DCIT Vs Varsha Prakash Shah (ITAT Mumbai)
Summary: The Mumbai ITAT dealt with two Revenue appeals and corresponding cross-objections concerning unsecured loans obtained by assessee Varsha Prakash Shah from M/s Meridian Gems, an entity alleged by the Investigation Wing to be connected with the Bhanvarlal Jain group. The first Revenue appeal appearing in source order is ITA No.3545/Mum/2026. While the cause-title mentions Assessment Years 2009-10 and 2011-12, the substantive portion of the order subsequently describes ITA No.3545/Mum/2026 as relating to Assessment Year 2008-09; this source inconsistency is retained without alteration. The disputed additions were Rs.10 lakh under Section 68 with interest disallowance of Rs.6,148 for the earlier year and Rs.50 lakh under Section 68 with interest disallowance of Rs.5,09,075 for AY 2011-12.
The original assessments had been completed under Section 143(3). They were subsequently reopened on the basis of Investigation Wing information alleging that concerns controlled by the Bhanvarlal Jain group were providing accommodation entries and that Meridian Gems was one such concern. The assessee disputed the allegation and produced loan confirmations, lender’s financial statements, bank statements showing transfer of funds and affidavits of Shri Manoj Jain affirming the transactions. The assessee also relied upon payment of interest after deduction of tax at source and subsequent repayment through banking channels. The Assessing Officer nevertheless treated the loans as unexplained cash credits, principally relying upon the statement of Shri Manoj Jain recorded during investigation.
The CIT(A) held that the assessee had discharged the initial burden of establishing the nature and source of the credits through primary documentary evidence. No specific defect or inconsistency had been identified in the confirmations, financial statements or banking records, nor had material been brought on record showing that the assessee’s own unaccounted money had been routed back through Meridian Gems. The CIT(A) also noted that although Shri Manoj Jain had subsequently affirmed the transactions through affidavits, the Assessing Officer neither summoned and examined him nor afforded the assessee an opportunity of cross-examination before relying upon his earlier statement. The Section 68 additions and consequential interest disallowances were therefore deleted.
Before the Tribunal, the Revenue relied upon the reassessment orders, whereas the assessee relied upon the documentary evidence and the CIT(A)’s findings. The assessee also relied upon Asst. CIT v. Yatindra Satish Pairaikar, order dated 12.12.2025, and ACIT v. Ashok Kirtanlal Shah, order dated 16.03.2026. Both decisions concerned Section 68 additions arising from allegations connected with the Bhanwarlal Jain group, and Meridian Gems figured as a lender in those proceedings. The Tribunal noted that in Yatindra Satish Pairaikar, the Coordinate Bench had held that where identity, creditworthiness and genuineness stood supported by proper documentary evidence, an addition could not be sustained merely on conjecture and an Investigation Wing report. In Ashok Kirtanlal Shah, similar additions had also been deleted where the assessee produced confirmations, PAN/ITR particulars, audited financial statements, bank statements, affidavits and repayment evidence.
The Tribunal found that the assessee had furnished confirmation letters, return acknowledgments, profit and loss account, balance sheet and schedules, bank statements of payer and payee, and Shri Manoj Jain’s affidavit. It held that once such primary evidence was furnished, the evidentiary burden shifted to the Assessing Officer to examine the evidence and identify specific defects. Investigation Wing information and a third-party statement could justify further enquiry but could not, by themselves, conclude the Section 68 enquiry. The Assessing Officer had neither identified falsity in the documents nor produced transaction-specific material showing that the transactions were sham or represented the assessee’s own unaccounted money. The failure to examine Shri Manoj Jain and permit cross-examination was also material because his affidavits subsequently affirmed the transactions. For AY 2011-12, the Tribunal further noted that an earlier Coordinate Bench order dated 24.09.2018 had specifically required furnishing of relied-upon material and opportunity to cross-examine the lender, but compliance was not demonstrated.
Accordingly, the Tribunal upheld deletion of the Section 68 additions of Rs.10 lakh and Rs.50 lakh. It also upheld deletion of the corresponding interest disallowances because no independent defect in payment of interest, business purpose, TDS or supporting evidence had been identified. For AY 2011-12, however, the Tribunal noticed an inconsistency in the CIT(A)’s order: the actual interest disallowance reflected in the assessment order and Revenue’s ground was Rs.5,09,075, whereas some portions of the CIT(A)’s order referred to Rs.5,39,075. The relief was therefore expressly confined to the actual disallowance of Rs.5,09,075. The Revenue’s appeals were dismissed. Since the additions had been deleted on merits, the assessee’s cross-objections challenging reopening under Sections 147/148 and alleging violation of natural justice were treated as academic and dismissed as infructuous without any finding on those jurisdictional grounds.
Cases Discussed
- Asst. CIT v. Yatindra Satish Pairaikar, ITA Nos.4852 and 4846/Mum/2025, order dated 12.12.2025 (ITAT Mumbai) – relied upon by the assessee and treated by the Tribunal as directly relevant; the Coordinate Bench had held that Section 68 additions could not be sustained merely on Investigation Wing material where identity, creditworthiness and genuineness were supported by documentary evidence.
- ACIT v. Ashok Kirtanlal Shah, ITA Nos.7477 and 7478/Mum/2025 and CO Nos.380 and 381/Mum/2025, order dated 16.03.2026 (ITAT Mumbai) – relied upon and treated as directly relevant on substantially similar Bhanwarlal Jain group loan allegations, including transactions involving M/s Meridian Gems.
- Nadiadwala Grandsons Entertainment Pvt. Ltd. v. DCIT, ITA Nos.2221 to 2223, 2237 & 2238/Mum/2021, order dated 07.06.2022 (ITAT Mumbai) – cited within the reproduced reasoning in Ashok Kirtanlal Shah among Coordinate Bench decisions concerning similar Bhanwarlal Jain group accommodation-entry allegations.
