ITAT Deletes ₹5.40 Cr Accommodation-Entry Addition

Rolex Rings Limited Vs DCIT/ACIT (ITAT Rajkot)

Suspicion, Unsigned Sanction &; Denied Cross-Examination: ITAT Wipes Out ₹5.40 Crore Accommodation-Entry Addition

Summary:

In Rolex Rings Ltd. v. DCIT, ITA No. 893/Rjt/2025, decided on 28 August 2026, the Rajkot Bench of the Income Tax Appellate Tribunal quashed reassessment for AY 2020-21 involving an addition of ₹5.40 crore u/s 69A read with section 115BBE. The Tribunal found that reopening was based on uncorroborated third-party material without a live nexus to the assessee, approval u/s 151 was neither manually nor digitally signed and cross-examination of the principal witness was denied. It further deleted the addition on merits because the assessee’s name or signature did not appear in the alleged accommodation-entry records.

Relevant Facts

Rolex Rings Ltd. filed its original return on 11 February 2021, declaring income of ₹49.67 crore and book profit of ₹72.78 crore u/s 115JB. A revised return filed on 30 March 2021 declared income of ₹49.47 crore, while book profit remained unchanged.

A search u/s 132 was conducted on the Qutone Group on 9 August 2022. During the search, diaries, cash books, Tally data and other digital material were seized. Statements of Rajesh Janaklal Daftary and his daughters were also recorded.

Daftary allegedly admitted that transactions in the diaries were unrecorded, represented in coded form after removing two zeros and related to an accommodation-entry mechanism. According to the Department, unsecured loans were provided through banking channels, while equivalent cash was received back from borrowers, accompanied by interest and commission adjustments.

Based upon information from the Investigation Wing, the AO concluded that the assessee was a beneficiary of accommodation entries aggregating to ₹5.40 crore. Notice u/s 148 was issued on 28 March 2024 after obtaining approval from the specified authority.

The assessee filed a return in response on 2 April 2024, reiterating income of ₹49.47 crore. During reassessment, it denied entering into any transaction with Daftary or his controlled entities, requested certified copies of seized material and specifically sought cross-examination.

The AO rejected the explanation and added ₹5.40 crore u/s 69A, taxable u/s 115BBE. The CIT(A) confirmed reopening and the addition. Before the Tribunal, the DIN-related ground was not pressed.

Issues Involved

The Tribunal considered whether reopening was supported by tangible material having a direct link with the assessee, whether unsigned approval u/s 151 constituted valid statutory sanction, whether reliance on Daftary’s statement without cross-examination violated natural justice and whether an amount already recorded as a bank loan could be treated as unexplained money u/s 69A.

Assessee’s Submissions

The assessee contended that the recorded reasons incorrectly stated that it had taken a loan from Rajesh Daftary. In reality, the loan was obtained from a bank, duly recorded in the books and disclosed in the return.

The search had been conducted on another group. Apart from general statements of third parties, the AO possessed no material specifically identifying the assessee. The seized documents neither belonged to nor pertained to Rolex Rings. Reopening was therefore founded on suspicion, borrowed satisfaction and lack of independent application of mind.

The assessee further argued that approval u/s 151 was unsigned, both manually and digitally. An unauthenticated approval could not demonstrate satisfaction of the specified authority or confer jurisdiction upon the AO.

Despite repeated written requests, Daftary was not offered for cross-examination. Since his statement formed the foundation of the addition, denial of cross-examination rendered the proceedings contrary to natural justice.

On merits, the assessee maintained that no transaction with Daftary existed, no cash movement to the assessee was proved and its name or signature did not appear in the alleged entry-provider list.

Revenue’s Contentions

The Revenue contended that seized diaries, Tally data, banking transactions and statements constituted tangible information justifying reopening under Explanation 2(iv) to section 148.

It argued that approval had been granted electronically through the ITBA system, making a separate physical signature unnecessary. Cross-examination was also claimed to be unnecessary because the addition rested upon documentary material rather than only oral statements.

On merits, the Revenue maintained that the search evidence revealed a structured arrangement under which banking entries were exchanged against unaccounted cash. The CIT(A)’s order was therefore defended.

Tribunal’s Findings on Reopening & Approval

The Tribunal found no tangible material connecting the assessee with Daftary. The recorded reasons proceeded on an incorrect factual assumption that the assessee had borrowed from him, whereas the disclosed loan was from a bank.

The third-party statement was general, uncorroborated and unsupported by assessee-specific documents. Valid reopening requires material, honest belief, application of mind and a live nexus between information and escaped income. “Reason to believe” cannot be reduced to reason to suspect. Following ITO vs Lakhmani Mewal Das, the reassessment was quashed.

The Tribunal independently held that approval u/s 151 was invalid because it bore neither manual nor digital signature. Section 282A makes authentication mandatory. ITBA-based processing could suffice only where evidence of authenticated digital approval existed. Relying upon Dhanji Hirani, Daujee Abhushan Bhandar, Vikas Gupta and other authorities, the Tribunal held that unsigned sanction meant absence of valid approval.

Cross-Examination & Merits

The AO relied materially upon Daftary’s statement but denied the assessee an opportunity to test it. Following Andaman Timber Industries, Kishanchand Chellaram and other decisions, the Tribunal held that reliance upon an untested third-party statement violated natural justice and rendered the addition unsustainable.

