Case Law Details
DCIT Vs C Atulkumar And Co. (ITAT Mumbai)
Bogus Supplier Tag Alone Not Enough: Mumbai ITAT Knocks Down Purchase and Loan Additions-Investigation Report Is Only a Starting Point, Not the Final Verdict
The Mumbai ITAT dismissed the Revenue’s appeals and upheld the deletion of additions made on account of alleged bogus purchases and unsecured loans linked to concerns said to be controlled by the Bhanwarlal Jain Group. The Tribunal held that information from the Investigation Wing may justify reopening or inquiry, but additions cannot be sustained merely on the basis of generalized allegations arising from third-party investigations.
For AY 2012-13, the assessee, a diamond exporter, had produced purchase invoices, confirmations, stock records, bank statements, export invoices, realization certificates, VAT records, Form H declarations and a detailed quantitative reconciliation linking purchases with subsequent exports. The Tribunal noted that the quantity of diamonds purchased exactly matched the quantity exported and that the Revenue had not pointed out any discrepancy in stock records, export documents or banking transactions. It observed that exports could not have taken place without actual availability of goods and that no evidence of cash circulation or accommodation entry had been brought on record. Accordingly, the deletion of the addition of ₹4.35 crore towards alleged bogus purchases was upheld.
For AY 2013-14, the Tribunal upheld the deletion of an estimated addition on alleged bogus purchases, noting that the Assessing Officer himself had accepted the existence of goods and corresponding sales by making only a profit-rate addition. Since the gross profit from the disputed transactions was higher than the normal GP rate and there was no evidence of cash-back arrangements or suppression of sales, even the estimated addition was held unsustainable.
The Tribunal also deleted the addition of ₹2.15 crore made under section 68 in respect of an unsecured loan received from an alleged Jain Group concern. It emphasized that the assessee had furnished confirmations, bank statements and ledger accounts, and that the loan was received and repaid through banking channels within the same financial year. The Assessing Officer neither conducted independent enquiries nor established any cash trail, fund rotation or link between the credit and the assessee’s unaccounted income. Mere reliance on the Investigation Wing report, without examining the ingredients of section 68 such as identity, creditworthiness and genuineness, was held to be insufficient.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeals have been filed by the Revenue against two separate impugned orders passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, in the case of the same assessee. The appeal for Assessment Year 2012-13 is directed against the order dated 27.08.2025 passed by the learned CIT(A) arising out of assessment framed under section 143(3) read with section 147 of the Income Tax Act, 1961. The appeal for Assessment Year 2013-14 is directed against the order dated 21.08.2025 passed by the learned CIT(A) arising out of assessment framed under section 143(3) of the Act. Since both the appeals pertain to the same assessee, arise from the same broad factual matrix relating to alleged accommodation entries from concerns stated to be connected with Shri Bhanwarlal Jain Group and involve overlapping issues, the same were heard together and are being disposed of by this consolidated order.
2. In Assessment Year 2012-13, the Revenue has challenged the deletion of addition of Rs.4,35,61,761/- made by the Assessing Officer on account of alleged bogus purchases from M/s Jewel Diam and M/s Millenium Stars. In Assessment Year 2013-14, the Revenue has challenged the deletion of addition of Rs.2,86,157/- being 3% of alleged bogus purchases of Rs.95,38,552/- from M/s Jeweldiam and Moneydiam, and deletion of addition of Rs.2,15,00,000/- made under section 68 on account of alleged bogus unsecured loan received from M/s Millenium Stars.
3. The grounds raised by the Revenue in Assessment Year 2012-13 are reproduced hereunder:
“1.Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the addition made of Rs. 4,35,61761/- based on credible information received from DGIT(Inv.) Mumbai?”
2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), has erred in directing the AO to delete bogus purchases addition made by the AO when the primary issue that whether the purchase party is bogus or purchase is bogus has not been examined because if the purchase party is bogus and purchase is genuine then estimation is correct but if purchase is bogus then the entire purchase amount deserves to be added?”
“Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in not setting aside the issue to the lower authorities for examination of the primary fact of whether the purchase party is bogus or the entire purchase is bogus?”
4. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has not appreciated the observations made by the Hon’ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj) 354, Dated. 16.01.2017, wherein Hon’ble Supreme Court has held that, once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P && L account are established as bogus, then restricting the addition to a curtained percentage goes against the principles of section. 68 and 69C of the Income-Tax Act, 1961 and when the purchases made are from bogus suppliers or concerns, the entire purchases are liable to disallowed.”
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) perverse in not considering that the order of Hon’ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases has been confirmed and it was already the law of the land when the Ld CIT(A) has pronounced it’s order on 27.08.2025.
6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting estimation of profit upto 25%, without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon’ble ITAT, Ahmadabad had conformed the disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non- genuine and the decision of the ITAT was upheld try Hon’ble Gujrat High Court and also by the Hon’ble Supreme Court.”.
7. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A), was right in view of the decision of the Hon’ble High Court Mumbai, in the case of Pr. Commissioner of Income-Tax-5,Mumbai Vs. Kanak Impex (India) Ltd(2025)172 Taxmann.com 283 (Bombay) Dated. 03.03.2025, wherein the decision of 100% addition made by AO has been allowed, by rejecting the ITAT’s decision of estimating the profit rate @12.5% on bogus purchases and thereby impliedly grant deduction of such unexplained expenditure incurred u/s. 69C of the Act, eventhough the assessee failed to discharge its onus to prove the genuineness of alleged purchases and has offered no explanation of the sources of expenditure incurred on account of such purchases.?”
8. “The tax effect involved in this case is Rs. 1,34,60,584/-, which is above the prescribed limit mentioned in the CBDT’s Circular F.No.279/Misc. 142/2007-ITJ(PI) amended vide No. 09/2024 dated. 17.09.2024. However, the appeal is being filed before the Hon’ble ITAT, as this case also falls under one of the exceptions specified in paragraph 3.1(h) of the of the CBDT’s Circular No 05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving Organized Tax Evasion” including cases of accommodation entry of bogus purchases, “in such cases the decision to file appeal/SLP shall be taken on merit without regard to the tax affect and the monetary limit.
9. “The appellant craves to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another.”
4. The grounds raised by the Revenue in Assessment Year 2013-14 are reproduced hereunder:
1. “Whether on the facts and in the circumstances of the case and in-laws the CIT (A) has erred in directing the AO to delete the addition made of Rs. 2,15,00,000/- based on credible information received from DGIT(Inv.) Mumbai?”
2. “Whether on the facts and in the circumstances of the case and in law, the Id CIT(A), has erred in directing the AO to delete bogus purchases addition made by the AO when the primary issue that whether the purchase party is bogus or purchase is bogus has not been examined because if the purchase party is bogus and purchase is genuine then estimation is correct but if purchase is bogus then the entire purchase amount deserves to be added?”
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in not setting aside the issue to the lower authorities for examination of the primary fact of whether the purchase party is bogus or the entire purchase is bogus?”
4. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has not appreciated the observations made by the Hon’ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj) 354, Dated. 16.01.2017, wherein Hon’ble Supreme Court has held that, once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P & L account are established as bogus, then restricting the addition to a curtained percentage goes against the principles of section 68 and 69C of the Income-Tax Act, 1961 and when the purchases made are from bogus suppliers or concerns, the entire purchases are liable to disallowed.”
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) perverse in not considering that the order of Hon’ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases has been confirmed and it was already the law of the land when the Ld CIT(A) has pronounced it’s order on 27.08.2025.
6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting estimation of profit upto 25%, without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon’ble ITAT, Ahmadabad had conformed the disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non- genuine and the decision of the ITAT was upheld try Hon’ble Gujrat High Court and also by the Hon’ble Supreme Court.”.
7. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A), was right in view of the decision of the Hon’ble High Court Mumbai, in the case of Pr. Commissioner of Income-Tax-5,Mumbai Vs. Kanak Impex (India) Ltd(2025)172 Taxmann.com 283 (Bombay) Dated. 03.03.2025, wherein the decision of 100% addition made by AO has been allowed, by rejecting the ITAT’s decision of estimating the profit rate @12.5% on bogus purchases and thereby impliedly grant deduction of such unexplained expenditure incurred u/s. 69C of the Act, eventhough the assessee failed to discharge its onus to prove the genuineness of alleged purchases and has offered no explanation of the sources of expenditure incurred on account of such purchases.?”
