DICET Creative Ventures (India) Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Wrong Sanction, Wrong Facts & Double Addition- 1,053 Crore Reassessment Collapses u/ss 151, 68 & 69C
The controversy
The assessee, DICET Creative Ventures (India) Pvt. Ltd., formerly Morgan Credits Pvt. Ltd., faced reassessments for AYs 2017-18 & 2018-19 based on Investigation Wing information concerning Yes Bank, certain NBFCs & alleged financial accommodation connected with its former management.
For AY 2017-18, the AO treated a ₹300 crore loan from Indiabulls Housing Finance Ltd. as unexplained cash credit u/s 68 and disallowed related interest of ₹34.13 crore u/s 69C.
For AY 2018-19, the AO added ₹600 crore allegedly received from Reliance Capital Ltd. and another ₹50 crore from Nippon India Mutual Fund u/s 68, besides disallowing interest of ₹69.41 crore u/s 69C.
The CIT(A) quashed the reassessments for defective sanction u/s 151 and also deleted the principal additions on merits. The Revenue appealed, while the assessee challenged a surviving disallowance of ₹1,92,404 u/s 37(1).
Approval came from the wrong authority
The notices u/s 148 were admittedly issued after expiry of three years from the end of the relevant assessment years.
Under substituted s.151, where the notice is issued beyond three years, approval must come from the specified authority under s.151(ii)—the Principal Chief Commissioner or Chief Commissioner, as applicable.
Here, approval was granted only by the Principal Commissioner.
The Revenue argued that sanction by the Principal Commissioner substantially complied with the provision because he exercised administrative control over the AO.
The ITAT rejected the contention. Jurisdiction under a taxing statute flows from Parliament’s express mandate, not administrative hierarchy. When the legislature consciously names different approving authorities for different periods, one cannot be treated as interchangeable with another.
Approval u/s 151 is a substantive jurisdictional safeguard, not an empty administrative endorsement. The doctrine of substantial compliance cannot cure absence of approval from the authority specifically designated by law.
Following Union of India v. Rajeev Bansal and the Bombay High Court decisions in Alag Property Construction Pvt. Ltd., Anil Gupta Private Family Trust & Skypak Travels (India) Ltd., the reassessments were quashed.
₹300 crore regulated loan was fully documented
The ITAT nevertheless examined the merits independently.
For AY 2017-18, identity and financial capacity of IBHFL—an established regulated housing-finance company—were never disputed.
The assessee furnished the sanction letter, loan agreement, lender’s ledger, bank statements, interest particulars, TDS evidence, repayment records & no-dues certificate. The entire ₹300 crore, together with contractual interest, had been repaid through banking channels.
The AO alleged that the loan represented an accommodation or kickback linked to facilities sanctioned by Yes Bank to certain NBFCs. However, he produced no cash trail, circular movement, incriminating document, return flow of money or statement from any IBHFL official supporting that allegation.
The Investigation Wing information justified enquiry, but could not become conclusive evidence without a transaction-specific nexus.
The Tribunal therefore upheld deletion of ₹300 crore u/s 68.
Interest could not become unexplained expenditure
The related interest of ₹34,12,94,521 was recorded in the regular books, arose under the disclosed loan agreement, was paid through banks & subjected to TDS.
Section 69C applies where the source of expenditure is unexplained. Here, both the liability and its source were documented.
Once the underlying loan was held genuine, the consequential interest addition automatically lost its foundation. Its deletion was affirmed.
₹600 crore “loan” was actually an NCD subscription
For AY 2018-19, the AO proceeded on the fundamentally incorrect premise that the assessee received a ₹600 crore loan from Reliance Capital Ltd.
The records showed that the assessee had issued Non-Convertible Debentures in two tranches—₹550 crore & ₹50 crore. Subscription money was received through Reliance Capital Trustee Company Ltd., acting as trustee for schemes of Reliance Mutual Fund.
Board resolutions, shareholders’ resolution, debenture trust deed, allotment records & banking documents supported the issue. The NCDs were subsequently redeemed and interest was paid after TDS.
Thus, the receipt was not a loan from Reliance Capital Ltd. but a fully documented NCD subscription from a regulated financial institution.
₹50 crore was taxed twice
The separate addition of ₹50 crore suffered from an even simpler defect.
The ₹600 crore NCD subscription already comprised the first tranche of ₹550 crore and second tranche of ₹50 crore. The AO nevertheless added the second tranche once again as a separate receipt from Nippon India Mutual Fund.
It was therefore a duplicate addition of the same credit.
There was no evidence of accommodation entry, circular funds, unlawful quid pro quo or return of money to any connected person. The ITAT affirmed deletion of both ₹600 crore & ₹50 crore u/s 68 and related interest of ₹69.41 crore u/s 69C.