Even independently on merits, the assessee had disclosed the bank loan in its books and return. No evidence established cash flowing from the alleged arrangement to Rolex Rings. Its name or signature did not appear in the accommodation-entry list. The seized material was therefore treated as a dumb document so far as the assessee was concerned.

The reassessment was quashed on jurisdictional grounds and the addition of ₹5.40 crore was also deleted on merits. The appeal was allowed.

Practical Implications

The ruling provides a fourfold defence against search-based reassessment of a third party: absence of an assessee-specific nexus, defective sanction, denial of cross-examination and failure to prove actual cash movement. It also confirms that an unsigned section 151 approval is not a curable formality. Departments must establish authenticated sanction, supply relied-upon material and permit cross-examination where statements form the basis of an addition. Mere appearance of figures in third-party records cannot override the assessee’s regular books without independent corroboration.

Cases Discussed

• ITO vs Lakhmani Mewal Das [1976] 103 ITR 437 (SC)
• Dhanji Hirani v. ITO (Int. Taxn.) (ITA No. 131/Rjt/2025) (Rajkot Trib.)
• Vikas Gupta v. Union of India [2022] 142 taxmann.com 253/289 Taxman 443/448 ITR 1 (Allahabad)
• Daujee Abhushan Bhandar (P.) Ltd. v. UOI [2022] 136 taxmann.com 246/286 Taxman 623/444 ITR 41 (Allahabad)
• Reuters Asia Pacific Ltd. v. DCIT [2023] 157 taxmann.com 705/205 ITD 31/110 ITR(T) 609 (Mumbai Trib.)
• Shri Prahlad Singh v. ITO (ITA No. 3375/DEL/2017) (Del. Trib.)
• Prakash Krishnavtar Bhardwaj v. ITO [2023] 150 taxmann.com 60 (Bombay)
• Sri Sesha Sai Township P. Ltd. Vs. ACIT (ITA No. 301 & 302/Viz/2015) (Viz. Trib.)
• M/s Taureg Properties & Security v. DCIT (ITA. No. 733/Del./2016) (Delhi Trib.)
• Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II (2015) 281 CTR 241 (SC)
• Kishanchand Chellaram v. CIT (1980) 125 ITR 713 (SC)
• Sahara India v. CIT (2008) 14 SCC 151
• Kalra Glue Factory v. Sales Tax Tribunal [1987] 167 ITR 498
• CIT vs. Sunita Dhadda
• Eastern Commercial Enterprises 210 ITR 103 (Cal)

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT RAJKOT

By way of this appeal, the assessee has challenged correctness of the order dated 25.11.2025 passed by the learned Commissioner of Income tax (Appeals) in [brief “CIT(A)”], in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act 1961, for the assessment year 2020-21.

2. Grievances raised by the assessee are as follows.

1.The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment under section 148 of the Act. The reopening of the assessment is not justified.

2.The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in holding that an amount of Rs.5,40,00,000/- was unexplained income liable to tax under section 69A read with section 115BBE of the Act.

3.The Commissioner of Income Tax (Appeals)erred in upholding the action of the Assessing Officer in taxing the income under section 69A r.w.s. 115BBE as the amounts are recorded in the books of accounts.

4.The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in holding that even though no opportunity to cross examine was granted. There was a violation of the Principles of Natural Justice.

5.The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment under section 148 of the Act, as the satisfaction note did not contain any DIN as mandated by law.

6.The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment under section 148 of the Act. Paper found did not pertain or relate to the Assessee, the alleged incriminating.

7.The Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in reopening the assessment under section 148 of the Act. There was no independent application of mind by the assessing officer before issuance of notice u/s 148.

8.The CIT(A) erred in upholding the addition of Rs.5,40,00,000/-. The assessee submits that the addition is not correct.

3. At the outset, ld. Counsel for the assessee, informs the Bench that assessee does not wish to press ground No.5, pertaining to DIN issue, therefore, we dismiss ground No.5, as not pressed.

4. The relevant material facts, as culled out from the material on record, are as follows. The assessee, ( Rolex Rings Limited), has filed return of income u/s 139(1) of the Act on 11/02/2021, determining total income of Rs. 49,67,79,690/- and deemed total income under section 115JB of the Act at Rs. 72,78,65,802/-, for the year under consideration, thereafter the assessee revised its return of income on 30/03/2021, determining total income of Rs.49,47,46,930/- and deemed total income under section 115JB of the Act at Rs.72,78,65,802/-. In this case information was received from the investigation wing that assessee is beneficiary of the accommodation entry of Rs.5,40,00,000/- received from Rajesh dafftary and its concerns involved in providing the accommodation entries. A search u/s 132 of the Act was conducted on quoton group on 09-08-2022. A number of incriminating documents and digital data have been found and seized during this search action u/s 132 of the Act, 1961. Certain documents containing incriminating information pertaining to the captioned assessee were found and seized. The assessing officer was of the view that qutone group opted the route of taking accommodation entries in the guise of unsecured loans to bring back its unaccounted funds into regular books of accounts. The details of year wise movement of loans (as extracted from tally data base) and ledger in the case of assessee is reproduced in the assessment order page no.2.