8. “The tax effect involved in this case is Rs. 67,31,922, which is above the prescribed limit mentioned in the CBDT’s Circular F.No.279/Misc. 142/2007-ITJ(Pt) amended vide No. 09/2024 dated. 17.09.2024. However, the appeal is being filed before the Hon’ble ITAT, as this case also fulls under one of the exceptions specified in paragraph 3.1 of the of the CBDT’s Circular No 05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving “Organized Tax Evasion” including cases of accommodation entry of bogus purchases, in such cases the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit.
9. “The appellant craves to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another.”
5. The assessee is a partnership firm engaged in the business of manufacturing, trading and export of diamonds. The controversy in both the years originates from information received from the Investigation Wing, Mumbai, pursuant to search and seizure action conducted in the case of Shri Bhanwarlal Jain and his group concerns. According to the Investigation Wing, various concerns allegedly controlled and managed by Shri Bhanwarlal Jain and his family members were engaged in providing accommodation entries in the form of bogus purchase bills and unsecured loans. Based on such information, the Assessing Officer examined the assessee’s transactions with certain parties alleged to be part of the said group.
6. We shall first take up the Revenue’s appeal for Assessment Year 2012-13. The assessee had filed its return of income on 04.09.2012 declaring total income of Rs.1,89,90,226/-. The return was processed under section 143(1) on 17.02.2013. Subsequently, information was received from the office of the DGIT (Investigation), Mumbai that the assessee had allegedly obtained accommodation purchase bills from M/s Jewel Diam amounting to Rs.52,15,296/- and from M/s Millenium Stars amounting to Rs.3,83,46,465/- , aggregating to Rs.4,35,61,761/-. On the basis of this information, the assessment was reopened under section 147.
7. The reasons recorded by the Assessing Officer indicate that the information emanated from search action in the case of Shri Bhanwarlal Jain Group. It was stated that Shri Bhanwarlal Jain had admitted in his statement recorded under section 132(4) that concerns controlled by him were engaged in providing accommodation entries. The Assessing Officer, relying on such information, formed a belief that the assessee had inflated its purchases by obtaining accommodation bills and that income to the extent of Rs.4,35,61,761/- had escaped assessment.
8. During reassessment proceedings, the assessee contested the proposed addition and submitted that the purchases were genuine, duly recorded in the books of account, paid for through banking channels and fully supported by the corresponding export sales. The assessee submitted before the Assessing Officer as well as before the learned CIT(A) various documents, namely, confirmations from suppliers, purchase invoices, ledger accounts, stock records, bank statements evidencing payments, export invoices, realization of export proceeds, VAT details, Form H declarations, VAT Audit Report in Form 704 and detailed quantitative reconciliation showing movement of diamonds from purchase to export.
9. The assessee also furnished a detailed chart showing invoice-wise particulars of purchases, names of parties, dates of purchase, quantity in carats, value of purchases and corresponding sales made against those purchases. The assessee demonstrated that diamonds aggregating to 1,788.10 carats purchased from the impugned parties were subsequently exported to identified overseas customers and that the sale proceeds were realized through banking channels. The relevant chart, as furnished before the authorities below and placed in the paper book, is to be reproduced hereunder:
10. The Assessing Officer, however, relying mainly on the general findings recorded in the case of Shri Bhanwarlal Jain Group, treated the entire purchases aggregating to Rs.4,35,61,761/- as bogus and made addition under section 69C of the Act. The learned CIT(A), after examining the evidences, deleted the addition. The Revenue is in appeal before us.
11. The learned Departmental Representative relied upon the assessment order and submitted that the suppliers were part of Shri Bhanwarlal Jain Group which was found by the Investigation Wing to be engaged in providing accommodation entries. It was submitted that once the suppliers themselves were found to be accommodation entry providers, the learned CIT(A) erred in deleting the addition. The learned DR further relied upon decisions including N.K. Proteins Ltd., Swetamber Steels and Kanak Impex to contend that where purchases are from bogus suppliers, the entire amount is liable to be added and not merely estimated at a lower profit rate.