Accrued professional fee allowed
The remaining ₹1,92,404 represented a year-end provision for professional services already received.
Since the assessee followed the mercantile system, liability crystallised when services were rendered, even though invoicing or payment occurred later. The Revenue did not dispute the services, business purpose or subsequent discharge.
The disallowance u/s 37(1) was accordingly deleted.
Author’s comments
The reassessment failed twice—first for want of jurisdiction, and again on absence of evidence.
A serious investigation may justify scrutiny, but it cannot replace proof connecting the assessee’s particular transaction with the alleged arrangement. Corporate allegations elsewhere cannot convert a documented, serviced & repaid institutional borrowing into unexplained income.
The order also exposes the danger of beginning with a narrative and forcing documents into it: a ₹600 crore NCD issue was misdescribed as a loan, while ₹50 crore forming part of it was taxed again.
The legal lesson is crisp: jurisdiction requires the right sanction; s.68 requires the right facts; suspicion supplies neither.
Cases Discussed
- Union of India v. Rajeev Bansal [(2024) 469 ITR 46 (SC)]
- Alag Property Construction Pvt. Ltd. v. ACIT [(2026) 487 ITR 440 (Bom.)]
- Anil Gupta Private Family Trust v. ACIT (W.P. No. 928 of 2026, decided on 23.03.2026)
- Skypak Travels (India) Ltd. [(2026) 185 taxmann.com 963 (Bom.)]
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
1. These cross appeals comprise the appeal preferred by the assessee and the connected appeals preferred by the Revenue arising out of the separate orders passed by the learned Commissioner of Income Tax (Appeals) [“Ld. CIT(A)”] under section 250 of the Income-tax Act, 1961 (“the Act”) for the assessment years under consideration. Since all the appeals emanate from the same reassessment proceedings initiated pursuant to a common investigation, involve substantially identical facts, interconnected transactions and common questions of law and fact, they were heard together. Accordingly, for the sake of convenience and to avoid repetition, they are disposed of by this consolidated order. Wherever the factual discussion is common, the findings recorded by us shall apply mutatis mutandis to the connected appeals also.
2. The genesis of the present litigation lies in the reassessment proceedings initiated on the basis of information received from the Investigation Wing concerning certain financial transactions allegedly linked with Yes Bank Limited, certain Non-Banking Financial Companies (NBFCs) and entities stated to have received financial accommodation pursuant to the sanction of loans by the then management of Yes Bank. Proceeding on the basis of such information, the Assessing Officer formed a belief that the financial transactions entered into by the assessee represented accommodation arrangements and not genuine commercial transactions. Consequently, proceedings under section 148A were initiated, followed by issuance of notices under section 148, culminating in reassessment orders under section 143(3) read with section 147 of the Act.
3. In so far as Assessment Year 2017-18 is concerned, the Assessing Officer treated the borrowing of ₹300 crore received from Indiabulls Housing Finance Ltd. as an unexplained cash credit under section 68 of the Act. Consequentially, interest expenditure of ₹34.12 crore incurred on the said borrowing was also disallowed under section 69C on the premise that once the principal transaction itself lacked genuineness, the corresponding expenditure could not be allowed. The foundation of the assessment was not that the lender lacked identity or financial capacity, but that the transaction allegedly formed part of a larger arrangement emerging from the investigation relating to Yes Bank and certain NBFCs.
4. For Assessment Year 2018-19, the Assessing Officer proceeded on the footing that the assessee had received a loan of ₹600 crore from Reliance Capital Ltd. and another ₹50 crore from Nippon India Mutual Fund, both of which were treated as unexplained cash credits under section 68. Consequential disallowance of interest expenditure under section 69C and certain other disallowances were also made. However, during the appellate proceedings, the assessee demonstrated, by producing the complete documentary record, that the Assessing Officer had proceeded on a fundamentally erroneous factual premise. The material on record established that no loan had been received from Reliance Capital Ltd. The amount of ₹600 crore represented subscription to Non-Convertible Debentures (NCDs) through Reliance Capital Trustee Company Ltd., acting as trustee for the schemes of Reliance Mutual Fund, and the separate addition of ₹50 crore merely represented a part of the very same NCD subscription, resulting in duplication of the addition. These factual aspects were verified by the learned CIT(A.) from the contemporaneous documentary evidence, including the banking records and the debenture documentation.
5. Upon an elaborate appreciation of the documentary evidence, the learned CIT(A.) deleted the principal additions made under section 68 for both the assessment years. He recorded categorical findings that the identity and financial capacity of the counterparties were never in dispute; the transactions were supported by complete contractual documentation; the receipts as well as repayments had moved through normal banking channels; and the factual assumptions on which the Assessing Officer proceeded were inconsistent with the evidence available on record. The learned CIT(A.) further held that the consequential additions under section 69C could not independently survive once the principal additions themselves failed. However, in Assessment Year 2018-19, a limited disallowance under section 37(1) was sustained, against which the assessee is in appeal. Simultaneously, the Revenue has challenged the relief granted by the learned CIT(A.) on the principal additions.