5. On the basis of the above information, the assessee’s case was re-opened in view of the Explanation -2 (iv) of the Section 148 of the Act after obtaining the prior approval of the competent authority. Accordingly, notice u/s 148 of the Act was issued to the assessee on 28/03/2024. In response to said notice, the assessee has filed return of income on 02/04/2024, declaring total income of Rs.49,47,46,930/- and deemed total income under section 115JB of Rs.72,78,65,802/-. Subsequently, a notice u/s 143(2) was issued to the assessee on 30.06.2024. During assessment proceedings, a notice u/s 142(1) of the Act dated 31.07.2024 was issued to the assessee calling for details regarding the above transaction. Further information, satisfaction note and copy of the approval of the competent authority has been provided to the assessee. In response thereto, the assessee has submitted his reply/explanation on 14.08.2024. The assessee vide this submission has provided a copy of Computation of Income, details of bank accounts held during the year, list of creditors and debtors etc. The submission of the assessee has been perused and considered by the assessing officer but found not acceptable. During the search operation, statement under oath u/s. 132(4) of the Act, 1961 were taken of Shri Rajesh Janaklal Daftary. The assessing officer vide Q. 17 has confronted the diaries with Shri Rajesh Janaklal Daftary. Further, vide Q.18, the assessing officer asked Shri Rajesh Janaklal Daftary to furnish page wise explanation regarding the transactions recorded in the diaries. In response thereto, Shri Rajesh Janaklal Daftary has furnished that the transactions recorded in these cash book/diaries are not reflected in regular books of accounts of either Shri Rajesh Janaklal Daftary or any of his family members/any company in which they are Director/s. Further, he stated that the transactions are recorded in these cash books/diaries in coded form after removing two zeros (one from units’ place and one from tens’ place). The relevant excerpts of the statement of Shri Rajesh Janaklal Daftary at Arihant, Shramjivi Society, opp. Andh Mahila Vikas Gruh, Rajkot on 09.08.2022 are pasted in the assessment order page no.10.

6. The assessing officer also noted that Shri Rajesh Janaklal Daftary is a Rajkot based person and the relevant portion of the statement of Smt. Bhoomi Vachhani and Ami Gandi, daughters of Shri Rajesh Daftary were also recorded during the course of the search action which are reproduced as under:

7. During the assessment proceedings, the assessing officer, after considering the various documents and statements, issued show cause notice to the assessee, to explain the transactions.

8. In response to the show cause notice issued on 01/02/2025 and 18/02/2025, the assessee vide its submission has stated that, “We have not done any transactions with Shri Rajesh Daftary or its controlled entities.” The relevant portion of the reply of the assessee is reproduced as under:

“(i)We have not done any transactions with Shri Rajesh Daftary or its controlled entities.

(ii)We request you to please supply us with certified copies of the seized material being loose paper of Annexure A1 to A5. We invite reference to the provisions of section 75 of Bhartiya Sakshya Adhiniyam, 2023.

(iii)Further, an opportunity to cross-examine, Shri Rajesh Daftary may please be given. We would like to examine the veracity of his statement and basis of the loose paper seized during the search and seizure operation. We invite reference to the decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries vs Commissioner of Central Excise, Kolkata-II (2015) 62 taxmann.com 3 (SC), where it was held that “when statements of witnesses are made basis of demand, not allowing assessee to cross-examine witnesses, is a serious flaw which makes order nullity, as it amounts to violation of principles of natural justice”.

9. However, the assessing officer rejected the above contention of the assessee and noted that Shri Rajesh Janakla Daftary provides unsecured loan to the parties through banking channel and charges interest on these unsecured loan at the rate of 9% to 15% . The parties who took the loan give back equivalent amount of cash to Rajesh Janakla Daftary. The Shri Rajesh Janakla Daftary also charges commission from the parties between 0.15%, to 0.35% per month, for providing accommodation entry. In the books of accounts, the assessee provides the loan through banking channel, however assessee receives the cash back from parties after charging interest at the rate of 9%. to 15% and the difference of interest collected and commission to be charged, is paid back to the parties in cash. Therefore, assessing officer noticed that assessee under consideration provides accommodation entries, hence, assessing officer made addition on account of unexplained cash credit under section 69A of the Act to the tune of Rs.5,40,00,000/-.

10. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer. The assessee challenged the reopening of assessment and contended before ld.CIT(A) that the reopening of the assessment under section 148 was not justified and was erroneous. It was argued that the original return filed in February 2021 was complete and accurate, and that no new material or credible information existed to warrant reopening of the assessment. The assessee further contended that the assessing officer, did not have valid reasons to invoke section 148 and relied on various judicial pronouncements to support the contention that reopening was unjustified. During the appellate proceedings, the assessee also submitted that no fresh tangible evidence is available before assessing officer and assessee had not entered into any transactions with Shri Rajesh Daftary or his controlled entities, therefore, reassessment should be quashed. However, learned CIT(A) rejected the above contention and held that there is abundant documentary evidence, including seized cash books, diaries, Tally data, and banking transactions, establishing that the funds were routed through accommodation entries. This material satisfies the requirements of Explanation 2(iv) to section 147, which allows reopening where the assessing officer has reason to believe that income has escaped assessment, based on tangible information. Therefore, ld.CIT(A) held that action of the assessing officer, in reopening the assessment was justified, as the reopening was made based on tangible information.

