U/s 68/69A – 32-Day Loan Repayment Defeats Addition Without Cross-Examination

ITO Vs Top-Tech Cables Pvt. Ltd. (ITAT Delhi Bench)

U/s 68/69A – 32-Day Loan Comes & Goes Through Bank; AO’s Accommodation-Entry Theory Fails When Evidence & Cross-Examination Go Missing

Summary: The Delhi ITAT dealt with an addition of ₹39 lakh, alleged by the Revenue to represent an accommodation entry, together with an estimated 5% commission of ₹1.95 lakh. The controversy arose from information received from the Investigation Wing following search proceedings against an alleged entry provider. The Tribunal ultimately found that the AO had substantially proceeded on a third-party statement, despite the assessee producing documentary evidence regarding the loan transaction & its repayment, while simultaneously denying the assessee an effective opportunity of cross-examination.

Facts

The assessee filed its return for AY 2017-18 declaring income of ₹13,99,600. It had no business activity during the year & its disclosed income consisted of interest income. The case was reopened u/s 147 on information received from the Investigation Wing that the assessee had allegedly received an accommodation entry of ₹39 lakh from M/s Saloni Buildtech Pvt. Ltd.

The information had its genesis in a search conducted on Shri Joginder Pal Gupta on 23.12.2019, during which he stated u/s 132(4) that he was an entry provider operating through various paper companies. However, the assessee pointed out that Shri Gupta was not a director of Saloni Buildtech during the relevant year & had not specifically stated that he had provided any accommodation entry to the assessee.

The assessee explained that ₹39 lakh was a short-term advance, which was subsequently repaid. In support, it furnished the ledger account, bank records evidencing receipt & repayment, affidavit of the director of Saloni Buildtech & Form AOC-4. Nevertheless, the AO treated ₹39 lakh as unexplained money u/s 69A r.w.s. 115BBE & further added ₹1.95 lakh, being 5% alleged commission.

The CIT(A) deleted the additions, observing that the AO had failed to bring material on record substantiating the allegation & that despite a specific request, the assessee was not afforded cross-examination of Shri Joginder Pal Gupta.

Third-party statement cannot travel alone

Before the ITAT, the assessee contended that the entire case was founded upon borrowed information & a third-party statement, without any independent material linking the assessee with an accommodation-entry arrangement.

The Tribunal found considerable merit in this argument. It observed that the AO had proceeded merely on the statement of Shri J.P. Gupta, while overlooking the actual documentary evidence. The assessee had furnished evidence towards the genuineness of the transaction, identity & creditworthiness of the lender. Equally significant was the fact that the loan had been repaid within a remarkably short period of 32 days.

No cross-examination – statement goes out, addition follows it

The Tribunal placed considerable emphasis on the denial of cross-examination.

Following the principle referred to in Malbros International Pvt. Ltd., it held that where a statement recorded behind the assessee’s back is sought to be used against him, the assessee must be afforded an opportunity to cross-examine the deponent.

The consequence was decisive. If the third-party statement was excluded from consideration for failure to permit cross-examination, nothing effectively remained with the AO to sustain the addition. The issue was therefore decided in favour of the assessee.

Loan repaid within 32 days – important factual circumstance

Another significant feature was the quick repayment of the loan through banking channels.

The ITAT referred to CIT v. Karaj Singh, where the Punjab & Haryana HC had upheld deletion of an addition where money received through banking channels was repaid within a short period & there was no specific adverse material establishing that the transaction was non-genuine.

The Tribunal also reproduced the principle that once an assessee furnishes supporting documents establishing identity, creditworthiness & genuineness, the initial burden stands discharged. Thereafter, the burden shifts to the AO to rebut such evidence through cogent & concrete material. An addition cannot survive merely on suspicion, conjectures or general information regarding the lender.

Importantly, the Tribunal noted the judicial proposition that where loans stood repaid through normal banking channels & the assessee had furnished complete details, the surrounding evidence of repayment constituted an important circumstance supporting genuineness.

Interesting u/s 69A angle

The assessee had additionally argued that the AO had invoked the wrong provision. The amount was admittedly reflected in the books; therefore, according to the assessee, the issue could at best fall for examination u/s 68 & not u/s 69A.

The assessee emphasised that u/s 69A applies where money, bullion, jewellery or other valuable article is found to be owned by the assessee but is not recorded in the books of account. Since the ₹39 lakh receipt was admittedly recorded in the books & bank account, invocation of u/s 69A itself was challenged.