6. Apart from the findings on merits, the learned CIT(A.) also accepted the assessee’s preliminary objection relating to the validity of the reassessment proceedings. He held that the notices under section 148, admittedly issued after the expiry of three years from the end of the relevant assessment years, had been sanctioned by the Principal Commissioner of Income-tax, whereas, under the substituted provisions of section 151 brought into force by the Finance Act, 2021, the approval ought to have been obtained from the authority prescribed under section 151(ii), namely the Principal Chief Commissioner or the Chief Commissioner, as the case may be. Holding that the statutory requirement constituted a jurisdictional condition precedent, the learned CIT(A.) concluded that the assumption of jurisdiction itself suffered from a legal infirmity.
7. Before us, while the learned Counsel appearing on behalf of the assessee supported the order of the learned CIT(A.) both on the jurisdictional issue and on merits, the learned CIT-DR assailed the relief granted by the first appellate authority and sought restoration of the additions made by the Assessing Officer. Thus, two distinct issues arise for our adjudication. The first concerns the legality of the assumption of jurisdiction under the substituted reassessment provisions, particularly the validity of the approval obtained under section 151 before issuance of the notices under section 148. The second pertains to the sustainability of the additions made under sections 68, 69C and the connected disallowances. Since the first issue strikes at the very foundation of the reassessment proceedings and, if decided in favour of the assessee, would render the reassessment itself unsustainable, we consider it appropriate to examine the said issue at the threshold before adverting to the merits of the additions.
8. The learned counsel for the assessee, at the outset, assailed the very validity of the reassessment proceedings on the ground that the assumption of jurisdiction under sections 147 and 148 of the Act is vitiated for non-compliance with the mandatory requirement contained in section 151. It was submitted that the notices under section 148, having admittedly been issued after the expiry of three years from the end of the relevant assessment years, could have been issued only after obtaining the previous approval of the authority specified under section 151(ii), namely the Principal Chief Commissioner or the Chief Commissioner, as the case may be. However, the approval in the present case was admittedly granted by the Principal Commissioner of Income-tax. According to the learned counsel, once Parliament has consciously designated a particular authority as the specified authority for assumption of jurisdiction beyond the prescribed period, approval granted by any other authority cannot confer jurisdiction upon the Assessing Officer. It was thus submitted that the entire reassessment proceedings deserve to be quashed at the threshold.
9. Elaborating the aforesaid submission, the learned counsel invited our attention to the substituted reassessment regime introduced by the Finance Act, 2021 and submitted that Parliament has consciously recast the statutory framework governing reassessment by introducing several jurisdictional safeguards before a completed assessment can be reopened. It was submitted that the requirement of prior approval under section 151 is not a mere administrative formality but a substantive jurisdictional safeguard enacted to regulate the exercise of the extraordinary power of reopening concluded assessments. Once the legislature itself has differentiated between cases falling under section 151(i) and those governed by section 151(ii), such distinction has to be given full effect and cannot be diluted by administrative considerations or by invoking the doctrine of substantial compliance.
10. The learned counsel further submitted that the controversy is no longer res integra in view of the authoritative pronouncement of the Hon’ble Supreme Court in Union of India v. Rajeev Bansal [(2024) 469 ITR 46 (SC)], wherein the substituted reassessment provisions have been interpreted in the context of the Finance Act, 2021 and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“TOLA”). Reliance was also placed upon the judgments of the Hon’ble jurisdictional Bombay High Court in Alag Property Construction Pvt. Ltd. v. ACIT [(2026) 487 ITR 440 (Bom.)], Anil Gupta Private Family Trust v. ACIT (W.P. No. 928 of 2026, decided on 23.03.2026) and Skypak Travels (India) Ltd. [(2026) 185 taxmann.com 963 (Bom.)], wherein it has consistently been held that where approval is required under section 151(ii), sanction granted by the Principal Commissioner instead of the specified authority renders the entire reassessment proceedings without jurisdiction.
11. Without prejudice to the aforesaid legal objection, the learned counsel also supported the order of the learned CIT(A.) on merits. It was submitted that the additions made under section 68 rest entirely upon assumptions drawn from the investigation concerning Yes Bank without there being any independent evidence connecting the assessee with any alleged accommodation arrangement. Referring to the documentary evidence placed before the authorities below, it was submitted that every financial transaction was supported by contemporaneous agreements, board resolutions, loan documents, debenture trust deeds, banking records, repayment schedules and other statutory documents. It was emphasised that the identity and financial capacity of the counterparties were never disputed and that the transactions had been completed through recognised banking channels in the ordinary course of business.