11. On merit, the assessee submitted before the learned CIT(A) that it had not entered into any transactions with Shri Rajesh Janaklal Daftary or his controlled entities and requested that the addition be deleted. The assessee claimed that the banking entries and accounting records reflected the true nature of the transactions, and reliance on secondary evidence or statements from the search operation could not be a basis for addition. The assessee also sought to rely on judicial decisions to support the contention that the amounts recorded in books cannot be treated as unexplained income. The assessee, also argued before ld.CIT(A) that the addition of 5,40,00,000 as unexplained income under section 69A read with section 115BBE was not justified. It was argued that the amounts were recorded in assessee’s books of accounts and, therefore, could not be treated as unexplained income. The assessee further submitted that the assessing officer erred in taxing the said amounts under section 69A, asserting that all transactions were genuine, duly recorded, and supported by banking entries. The assessee in this regard also relied on various judicial pronouncements to argue that in the absence of any concrete evidence, the assessing officer could not treat the amounts as unexplained income. However, learned CIT(A) rejected the above contention and held that assessing officer rightly concluded that the accounting entries appearing in the books of the assessee were backed by accommodation entries and were part of a mechanism to introduce unaccounted funds into the formal banking and accounting system. The analysis by the assessing officer of seized material, and ledger scrutiny, validates the conclusion that the assessee received unaccounted funds under the guise of loans. Therefore, learned CIT (A) sustained the addition made by the assessing officer.

12. Aggrieved by the order of the learned CIT (A), the assessee is in further appeal before this Tribunal.

13. Shri R.D. Lalchandani, Learned Counsel for the assessee, challenged the reopening of assessment in the assessee’s case under consideration and argued that there is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer and the reasons were recorded based on suspicion and not on tangible material. Therefore, it reflects an arbitrary exercise of the power conferred under section 147 of the Act. In the reasons supplied to the assessee, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Therefore, ld.Counsel has raised the contention that the assessing officer was not having any tangible material to form “a reason to believe” that there was an escapement of income. The Learned Counsel for the assessee has pointed out following patent errors and defects in the reasons recorded by the assessing officer:

(i) In the reasons recorded, it is mentioned that assessee-company took loan from Rajesh Daftary, whereas the real fact is that assessee- company took the loan from Bank and not from Rajesh Daftary.

(ii) Reopening of assessment in the assessee’s case was made based on the search conducted on other group and based on the statement of other group, there was no tangible material in the hands of the assessing officer except statement of third party, which was not corroborated and it is only general information.

(iii) Documents do not pertain to the assessee-company, which are mentioned in the reasons recorded by the assessing officer.

(iv) The reasons were recorded based on the general statement without application of mind by the assessing officer.

(v) The figures/amount mentioned in the reasons recorded, were already recorded in the books of accounts and in the return of income filed by the assessee-company, hence, when the amount had already been recorded in the book of accounts of the assessee-company, it should not be tangible material in the hands of the assessing officer, as the amount had already been disclosed by the assessee-company in the books of accounts, by way of loan taken from Bank.

Therefore, learned Counsel for the assessee contended that based on the above factual position, the reassessment proceeding should be quashed.

14. Shri Lalchandani, Learned Counsel for the assessee, further argued on another technical issue stating that approval given by the higher authority under section 151 of the Act is not signed, therefore reassessment proceedings initiated against the assessee, based on the unsigned approval under section 151 of the Act should be quashed.

15. Shri Lalchandani, Learned Counsel for the assessee, also argued that opportunity of cross-examination was not provided to the assessee, either during the assessment proceedings or during the appellate proceedings before the ld CIT(A), despite of the fact that assessee had demanded the opportunity of cross-examination by submitting written submission/ request, before the lower authorities, therefore, order passed by the assessing officer without providing opportunity of cross-examination is void ab-initio, hence addition made by the assessing officer should be deleted.

16. On merit, Shri Lalchandani, Learned Counsel for the assessee, argued that first of all, no transaction was done by the assessee company, with Rajesh Daftary, that is, no any loan was taken by the assessee company from Rajesh Daftary, however, assessee company took the loan from Bank, hence, there is no foundation to make addition in the hands of the assessee. There is no any entry in the books of accounts of the assessee company in respect of any transaction done with Rajesh Daftary. The assessing officer, in the assessment order mentioned the name of persons who are engaged in providing accommodation entry, in the said list, no name of the assessee- company is appearing, which is reproduced below:

Page 72 of the paper book filed on 05.03.2026

Book No.	Page No.	Date	Particular	Withdrawals	Deposits	Nature of Transaction
A-5	44	08/12/2021	ORACLE	2,000,000		Accommodation Entry
A-5	8	10/08/2021	MUNESH		500,000	Accommodation Entry
A-5	49	05/08/2021	BALAJI		5,000,000	Accommodation Entry
A-3	36	15/06/2021	WHITE		5,000,000	Accommodation Entry
A-3	36	14/06/2021	JENISH	440,870		Accommodation Entry
A-4	75	16/07/2022	YOGESHBHAI		5,494,500	Accommodation Entry
A-4	73	05/07/2022	JITENDRA		250,000	Accommodation Entry
A-4	38	17/05/2022	KARTIK	500,000		Accommodation Entry
A-4	67	25/04/2022	QUTONE	5,000,000		Accommodation Entry
A-4	32	20/04/2022	QUTONE	5,000,000		Accommodation Entry
A-3	10	17/03/2021	BALAJI		2,100,000	Accommodation Entry
A-2	42	10/12/2020	KETAN	1,100,000		Accommodation Entry
A-2	6	26/06/2020	RIDSHISHBHAI	50,000		Accommodation Entry
A-2	2	17/06/2020	JENIL		1,000,000	Accommodation Entry
A-1	75	12/06/2020	JENIL		1,000,000	Accommodation Entry
A-1	52	10/06/2020	QUTONE	5,000,000		Accommodation Entry
A-1	73	09/03/2020	VISHAL	2,000,000		Accommodation Entry
A-1	40	09/03/2020	VISHAL	4,000,000		Accommodation Entry
A-1	60	24/10/2019	VIKRAM	2,000,000		Accommodation Entry
A-1	59	17/10/2019	QUTONE	3,000,000		Accommodation Entry

Since, there is no name of the assessee- company and no any signature of the assessee- company, in the list of accommodation entry provider, mentioned above, therefore, no addition should be made in the hands of the assessee- company, as the assessee- company does not engage in providing accommodation entry, hence documents relied on by the assessing officer is dump document.

17. On the other hand, ld.CIT-DR for the revenue argued on the issue of reopening of assessment in the assessee’s case under consideration stating that reopening of assessment was initiated by taking the permission from the prescribed income tax authority in accordance with Law. The assessing officer, issued notice under section 148 of the Act, on 28/03/2024 to reopen the assessment and assessing officer also followed the due procedure to reopen the assessment, therefore, reassessment proceedings initiated against the assessee is valid.

18. The ld.CIT-DR for the revenue further argued that approval given by the higher authority under section 151 of the Act, although it is not signed, but proper procedure was followed by the assessing officer, hence it does not have impact on the reassessment order framed by the assessing officer.

19. The ld.CIT-DR for the revenue also argued that although assessee demanded the opportunity of cross-examination before the lower authorities, however, both authorities did not provide the opportunity of cross-examination, because it was not necessary, as the addition was made by the assessing officer based on the documents. That is, when the addition was made by the assessing officer based on the documentary evidences, then in that situation, opportunity of cross examination, is not needed.

20. On merit, the ld.CIT-DR for the revenue argued that assessing officer, during the assessment proceedings, has referred many documentary evidences ( vide page no.2 to 8 of assessment order), which suggest that assessee- company is engaged in providing accommodation entry, therefore, assessing officer has rightly made the addition in the hands of the assessee.

21. We have heard the rival parties and have gone through the material placed on record. We have gone through the reasons recorded by the assessing officer, under section 147/148 of the Act and noted that reasons recorded by the assessing officer is not in accordance with the provisions of the Act. We noted that there is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer, and the reasons were recorded based on suspicion and not on tangible material. The assessee had disclosed the loan taken from the bank in the books of accounts as well as in the income tax return and the assessee had never taken loan from Rajesh Daftary. The contention of ld. Counsel for the assessee is that assessing officer did not have any tangible material to form “a reason to believe” that there was an escapement of income, as the assessee, never took loan from Rajesh Daftary instead loan was taken from bank.The reopening of assessment in the assessee’s case was made based on the search conducted on other group and based on the statement of other group, there was no tangible material in the hands of the assessing officer except statement of third party, which was not corroborated and it is only general information. The documents do not pertain to the assessee-company, which are mentioned in the reasons recorded by the assessing officer. Besides, the reasons were recorded based on the general statement without application of mind by the assessing officer. The loan taken by the assessee from bank were already recorded in the books of accounts and in the return of income filed by the assessee-company, hence, when the amount had already been recorded in the book of accounts of the assessee-company, it should not be tangible material in the hands of the assessing officer, as the amount had already been disclosed by the assessee-company in the books of accounts, by way of loan taken from Bank.

22. In the context of the above facts of reasons recorded, we should analyse the conditions laid down in section 147 of the Act. If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, then, following conditions should be satisfied:

(i) There must be material for the belief.

(ii) Circumstances must exist and cannot be deemed to exist for arriving at an opinion;

(iii) Reasons to believe must be honest and not based on suspicion, gossip, rumour or conjecture;

(iv) Reasons referred to must disclose the process of reasoning by which the assessing officer holds “reasons to believe” and change of opinion does not confer jurisdiction to reassess;

(v) There must be nexus between material and belief; and

(vi) Reasons recorded must show application of mind by the assessing officer.

We note that none of the above conditions have been fulfilled by the assessing officer in the assessee`s case under consideration, therefore reasons recorded by the assessing officer are not in accordance with the scheme of the provisions of section 147 of the Act, hence, the reassessment proceedings, should be quashed.