- Neminath Associates v. DCIT, Central Circle 1(3), Mumbai, ITA No.2641/Mum/2018 (ITAT Mumbai) – cited within the precedent reproduced by the Tribunal on similar loan transactions connected with the Jain group.
- ITO v. M/s Grace Development Associates, ITA No.712/Mum/2018, order dated 16.03.2023 (ITAT Mumbai) – cited within the reproduced Coordinate Bench reasoning as a precedent concerning Section 68 additions arising from Bhanwarlal Jain group information.
- ITO v. Neminath Homes Pvt. Ltd., ITA No.1330/Mum/2021, order dated 28.03.2022 (ITAT Mumbai) – cited within the reproduced precedent among similar Section 68 decisions.
- ACIT v. Shri Vashu Bhagnani, ITA No.5648/Mum/2016, order dated 30.05.2018 (ITAT Mumbai) – cited within the reproduced precedent concerning a loan from an entity connected with the Bhanwarlal Jain group.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order dated 11/09/2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year 2018–19, arising out of the assessment order dated 23/04/2021 passed by the Assessing Officer under section 143(3) read with section 144B of the Act.
2. These two appeals by the Revenue and the corresponding cross-objections by the assessee relate to Assessment Years 2008-09 and 2011-12. Since the appeals and cross-objections arise from transactions with the same lender, namely, M/s Meridian Gems, and involve substantially common facts and issues, they were heard together and are being disposed of by this common order.
3. ITA No.3545/Mum/2026 filed by the Revenue for Assessment Year 2008-09 and CO No.223/Mum/2026 filed by the assessee are directed against the order dated 31.01.2026 passed by the learned Commissioner of Income Tax (Appeals)-50, Mumbai [“CIT(A)”], under section 250 of the Income-tax Act, 1961 [“the Act”]. The impugned appellate order arose from the reassessment order dated 23.03.2016 passed by the Assistant Commissioner of Income Tax-20(3), Mumbai [“the Assessing Officer”], under section 143(3) read with section 147 of the Act.
4. ITA No.3546/Mum/2026 filed by the Revenue for Assessment Year 2011-12 and CO No.222/Mum/2026 filed by the assessee are directed against the order dated 31.01.2026 passed by the learned CIT(A) under section 250 of the Act, in the proceedings reinstituted pursuant to the order dated 24.09.2018 passed by the Co-ordinate Bench in ITA No.2054/Mum/2016. The impugned appellate order arose from the reassessment order dated 31.10.2014 passed by the Deputy Commissioner of Income Tax-17(2), Mumbai, under section 143(3) read with section 147 of the Act.
5. The Revenue has raised the following grounds in ITA No.3545/Mum/2026:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 10,00,000/- made under section 68 of the Income-tax Act, 1961 in respect of unsecured loan received from M/s. Meridian Gems, ignoring the specific information received from the Investigation Wing regarding accommodation entry operations and without properly appreciating that the assessee failed to discharge the onus of proving identity, creditworthiness and genuineness of the transaction in the light of surrounding circumstances.
2. The Ld. CIT(A) failed to appreciate that the reassessment proceedings were initiated on the basis of specific and tangible information received from the Investigation Wing regarding accommodation entry operations conducted by the group controlled by Bhanvarlal Jain, wherein M/s. Meridian Gems was identified as an entry-providing entity.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of interest of Rs. 6,148/- claimed on the alleged unsecured loan, without independently examining the genuineness and commercial substance of the borrowing and merely treating the relief as consequential to deletion of addition under section 68.
4. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal at or before the time of hearing.
6. The assessee has raised the following grounds in CO No.223/Mum/2026:
1. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the assessment order passed u/s 143(3) r.w.s. 147 of the Act is invalid and bad in the eyes of law.
2. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the reopening of assessment u/s 148 of the Act and passing the reassessment order u/s 143(3) r.w.s. 147 of the Act is invalid and bad in the eyes of law.
3. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the assessment order is passed in violation of principles of natural justice and hence the same is invalid and bad in the eyes of law.
4. The appellant craves leave of Your Honour to add to, amend or alter the foregoing grounds of cross-objection.
7. The Revenue has raised the following grounds in ITA No.3546/Mum/2026:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 50,00,000/- made under section 68 of the Income-tax Act, 1961 in respect of unsecured loan received from M/s. Meridian Gems, ignoring the specific information received from the Investigation Wing regarding accommodation entry operations and without properly appreciating that the assessee failed to discharge the onus of proving identity, creditworthiness and genuineness of the transaction in the light of surrounding circumstances.
2. The Ld. CIT(A) failed to appreciate that the reassessment proceedings were initiated on the basis of specific and tangible information received from the Investigation Wing regarding accommodation entry operations conducted by the group controlled by Bhanvarlal Jain, wherein M/s. Meridian Gems was identified as an entry-providing entity.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of interest of Rs. 5,09,075/- claimed on the alleged unsecured loan, without independently examining the genuineness and commercial substance of the borrowing and merely treating the relief as consequential to deletion of addition under section 68.
4. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal at or before the time of hearing.
8. The assessee has raised the following grounds in CO No.222/Mum/2026:
1. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the assessment order passed u/s 143(3) r.w.s. 147 of the Act is invalid and bad in the eyes of law.
2. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the reopening of assessment u/s 148 of the Act and passing the reassessment order u/s 143(3) r.w.s. 147 of the Act is invalid and bad in the eyes of law.
3. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the assessment order is passed in violation of principles of natural justice and hence the same is invalid and bad in the eyes of law.
4. The appellant craves leave of Your Honour to add to, amend or alter the foregoing grounds of cross-objection.
9. Facts in Brief
9.1. The assessee is an individual and proprietor of M/s Dynamo Stamping Industries, engaged in the business of trading, dealing and importing CRGO and CRNGO material in the form of irregular shapes and sizes, sheets and coils. The controversy in both the assessment years arises from unsecured loans received by the assessee from M/s Meridian Gems and the interest paid thereon.
