materials found during the search operation, it was noticed that the assessee had advanced loans of Rs.55,00,000/- in AY 2014-15 and Rs.56,00,000/- in AY 2017-18. On the strength of the aforesaid information, assessments in case of the assessee was reopened u/s. 147 of the Act. In course of assessment proceedings, the AO called upon the assessee to prove the source of cash loans advanced to Mr. Nilesh Bharani. In response, the assessee flatly denied of having advanced any cash loan, as alleged. The AO, however, rejected the claim of the assessee. The AO alleged that the assessee did not furnish any response or documentary evidence in reply to the show cause notice. Accordingly, he added back the amounts of Rs.55,00,000/- and Rs.56,00,000/-u/s. 69 of the Act in AY 2014-15 and 2017-18 respectively. The assessee contested the additions before learned First Appellate Authority, however, he was unsuccessful.

4. Before us, learned counsel appearing for the assessee submitted that on more than one occasion, the assessee responded to the notices issued by the AO and furnished replies. He submitted, while issuing the show cause notice u/s. 148A(b) of the Act, the AO had shared incomplete information to the assessee. He submitted, on several occasion, the assessee had not only requested the AO to share complete information but also has sought opportunity to cross examine Mr. Nilesh Bharani and other persons whose statements recorded u/s. 132(4) of the Act have been relied upon to reopen the assessments. He submitted, till completion of assessment nor thereafter, the Assessing Officer supply the complete information or provided an opportunity of cross examination to the assessee. He submitted, in course of assessment proceedings, the assessee had also furnished a sworn affidavit of Mr. Nilesh Bharani, retracting his earlier statement and has denied of having received any cash loan from the assessee. He submitted, ignoring such material on record, the AO has proceeded to make the additions and learned CIT(A) has confirmed the additions without properly examining the materials on record. Thus, he submitted, the additions made should be deleted.

5. Learned Departmental Representative (DR) relied upon the observations of the AO and learned First Appellate Authority.

6. We have considered rival submissions and perused the materials on record. Undoubtedly, the assessments in case of the assessee were reopened based on information received in course of search and seizure operation carried out in respect of M/s. Evergreen Enterprises and its partner, Nilesh Bharani. It appears from facts on record, in course of search and seizure operation, the incriminating materials found revealed that M/s. Evergreen Enterprises and its partner Mr. Nilesh Bharani had availed unsecured loans in cash from various partners, including the assessee. In the statements recorded u/s. 132(4) of the Act, Shri Nilesh Bharani and two other employees of M/s. Evergreen Enterprises admitted to having received cash loans. However, when the assessee was confronted with the aforesaid information through show cause notice issued u/s. 148A(b) of the Act, the assessee, in reply dated 11.06.2022, not only denied of having advanced any cash loan either to M/s. Evergreen Enterprises or to Nilesh Bharani, the assessee also brought to the notice of AO that Shri Nilesh Bharani had filed an affidavit before the DCIT, Central Circle-4(1), Mumbai, retracting his statement recorded u/s. 132(4) of the Act and clearly and categorically stating that the loan transactions shown in the documents seized are actually his money but the quantum is much less as the Revenue Officers added extra zeros to increase the quantum. The assessee had specifically requested the AO to allow him an opportunity to cross examine Mr. Nilesh Bharani and two other employees of M/s. Evergreen Enterprises, who had earlier stated that the cash loans were received from the assessee. Subsequently also, in response to notices issued u/s. 142(1) of the Act and 143(2) of the Act, the assessee had repeated his request for cross examination of the concerned persons while reiterating that he had not advanced any cash loan. Despite such request, the AO had not provided any opportunity of cross examination to the assessee. In fact, while going through the order dated 23.07.2022 passed u/s. 148A(d) of the Act, we have noted that the AO rejected assessee’s request for cross examination stating that such opportunity is granted for non-connected entities. According to the AO, since, the assessee was able to get a copy of the affidavit filed by Shri Nilesh Bharani before DCIT, Central Circle-4(1), Mumbai, he must be having close connection with Mr. Nilesh Bharani. Therefore, the request for providing opportunity of cross examination is only a ploy to hinder the proceedings. The aforesaid facts clearly reveal that the assessee has consistently taken stand that he had not advanced any cash loan either to M/s. Evergreen Enterprises or Mr. Nilesh Bharani. Whereas a reading of the assessment order reveals that while making the additions, the AO has observed that the assessee has not furnished any submission and has failed to furnish any relevant documentary evidence in respect of cash loans to Shri Nilesh Bharani. The aforesaid observations of the AO are in complete contradiction to the materials on record. As discussed earlier, in response to each and every notice issued by the AO, the assessee had furnished his reply denying advancement of cash loan to Shri Nilesh Bharani. Thus, once the assessee had denied of having advanced any cash loan, the burden shifted to the AO to establish on record that the assessee indeed had advanced cash loan. The AO, in our view, has miserably failed to do so. The assessee certainly cannot be expected to prove the negative.