However, the Tribunal ultimately sustained the CIT(A)’s relief principally on the broader factual & evidentiary grounds & kept the assessee’s other issues open.

Decision

The ITAT held that where the assessee had settled/repaid the loan before the end of the relevant year, furnished supporting documents establishing genuineness & the Revenue failed to bring contrary cogent evidence, the addition could not survive.

Accordingly, Revenue’s appeal was dismissed. Since the Revenue’s appeal itself failed, the assessee’s cross-objections became infructuous & were also dismissed.

Author’s Comment

The decision carries a useful reminder for accommodation-entry cases: an Investigation Wing report may trigger an inquiry, but it cannot substitute the inquiry itself. If ₹39 lakh travels through disclosed banking channels, is supported by ledger, lender documents & affidavit, & returns within 32 days, the AO needs something more concrete than a general statement of an alleged entry provider.

More importantly, when the Revenue chooses to make a third-party statement the foundation of an addition, cross-examination is not an ornamental formality. Take away the statement for violation of natural justice & the addition must still be capable of standing on its own legs.

Here, once the third-party statement lost its evidentiary footing, those legs were simply not there.

Cases Discussed

• Malbros International Pvt. Ltd.
• CIT v. Karaj Singh
• Saraf the Jewellers

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH

1. This appeal is filed by the Revenue against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 24.03.2025 for the Assessment Year 2017-18. The assessee also filed cross objections against the aforesaid impugned order dated 24.03.2025.

2. The grounds of appeal taken by the Revenue and the grounds taken by the assessee in the cross objections are reproduced below :-

Revenue’s grounds of appeal :

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.39,00,000/-without going into the merits of the addition solely on the basis of non-grant of opportunity of cross examination.

2. Whether on the facts of the case aid in law, the Ld. CIT (A) has erred in deleting the addition of Rs.1,95,000/- made by the A.O. on account of commission paid in lieu of accommodation entry received by the assessee during the year under consideration.

3. Whether on the facts and circumstances of the case, the Ld. CIT (A) has erred in ignoring the fact that it was evidently established by the investigation wing that Sh. Joginder pal Gupta was in the business of providing accommodation entries to various beneficiary companies/entities/persons through cheques through a number of paper & dummy companies entities in lieu of cash and the assessee company was one of the beneficiary company.

Grounds raised in Cross Objections :

1. That the Ld. CIT(A) has erred in confirming the finding of the Assessing officer with regard to the reopening of the case u/s 148 as per finding given by him in para 6, pages 35 to 36 of the order of CIT(A).

2. That the Ld. CIT(A) while confirming the finding with regard to reopening of assessment u/s 148 have failed to appreciate that the original assessment was framed u/s 143(3) and reopening has been made only on the basis of statement at the back of the assessee of the third party namely, Sh. Joginder Pal and without there being any tangible material on record, the reopening cannot be made on the basis of statement recorded at the back of the assessee without there being any corroborative or tangible material and hence the finding of the CIT(A) regarding the confirmation of reopening of the case u/s 148, is against the facts and circumstances of the case.

3. That the Ld. CIT(A) has failed to appreciate that it is a case of borrowed satisfaction and which cannot be permitted in view of the judgment of Chandigarh Bench of the ITAT in the case of Sh. Akbar Ali and in the case of M/s. Vimal Alloys Pvt. Ltd.

4. Notwithstanding the above said grounds of appeal, no addition on account of statement of Sh. Joginder Pal could be made being a third party as per judgement in the case of Sh. Subhash Chander Gupta, reported in 124 ITR (Trib.) 247 and in the case of Sh.Amarjit Singh of Chandigarh Bench in ITA No. 774/Chd /2023 and the CIT(A) has rightly deleted the addition as no cross examination of Sh, Joginder Pal was granted.

3. At the time of hearing, ld. AR of the assessee with the permission of the Bench brought to our notice the relevant facts of the case and his submissions are as under. The assessee has filed its income tax return on 28.11.2017 u/s 139(1) of the Income Tax Act, 1961 (for short ‘the Act’) for the year under consideration declaring income of Rs.13,99,600/-. No business activity was conducted by the assessee during the year under consideration and the only income source declared was the interest income. The return of income and computation of income, along with its complete financial statements and annexures are placed at pages 3-22 of the paper book.