9.2. In both the assessment years, the original assessments were completed under section 143(3) of the Act. Subsequently, the Assessing Officer received information from the Investigation Wing that concerns controlled by the Bhanvarlal Jain group were allegedly engaged in providing accommodation entries in the form of unsecured loans, advances, purchases, sales and share capital. M/s Meridian Gems was stated to be one of the concerns connected with the said group. On the basis of this information, the assessments were reopened under sections 147 and 148 of the Act.The year-wise particulars of the returns, original assessments and reassessment proceedings are as under:
| Particulars | A.Y. 2008-09 | A.Y. 2011-12 |
|---|---|---|
| Date of filing return of income | 29.09.2008 | 27.09.2011 |
| Returned income | Rs.1,95,07,960/- | Rs.42,00,000/- |
| Date of original assessment under section 143(3) | 03.12.2010 | 04.03.2014 |
| Income determined in original assessment | Rs.2,07,08,000/- | Rs.46,18,210/- |
| Date of notice under section 148 | 17.03.2015 | 30.03.2014 |
| Date of reassessment order under section 143(3) read with section 147 | 23.03.2016 | 31.10.2014 |
| Loan added under section 68 | Rs.10,00,000/- | Rs.50,00,000/- |
| Interest disallowed | Rs.6,148/- | Rs.5,09,075/- |
| Total income determined on reassessment | Rs.2,17,14,150/- | Rs.1,01,27,285/- |
9.3. In Assessment Year 2008-09, the Assessing Officer recorded that the information received from the Investigation Wing indicated that the assessee had obtained an accommodation entry of Rs.10,00,000/- in the form of an unsecured loan from M/s Meridian Gems. The reasons recorded stated that income chargeable to tax to that extent had escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. In response to the notice under section 148, the assessee, by letter dated 09.04.2015, requested that the return originally filed on 29.09.2008 be treated as the return filed in response to the said notice. Notice under section 143(2) was issued on 16.04.2015. The reasons recorded for reopening were also supplied on 16.04.2015. The objections filed by the assessee on 15.02.2016 were disposed of by the Assessing Officer on 26.02.2016.
9.4. In Assessment Year 2011-12, the Assessing Officer recorded that the aggregate loan outstanding from M/s Meridian Gems was Rs.60,00,000/-. This comprised an opening balance of Rs.10,00,000/- pertaining to Financial Year 2007-08 and a fresh loan of Rs.50,00,000/- obtained during Financial Year 2010-11. The addition made in Assessment Year 2011-12 was confined to the fresh loan of Rs.50,00,000/- and the interest claimed in respect of the outstanding loan.
9.5. During the reassessment proceedings for both the assessment years, the assessee disputed the allegation that the amounts received from M/s Meridian Gems represented accommodation entries. The assessee contended that the loans had been received through regular banking channels and were duly recorded in the books of account of the assessee as well as the lender.
9.6. In support of the transactions, the assessee furnished loan confirmations issued by M/s Meridian Gems, the profit and loss accounts and financial statements of the lender for the relevant financial years, its bank statements reflecting the transfer of the loan amounts, and affidavits of Shri Manoj Jain affirming the loan transactions. The material year-wise particulars emerging from the assessment orders are as under:
| Particulars | A.Y. 2008-09 | A.Y. 2011-12 |
|---|---|---|
| Fresh loan from M/s Meridian Gems | Rs.10,00,000/- | Rs.50,00,000/- |
| Date of loan referred to in affidavit/assessment order | 07.03.2008 | 03.04.2010 |
| Amount outstanding from the lender | Rs.10,00,000/- | Rs.60,00,000/-, including opening balance of Rs.10,00,000/- |
| Interest as per addition made by the Assessing Officer | Rs.6,148/- | Rs.5,09,075/- |
| Documents specifically referred to by the Assessing Officer | Loan confirmation, profit and loss account, bank statement and affidavit of Shri Manoj Jain | Loan confirmation, profit and loss account, bank statement and affidavit of Shri Manoj Jain |
9.7. The assessee contended that the confirmations, financial statements and bank statements established the identity and creditworthiness of the lender and the genuineness of the transactions. It was further contended that the affidavits of Shri Manoj Jain specifically affirmed that the loans advanced to M/s Dynamo Stamping Industries and the interest received thereon were genuine.
9.8. The Assessing Officer did not accept the explanation and documents furnished by the assessee. In both the assessment years, the Assessing Officer relied principally upon the statement of Shri Manoj Jain recorded before the Investigation Wing. According to the Assessing Officer, Shri Manoj Jain had stated that the loans advanced by him to various parties were accommodation entries and were not genuine. The Assessing Officer held that the loan confirmations, financial statements and bank statements furnished by the assessee were insufficient to establish the genuineness of the transactions. He further held that the subsequent affidavits of Shri Manoj Jain, affirming the loans and interest transactions, did not have evidentiary value. The Assessing Officer relied upon the judicial decision referred to in the assessment orders to hold that, once the explanation concerning the nature of the credit was found unacceptable, the Revenue was not required to establish separately that the money credited in the assessee’s books had emanated from the assessee’s own coffers.