12. Per contra, the learned counsel for the assessee supported the order of the learned CIT(A). He submitted that the Assessing Officer had not brought any material in the assessee’s own case to prove that the purchases were not genuine. He emphasized that the assessee had furnished complete documentary evidence demonstrating purchase of diamonds, their entry in stock records, payment through banking channels, subsequent export of the same quantity of diamonds, realization of export proceeds, Form H declarations and VAT verification. It was submitted that no defect had been pointed out in the quantitative tally and no evidence of cash trail had been found.
13. We have heard the rival submissions and perused the orders of the authorities below and the material placed before us. After carefully considering the entire factual matrix, the assessment order, the impugned appellate order, the material placed on record and the rival submissions, we find no merit in the grievance raised by the Revenue for Assessment Year 2012-13. The entire edifice of the addition rests upon information received from the Investigation Wing consequent to search proceedings conducted in the case of Shri Bhanwarlal Jain and his group concerns. There cannot be any quarrel with the proposition that such information may legitimately trigger an enquiry or may even furnish a basis for formation of belief under section 147. However, once reassessment proceedings are initiated and the assessment is framed, the addition has to stand on the strength of evidence gathered in the assessee’s own case and not merely on generalized observations emerging from investigations carried out in the case of third parties. An investigation report may be a starting point of enquiry; it cannot be the end of enquiry.
14. In the present case, what strikes us immediately is that the Assessing Officer proceeded on the assumption that since M/s Jewel Diam and M/s Millenium Stars were stated to be concerns controlled by Shri Bhanwarlal Jain Group, every transaction entered into by the assessee with those concerns must necessarily be regarded as non-genuine. Such an approach, in our considered opinion, is contrary to settled principles of evidence and taxation jurisprudence. The crucial question is not whether the supplier was allegedly involved in accommodation entry activities vis-à-vis some other persons; the real question is whether the purchases made by the present assessee from such suppliers were backed by delivery of goods and formed part of genuine business transactions. This aspect has not been disproved by the Assessing Officer.
15. On the contrary, the record placed before us reveals that the assessee had furnished a comprehensive set of evidences. The assessee produced purchase invoices, confirmations, ledger accounts, stock records, bank statements evidencing payment through banking channels, export invoices, realization of export proceeds, VAT records and Form H declarations. More importantly, the assessee furnished a detailed quantitative chart correlating each purchase invoice with corresponding export sales. The chart demonstrates that diamonds aggregating to 1,788.10 carats purchased from the aforesaid parties were subsequently exported to identified foreign buyers and the corresponding export proceeds were realized through banking channels. Thus, the assessee did not merely rely upon book entries; it demonstrated the entire commercial chain of purchase, stock movement, export and realization.
16. The significance of the aforesaid chart cannot be understated. It is not merely a statement of accounts but a complete quantitative reconciliation. The quantity purchased, namely 1,788.10 carats, exactly corresponds with the quantity exported. The Revenue has not pointed out any discrepancy either in the quantitative tally or in the export documentation. Once export sales have been accepted, export proceeds have been accepted and quantitative records remain uncontroverted, the inevitable inference is that the goods were available with the assessee. In a diamond trading and export business, exports cannot materialize in vacuum. If the Revenue disputes the purchases, then it must necessarily demonstrate the source from which the exported diamonds were procured. No such exercise has been undertaken by the Assessing Officer.
17. Another important circumstance, which in our view demolishes the foundation of the addition, is the existence of statutory verification under VAT law. The entire purchases under dispute were purchases against Form H. The assessee has explained the procedure prescribed under VAT law whereby Form H is issued only after furnishing complete particulars of purchases, exports, dealer details, quantity and value of goods and after verification by the VAT authorities. Copies of Form H declarations and VAT Audit Report in Form 704 were placed before the authorities. Neither the Assessing Officer nor the Department has brought any material suggesting that the Form H declarations were false, cancelled, fabricated or rejected by the VAT authorities. Thus, apart from the books of account, there exists an independent statutory verification mechanism which corroborates the assessee’s claim regarding movement of goods and export thereof.
18. What is equally significant is the complete absence of any evidence indicating circulation of cash. The theory of accommodation entries ordinarily proceeds on the premise that cash belonging to the beneficiary is routed through an entry provider and returned through banking channels after deduction of commission. However, in the present case, no cash trail has been demonstrated. No bank account analysis has been undertaken. No evidence has been brought to show any cash deposits preceding issuance of cheques. No material has been found during search from the assessee indicating payment of cash to the suppliers. No statement specifically implicating the assessee has been brought on record. In fact, there is not even a whisper in the assessment order regarding any material linking the assessee with alleged circulation of unaccounted cash.