23. We note that reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion. The Hon’ble Supreme Court in ITO vs Lakhmani Mewal Das [1976 ]103 ITR 437 has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s.147 of the Act. The Hon’ble Court first held that the section provides that there must exist “reasons to believe“ and not “reasons to suspect”. The following were the relevant observations:

“The fact that the words “definite information” which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words are “reason to believe” and not “reason to suspect”. The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed.”

The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s.148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner. Based on these facts and circumstances, we quash the reassessment order framed by the assessing officer under section 147 of the Act dated 27.03.2025.

24. We also find merit in the submissions of Learned Counsel for the assessee, to the effect that approval given by the higher authority under section 151 of the Act is neither signed manually nor digitally. A notice or an order or any other documents without having signature of the person who has issued such notice loses its relevance and importance and is to be treated as invalid. Any document without signature is not a document for execution or implementation. Therefore, it can be stated that no approval was granted by the competent authority, as the approval under section 151 of the Act, is neither signed manually nor digitally. We note that provisions of section 282A deal with authentication of notices and other documents issued by the Department. With reference to the same the provision of section 282 of the Act is reproduced as under:

“Authentication of notices and other documents.

282A. (1) Where this Act requires a notice or other document to be issued by any income-tax authority, such notice or other document shall be signed and issued in paper form or communicated in electronic form by that authority in accordance with such procedure as may be prescribed.

(2) Every notice or other document to be issued, served or given for the purposes of this Act by any income-tax authority, shall be deemed to be authenticated if the name and office of a designated income-tax authority is printed, stamped or otherwise written thereon

(3) For the purposes of this section, a designated income-tax authority shall mean any income-tax authority authorised by the Board to issue, serve or give such notice or other document after authentication in the manner as provided in sub-section (2).

25. It can be said from the plain reading of sub section 1 of the section 282A that any notice or other documents to be issued would not vest assessing officer with any further jurisdiction to proceed to reassess income of the appellant. From the bare reading of the above provisions of section 282A, it is clear that sub-section (1) to section 282A uses word ‘shall before the words ‘be signed’ and after the word ‘signed’ conjunction word ‘and’ is used to differentiate between the mode in which the notice or document is issued i.e. either the notice or document is issued in paper form ‘OR’ communicated in electronic form. The requirement of signature on the notice or document issued is not merely formality but is a mandatory requirement and if such notice or document is issued in paper form, the signature shall be done manually and if the notice or document is issued /communicated electronically, the same shall bear signature of the designated Income-tax Authority via Digital Signature Certificate (DSC) i.e. signed digitally. The DSC Policy of 2018 mandates that every letter, notice, order, etc, issued to assessee or other addresses within the Department or outside the Department will have to be issued by using digital signature. The reason for the same is that when notice or document is communicated in electronic form bears valid digital signature, the recipient of the same would believe that the notice or document is issued by known sender, which authenticates i.e. proves the genuineness of the notice or document issued and most importantly, neither the sender can deny having issued such notice or document nor such notice or document can be altered by any person.

26. We find that Section 282A(1) prior to its substitution by the Finance Act, 2016 with effect from 1-6-2016 also required the notice or document issued to be signed. Therefore, the signing the notice or document before issuing the same is pre-requisite and after evolution of E-proceedings and issuing notices / documents / order, etc, in electronic form, the Legislature amended the provisions of section 282A(1) so that such notice or document can be issued in paper form OR communicated in electronic form, however, the requirement of signature is ‘not dispensed’ but remains and therefore, if such notice or document is issued in paper form, the same shall require manual signature and if such notice or document is communicated in electronic form, the same shall require to be signed digitally so as to make the notice or document authenticated. Therefore, this issue is squarely covered in favour of the assessee by the decision of the recent jurisdictional ITAT-Rajkot in the case of Dhanji Hirani v. ITO (Int. Taxn.) (ITA NO. 131/Rjt/2025) (Rajkot Trib.) The Tribunal held that:

“it is vivid that there is no signature of the concerned authority u/s 151 of the Income Tax Act 1961, in the absence of signature by the concerned Authority, the above approval document, cannot be enforced in the eye of law. In order to create a legal document, the first and primary condition is that it should be signed by the concerned authority. The court noted that section 151 of the Act, mandates prior approval of the “specified authority” before issuing a notice u/s 148 for income escaping assessment if the document granting approval lacks a manual or digital signature, it calls into question the authority’s satisfaction. Physical signature is the traditional evidence of approval. In ITBA (Income Tax Business Application), digital approvals (like authenticated login-based approvals) may suffice legally if appropriately recorded. Based on the approval note there is neither physical signature nor digital signature of any Income tax authority Where no authentication or evidence of the approving authority’s satisfaction is found (either digitally or physically), the approval may be deemed invalid. Absence of evidence showing application of mind or digital signature led to reassessment quashing, and consequently, the reassessment order framed by the assessing officer, based on the above approval should be quashed”.

27. On the identical facts, the decision of the Allahabad High Court in the case of Daujee Abhushan Bhandar (P.) Ltd. v. UOI [2022] 136 taxmann.com 246/286 Taxman 623/444 ITR 41 (Allahabad) clearly makes distinction between signing of notice and issuance or communication thereof. It is also held that as per the provision of section 282A(1), if the notice or document is issued/communicated in electronic form, digital signature of the same is must and prerequisite before issuing such notice or document. Similarly, in the case of Vikas Gupta v. UOI [2022] 142 taxmann.com 253/289 Taxman 443/448 ITR 1 (Allahabad), it has been held that unsigned approval under section 151 is not an authenticated document and is invalid and therefore, there was no jurisdiction with the Assessing Officer to issue notice u/s 148 of the Act.