12. In so far as Assessment Year 2018-19 is concerned, the learned counsel specifically submitted that the very factual premise adopted by the Assessing Officer is demonstrably erroneous. The addition of ₹600 crore proceeded on the assumption that the assessee had received a loan from Reliance Capital Ltd., whereas the documentary evidence clearly established that the amount represented subscription to Non-Convertible Debentures through Reliance Capital Trustee Company Ltd., acting as trustee of the schemes of Reliance Mutual Fund. It was further submitted that the separate addition of ₹50 crore merely represented a part of the very same NCD subscription, resulting in duplication of the addition itself. These facts, according to the learned counsel, were duly verified by the learned CIT(A.) from the primary records and remain uncontroverted by the Revenue.
13. Per contra, the learned CIT-DR strongly relied upon the reassessment orders. It was submitted that the Assessing Officer had proceeded on the basis of credible information received from the Investigation Wing concerning the affairs of Yes Bank and certain NBFCs, which disclosed a larger pattern of financial accommodation and diversion of funds. According to the Revenue, the learned CIT(A.) erred in placing undue reliance upon the documentary evidence produced by the assessee while ignoring the surrounding circumstances emerging from the investigation. It was further submitted that the reassessment proceedings were validly initiated and that the approvals obtained before issuance of notice under section 148 substantially satisfied the statutory requirements.
14. We have given our thoughtful consideration to the rival submissions and have carefully examined the assessment orders, the impugned appellate orders, the documentary evidence placed before us and the judicial precedents cited at the Bar. The facts relating to the dates of issuance of notices under section 148 and the authority granting approval are not in dispute. Likewise, the principal documentary evidence forming the basis of the additions has also been placed before us. Thus, the controversy essentially turns upon the legal effect of the admitted facts and the application of the settled principles governing the substituted reassessment regime.
15. Since the challenge to the assumption of jurisdiction goes to the very root of the reassessment proceedings and, if accepted, would render the reassessment orders themselves unsustainable, we consider it appropriate to examine the said issue before adverting to the merits of the additions. It is only if the jurisdictional challenge does not succeed that the issues relating to the additions under sections 68, 69C and the remaining disallowances would require independent adjudication. We shall, therefore, first examine the statutory framework governing section 151, the law laid down by the Hon’ble Supreme Court and the Hon’ble jurisdictional High Court, and thereafter apply those principles to the admitted facts of the present case.
16. We have carefully considered the rival submissions and examined the statutory provisions governing reassessment after their substitution by the Finance Act, 2021. In our considered opinion, the controversy involved in the present appeals no longer admits of any substantial debate. The material facts are undisputed. The notices under section 148 were issued after the expiry of three years from the end of the relevant assessment years and the approvals preceding such notices were admittedly granted by the Principal Commissioner of Income-tax. The only question, therefore, is whether such approval satisfies the statutory requirement prescribed under section 151. In our opinion, the answer is clearly in the negative.
17. Section 151, as substituted by the Finance Act, 2021, consciously prescribes two distinct approving authorities depending upon the period elapsed from the end of the relevant assessment year. Where the notice under section 148 is proposed to be issued within three years, the specified authority is the Principal Commissioner or the Commissioner, as provided under clause (i). However, where more than three years have elapsed, Parliament has consciously entrusted the supervisory function to a higher authority, namely the Principal Chief Commissioner, Chief Commissioner or the corresponding authorities specified in clause (ii). This distinction is not merely procedural. It is an integral part of the legislative framework governing reassessment and reflects the legislative intent that reopening of completed assessments after a longer lapse of time should be subjected to a higher degree of statutory scrutiny. Therefore, the identity of the approving authority is itself a jurisdictional condition precedent and not an administrative formality.
18. The legal position now stands authoritatively settled by the Hon’ble Supreme Court in Union of India v. Rajeev Bansal [(2024) 469 ITR 46 (SC)]. The Hon’ble Supreme Court has categorically held that after the substituted reassessment provisions came into force with effect from 1st April, 2021, every reassessment proceeding must conform to the statutory framework introduced by the Finance Act, 2021. While the provisions of TOLA extended the period of limitation wherever legally permissible, they did not preserve the earlier statutory regime governing reassessment, nor did they dilute the safeguards incorporated under the substituted provisions. Consequently, every notice issued after the substituted provisions became operational had necessarily to satisfy all the jurisdictional requirements of the new regime, including obtaining approval from the authority prescribed under section 151.