7. Considering the fact that Shri Nilesh Bharani subsequently had furnished an affidavit retracting his earlier statement and admitting that the alleged loans received by him were actually his money, burden is entirely on the AO to prove that the assessee had advanced cash loans. Without doing so and without referring to the multiple submissions by the assessee, the AO has proceeded to make the additions u/s. 69 of the Act. Even, learned First Appellate Authority, without looking into facts and materials available on record, has simply endorsed the version of the AO. When the Departmental Authorities were using adverse material belonging to third parties against the assessee, they were duty bound not only to confront such material to the assessee but also provide opportunity of cross examination. The failure on the part of the Departmental Authorities in adhering to the basic and fundamental principles of natural justice make the additions vulnerable. In course of hearing, learned counsel appearing for the assessee had brought to our notice a decision of the ITAT in assessee’s case in AY 2012-13, wherein, identical addition made u/s. 69 of the Act was deleted vide order dated 03.01.2025 in ITA No. 998/Mum/2024 on the ground of denial of opportunity of cross examination. Thus, in our view, the additions made cannot be sustained. Accordingly, we direct the AO to delete the additions.

8. Having held so, we must observe in the appeal relating to AY 2017-18, the assessee has raised an additional ground challenging the validity of reopening of assessment u/s. 147 of the Act due to lack of proper sanction. Since the ground can be decided based on facts and materials available on record, we are inclined to admit the additional ground.

9. We have heard the parties and perused the materials on record. Undisputedly, order u/s. 148A(d) and notice u/s. 148 of the Act were passed/issued by the AO on 29.07.2022 after expiry of three years from the end of the relevant assessment year. Whereas, a perusal of said order and notice, clearly reveal that they were issued with the approval of Principal Commissioner of Income Tax-20 Mumbai.

10. Section 151(ii) of the Act mandates that after expiry of three years from the end of the assessment year, a notice u/s. 148 of the Act can only be issued only with the approval of Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax or Principal Director General of Income Tax or Director General of Income Tax. Whereas, in the present case, notice u/s. 148 of the Act has been issued with the approval of Principal Commissioner of Income Tax. Hence, it is not in accordance with Section 151(ii) of the Act. In case of ‘Alag Property Construction (Pvt.) Ltd. vs. ACIT’ (2025) 179 com578 (Bombay), the Hon’ble Jurisdictional High Court, while dealing with similar issue of validity of reopening of assessment due to lack of proper approval u/s. 151 of the Act, held as under:

“6. In this factual backdrop, the Petitioner has contended that in the present case, the order passed under section 148A(d) dated 18.08.2022, was passed beyond three years from the end of the relevant A.Y. 2017-18, and consequently, according to the provisions of section 151(ii) [i.e. when more than three years have elapsed from the end of the relevant assessment year), the specified authority for obtaining the approval was either the Principal Chief Commissioner (PCCIT), or Principal Director General (PDGIT), or where there is no PCCIT or PDGIT, the Chief Commissioner(CCIT), or Director General (DGIT). However, in paragraph 7 of the order dated 15.07.2022 passed under section 148A(d), and also in paragraph 3 of the notice dated 23.08.2022 issued under section 148 of the Act, Respondent No.1 has stated that prior approval of Respondent No.2 i.e. the Principal Commissioner of Income Tax-6, Mumbai was obtained and the said order was passed and the said notice was issued only thereafter. This aspect remains uncontroverted by the Respondents.