28. Our view is also fortified by the decision of the Co-ordinate Bench of ITAT Mumbai, in the case of Reuters Asia Pacific Ltd. v. DCIT [2023] 157 taxmann.com 705/205 ITD 31/110 ITR(T) 609 (Mumbai Trib.), in the context of validity of unsigned assessment order served on the assessee in that case, the provisions of section 282A read with Rule 127A of Income tax Rules, 1962 was also dealt with and it was held that before issue of notice or order communicated to the assessee, the same has to be signed. The reliance is placed on the following decisions.

(i) Shri Prahlad Singh v. ITO (ITA No. 3375/DEL/2017) (Del. Trib.)

It was held that when the notice and other documents issued by the authority are without signature, the same is invalid. The judgement was delivered after placing reliance on various case laws and the decision delivered by the Hon’ble ITAT is also upheld by the Hon’ble Punjab & Haryana High Court on the grounds that the reason recorded being unsigned and unrecorded is invalid.

(ii) Prakash Krishnavtar Bhardwaj v. ITO [2023] 150 taxmann.com 60 (Bombay)

It was noted that notice under section 148 issued upon assessee had no signature affixed on it either digitally or manually and, accordingly, same was invalid and same would not vest Assessing Officer with any further jurisdiction to proceed to reassess income of assessee – Whether, therefore, impugned notice under section 148A(b) and order passed under section 148A(d) and further notice under section 148 were to be set aside – Held, yes [Para 21] [In favour of assessee]

(iii) Sri Sesha Sai Township P. Ltd. Vs. ACIT (ITA No. 301 & 302/Viz/2015) (Viz. Trib.)

An order without signature is not an order for execution or for implementation. In the case of the assessee, there was no signature of the AO who recorded the reasons for issue notice and for direction for issue of notice u/s 153C. Therefore, it is to be construed that no reasons were recorded by the AO as required u/s 153C of the Act. As per section 153C it is mandatory on the part of the AO to record satisfaction for issue of notice u/s 153C.

(iv) M/s Taureg Properties & Security v. DCIT (ITA. No. 733/Del./2016) (Delhi Trib.)

After considering the rival submissions, we do not find any merit in the Departmental Appeal. Copy of the notice under section 148 Dated 26.03.2007 is available at page-1 of the paper book. It is unsigned as well as did not mention any assessment year. Since unsigned notice have been sent to the assessee, therefore, it vitiate the entire re- assessment proceedings because it was the jurisdictional notice to initiate proceedings under section 147 of the I.T. Act, 1961. Since the notice itself was illegal and bad in Law, therefore, entire re-assessment proceedings have been vitiated and as such A.O could not have assume the jurisdiction under section 148 of the I.T. Act, 1961 to frame the assessment against the assessee.

29. Therefore, considering the above facts and circumstances of the case, we find that the provisions of section 282A of the Act is of no assistance to the Department and it would be applicable only to a CPU ( central processing unit) which was nominated as designated authority by CBDT as required u/s 282A of the Act. Therefore, we are of the opinion that the assessment framed on the basis of unsigned approval u/s. 151 of the Act is bad in law and cannot be sustained in the eyes of law. Therefore, we are of the view that the sanction granted u/s 151 of the Act without signature is invalid and therefore the assessing officer failed to assume jurisdiction to issue notice u/s 148 of the Act. Therefore, the notice issued u/s 148 of the Act is bad in law for want of valid assumption of jurisdiction. Hence, we quash the reassessment order framed by the assessing officer on this score also.