19. The aforesaid principle has thereafter been consistently followed by the Hon’ble jurisdictional Bombay High Court in Alag Property Construction Pvt. Ltd. v. ACIT [(2026) 487 ITR 440 (Bom.)], the Hon’ble High Court held that where approval was required under section 151(ii), sanction granted by the Principal Commissioner could not be regarded as compliance with the statutory requirement. The same principle has been reiterated in Anil Gupta Private Family Trust v. ACIT (W.P. No. 928 of 2026, decided on 23.03.2026) and thereafter in Skypak Travels (India) Ltd. [(2026) 185 taxmann.com 963 (Bom.)], wherein it has further been held that the proviso inserted by the Finance Act, 2023 cannot retrospectively validate notices issued prior thereto. Thus, the legal position emerging from the binding precedents leaves no manner of doubt that where Parliament has prescribed approval by the authority specified under section 151(ii), sanction granted by any other authority cannot sustain the assumption of jurisdiction.
20. We are equally unable to accept the contention advanced on behalf of the Revenue that approval granted by the Principal Commissioner should nevertheless be treated as sufficient compliance since he exercises administrative control over the Assessing Officer. Jurisdiction under a taxing statute is not founded upon administrative hierarchy but upon the express mandate of Parliament. Once Parliament has consciously distinguished between the authorities specified under clauses (i) and (ii) of section 151, such distinction cannot be rendered otiose by treating one authority as interchangeable with another. The approval contemplated under section 151 is not intended to be an empty administrative endorsement but a substantive jurisdictional safeguard consciously engrafted by Parliament before disturbing a completed assessment. Consequently, the doctrine of substantial compliance has no application where the very source of jurisdiction depends upon satisfaction of the authority specifically designated by the statute.
21. Applying the aforesaid settled legal principles to the admitted facts before us, it is evident that the notices under section 148 having been issued after the expiry of three years from the end of the relevant assessment years, the approval ought to have been obtained from the authority prescribed under section 151(ii). Admittedly, the sanction was granted only by the Principal Commissioner of Income-tax. Thus, the mandatory jurisdictional requirement envisaged by Parliament remained unfulfilled. The defect, therefore, is not one relating to the manner of exercise of jurisdiction but to the very existence of jurisdiction itself. Such a defect strikes at the root of the reassessment proceedings and renders the notices issued under section 148 and the consequential reassessment orders unsustainable in law.
22. In view of the foregoing discussion, and respectfully following the ratio laid down by the Hon’ble Supreme Court in Rajeev Bansal (supra) and the consistent view taken by the Hon’ble jurisdictional Bombay High Court in Alag Property Construction Pvt. Ltd., Anil Gupta Private Family Trust and Skypak Travels (India) Ltd., we hold that the assumption of jurisdiction under sections 147 and 148 in the present case is invalid for want of approval from the competent authority prescribed under section 151(ii) of the Act. Nevertheless, since elaborate arguments were advanced by both the parties on the merits of the additions and the learned CIT(A.) has returned detailed findings thereon, we proceed to examine the issues on merits as alternative findings, independent of and without prejudice to our conclusion on the jurisdictional issue.
23. Having held that the reassessment proceedings are unsustainable for want of approval from the competent specified authority under section 151(ii), ordinarily no further adjudication would be required. However, since both the parties have addressed us extensively on the substantive additions, the learned CIT(A.) has recorded detailed findings after examining the primary evidence, and the Revenue has specifically assailed those findings before us, we consider it appropriate to examine the issues on merits as well. The findings recorded hereinafter are, therefore, independent and alternative findings, without prejudice to our conclusion on the invalidity of the reassessment proceedings.
Assessment Year 2017-18 — Addition of ₹300 crore under section 68
24. In Assessment Year 2017-18, the Assessing Officer has treated the loan of ₹300 crore received by the assessee from Indiabulls Housing Finance Ltd. (“IBHFL”) as an unexplained cash credit under section 68 of the Act. The assessment order proceeds substantially on the information received from the Investigation Wing that, during the tenure of Shri Rana Kapoor as the Managing Director and Chief Executive Officer of Yes Bank Ltd., certain loans were sanctioned by Yes Bank to various NBFCs, which, in turn, advanced funds to entities allegedly connected with Shri Rana Kapoor and his family members. The Assessing Officer inferred that the loan received by the assessee from IBHFL represented a financial accommodation or kickback arising from the alleged favours extended by Yes Bank to the lender. On this premise, the entire amount of ₹300 crore was brought to tax under section 68. The corresponding interest expenditure of ₹34,12,94,521 was separately treated as unexplained expenditure under section 69C.