19. The learned CIT(A) has also recorded a categorical finding that the Assessing Officer did not issue any notice under section 133(6) or summons under section 131 to the suppliers for verification, nor did he conduct any independent enquiry into their bank accounts to find out whether payments received from the assessee were immediately withdrawn in cash. The Assessing Officer did not bring any independent and reliable evidence against the assessee to prove non-genuineness of the purchases. The Investigation Wing report, at best, furnished a good starting point for further verification; however, the Assessing Officer left the matter at that initial point itself. Suspicion, even if generated from credible external information, has to be converted into evidence by enquiry. That exercise is absent in the present case.
20. The Revenue has strongly relied upon decisions such as N.K. Proteins Ltd., Swetamber Steels and Kanak Impex. In our considered opinion, such reliance is misplaced. Those decisions proceeded on peculiar facts where the authorities had reached a categorical factual finding that the purchases themselves were fictitious and unsupported by evidence of actual movement of goods. The present case stands on an entirely different footing. Here, there exists contemporaneous documentary evidence of purchases, stock movement, exports, realization of export proceeds, Form H declarations and VAT verification. Therefore, the factual foundation which persuaded the Courts in those decisions is conspicuously absent here. Judicial precedents cannot be applied as abstract propositions divorced from the factual soil in which they were rendered.
21. Viewed thus, the addition is founded more on suspicion arising from third-party investigations than on evidence relating to the assessee’s own transactions. Suspicion, however grave, cannot substitute proof. When the assessee has discharged the primary onus by producing cogent documentary evidence and the Assessing Officer has failed to rebut the same through independent enquiry, no addition can be sustained merely on generalized allegations concerning the suppliers. The distinction between a supplier being alleged to be an accommodation entry provider in some cases and the assessee’s own purchase being non-genuine cannot be lost sight of. It is the latter which has to be proved for sustaining an addition, and that proof is absent here.
22. Accordingly, we concur with the conclusion reached by the learned CIT(A) that the addition of Rs.4,35,61,761/- deserves to be deleted. The order of the learned CIT(A) on this issue is upheld and the grounds raised by the Revenue for Assessment Year 2012-13 are dismissed.
23. We now take up the Revenue’s appeal for Assessment Year 2013-14. In this year, the assessee filed its return of income on 30.09.2013 declaring total income of Rs.88,44,650/-. The case was selected for scrutiny and assessment was framed under section 143(3). During the assessment proceedings, the Assessing Officer noticed that the assessee had made purchases of Rs.95,38,552/- from M/s Jeweldiam and Moneydiam, concerns stated to be linked with Shri Bhanwarlal Jain Group. He further noticed that the assessee had received unsecured loan of Rs.2,15,00,000/- from M/s Millenium Stars, which was also alleged to be part of the same group.
24. So far as the purchases are concerned, the assessee produced books of account, bank statements and purchase bills and demonstrated that the goods purchased from the impugned parties were sold. It was further submitted that the assessee’s normal gross profit was 9.21%, whereas the gross profit rate on goods purchased from the impugned parties and exported thereafter was 9.26%, which was higher than the normal gross profit margin. The Assessing Officer, after considering the facts, did not treat the entire purchases as bogus. Instead, he applied 3% profit margin on purchases of Rs.95,38,552/- and made an addition of Rs.2,86,157/-.
25. The learned CIT(A) deleted the said addition. After considering the facts, we find no infirmity in such deletion. The very approach adopted by the Assessing Officer in estimating only 3% profit element shows that he did not regard the purchases as wholly non-existent. He accepted, at least implicitly, that goods were available and corresponding sales were effected. Once the sales are accepted, and once the assessee has demonstrated that the gross profit from the impugned transactions was higher than the normal gross profit, there remains no factual foundation for making even an estimated addition. There is no evidence of cash back, no rejection of stock records and no finding of suppressed sales. Thus, the addition of Rs.2,86,157/- was rightly deleted by the learned CIT(A).