9.9. Consequently, the Assessing Officer treated the fresh loans received from M/s Meridian Gems as unexplained cash credits under section 68 of the Act and disallowed the corresponding interest. The additions made were as under:
| Assessment year | Addition under section 68 | Interest disallowed | Aggregate addition |
|---|---|---|---|
| 2008-09 | Rs.10,00,000/- | Rs.6,148/- | Rs.10,06,148/- |
| 2011-12 | Rs.50,00,000/- | Rs.5,09,075/- | Rs.55,09,075/- |
10. Aggrieved by the reassessment orders, the assessee preferred appeals before the learned CIT(A). Before the learned CIT(A), the assessee reiterated that the loans from M/s Meridian Gems had been received through account-payee cheques and were duly reflected in the books and bank accounts of both parties. The assessee contended that the lender was identifiable, had sufficient financial capacity and had confirmed the transactions. It was submitted that interest had been paid through the banking channel after deduction and deposit of tax at source. The assessee relied upon the loan confirmations, acknowledgments of the returns of income of the lender, its financial statements, bank statements of the assessee and the lender, affidavits of Shri Manoj Jain, certificates of deduction of tax at source and proof of repayment through banking channels. The year-wise documentary particulars recorded by the learned CIT(A) are as under:
| Particulars | A.Y. 2008-09 | A.Y. 2011-12 |
|---|---|---|
| Loan confirmed by M/s Meridian Gems | Rs.10,00,000/- | Rs.50,00,000/- |
| Date of transfer reflected in lender’s bank statement | 08.03.2008 | 03.04.2010 |
| Interest referred to in the documents recorded by the learned CIT(A) | Rs.6,148/- | Rs.5,39,075/- |
| TDS referred to by the learned CIT(A) | Rs.633/- | Rs.53,908/- |
| Financial statements of lender furnished for | Financial Year 2007-08 | Financial Year 2010-11 |
| Return acknowledgment of lender furnished for | Assessment Year 2008-09 | Assessment Year 2011-12 |
| Proof of repayment | Furnished | Furnished |
11. The assessee submitted that Shri Manoj Jain had retracted the statement attributed to him and had thereafter affirmed the transactions with the assessee by way of affidavits. It was contended that the Assessing Officer had relied upon the earlier statement without making any independent enquiry and without bringing any corroborative evidence on record to demonstrate that the transactions with the assessee were accommodation entries.
12. The assessee further contended that the Assessing Officer had not exercised the powers available under section 133(6) of the Act to verify the transactions directly from the lender. Neither the statement of Shri Manoj Jain nor the other material received from the Investigation Wing had been furnished to the assessee. No opportunity to cross-examine Shri Manoj Jain had been provided. According to the assessee, the additions founded upon such untested third-party material were contrary to the principles of natural justice.
13. The assessee also submitted that the entire outstanding loan was subsequently repaid during Financial Year 2014-15 relevant to Assessment Year 2015-16. The repayment particulars recorded by the learned CIT(A) are as under:
| Date of repayment | Amount repaid |
|---|---|
| 02.04.2014 | Rs.55,00,000/- |
| 04.04.2014 | Rs.40,00,000/- |
| 27.05.2014 | Rs.8,34,287/- |
| Total | Rs.1,03,34,287/- |
14. The aforesaid repayments included the loans received from M/s Meridian Gems during the years under consideration as well as other outstanding amounts. The assessee contended that acceptance of repayment through regular banking channels supported the genuineness of the loans. For Assessment Year 2011-12, it was additionally submitted that the genuineness of the repayment had not been questioned in the assessment completed for Assessment Year 2015-16.
15. The assessee also placed reliance upon the order dated 15.09.2017 passed by the CIT(A)-32, Mumbai, in the case of her husband, Shri Prakash K. Shah, for Assessment Year 2008-09. In that case, the assessee’s husband had obtained a loan of Rs.40,00,000/- from the same lender, M/s Meridian Gems, and had paid interest of Rs.24,590/-. The CIT(A)-32 had deleted both the addition under section 68 and the corresponding disallowance of interest. The assessee contended that the material facts and the lender involved in her case were substantially identical.
16. The learned CIT(A) observed that, in both assessment years, the principal material relied upon by the Assessing Officer was the statement of Shri Manoj Jain recorded before the Investigation Wing. In contrast, the assessee had furnished direct documentary evidence comprising loan confirmations, income-tax particulars and financial statements of the lender, bank statements, affidavits, certificates of deduction of tax at source and proof of repayment.
17. The learned CIT(A) found that the assessee had discharged the initial burden of explaining the nature and source of the credits by placing primary and relevant documentary evidence on record. The Assessing Officer had not pointed out any specific defect or inconsistency in those documents. The Assessing Officer had also not brought any material on record to establish that unaccounted money belonging to the assessee had been routed back to her in the form of the disputed loans.
18. The learned CIT(A) further observed that Shri Manoj Jain had affirmed the loan transactions and receipt of interest by way of affidavits. If the Assessing Officer intended to rely upon the earlier statement recorded by the Investigation Wing, he ought to have summoned Shri Manoj Jain, examined him and afforded the assessee an opportunity of cross-examination. No such exercise had been undertaken. The learned CIT(A), therefore, held that it would be unsafe to draw an adverse inference solely on the basis of an untested third-party statement, particularly when the affidavits and the documentary evidence furnished by the assessee remained unrebutted.
19. The learned CIT(A) also took into consideration the subsequent repayment of the outstanding loans through banking channels and the relief granted in the case of the assessee’s husband involving the same lender. He accordingly held that the assessee had satisfactorily explained the nature and source of the loans received from M/s Meridian Gems.
20. In Assessment Year 2008-09, the learned CIT(A) separately rejected the assessee’s challenge to the validity of the reassessment. He observed that the assessee did not dispute having obtained the loan from M/s Meridian Gems, a concern stated to be controlled and managed by the Bhanvarlal Jain group. According to the learned CIT(A), the information concerning the lender constituted relevant material on the basis of which a reasonable belief regarding escapement of income could be formed. He held that, at the stage of initiation of reassessment, what was required was the existence of a reason to believe and not final proof of escapement of income. The reassessment proceedings were accordingly upheld.On the merits, the learned CIT(A) directed deletion of the additions made under section 68 in both assessment years. He further held that the interest had been paid through banking channels after deduction of tax at source and that the sole basis for its disallowance was the treatment of the underlying loans as non-genuine. Since the additions relating to the loans had been deleted, the learned CIT(A) held that the corresponding interest disallowances could not survive and directed their deletion.