25. At the outset, it is necessary to appreciate what section 68 requires and what, in fact, remained disputed before the Assessing Officer. The creditor, IBHFL, is an identified and established housing finance company. Its legal existence and financial capacity to advance the sum of ₹300 crore were never doubted in the reassessment order. The amount was received through regular banking channels and stood duly recorded in the assessee’s books of account. The assessee had furnished the loan agreement, sanction letter, ledger account of the lender, bank statements evidencing receipt and repayment of the loan, details of the interest paid, tax deducted at source and the no-dues certificate issued by IBHFL upon complete discharge of the borrowing. None of these documents has been found to be fabricated, false or otherwise unreliable. The lender has not denied the transaction, nor has any material been brought on record to suggest that it lacked the capacity to advance the money. Thus, the identity of the creditor, its creditworthiness and the genuineness of the transaction—the three essential ingredients ordinarily examined under section 68—stood supported by contemporaneous and verifiable evidence.
26. The learned CIT(A.), after examining the aforesaid material, recorded a categorical finding that the assessee had discharged the primary burden cast upon it under section 68. The Revenue has not been able to point out any infirmity in this finding. The case of the Assessing Officer is not that the monies did not flow from IBHFL, that the loan agreement was fictitious, that the lender lacked financial capacity, or that the repayment was merely an accounting entry. His conclusion is founded upon the alleged motive underlying the transaction, namely, that the loan represented a return favour for financial facilities earlier sanctioned by Yes Bank to IBHFL or entities associated with it. However, once the apparent transaction is supported by legally recognised documents and regular banking records, the apparent cannot be discarded merely on the basis of a broader allegation unless the Revenue brings positive material demonstrating that the documented transaction was not the real transaction. The burden thereafter rested upon the Assessing Officer to establish a tangible and intelligible nexus between the investigation material and the particular credit appearing in the assessee’s books. That evidentiary nexus is absent.
27. Despite the serious allegation that the loan represented a kickback, the assessment order does not identify any payment of illegal gratification by the assessee, any return flow of money to IBHFL, Yes Bank, Shri Rana Kapoor or any member of his family, or any circular movement of funds capable of showing that the assessee merely acted as a conduit. There is no statement of any representative of IBHFL admitting that the transaction was an accommodation arrangement; no incriminating document recovered from the assessee or the lender; no banking trail demonstrating that the money travelled back to an alleged beneficiary; and no evidence that the repayment made by the assessee was fictitious or sourced from the lender itself. Nor did the Assessing Officer undertake any meaningful enquiry from IBHFL regarding the sanction, disbursement, servicing and repayment of the loan. The investigation material may have furnished a reason to examine the transaction with greater circumspection, but it could not, without any further enquiry or corroboration, become conclusive proof that an otherwise documented commercial borrowing was non-genuine.
28. The assessee had also placed material explaining the institutional mechanism through which high-value credit facilities were processed and sanctioned by Yes Bank. The record indicates that credit proposals were required to undergo financial appraisal and scrutiny at several levels and were placed before the designated sanctioning authorities, including the Board Credit Committee, Management Credit Committee or Executive Credit Committee, depending upon the nature and quantum of the facility. The proposal was subjected to review by the relationship and product management functions, and the Chief Risk Officer was also part of the institutional risk-control framework contemplated under the RBI Circular dated 27.04.2017. The sanctioning process was, therefore, founded upon a committee or joint-delegation framework and was not shown to be the unilateral act of one individual. The learned CIT(A.) also referred to the observations of the Special Court noticing that large corporate credit facilities were processed through several functionaries and committees. These materials were relevant because the assessment order repeatedly proceeded on the assumption that Shri Rana Kapoor, by himself, sanctioned favourable loans to NBFCs and thereby caused corresponding financial accommodation to the assessee. In the absence of any evidence establishing unilateral sanction or a quid pro quo involving the assessee, the foundational inference drawn by the Assessing Officer remains unsupported.
29. There is another material circumstance which cannot be disregarded. The entire loan of ₹300 crore was repaid through banking channels together with the contractual interest, and the lender issued a no-dues certificate acknowledging complete satisfaction of the liability. The repayment, interest payment and deduction of tax have not been disputed. Repayment by itself may not invariably establish the genuineness of every credit; nevertheless, where the creditor is an identified regulated financial institution, the transaction is supported by formal loan documentation, the money is received and repaid through banking channels, interest is serviced in accordance with contractual terms, and no contrary money trail is brought on record, these facts constitute compelling evidence of a genuine borrowing. The allegation that such a completed commercial transaction was merely a disguised accommodation entry required cogent material of a far more definite character than the general inferences contained in the investigation report. We, therefore, find no infirmity in the conclusion of the learned CIT(A.) that the addition of ₹300 crore made under section 68 is unsupported by the evidence on record and deserves to be deleted.