26. We now advert to the principal issue in Assessment Year 2013-14, namely, deletion of addition of Rs.2,15,00,000/- made under section 68 on account of unsecured loan received from M/s Millenium Stars. On this issue also, we find that the Assessing Officer proceeded solely on the premise that the lender was one of the concerns allegedly controlled by Shri Bhanwarlal Jain Group. Beyond this foundational allegation, no independent material has been brought on record to demonstrate that the impugned loan represented the assessee’s own unaccounted money.
27. The undisputed factual position emerging from the record is that the assessee received the loan in July, 2012 and repaid the entire amount within the same financial year. Consequently, as on 31.03.2013, there was no outstanding balance payable to the lender. The assessee furnished confirmation, ledger account, bank statements and financial details of the lender. The receipt as well as repayment of the loan was through normal banking channels. The assessee also explained that in the diamond trade such short-term temporary loans are not uncommon and that the amount was used for business purposes and repaid when it was no longer required.
28. In our view, once these primary evidences were placed on record, the burden shifted upon the Assessing Officer to demonstrate, through cogent material, that the transaction was merely a facade. However, no such enquiry has been conducted. The Assessing Officer has not examined the bank account of the lender to identify any immediate cash deposits. No statement specifically naming the assessee has been relied upon. No commission payment has been unearthed. No material has been brought to establish a flow-back of funds from the assessee. In short, there is no evidence whatsoever connecting the impugned credit with any unaccounted income belonging to the assessee.
29. More importantly, the assessment order itself does not contain any meaningful discussion regarding the three foundational requirements of section 68, namely identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. Instead of examining these ingredients, the Assessing Officer merely adopted the findings recorded by the Investigation Wing. Such an approach is legally unsustainable because section 68 requires examination of the particular credit appearing in the books of the assessee and not a generalized conclusion regarding the lender. The lender may have been named in an investigation report, but that fact alone does not prove that the assessee’s loan transaction was bogus.
30. The learned CIT(A) has correctly observed that although the Assessing Officer faulted the assessee for not producing the directors, partners or proprietors of the lender concern, there is no finding that any summons under section 131 or notice under section 133(6) was ever issued to them and remained uncomplied with. Once statutory powers are available with the Assessing Officer, failure to exercise those powers cannot be converted into an adverse inference against the assessee. The law does not require the assessee to perform the impossible by compelling attendance of third parties over whom it has no coercive power, particularly when the assessee has already furnished primary documentary evidence.
31. The Revenue has not demonstrated that the confirmation was false, that the bank statement was fabricated, that the lender was non-existent, that funds were introduced by way of cash immediately before the loan, or that the money ultimately belonged to the assessee. The allegation of accommodation entry must be established by evidence and not merely presumed from the alleged tainted status of the lender. In absence of any cash trail or specific material linking the assessee with unaccounted money routed through M/s Millenium Stars, the addition under section 68 cannot be sustained.
32. We also find that the repayment of the entire loan within the same financial year is a significant circumstance. The usual allegation in accommodation entry cases is that unaccounted funds are brought into books and retained as capital, loan or other credit. Here, the amount was received and repaid within a short span during the same financial year and no amount remained outstanding at year end. This fact, by itself may not be conclusive, but when viewed along with banking trail, confirmation, ledger account and absence of any adverse material, it lends substantial support to the assessee’s explanation.
33. Thus, in so far as the addition of Rs.2,15,00,000/- is concerned, we find that the learned CIT(A) has correctly appreciated the evidence and the legal requirements of section 68. The addition has been made on borrowed satisfaction arising from third-party investigation and not on independent examination of the assessee’s own credit transaction. Such an addition cannot be sustained. Accordingly, we uphold the order of the learned CIT(A) deleting the addition of Rs.2,15,00,000/-.
34. In view of the foregoing discussion, the order of the learned CIT(A) for Assessment Year 2013-14 deleting the addition of Rs.2,86,157/- on account of estimated profit on alleged bogus purchases and Rs.2,15,00,000/- on account of alleged bogus unsecured loan is upheld. The grounds raised by the Revenue for Assessment Year 2013-14 are dismissed.
35. In the result, both the appeals filed by the Revenue for Assessment Years 2012-13 and 2013-14 are dismissed.
Order pronounced on 1st June, 2026.
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