21. Before us the learned Departmental Representative reiterated the facts recorded by the Assessing Officer and relied upon the findings contained in the respective reassessment orders. He accordingly supported the additions made by the Assessing Officer in both the assessment years.
22. Per contra, the learned Authorised Representative relied upon the impugned orders passed by the learned CIT(A). He submitted that the assessee had discharged the initial onus under section 68 of the Act by furnishing the confirmations, income-tax particulars and financial statements of the lender, bank statements evidencing receipt of the loans through banking channels, affidavits confirming the transactions, evidence of payment of interest after deduction of tax at source and proof of subsequent repayment of the loans. He contended that the Assessing Officer had not pointed out any defect in these documents and had made the additions merely on the basis of the general information received from the Investigation Wing and the untested statement of a third party.
23. The learned AR further placed reliance upon the decision of the Co-ordinate Bench in Asst. CIT v. Yatindra Satish Pairaikar, ITA Nos.4852 and 4846/Mum/2025, relating to Assessment Years 2010 and 2009, order dated 12.12.2025. He submitted that the said decision also concerned unsecured loans received from M/s Meridian Gems and additions made under section 68 on the basis of information received from the Investigation Wing.The learned AR also placed reliance upon the decision of the Co-ordinate Bench in ACIT v. Ashok Kirtanlal Shah, ITA Nos.7477 and 7478/Mum/2025 and CO Nos.380 and 381/Mum/2025, relating to Assessment Years 2008-09 and 2009-10, order dated 16.03.2026. He submitted that the said decision arose from additions made under section 68 in respect of unsecured loans received from entities allegedly connected with the Bhanwarlal Jain group, including M/s Meridian Gems.
24. Relying upon the aforesaid decisions, the learned AR submitted that the issues arising in the present Revenue appeals stand covered in favour of the assessee. He contended that the lender, M/s Meridian Gems, and the nature of the allegations emanating from the investigation in the case of the Bhanwarlal Jain group were the same. The assessee had furnished substantially similar documentary evidence, the loans had been received and repaid through banking channels, interest had been paid after deduction of tax at source, and the affidavits confirming the transactions had remained unrebutted. He, therefore, submitted that no interference with the orders of the learned CIT(A) deleting the additions under section 68 and the corresponding interest disallowances was warranted.
25. We have considered the rival submissions and perused the material available on record, including the assessment orders, the impugned orders of the learned CIT(A) and the decisions of the Co-ordinate Benches relied upon by the learned AR. Since the issue arising in both the Revenue’s appeals is common and concerns unsecured loans received from the same lender, namely M/s Meridian Gems, the appeals are being adjudicated together.
26. The limited controversy on merits is whether the learned CIT(A) was justified in holding that the assessee had discharged the initial onus cast upon her under section 68 of the Act and, consequently, in deleting the additions made in respect of the loans received from M/s Meridian Gems and the corresponding interest disallowances.
27. For Assessment Year 2008-09, the learned CIT(A), after examining the material furnished by the assessee, recorded the following findings in the impugned order:
“6.2.2. Decision:
With regard to both these grounds, I have carefully perused the assessment order, the submissions made by the appellant, the documentary evidence placed on record, and the relevant provisions of law. Section 68 of the Act mandates that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered is not satisfactory in the opinion of the AO, then such sum may be deemed to be the income of the assessee for that previous year. The provision places a primary onus on the assessee to explain the credit to the satisfaction of the AO.
Herein, after careful perusal of the facts and materials available on record, it is seen that the main evidence upon which the Ld. AO has made the alleged addition is on account of statement of Shri Manoj Jain. On the other side, there are direct documentary evidences furnished by the appellant to prove the identity and creditworthiness of the lender as well as the genuineness of the alleged transactions. In view of such factum of the issue, I do not countenance the impugned action of the AO for the simple reason that the appellant has discharged the burden to prove the „nature and source‟ of the loan transactions of Rs.10,00,000/- (from M/s. Meridian Gems) by adducing primary/relevant documents/material as discussed supra; and the AO has not been able to find fault with the primary/relevant documents filed by the assessee to prove the „nature and source‟ of the credit entries.
The ld. AO based on the statement of Shri Manoj Jain (deposed before the Investigation Wing) disbelieved the transaction of loan taken by the appellant from M/s. Meridian Gems. However, before the ld. AO, the appellant furnished an Affidavit duly affirmed by Shri Manoj Jain, whereby he affirmed lending of loan of Rs.10,00,000/- to the appellant and receipt of interest of Rs.6,148/- thereupon from the appellant during FY 2007-08 relevant to AY 2008-09. Shri Manoj Jain also declared in the said Affidavit that his Affidavit, being made in suppression of any statement, declaration or affirmation, etc., made by him before anyone else including any Revenue Authority in India. In such a scenario, the AO ought to have summoned Shri Manoj Jain and cross-examined him; and in that process ought to have elicited from him about the genuineness of the lender party, M/s. Meridian Gems i.e. whether the entity actually conducted any business or was only his paper entity engaged in providing accommodation entries.
The AO, however, has not endeavored to take such a course of action. Such action of the AO cannot be accepted and since, the appellant has discharged her burden to prove the identity, creditworthiness and genuineness of the loan creditors by adducing primary/relevant documents/material as discussed supra;, and most importantly, the appellant has shown to have re-paid the loan in question, the addition made u/s 68 of the Act cannot be sustained. Moreover, the only material on the basis of which Assessing Officer has taken adverse view against assessee was the untested statement of Shri Manoj Jain, who admittedly has not been allowed to be cross-examined by assessee, so in view of the Affidavit of Shri Mano Jain, it would be unsafe to draw adverse view against the appellant.”