4. The case of the assessee was selected for assessment u/s 147 based on the information received from DDIT,(Inv.) 2(4), Delhi that the assessee has received an alleged accommodation entry of Rs.39lacs from M/s Saloni Buildtech Pvt. Ltd. A search and seizure operation was conducted on Shri Joginder Pal Gupta (JP) on 23.12.2019 in the case of DAG group. Shri Joginder Pal Gupta stated in the statement recorded u/s 132(4) of the Act that he is an entry provider and provided accommodation entries to beneficiaries through various paper companies, wherein he is the director of various companies. IT was submitted before us that on the other hand, neither Shri Joginder Pal Gupta was a director in M/s. Saloni Buildtech Pvt. Ltd. During the year under consideration, it was also submitted that he has not expressly mentioned the name of the assessee that he has provided alleged accommodation entry to the assessee.

5. During the proceedings, Assessee was asked to submit its explanation regarding the credit entries by issue of statutory notices. Vide reply dated 16.02.2023, the Assessee filed objections against reopening of assessment and also stated that assessee company has received an amount of Rs.39,00,000/- from M/s Saloni Buildtech Pvt. Ltd. in the form of short-term advance, and the same amount was repaid by the assessee company during the year. The assessee submitted bank statement and affidavit from Saloni Buildtech wherein it is stated that the assessee has repaid the loan of Rs.39lacs to M/S Steel City on the instruction of M/s Saloni Buildtech Pvt.

Following documents have been placed in the paper book:

• Copy of the replies filed at page 23 to 28.
• Copy of the ledger account of M/s Saloni Buildtech Pvt. Ltd at page no. 29.
• Copy of the bank books of the assessee evidencing receipt of short term advance and repayment of the same at page no. 30.
• Affidavit of the director of M/S Saloni Buildtech Pvt. Ltd. at page no. 31-32.
• Copy of the form no. AOC-04 at page no.33-45.

6. Disregarding the replies and documentary evidence filed by the assessee, the AO went onto treat the amount of Rs.39lacs as accommodation entry and added the same amount by treating it as unexplained money u/s 69A r.w.s. 155BBE and another Rs.1.95lacs being 5% commission on obtaining alleged accommodation entry.

7. Aggrieved with the above order, the assessee preferred an appeal before ld.CIT (A) and detailed submissions were filed before Ld. CIT (A). After considering the submissions, considering the documentary evidence filed during the course of assessment as well as appellate proceedings, the Ld. CIT (A) deleted the entire addition stating that the AO could not bring anything on record to substantiate the allegation made by him regarding the alleged accommodation entry and assessee was denied the opportunity to cross examination of the statement given by Shri Joginder Pal after specifically requesting the same.

8. During the hearing, Ld. AR submitted that the addition in the case of the assessee was based on certain alleged digital data recovered from a search action conducted in the case of M/s JM Jain Group case. On such incomplete third-party data, the Ld. Assessing Officer has alleged that the assessee had undertaken transactions with M/s Teddy Kids during the Financial Year 2021–22 amounting to Rs.1,06,83,252/-.

9. Firstly, he submitted that the re-opening of the case and further framing the assessment order simply on the basis of borrowed information is bad in law when the AO has himself not processed the data correctly and drawn a conclusion without applying his mind. The well settled legal position, emerging out of time-tested legal jurisprudence of almost six decades, arising from numerous judgments of the Hon’ble Supreme Court and the Hon’ble High Courts, was that the jurisdictional assessing authority, must itself form such a reason to believe and must itself be satisfied about escapement of income. He submitted that reopening, solely on the basis of some borrowed information and some borrowed satisfaction without conducting any independent enquiry by the assessing authority itself, is a complete nullity in the eyes of law and is void ab initio.

10. He further submitted that Assessing Officer cannot initiate the proceedings u/s 147 merely on suspicion and borrowed information. In the instant case as well, the AO has merely relied upon the information received from the Investigation Wing as written on the page no. 3 para no. 3 of the assessment order that,

Sh. Joginder Pal Gupta stated in the statement recorded u/s 132(4) that he is an entry provider and provided accommodation entries to beneficiaries through various paper companies, wherein he is the director of companies

11. Further, he submitted that it is pertinent to mention here that any statement recorded during the course of search operation does not carry any evidentiary value. Statement recorded during search does not in itself constitute incriminating material. In support of our contention, the reliance is being placed on the following judgements: –