7. In these facts, the limited point to be examined is whether the order dated 18/08/2022 passed under section 148A(d) and the notice dated 23.08.2022 issued under section 148 of the Act for A.Y. 2017-18, after obtaining approval of Respondent No.2 [i.e. the PCIT-6, Mumbai], was in accordance with the provisions of section 151. In this regard, the Petitioner has drawn our attention to the decision of Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal [2024] 167 taxmann.com70 (SC)/[2024] 301 Taxman 238 (SC)/[2024] 469 ITR 46 (SC). The Hon’ble Supreme Court, while dealing with the issue of approval of the specified authority in terms of Section 151 of the Act, made the following observations:

“73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under section 148. The purpose behind this procedural check is to save the assessees from harassment resulting from the mechanical reopening of assessments. (Sri Krishna Pvt. Ltd v. ITO [(1996) 221 ITR 538 (SC); (1996) 9 SCC 534.]) A table representing the prescription under the old and new regime is set out below:

74. The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime:

(i) If income escaping assessment was less than rupees one lakh: (a) a reassessment notice could be issued under section 148 within four years after obtaining the approval of the Joint Commissioner, and (6) no notice could be issued after the expiry of four years; and

(ii) If income escaping was more than rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner, and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

75. After April 1, 2021, the new regime has specified different authorities for granting sanctions under section 151. The new regime is beneficial to the ass essee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Union of India v. Ashish Agarwal [[2022] 138 taxmann.com64 (SC)/[2022] 286 Taxman 183 (SC)/ [2022) 444 ITR 1 (SC); (2023) 1 SCC 617.], after April 1, 2021, the prior approval must be obtained from the appropriate authorities specified under section 151 of the new regime. The effect of section 151 of the new regime is thus:

(i) If income escaping assessment is less than rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director, and (b) no notice could be issued after the expiry of three years; and

(ii) If income escaping assessment is more than rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

76. Grant of sanction by the appropriate authority is a precondition for the Assessing Officer to assume jurisdiction under section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the Assessing Officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148.

77. Parliament enacted Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 to ensure that the interests of the Revenue are not defeated because the Assessing Officer could not comply with the preconditions due to the difficulties that arose during the covid-19 pandemic. Section 3(1) of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 relaxes the time limit for compliance with actions that fall for completion from March 20, 2020 to March 31, 2021. The Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will apply to section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority under section 151(1) has an extended time till June 30, 2021 to grant approval. In the case of section 151 of the old regime, the test is if the time limit of four years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority under section 151(2) has time till March 31, 2021 to grant approval. The time limit for section 151 of the old regime expires on March 31, 2021 because the new regime comes into effect on April 1, 2021.

78. For example, the three-year time limit for the assessment year 2017-2018 falls for completion on March 31, 2021. It falls during the time period of March 20, 2020 and March 31, 2021, contemplated under section 3(1) of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Resultantly, the authority specified under section 151(i) of the new regime can grant sanction till June 30, 2021.

79. Under the Finance Act, 2021 ((2021) 432 ITR (Stat) 52), the Assessing Officer was required to obtain prior approval or sanction of the specified authorities at four stages:

(a) Section 148A(α) to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) Section 148A(b) to provide an opportunity of hearing to the assessee by serving upon them a show-cause notice as to why a notice under section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act, 2022 ([2022] 442 ITR (Stat) 91) [Section 45, Finance Act, 2022.];

(c) Section 148A(d) – to pass an order deciding whether or not it is a fit case for issuing a notice under section 148; and

(d) Section 148-to issue a reassessment notice.

80. In Union of India v. Ashish Agarwal [[2022] 138 taxmann.com64 (SC)/[2022] 286 Taxman 183 (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617.], this court directed that section 148 notices which were challenged before various High Courts “shall be deemed to have been issued under section 148A of the Income-tax Act as substituted by the Finance Act, 2021 ((2021) 432 ITR (Stat) 52) and construed or treated to be show-cause notices in terms of section 148A(b)”.

Further, this court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a). Under section 148A(b), an Assessing Officer was required to obtain prior approval from the specified authority before issuing a show-cause notice. When this court deemed the section 148 notices under the old regime as section 148A(6) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under section 151 for section 148A(b) notices. It is well established that this court while exercising its jurisdiction under article 142, is not bound by the procedural requirements of law. (High Court Bar Association, Allahabad v. State of Uttar Pradesh [(2024) 6 SCC 267.])

81. This court in Union of India v. Ashish Agarwal [[2022] 138 taxmann.com64 (SC)/[2022] 286 Taxman 183 (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617.] directed the Assessing Officers to “pass orders in terms of section 148A(d) in respect of each of the 81. of the assessees concerned”. Further, it directed the Assessing Officers to issue a notice under section 148 of the new regime “after following the procedure as required under section 148A”. Although this court waived off the requirement of obtaining prior approval under section 148A(a) and section 148A(b), it did not waive the requirement for section 148A(d) and section 148. Therefore, the Assessing Officer was required to obtain prior approval of the specified authority according to section 151 of the new regime before passing an order under section 148A(d) or issuing a notice under section 148. These notices ought to have been issued following the time limits specified under section 151 of the new regime read with the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, where applicable.