Consequential addition of ₹34,12,94,521 under section 69C
30. The addition of ₹34,12,94,521 under section 69C represents the interest paid on the aforesaid loan. The Assessing Officer treated the interest as unexplained expenditure only because he had regarded the underlying borrowing as non-genuine. Once the loan transaction is found to be genuine and the addition under section 68 does not survive, the consequential addition of the interest expenditure necessarily loses its foundation. Even independently, section 69C applies where an assessee has incurred expenditure and offers no satisfactory explanation regarding its source. In the present case, the expenditure was duly recorded in the regular books of account, arose under the disclosed loan agreement, was paid through banking channels and its source stood fully explained. The genuineness of the payment and the corresponding deduction of tax have not been disputed. The provisions of section 69C could not, therefore, have been invoked merely because the Assessing Officer entertained a doubt regarding the commercial genesis of the underlying borrowing. Accordingly, the order of the learned CIT(A.) deleting the addition of ₹34,12,94,521 under section 69C is affirmed.
Assessment Year 2018-19 — Addition of ₹600 crore and ₹50 crore under section 68
31. We shall now advert to the additions made in Assessment Year 2018-19. The Assessing Officer proceeded on the footing that the assessee had received a loan of ₹600 crore from Reliance Capital Ltd. and a further amount of ₹50 crore from Nippon India Mutual Fund towards subscription to Non-Convertible Debentures. On that basis, both the amounts were treated as unexplained cash credits under section 68. The learned CIT(A.), upon examination of the primary evidence, found that the very factual premise adopted in the assessment order was contrary to the record. Since the Revenue has assailed those findings, it becomes necessary to examine the nature of the receipts and the evidence supporting them.
32. The material on record establishes that during the relevant previous year the assessee had issued Non-Convertible Debentures in two tranches, namely ₹550 crore on 28.07.2017 and ₹50 crore on 18.10.2017, aggregating to ₹600 crore. The subscription monies were received through Reliance Capital Trustee Company Ltd., acting as trustee for the concerned schemes of Reliance Mutual Fund. The assessee had furnished before the Assessing Officer the board resolutions authorising the issue and allotment of the debentures, the special resolution passed by the shareholders, the debenture trust deed, debenture trust agreement, allotment records, bank statements evidencing receipt of the subscription monies and the other contemporaneous documents relating to the issuance of the NCDs. These documents were neither found to be fabricated nor otherwise disbelieved. The banking trail also verified the receipt of ₹545 crore and ₹5 crore on 28.07.2017 and ₹50 crore on 18.10.2017 from the trustee company. Thus, what was received by the assessee was not a loan from Reliance Capital Ltd., but subscription monies against duly issued NCDs.
33. The separate addition of ₹50 crore suffers from an even more fundamental infirmity. The aggregate NCD subscription of ₹600 crore itself comprised the first tranche of ₹550 crore and the second tranche of ₹50 crore. Nevertheless, while treating ₹600 crore as an alleged loan from Reliance Capital Ltd., the Assessing Officer once again brought the second tranche of ₹50 crore to tax as a separate receipt from Nippon India Mutual Fund. The learned CIT(A.) verified the banking and debenture records and recorded a categorical finding that the amount of ₹50 crore already formed part of the aggregate subscription of ₹600 crore. The separate addition, therefore, represented a duplication of the very same credit. The Revenue has not placed before us any material capable of dislodging this factual finding. On this ground alone, the separate addition of ₹50 crore is incapable of being sustained.
34. Even apart from the aforesaid factual errors, the conditions for invoking section 68 were not satisfied. The identity of the subscriber and the trustee through whom the subscription was routed stood fully established. Reliance Mutual Fund was an established and regulated financial institution possessing unquestioned capacity to subscribe to the debentures. The monies were received through normal banking channels under formal debenture documentation and were duly reflected in the assessee’s books. The NCDs were subsequently redeemed and the agreed interest was paid after deduction of tax at source. Nothing remained outstanding. The Assessing Officer did not bring any material to show that the subscriber lacked financial capacity, that the subscription monies originated from the assessee, or that the debenture transaction was merely a paper arrangement. Thus, the assessee had discharged the primary onus resting upon it by establishing the identity and capacity of the subscriber and the genuineness of the transaction.
35. The principal basis for disregarding the NCD subscription was the broader investigation relating to loans sanctioned by Yes Bank to various NBFCs and the alleged use of such funds by entities connected with Shri Rana Kapoor and his family. However, the assessment order does not demonstrate any direct nexus between those allegations and the NCDs issued by the assessee. No enquiry was made from Reliance Capital Trustee Company Ltd., Reliance Mutual Fund or Nippon India Mutual Fund to verify the subscription, allotment, servicing or redemption of the debentures. No statement of any official of the subscriber was brought on record suggesting that the transaction was an accommodation arrangement. There is no material showing that any part of the subscription monies reverted to the subscriber, to Shri Rana Kapoor or to any person connected with the investigation. There is no cash trail, circular movement of funds, incriminating document or other positive evidence showing that the NCD issue was a device for passing any illegal benefit. The information received from the Investigation Wing could undoubtedly furnish a basis for deeper verification, but it could not substitute the evidence required to establish that the particular credits appearing in the assessee’s books were not genuine.