• Dy. CIT vs. Partap Singh Rajendra Chamola & Co.’ in IT (SS) A No. 22/Chd/2007 order dated 28.11.2008
• Hon’ble Supreme Court of India in the case of ‘CIT vs. Mantri Share Brokers (P.) Ltd.” [2018] 96 com 280 (SC) dated 3.7.2018.
• Jagbir Singh Nehra Vs DCIT ITA No. 687/CHD /2023 order dated 11/06/2024

12. Secondly, he submitted that the statement being referred to, is of third party i.e. Sh. Joginder Pal Gupta recorded u/s 132(4) during the search operation, where he admitted having being provided accommodation entry through paper companies in which he is a director. While on the contrary as reiterated during the assessment as well as appellate proceedings that, neither Shri Joginder Pal Gupta was a director in the assessee company nor had he admitted of providing any alleged accommodation entry to the assessee company.

13. He submitted that the above fact shows that the AO without application of mind and without independently looking into the matter has made the addition. Addition on the basis third party working, without corroborative evidence and linkage of the assessee with the same will fall in the domain of suspicion only. Suspicion alone without there being evidence specific to a transaction cannot become the basis for creating charge for levying tax as each transaction has to be independently inquired into. Suspicion howsoever strong cannot take the character of evidence. For this proposition one may refer to the decisions in:

• Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC)
• Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC)
• CIT v. East Coast Commercial Co. Ltd. [1967] 63 ITR 449 (SC)
• Anil Tibrewala v. ITO [2004] 1 SOT 90 (Mum)
• CIT v. Daulatram Rawatmull [1964] 53 ITR 574 (SC)
• Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC)
• Pr. CIT v. Ajay Surendrabhai Patel [2016] 69 taxmann.com 309 (Guj.)

14. He submitted that there is no live nexus between formation of belief of escapement of income and material considered by the Assessing Officer and thus in absence of satisfaction, the reopening of the assessment on the basis of borrowed satisfaction is invalid and liable to be quashed. The reopening based on borrowed satisfaction without independent application of mind. In this regard, we rely upon the following judicial precedents:

• Punjab and Haryana High Court in the case of CIT vs Smt. Paramjit Kaur (2009) 311 ITR 38
• COMMISSIONER OF INCOME TAX vs. SMT. PARAMJIT KAUR as reported in 311 ITR 038 P&H-HC dated 06.08.2007
• Akbar Ali Vs JAO (ITAT Chandigarh) ITA No. 868/CHD/2025 ORDER DATED 27/11/2025
• M/s Holy Faith International vs. DCIT in ITA No. 181/Asr/2017 order dated 15.01.2019(Amritsar Bench)

15. Relying on the aforesaid decision, he submitted that it is undisputedly clear that the Assessing Officer issued re-assessment notice u/s 148 of the act without any independent verification and application of mind, but simply proceeded to initiate proceedings on the basis of information received from DDIT, Delhi which is nothing but a classic case of borrowed satisfaction and thus, in our considered view, the reopening of the assessment based on borrowed satisfaction is invalid and liable to be quashed.

16. Ld. AR submitted that the AO and CIT (A) had no tangible material on record to corroborate the allegations made by him against the assessee. The CIT (A) as well as the AO has relied upon the information of DDIT, Delhi. Mere fact that information has been received from Investigation Wing, cannot in itself be a basis for forming a reasonable belief that income chargeable to tax had escaped assessment. In case there was any specific, credible and tangible information in possession of AO to substantiate that the assessee is a beneficiary of alleged accommodation entry; the AO has clearly failed to bring out such information along with supporting document and relevant material facts in the reasons recorded for reopening, SCN issued as well as the assessment order while making addition.

17. He submitted that in various cases, Hon’ble Courts have taken a view that the term ‘reason to believe’ means that the AO must have some fresh tangible material in his possession before assuming jurisdiction under section 147. This fresh tangible material must provide him with the reason to believe that income had escaped assessment. He submitted that the AO cannot reopen an assessment merely because he believes that a transaction is not genuine. It has also been held that this tangible material must have a live link or live nexus with the income allegedly escaping assessment. In this regard, he brought to our notice the following judicial pronouncements favouring the assessee’s above contention is as under:-

• Hon’ble Supreme Court in the case of Ganga Saran & Sons (P.) Ltd. Vs ITO (1981) (130 ITR 11HSC).
• In the case of Chhugamal Rajpal Vs S.P. Chaliha (1971) (79 ITR 603) (SC)
• Hon’ble Supreme Court in the case of ITO Vs Nawab Mir Barkat AM Khan Bahadur (1974) (97 ITR 239 (SC)