28. After considering the repayment of the loan through the banking channel and the other material placed on record, the learned CIT(A) concluded as under:
“iv. Thus, I, after considering the facts, circumstances and respectfully following the ratio of judicial decisions referred above, am satisfied that the appellant has adequately explained the nature and source of the credit of unsecured loans of Rs. 10,00,000/- in its books of account for the year under consideration; so I direct the Assessing officer to delete the addition of unsecured loans of Rs.10,00,000/- made u/s 68 of the Act. Accordingly, Ground No.2 raised by the appellant are hereby allowed.
v. Ground No.3 is raised against addition of Rs. 6,148/-, being disallowance of interest paid during the year in respect of outstanding loan of Rs.10,00,000/- taken from the said party, M/s Meridian Gems.
The Appellant has argued that interest was paid through account payee cheques after deduction of TDS. The appellant has furnished copy of TDS certificate issued by her duly reflecting deduction & deposit of TDS amounting to Rs.633/- in respect of the alleged amount of interest of Rs.6,148/-.
Herein, the only reason given by AO for disallowance of the aforesaid interest of Rs.6,148/- is that the aforesaid interest was paid in respect of unsecured loans of Rs.10,00,000/- taken by the appellant from the entity, M/s Meridian Gems, which was held as bogus. As the issue of unsecured loan against which this interest expenses is claimed has been allowed in the appellant‟s favour, disallowance of interest thereupon does not survive. The AO is therefore, directed to delete the addition of Rs.6,148/- made on account of disallowance of interest paid. Accordingly, Ground No. 3 is hereby allowed.”
29. For Assessment Year 2011-12, the learned CIT(A) recorded substantially similar findings in paragraph 7.1.3 of the impugned order. The operative findings of the learned CIT(A) for Assessment Year 2011-12 read as under:
“iv. Thus, I, after considering the facts, circumstances and respectfully following the ratio of judicial decisions referred above, am satisfied that the appellant has adequately explained the nature and source of the credit of unsecured loans of Rs. 10,00,000/- in its books of account for the year under consideration; so I direct the Assessing officer to delete the addition of unsecured loans of Rs.50,00,000/- made u/s 68 of the Act. Accordingly, Ground No.1 raised by the appellant are hereby allowed.
v. Ground No.2 is raised against addition of Rs. 5,39,075/-, being disallowance of interest paid during the year in respect of outstanding loan of Rs.60,00,000/- (including opening balance of Rs.10,00,000/- and loan of Rs.50,00,000/- taken during the year under consideration) from the said party, M/s Meridian Gems.
The Appellant has argued that interest was paid through account payee cheques after deduction of TDS. The appellant has furnished copy of TDS certificates (quarterly TDS certificates) issued by her duly reflecting deduction & deposit of TDS amounting to Rs.53,908/- in respect of the alleged amount of interest of Rs.5,39,075/-.
Herein, the only reason given by AO for disallowance of the aforesaid interest of Rs.5,39,075/- is that the aforesaid interest was paid in respect of outstanding loan of Rs.60,00,000/- (including opening balance of Rs.10,00,000/- and loan of Rs.50,00,000/- taken during the year under consideration) taken by the appellant from the entity, M/s Meridian Gems, which was held as bogus. As the issue of unsecured loans against which this interest expenses is claimed has been allowed in the appellant‟s favour, disallowance of interest thereupon does not survive. It is pertinent to mention here that in respect of the appellate matter for AY 2008-09 to which the opening balance of unsecured loans of Rs.10,00,000/- pertained to, the same has been allowed in favour of the appellant. The AO is therefore, directed to delete the addition of Rs.5,39,075/- made on account of disallowance of interest paid. Accordingly, Ground No. 2 is hereby allowed.”
30. The first decision relied upon by the learned AR is that of the Co-ordinate Bench in Asst. CIT v. Yatindra Satish Pairaikar, ITA Nos.4852 and 4846/Mum/2025, relating to Assessment Years 2010 and 2009, order dated 12.12.2025. In that case also, the dispute concerned unsecured loans received from entities including M/s Meridian Gems and additions made under section 68 on the basis of information received from the Investigation Wing. The Co-ordinate Bench recorded the following findings in paragraph 7:
“7. Whereas, having gone through the facts and evidences, ld. first appellate authority has observed that to prove the loan transactions, the assessee had furnished copies of bank statement, confirmation, audited accounts and balance sheet, income tax return copies of the lenders, not only before the A.O. but before ld. first appellate authority. He has further recorded a finding of fact that insofar as loan availed from M/s Naman Exports, the assessee, in aggregate had taken loan of Rs.67,50,000/- through cheques on 31.03.2007 and 09.06.2008. The closing balance as on 31.03.2009, amounting to Rs.62,23,000/- was repaid by the assessee in subsequent years. Even, the loan availed of Rs.22,50,000/- from M/s Meridian Gems through cheque on 09.06.2009 and 15.10.2009 was partly repaid through cheque in the same assessment year and the balance amount was repaid in the subsequent assessment year. All evidences in relation to the repayment of the loans were also furnished before the departmental authorities.
Considering the fact that the assessee has discharged its onus of proving the identity and creditworthiness of the creditors as also the genuineness of the loan transactions through proper documentary evidences, there is no justifiable reason to treat the loan transactions as bogus and in the nature of accommodation entries to add as unexplained cash credit u/s. 68 of the Act. The A.O. cannot make additions purely on conjecture and surmises simply relying upon the report of the Investigation Wing while ignoring cogent evidences brough on record by assessee. In view of the aforesaid, we do not find any infirmity in the decision of ld. first appellate authority. Hence, grounds are dismissed.”