30. The assessee has raised ground no. 4 about denial of opportunity of cross examination. We note that opportunity of cross-examination should have been provided to the assessee. We find that opportunity of cross-examination was not provided to the assessee, either during the assessment proceedings or during the appellate proceedings before the ld CIT(A), despite of the fact that assessee had demanded the opportunity of cross-examination by submitting written submission/ request, before the assessing officer as well as before the Commissioner of Income Tax ( Appeals), therefore, order passed by the assessing officer without providing opportunity of cross-examination is void ab-initio. As regards the dictum ‘audi alteram partem’ the assessee’s basic contention was that the statements of witnesses and materials which were relied upon by the Assessing Officer in the assessment order to reach the conclusions and findings which were adverse to the assessee should have been disclosed to the assessee and the witnesses should have been offered for cross-examination. Under the circumstances, noted in the assessee’s case under consideration, the cross examination is imminent. Thus, there is clearly avoidable friction and violation of principles of natural justice, as laid down by the Hon’ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise 281 CTR 241 (SC) and Hon’ble Apex Court In the case of Kishanchand Chellaram vs. CIT (1980) 125 ITR 713. The Hon’ble Supreme Court in Sahara India vs. CIT (2008) 14 SCC 151,had held that “The underlying principle of natural justice, evolved under the common law, is to check arbitrary exercise of power by the State or its functionaries. Therefore, the principle implies a duty to act fairly i.e. fair play in action. The aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice.” Further, the Hon’ble Supreme Court in the case of Kalra Glue Factory v. Sales Tax Tribunal [1987] 167 ITR 498 set- aside the order of the Tribunal as well as order in revision of High Court on the ground that “…the statements of a partner of another firm upon which the Sales Tax Tribunal relied, had not been tested by cross examinations.” Besides, the Hon’ble Supreme Court in the case of CIT vs. Sunita Dhadda in Diary No. 9432 / 2018 dismissing the SLP filed by revenue against the order of Hon’ble High Court of Rajasthan and confirming the order passed by Hon’ble ITAT, Jaipur Bench ‘A’ (2012) 148 TTJ 719, had held that, in case the assessing officer wants to make reliance for making addition on the basis of the documents found during the course of search at 3rd party then presumption u/s 292C will not be available against the assessee. Such presumption, even in the case of the assessee in whose case the document has been found during the course search, is rebuttable. Therefore, we note that additions made in absence of providing opportunity of cross-examination of the persons, whose statement has been relied upon for making the additions is violation of principle of natural justice. We also note that not allowing the assessee to cross examine the witness by the adjudicating authority though the statements of those witness were made the basis of the impugned order is a serious flaw which makes the order nullity. We also note that same view was expressed by the Hon`ble Calcutta High Court in the case of Eastern Commercial Enterprises 210 ITR 103 (Cal), wherein it was held that it is a trite law that cross examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against the party unless the party is put on notice of the case made out against him. Therefore, the addition made by the assessing officer based on the statement of Shri Rajesh daftary, is not sustainable in law, as the assessing officer did not provide an opportunity to the assessee to cross examine the statement of Shri Rajesh daftary, therefore addition made by the assessing officer should be deleted.

31. Even on merit, also, the addition made by the assessing officer is not sustainable in the eye of Law. We note that show cause notices were issued on 01/02/2025 and 18/02/2025, to which the assessee denied any transactions with Shri Rajesh Daftary or his controlled entities. Further, the assessee stated that loan was taken from the bank and amount was recorded in the books of accounts, therefore the provisions of section 69A read with section 115BBE, is not applicable. We also note that assessee filed original return of income February 2021 which was complete and accurate, as all the transactions were disclosed in the return of income. During the proceedings, before ld.CIT(A), the assessee submitted that it had not entered into any transactions with Shri Rajesh Daftary or his controlled entities and the assessing officer has not established with cogent evidences, that any cash amount was flowing to the assessee company. Besides, at the cost of repetition we state that assessing officer, in the assessment order mentioned the name of persons who are engaged in providing accommodation entry, in the said list, no name of the assessee- company is appearing, which is reproduced below:

Page 72 of the paper book filed on 05.03.2026

Book No.	Page No.	Date	Particular	Withdrawals	Deposits	Nature of Transaction
A-5	44	08/12/2021	ORACLE	2,000,000		Accommodation Entry
A-5	8	10/08/2021	MUNESH		500,000	Accommodation Entry
A-5	49	05/08/2021	BALAJI		5,000,000	Accommodation Entry
A-3	36	15/06/2021	WHITE		5,000,000	Accommodation Entry
A-3	36	14/06/2021	JENISH	440,870		Accommodation Entry
A-4	75	16/07/2022	YOGESHBHAI		5,494,500	Accommodation Entry
A-4	73	05/07/2022	JITENDRA		250,000	Accommodation Entry
A-4	38	17/05/2022	KARTIK	500,000		Accommodation Entry
A-4	67	25/04/2022	QUTONE	5,000,000		Accommodation Entry
A-4	32	20/04/2022	QUTONE	5,000,000		Accommodation Entry
A-3	10	17/03/2021	BALAJI		2,100,000	Accommodation Entry
A-2	42	10/12/2020	KETAN	1,100,000		Accommodation Entry
A-2	6	26/06/2020	RIDSHISHBHAI	50,000		Accommodation Entry
A-2	2	17/06/2020	JENIL		1,000,000	Accommodation Entry
A-1	75	12/06/2020	JENIL		1,000,000	Accommodation Entry
A-1	52	10/06/2020	QUTONE	5,000,000		Accommodation Entry
A-1	73	09/03/2020	VISHAL	2,000,000		Accommodation Entry
A-1	40	09/03/2020	VISHAL	4,000,000		Accommodation Entry
A-1	60	24/10/2019	VIKRAM	2,000,000		Accommodation Entry
A-1	59	17/10/2019	QUTONE	3,000,000		Accommodation Entry

Since, there is no name of the assessee- company and no any signature of the assessee- company, in the list of accommodation entry provider, mentioned above, therefore, no addition should be made in the hands of the assessee- company, on merit, also. Hence, above referred document, relied on by the assessing officer, to make the addition in the hands of the assessee, is dump document and based on the dump document, no addition should be made in the hands of the assessee. Therefore, even on merit, the addition made by the assessing officer, is not sustainable in the eye of law. Hence, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made on merit, is deleted.

32. On the basis of foregoing discussion and respectfully following the ratio of the various decisions mentioned on technical issues and on merit, we allow the appeal of the assessee.

33. In the result, appeal of the assessee, is allowed.

Order is pronounced in the open Court on 28/08/2026.