18. He submitted that the Assessing Officer has erred in law and on facts in issuing notice under section 148 of the Income-tax Act, 1961 on the basis of incorrect, vague, and borrowed reasons to believe, without application of independent mind and in the absence of any tangible, assessee-specific incriminating material. The reopening has been initiated merely on the basis of general information relating to receipt of alleged accommodation entry, without establishing any live nexus between the alleged information and the income of the assessee alleged to have escaped assessment. The assumption of jurisdiction under section 148 is, therefore, bad in law, void ab initio, and liable to be quashed. Further, in the absence of any assessee-specific material establishing a clear nexus between such third parties and the assessee, suggesting the assessee’s role in the alleged transaction, and merely on the basis of conjectures and theories, the assessment order passed pursuant thereto deserves to be annulled in light of the principles of natural justice.

19. Ld. AR further submitted that the AO has merely relied upon third party evidence and third-party statements for making addition to the returned income of the assessee. Reliance has been placed on the statement of Sh. Joginder Pal Gupta ignoring the fact that:

• The statement was recorded in a very much generalised manner.
• Sh. Joginder Pal Gupta wasn’t a director in M/S Saloni Buildtech Pvt. Ltd. during the year under consideration as alleged by the AO and CIT (A) in the assessment and appellate order respectively.
• Sh. Joginder Pal Gupta never admitted to the fact that he has given accommodation entry to the assessee company.

20. He submitted that there are numerous judgement on third party evidence stating that no addition can be made on the basis of any document or any material seized from the premises of the third party. We are relying upon the following judgements:-

(i) Subhash Chander Gupta vs. ITO, Ward 3, ITA No. 768/CHD/2024 ORDER DATED 07.04.2025

(ii) Anil Verma Vs The DCIT, Central Circle-II, Chandigarh, ITA Nos. 940 to 942/CHD/2014, Hon’ble Chandigarh Bench, Chandigarh, for A.Y. 2006-07

(iii) Vikas Kapoor Vs ACIT, Central Circle-04, New Delhi, Hon’ble Delhi Bench, Delhi, ITA No. 5936/Del/2016, A.Y. 2008-09

(iv) Sanjay Singhal Vs DCIT, Central Circle-01, Chandigarh, Hon’ble Chandigarh Bench, Chandigarh, ITA Nos. 706, 707 & 709/Chd/2018, A.Ys. 2008-09, 2010-11 & 2012-13

21. Hence, he submitted that third party statements lack independent evidentiary value and cannot justify additions to income without strong, corroborative, and tangible material which is absent in the case of the assessee.

22. Ld. AR submitted that no opportunity of cross examination has been afforded to the assessee by the Ld. AO during the course of reassessment proceedings, which was specifically requested by the assessee. The fact of denial of cross examination has been mentioned by the Ld. CIT(A) in his order vide para 7.7 & 7.8 on page no. 38 & 39. Reliance in this regard is being placed upon the judgement supra in the case of M/s. Malbros International Pvt. Ltd in ITA No. 992 & 993/CHD/2024 vide order dated 25.06.2025, wherein this fact has been accepted by the Hon’ble court that the opportunity to cross-examination is right of assessee as per para:

12.4 According to this judgement, if the deponent was noput to cross-examination, then statement of such a witness cannot be used against the interest of any other person. In the present case, this statement was recorded from the back of the assessee and the assessee was not given an opportunity to cross-examine the deponent. Therefore, the statement is to be excluded from the evidence used against the assessee. If the statement is excluded, then nothing remains with the AO for making the addition.”

23. Further, he submitted that following are the other binding judgments wherein it has been held that the statements taken at the back of the assessee cannot be used for making additions unless a chance to cross examine has been given to the Assessee.

a) [2024] 162 com5 (SC) Principal Commissioner of Income-tax v. Kishore Kumar Mohapatra

b) [2023] 157 com193 (SC) SUPREME COURT OF INDIA Principal Commissioner of Income-tax v. Hadoti Punj Vikas Ltd

b) Andaman Timber Industries Vs. Commissioner of Central Excise. [2015] 281 CTR 0241 (SC)

d) [2024] 161 com586 (Punjab & Haryana) Principal Commissioner of Income-tax (Central) v. DSG Papers (P.) Ltd.