31. The learned AR has also relied upon the decision of the Co-ordinate Bench in ACIT v. Ashok Kirtanlal Shah, ITA Nos.7477 and 7478/Mum/2025 and CO Nos.380 and 381/Mum/2025, relating to Assessment Years 2008-09 and 2009-10, order dated 16.03.2026. That decision concerned additions under section 68 arising from unsecured loans received from entities allegedly connected with the Bhanwarlal Jain group, including M/s Meridian Gems. The Co-ordinate Bench held as under:
“27. At the outset, we find that the learned CIT(A) has examined the issue in detail and has recorded categorical findings after considering the documentary evidences placed on record by the assessee. The learned CIT(A) has observed that the assessee had furnished confirmations from the lenders, copies of PAN, income-tax returns, audited financial statements, bank statements and ledger accounts of the concerned parties evidencing the loan transactions. It was also noted that the loans were received through banking channels and that interest had been paid on the loans after deduction of tax at source, which was duly reflected in the books of account as well as in the TDS returns filed with the Department. The learned CIT(A) has further taken note of the fact that the loan amounts were subsequently repaid through normal banking channels, which fact was not disputed by the Assessing Officer. In addition to the documentary evidences placed on record, the assessee had also furnished affidavits of the concerned parties confirming the loan transactions, which were placed before the authorities below. The learned CIT(A) observed that these evidences sufficiently established the identity of the lenders, their creditworthiness and the genuineness of the transactions, thereby discharging the primary onus cast upon the assessee under section 68 of the Act.
27. We further find that the learned CIT(A), while granting relief to the assessee, has placed reliance on various judicial precedents of the coordinate benches dealing with similar transactions involving entities connected with the Bhanwarlal Jain Group. In those decisions(in the case of ACIT Central Circle 4(4),Mumbai vs Nadiadwala Grandsons Entertainment Pvt Ltd ITA Nos 2221 to 22232237 & 2238/Mum/ 2021 dated 07.06.2022, Neminath Associates vs DCIT, Central Circle 1(3), Mumbai ITA No. 2641/Mum/2018, ITO vs M/s Grace Development Associates ITA No. 712/Mum/2018 dated 16.03.2023, ITO vs Neminath Homes Pvt. Ltd. ITA No. 1330/Mum/2021 dated 28.03.2022, ACIT vs Shri Vashu Bhagnani ITA No. 5648/Mum/2016 dated 30.05.2018.), it has been consistently held that additions under section 68 cannot be sustained merely on the basis of statements recorded during investigation or general allegations regarding accommodation entries when the assessee has produced documentary evidences establishing the identity of the creditors, their creditworthiness and the genuineness of the transactions. The learned CIT(A) has also observed that in a number of cases involving similar entities of the Bhanwarlal Jain Group, the coordinate benches have deleted additions made under section 68 after considering identical sets of facts and evidences.
28. The learned CIT(A) has further recorded that the Assessing Officer had not brought any independent corroborative material on record to establish that the loan transactions entered into by the assessee were in fact accommodation entries. The additions were made primarily on the basis of the investigation report and statements recorded during the course of investigation in the case of the Bhanwarlal Jain Group. However, no material was brought on record by the Assessing Officer to demonstrate that the assessee had introduced its own unaccounted money in the garb of unsecured loans through the said entities.
29. It is a settled principle of law that in order to invoke the provisions of section 68 of the Act, the assessee is required to establish three essential ingredients, namely the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. In the present case, the assessee has furnished documentary evidences establishing the identity of the creditors and the genuineness of the transactions through banking channels. The loan transactions are duly reflected in the books of account of the assessee and the creditors. It is also not in dispute that interest was paid on the loans after deducting tax at source on a quarterly basis, which further lends credibility to the transactions. Moreover, the subsequent repayment of the loans through banking channels and the affidavits furnished by the concerned parties confirming the transactions reinforce the genuineness of the loans.
30. In such circumstances, merely relying upon the observations contained in the investigation report relating to the Bhanwarlal Jain Group, without bringing any specific material on record to establish that the transactions entered into by the assessee were sham or bogus, cannot be a valid ground to sustain the additions under section 68 of the Act.
31. Having regard to the totality of the facts and circumstances of the case, we find no infirmity in the findings recorded by the learned CIT(A) in deleting the additions made by the Assessing Officer. The learned CIT(A) has rightly appreciated the evidences placed on record and has correctly applied the judicial precedents dealing with similar issues. We therefore see no reason to interfere with the order of the learned CIT(A). Accordingly, the grounds raised by the Revenue in both the appeals are dismissed.”
32. On a careful examination of the record, we find that the assessee had furnished the following material in support of the loan transactions:
i. Copy of confirmation letter duly signed by both payer and payee.
ii. Copy of Acknowledgment of ROI filed.
iii. Copy of profit & loss a/c , balance sheet along with all schedules.
iv. Copy of bank statement of both i.e. the payee & payer party
v. Copy of affidavit received from Shri Manoj Jain.
33. Thus, this is not a case where the assessee merely furnished the name and address of the creditor or relied solely upon the movement of funds through banking channels. The assessee furnished confirmations, income-tax particulars, financial statements and bank statements of the lender. The lender also affirmed the transactions by way of affidavits. Interest was paid after deduction of tax at source, and the outstanding amounts were subsequently repaid through banking channels. These circumstances cumulatively constituted prima facie evidence of the identity and creditworthiness of the lender and the genuineness of the transactions.
34. Once the assessee furnished the aforesaid primary evidence, the evidentiary burden shifted to the Assessing Officer to examine the material and identify specific defects or inconsistencies therein. The Assessing Officer could have verified the transactions directly from the lender, examined its books and bank accounts, or summoned the person whose statement was proposed to be relied upon. The assessment orders, however, do not identify any particular falsity in the confirmations, financial statements, bank statements or repayment evidence furnished by the assessee.
35. The information received from the Investigation Wing and the statement recorded during the investigation could constitute material warranting further enquiry. Such information, however, could not by itself conclude the enquiry on the merits of the addition under section 68. The Assessing Officer was required to test the transaction in the hands of the present assessee with reference to the documentary evidence furnished and bring specific material on record demonstrating that the transaction was sham or that the assessee’s unaccounted money had been routed through M/s Meridian Gems. No such material has been referred to in the assessment orders.