36. The learned CIT(A.) also examined the allegation that Shri Rana Kapoor had individually exercised his position in Yes Bank to sanction favourable facilities to NBFCs, which in turn provided accommodation to the assessee. The material placed before him demonstrated that high-value credit proposals in Yes Bank were processed through an institutional framework involving appraisal by the relationship and product management teams, review by senior officers, participation of the Chief Risk Officer and sanction by the appropriate Board Credit Committee, Management Credit Committee or Executive Credit Committee. The policy followed a committee approach or joint-delegation framework and did not vest unilateral sanctioning power in one individual. Reference was also made to the observations of the Special Court noticing the participation of several officers and committees in the approval process. These circumstances do not decide the criminal or regulatory allegations involving any individual; they are relevant only to test whether the central factual premise adopted by the Assessing Officer that the impugned transactions necessarily represented a unilateral favour or kickback was supported by evidence. In the absence of any specific material connecting the assessee’s NCD issue with an unlawful quid pro quo, the inference drawn in the assessment order remains conjectural.
37. Having independently examined the primary documents, the banking trail, the nature of the NCD issue and the findings recorded by the learned CIT(A.), we find no justification for the additions of ₹600 crore and ₹50 crore under section 68. The addition of ₹600 crore proceeds on a demonstrably incorrect description of the transaction as a loan from Reliance Capital Ltd., whereas the amount represented NCD subscription received through the trustee of Reliance Mutual Fund. The further addition of ₹50 crore is a duplication of a tranche already included in the aggregate subscription of ₹600 crore. More importantly, the Revenue has not brought any positive evidence establishing that the subscriber lacked capacity, that the transaction was fictitious, or that the monies represented an accommodation entry. We, therefore, affirm the order of the learned CIT(A.) deleting both the additions.
Consequential addition of ₹69,41,46,526 under section 69C
38. The addition of ₹69,41,46,526 under section 69C represents the interest expenditure relatable to the very debenture subscription and other financial transactions which the Assessing Officer had regarded as non-genuine. The addition is expressly consequential to the additions made under section 68. Once the NCD subscriptions are held to be genuine, the corresponding interest expenditure cannot simultaneously be characterised as unexplained. Even otherwise, section 69C contemplates expenditure whose source is not satisfactorily explained. In the present case, the interest was recorded in the regular books of account, arose from disclosed contractual obligations, was paid through banking channels and was supported by the debenture documentation. Its source was never in doubt. The learned CIT(A.) was, therefore, justified in deleting the addition under section 69C, and his finding calls for no interference.
Disallowance under section 37(1) — Assessee’s Appeal
39. The surviving grievance of the assessee relates to the disallowance of ₹1,92,404 sustained by the learned CIT(A.) under section 37(1). The record indicates that while granting relief in respect of the expenditure incurred towards credit-rating charges connected with the NCD issue, the learned CIT(A.) sustained the aforesaid amount representing year-end provisions for certain professional expenses. The assessee follows the mercantile system of accounting and its case is that the liability had crystallised during the relevant previous year upon receipt of professional services, though the corresponding invoice or payment materialised subsequently. It was further submitted that tax was thereafter deducted and deposited and that neither the rendering of services nor the business purpose of the expenditure was disputed.
40. We find that there is no finding by the Assessing Officer that the liability was contingent, fictitious or unrelated to the business of the assessee. Under the mercantile system, an expenditure is ordinarily deductible when the liability has accrued and crystallised, notwithstanding that quantification, invoicing or payment may follow subsequently. The material placed on record indicates that the provision represented an accrued liability in respect of professional services already received during the relevant year. The Revenue has not disputed the actual rendering of the services or the subsequent discharge of the liability. In these circumstances, the mere fact that the invoice or payment arose later could not justify disallowance of an otherwise accrued business expenditure. Accordingly, the balance disallowance of ₹1,92,404 sustained by the learned CIT(A.) is directed to be deleted, and the assessee succeeds on this ground.
41. In view of our findings recorded hereinabove, the reassessment proceedings for both the assessment years are quashed for want of approval from the competent specified authority under section 151(ii) of the Act. Even otherwise, the additions made under sections 68 and 69C have been found unsustainable on merits and the relief granted by the learned CIT(A.) thereon is affirmed. The balance disallowance of ₹1,92,404 sustained under section 37(1) is also directed to be deleted.
42. In the result, ITA No. 2865/Mum/2025 filed by the assessee is allowed, whereas ITA Nos. 3088/Mum/2025 and 3089/Mum/2025 filed by the Revenue are dismissed.
Order pronounced on 17th August, 2026.