24. From perusal of above referred case laws, it is submitted that, wherein the opportunity of cross examination has not been provided to assessee then the assessment framed will be considered as invalid assessment, thereby violating the principal of natural justice, therefore, needs to be quashed.

25. Ld. AR submitted that during the year under consideration the assessee had received a short-term advance from M/s. Saloni Buildtech Pvt. Ltd. amounting to Rs.39lacs which was repaid via banking channels within a time period of 32 days. The assessee has filed the following documents before the AO as well as ld. CIT (A) to prove the authenticity of the transaction:

• Ledger A/C of M/S Saloni Buildtech Pvt. Ltd.
• Form No. AOC-4 of M/S Saloni Buildtech Pvt. Ltd.
• Affidavit from the director of M/S Saloni Buildtech Pvt. Ltd. declaring the fact that the loan advanced by it has been repaid by the assessee
• Bank account in the books of the assessee showing the entry received and paid back by the assessee during the year under consideration.

26. He submitted that these documents have been placed in paper book on page no. 29 to 45. Even after filing complete documentation along with detailed explanations to it, the AO without independent application of mind treated the short term advance as alleged accommodation entry only on the basis of statement given by third party, Sh. Joginder Pal Gupta who does not hold any position in the company and without any seizure of any incriminating document against the assessee from any of the premises searched.

27. He further submitted that repayment of loan has not been objected to by the AO. Since the loans were repaid, there was no benefit and no escapement of income. In the circumstances as in the present case where the amounts have undoubtedly been returned back, the assessee cannot be said to have benefited in any way. The entire case of the Revenue against the assessee treating it as beneficiary of alleged accommodation entry fails on account of the fact of the alleged accommodation entry having been returned by the assessee. There can be no question, in such circumstances, of treating the amount so received by the assessee as an accommodation entry.

28. He submitted that once repayment is established, no addition is warranted. Reliance is placed on Gujarat HC in CIT (Rajkot) Vs Ayachi Chandrashekhar Narsangji (TA 992/2013) which held that no addition u/s 68 can be sustained where credits are subsequently repaid. Tribunal also referred to Gujarat HC in Amee Mahasukhlal Parekh Vs ITO (SCA/18254/2022) holding that reopening is invalid if information already shows no escapement due to repayment.

29. He further relied upon the following judgments wherein it has been concluded that no addition can be sustained if repayment of loan has been made during the year:

• Judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Karaj Singh as reported in [2011] 15 taxmann.com 70 (Punjab & Haryana) vide order dated 31.03.2011.
• Judgment of the Hon’ble SC in the case of Pr. CIT 6 versus New Video Pvt. Ltd. civil diary no. 18325/2018 dated July 20, 2018
• Judgment in the case of PCIT v. Merrygold Gems (P.) Ltd. as reported in [2024] 164 taxmann.com 764 (Gujarat) vide order dated 11.06.2024.
• Judgment of the Hon’ble Gujarat High Court in the case of Principal Commissioner of Income-tax v. Ambe Tradecorp (P.) Ltd. as reported in [2022] 145 taxmann.com 27 (Gujarat) vide order dated 05.07.2022.
• Judgment of the ITAT Surat Bench in the case of Rajhans Construction (P.) Ltd. v. ACIT as reported in [2022] 140 taxmann.com 370 (Surat-Trib.) vide order dated 14.03.2022.

30. Without prejudice to above, he submitted that just for the sake of argument, the AO had wrongly invoked section 69A (unexplained money) whereas the issue, if at all, relates to section 68. The definition of section 69A as per the provisions of Income Tax Act, 1961 is as under:-

“Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or other valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing] officer, satisfactory, the money and the value of the bullion, jewellery or other article may be deemed to be the income of the assessee for such financial year.”

31. He submitted that as per plain reading following conditions must be fulfilled for applicability of section 69A:

• Assessee is found to be the owner of money, bullion, jewelry etc.
• Such money is not recorded in the books of the account of the assessee, And
• Assessee offers no explanation or explanation is not satisfactory

32. He further submitted that as per language of section, Section 69A can be invoked only when the assessee has not recorded such money in the books of accounts and offers no explanation or unsatisfactory explanation. Both the condition given in point no 2 and 3 are cumulative and satisfaction of either of condition does not automatically triggers rigours of section 69A. In other words, we can say that when the assessee has recorded such money in his books of accounts then no explanation is required to be offered for the purpose of section 69A. Addition u/s 69A can be made only when such money is not recorded in the books of accounts and not offered satisfactory reply. He further relied on the following decisions :-

Smt. Teena Bethala v. ITO (ITA No 1383/Bang/2019) dated 28/08/2019.