8. On bare reading of the above extract of the judgment of the Hon’ble Supreme Court in the case of Rajeev Bansal (supra), we find that the Hon’ble Supreme Court had clarified as under:

(a) Under the substituted provisions of re-assessment as introduced by the Finance Act, 2021, the Assessing Officer is required to obtain prior approval or sanction of the ‘specified authority’ at four stages at the first stage under Section 148A(a), at the second stage under Section 148A(b), at the third stage under Section 148A(d), and at the fourth stage under Section 148. In the case of Ashish Agarwal (supra) the Hon’ble Supreme Court waived off the requirement of obtaining prior approval under section 148A(a) and Section 148A(b) of the Act only. Therefore, the Assessing Officer was required to obtain prior approval of the ‘specified authority’ according to Section 151 of the new regime before passing an order under Section 148A(d) or for issuing a notice under Section 148.

(b) Under the new regime, if income escaping assessment is more than Rupees 50 lakhs, a reassessment notice could be issued after the expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner or the Principal Director General or the Chief Commissioner or the Director General.

(c) Section 151(if) of the new regime prescribes an approval of a higher authority, if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the strict time limits prescribed under section 151 vitiates their jurisdiction to issue a notice under section 148,

(d) Grant of sanction by the specified authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.

9. In the present case, the period of three years from the end of the A.Y. 2017-18 fell for completion on 31st March 2021. As the expiry date fell during the time period of 20th March 2020 and 31st March 2021, under Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short “TOLA”), the authority specified under Section 151(i) of the new regime could have granted sanction only till 30th June 2021.

10. On perusal of the order dated 18.08.2022, passed under Section 148A(d) of the Act we find that the aforesaid order was passed after taking approval from Principal Commissioner of Income Tax (Respondent No.2). Since the aforesaid order was passed, as well as the notice under section 148 was issued, after the expiry of three years from the end of A.Y. 2017-18, as per the substituted provisions of re-assessment, the authority specified under Section 151(ii) of the Act (i.c. Principal Chief Commissioner or Chief Commissioner) was required to grant approval. Accordingly, we conclude that in the present case, the approval has been obtained from the authority specified under Section 151(i) of the new regime instead of the authority specified under Section 151(ii) of the new regime.

11. The Hon’ble Supreme Court in the above case has drawn an illustration in para 78 of its order in the context of A.Y. 2017-18 (which is also the relevant Assessment year in the present Writ Petition) wherein it is categorically held that the authority specified under section 151(i) can accord sanction only upto 30.06.2021. This illustration makes it absolutely clear that when the period of three years from end of relevant Assessment Year expired between 20.03.2020 and 31.03.2021, the extension by virtue of TOLA was upto 30.06.2021 and not beyond. Thus, it can be said that the period of three years from the end of the relevant Assessment Year (in the present case A.Y. 2017-18) expired on 30.06.2021, whereas Respondent No.1, despite passing order under section 148A(d) on 18.08.2022, and issuing notice under section 148 on 23.08.2022 [in respect of Assessment Year 2017-18], has obtained approval of Respondent No.2 who is not the authority as prescribed under section 151(ii).

12. Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(ii) vitiates the jurisdiction of Respondent No.1 to issue a notice under Section 148 of the Act.

13. We are clearly of the view that the present matter stands covered by the decision of Hon’ble Supreme Court in the case of Rajeev Bansal (supra) and we are bound by it. Accordingly, we hold that the order dated 18.08.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated and 23.08.2022 are bad in law, and hence, are required to be quashed and set aside.

11. Ratio laid down in the aforesaid decision clearly applies to the facts of the present appeal. Accordingly, we hold that the notice issued u/s. 148 of the Act, having not been issued with the approval of the competent authority in terms with Section 151(ii) of the Act, the entire proceeding of reopening of assessment u/s. 147 of the Act is vitiated. Accordingly, we quash the assessment order. Thus, insofar as appeal relating to AY 2017-18 is concerned, the assessee is bound to succeed both on the legal issue as also on merits.

12. In the result, both the appeals are allowed.

Order pronounced in the open court on 25/05/2026.