36. The Assessing Officer relied upon the earlier statement of Shri Manoj Jain but did not examine him in the reassessment proceedings. The affidavits subsequently furnished by Shri Manoj Jain specifically affirmed the transactions with the assessee. If the Assessing Officer considered the affidavits inconsistent with the earlier statement, it was incumbent upon him to confront the deponent, examine the inconsistency and afford the assessee an opportunity of cross-examination before drawing an adverse inference. In the absence of such an exercise, the earlier statement remained untested insofar as the transactions of the present assessee were concerned.
37. This aspect assumes greater significance for Assessment Year 2011-12. In the earlier round of proceedings, the Co-ordinate Bench, by order dated 24.09.2018 in ITA No.2054/Mum/2016, had restored the matter to the learned CIT(A) with directions to furnish the relied-upon incriminating statement and other material and to afford an opportunity to cross-examine the lender. The learned CIT(A) called for compliance from the Assessing Officer by communication dated 24.11.2025 and thereafter issued reminders dated 16.12.2025 and 24.12.2025. The Assessing Officer neither furnished the requisite report nor demonstrated compliance with the directions. The learned CIT(A), therefore, rightly examined the issue on the basis of the material available on record.
38. We also find that the subsequent repayment of the loans cannot, by itself, conclusively establish the genuineness of the original credits. Nevertheless, repayment through disclosed banking channels is a relevant corroborative circumstance and must be considered along with the confirmations, income-tax particulars, financial statements, bank statements, payment of interest after deduction of tax at source and affidavits of the lender. When viewed cumulatively, these materials support the explanation furnished by the assessee, and the Revenue has not brought any transaction-specific evidence to rebut them.
39. The decisions in Yatindra Satish Pairaikar and Ashok Kirtanlal Shah are directly relevant. Both decisions concerned additions under section 68 arising from information relating to accommodation entries associated with the Bhanwarlal Jain group. More importantly, M/s Meridian Gems was itself one of the lenders examined in those proceedings. The Co-ordinate Benches held that additions could not be sustained merely by relying upon a general investigation report when the assessee had furnished cogent documentary evidence establishing the identity and creditworthiness of the creditor and the genuineness of the transaction.
40. The material facts of the present appeals are substantially similar. The same lender is involved, the additions originate from the same category of information received from the Investigation Wing, the transactions were effected through banking channels, interest was paid after deduction of tax at source, the lender confirmed the transactions, and the loans were subsequently repaid. The learned DR has not pointed out any material factual distinction or any specific evidence brought on record by the Assessing Officer which would warrant a departure from the view taken by the Co-ordinate Benches.
41. We, therefore, find that the learned CIT(A) has examined the documentary evidence in its proper perspective and has recorded findings which remain unrebutted. The additions were made by the Assessing Officer essentially on the basis of general information received from the Investigation Wing and the untested statement of Shri Manoj Jain, without bringing any independent or transaction-specific material on record to discredit the evidence furnished by the assessee. We find no infirmity in the decision of the learned CIT(A) deleting the additions of Rs.10,00,000/- for Assessment Year 2008-09 and Rs.50,00,000/- for Assessment Year 2011-12 made under section 68 of the Act.
42. Ground Nos.1 and 2 raised by the Revenue in both the appeals are accordingly dismissed.
43. The interest was disallowed by the Assessing Officer solely because the underlying unsecured loans were treated as non-genuine. No separate defect in the payment of interest, its business purpose, deduction of tax at source or the supporting evidence has been identified in the assessment orders. Once the additions relating to the principal loan amounts are deleted, the sole basis for the corresponding interest disallowances ceases to survive.
44. We, therefore, uphold the order of the learned CIT(A) deleting the interest disallowance of Rs.6,148/- for Assessment Year 2008-09. For Assessment Year 2011-12, the assessment order, reassessed total income and Ground No.3 raised by the Revenue consistently show that the amount disallowed by the Assessing Officer was Rs.5,09,075/-. The references in certain portions of the order of the learned CIT(A) to Rs.5,39,075/- are evidently inconsistent with the actual disallowance under challenge. The relief granted by the learned CIT(A) shall, therefore, be read as confined to the amount actually disallowed by the Assessing Officer, namely Rs.5,09,075/-.
45. Subject to the aforesaid clarification for Assessment Year 2011-12, the decision of the learned CIT(A) deleting the corresponding interest disallowances is upheld. Ground No.3 raised by the Revenue in both the appeals is dismissed.
46. Ground No.4 in both the Revenue’s appeals is general in nature and does not require separate adjudication.
47. In CO Nos.223 and 222/Mum/2026, the assessee has challenged the validity of the reassessment proceedings under sections 147 and 148 of the Act and has also alleged violation of the principles of natural justice. Since the additions made by the Assessing Officer have been deleted on merits and the Revenue’s appeals have been dismissed, adjudication of the jurisdictional grounds raised in the cross-objections would have no bearing on the ultimate tax liability arising from the impugned reassessment orders.
48. The grounds raised by the assessee in the cross-objections have, therefore, become academic. Without expressing any opinion on the merits of those grounds, the cross-objections are dismissed as infructuous.
| Proceeding | Assessment year | Result |
|---|---|---|
| ITA No.3545/Mum/2026 filed by the Revenue | 2008-09 | Dismissed |
| ITA No.3546/Mum/2026 filed by the Revenue | 2011-12 | Dismissed |
| CO No.223/Mum/2026 filed by the assessee | 2008-09 | Dismissed as infructuous |
| CO No.222/Mum/2026 filed by the assessee | 2011-12 | Dismissed as infructuous |
49. The appeals filed by the Revenue and the cross-objections filed by the assessee are disposed of accordingly.
Order pronounced in the open court on 20.08.2026.