ITAT – Mumbai Bench in the case of Dy. CIT v. Karthik Construction Co. in ITA No.2292/Mum/2016 dated 23.02.2018

33. From the above decisions, he submitted that it is also abundantly clear that the AO failed to apply his mind to the information in his possession and his belief was a mere borrowed belief. He had merely borrowed the conclusion drawn by the Investigation Wing that the assessee was the beneficiary of an accommodation entry and had not applied his mind at all to the information which revealed the so called entry to have been repaid back by the assessee also.

34. For the abovementioned reasons, therefore, he pleaded that the jurisdiction assumed by the AO for reopening the case of the assessee was bad in law and the assessment order passed, therefore, was invalid. Therefore, both on the legal ground and on the grounds raised on merits, the order of the CIT (A) may please be upheld.

35. At the time of hearing, ld. DR of the Revenue submitted that the issue under consideration is that assessee has taken accommodation entry from the entry providers and he objected to the relief granted by the ld. CIT (A) and submitted that he has granted relief to the assessee without giving proper opportunity to the AO. He submitted that J.P. Gupta is the controller of M/s. Saloni Buildtech Pvt. Ltd. He submitted that ld. CIT (A) has not considered the statement of Rajiv Mehta who has accepted in his statement that he has only a Driver. He submitted that notice under section 148 of the Income-tax Act, 1961 (for short ‘the Act’) was issued based on the ramification that the assessee is one of the beneficiaries of taking accommodation entries. With regard to not providing cross examination to the assessee, he submitted that all the documents were already provided to the assessee and he raised the issue why the assessee has not requested for cross examination. Further, ld. DR submitted that the various case laws relied by the assessee are distinguishable.

36. Considered the rival submissions and material placed on record. We observed that the assessee had taken short term loan from Saloni Builtech Ltd, the relevant lender company was controlled by the alleged accommodation entry provider Shri JP Gupta, the AO proceeded to make the addition merely on the basis of statement given by Shri JP Gupta during the search proceedings. Further we noticed that the assessee had taken the above short term loan for a period of 32 days and return the same by making payment to M/s Steel City with the instruction of the assessee.

37. From the records, we observed that the AO had proceeded to make the addition merely on the basis of statement of Shri JP Gupta and completely overlooked the actual facts on record. The assessee had provided the relevant documents to prove the genuineness, identity and credit worthiness of the lendor. Further AO had overlooked the fact that the assessee had already repaid the above loan in a span of 32 days. We observed that the AO had also not provided opportunity to the assessee for cross examination. We also noticed that Ld CIT(A) had given relief to the assessee on the basis of material facts on record and also based on not provided opportunity for cross examination to the assessee.

38. After observing the facts on record, we observed that on the issue of cross examination, the courts held, specifically in the case of Malbros International Pvt. Ltd (supra) that if the deponent was not put to cross-examination, then statement of such a witness cannot be used against the interest of any other person. In the present case, this statement was recorded from the back of the assessee and the assessee was not given an opportunity to cross-examine the deponent. Therefore, the statement is to be excluded from the evidence used against the assessee. If the statement is excluded, then nothing remains with the AO for making the addition.” Therefore, the issue under consideration is in favour of the assessee, the case laws relied by the Ld DR are distinguishable to the facts in the present case. The other issues raised by the assessee that the same is already settled before the proceedings under consideration are initiated, we noticed that in the case of Karaj Singh (supra), the Hon’ble High Court held as under:

“8. We have given our thoughtful consideration to the submissions made by the counsel for the parties.

9. Learned counsel for the Revenue wanted to point out that the decision in the cases of Mohan Singh and Parminder Singh, on which reliance had been placed by the Tribunal holding them to be identical cases, no appeal had been filed challenging the findings recorded therein. The Tribunal, on the basis of material on record, came to the conclusion that the amount of Rs.1,50,000/- which was received by the assessee from Naresh Kaoor had been repaid to him within a period of 15 days and the said transaction was a bona fide transaction and the provisions -of Section 68A were not attracted. At this stage, it would be advantageous to refer to the findings recorded by the Tribunal which read thus:

“After considering the rival submissions and perusing the relevant material on record, it is noted as a factual position that the amount of Rs. 1,50,000/- was received by the assessee by way of A/c payee cheque on 28.11.1991 and was repaid within a period of less than 15 days through banking channel. The transaction having been opened and closed through bank draft within the short span of 15 days cannot be held to be in genuine unless any specific material is brought on record, which goes against it. Simply because Shri Naresh Kapoor could not be produced before the AO, cannot lead to the confirmation of addition u/s 68. It is axiomatic that impossible cannot be complied with. Newspaper cuttings duly establish that Shri Naresh Kapoor was absconding and in our considered opinion his physical production before the AO could not have complied with. It is found that the transactions with Shri Naresh Kapoor in identical circumstances became subject matter of adjudication before the Chandigarh Bench in the case of ITO v. Shri Mohan Singh, Ludhiana, in ITA No. 373/Chandil2000 and Shri Parminder Singh, Ludhiana v. ITO, Ward-II(9), Ludhiana in ITA No. 51/Chandigarh/2000 & 43/Chandi/2000, order dated 26.5.2003 and the Tribunal held the assessee’s contention in those cases. Respectfully following the precedents, we overturn the impugned order on this score.”

10. In view of the above, the substantial question of law is answered against the Revenue and in favour of the assessee.”

Similar in the case of Saraf the jewellers (supra), it is held as under :-

“9. We find that as per the provisions of Section 68 of the Income Tax Act, 1961, where any sum is found credited in the assessee’s books and assessee offers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 01-04-2013 to provide that where the assessee is a company and the sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about nature and source of sum so credited and such explanation is found to be satisfactory. However, this proviso is not applicable to the facts of the present case since we are dealing with case of unsecured loans and advances. Such additional onus / requirement for unsecured loans / advances has been introduced by Finance Act, 2022 which is applicable only from AY 2022-23 and therefore, for the impugned AY 2019-20, there is no obligation on the assessee to establish the source of source of unsecured loans and advances. Proceeding further, it would be the primary onus of the assessee to establish the identity of the lender, creditworthiness of the lenders as well as genuineness of the loan transactions. Once all the supporting documents have been furnished by the assessee, the primary onus of the assessee would stand discharged and it would be the onus of Ld. AO to rebut the claim of the assessee by bringing on record cogent / concrete evidences to dislodge the claim of the assessee. Unless this exercise is done by Ld. AO, no such addition of unexplained cash credit could be made in the hands of the assessee.

10. In the light of above settled legal position, we find that the assessee has duly furnished ample documentary evidences to discharge the required onus of Sec.68. Once these documents have been furnished, the onus of the assessee stood discharged. The Hon’ble Apex Court in the case of Pr. CIT vs. New Video Pvt. Ltd. (2018; 7 TMI 1455 SLP No.18325/2018) held that when the loans were repaid in subsequent years and the explanation offered by the assessee on repayment was accepted by revenue, the addition could not be sustained. The Hon’ble Punjab & Haryana High Court in the case of CIT Vs Karaj Singh (15 Taxmann.com 70) held that where the assessee filed competed details to prove the genuineness and creditworthiness of the loan creditors and the loans stood repaid through normal banking channels, Ld. AO was not justified in treating the said loan as unexplained cash credit u/s 68. Similar is the decision of Chandigarh Tribunal in the case of Shri Rajiv Goyal vs. ITO (ITA No.481/Chd/2025). The decision of Agra Tribunal in the case of Sh. Agarsen Logistic (ITA No. 108/Agra/2025 dated 24-06-2025) has been rendered on identical facts. The Agra Tribunal held that addition u/s 68 could not be made on preponderance of probability and there has to be some evidence to establish the fact of unexplained cash credit. No addition could be made merely on the basis of suspicion. Once the assessee has filed all the details, the burden of proving the genuineness and creditworthiness of the creditor stood discharged by the assessee. The other decisions as quoted by Ld. AR in the written submissions lay down similar propositions and duly support the case of the assessee.

11. It could further be seen that no incriminating material has been found during search on assessee to indicate that these unsecured loans represent assessee’s own unaccounted money. Further, these loan creditors are not subjected to any independent enquiry by Ld. AO despite having on record sufficient details thereof.

12. Finally, considering the facts and circumstances of the case, it could very well be concluded that the assessee had discharged the initial onus of proving these transactions in terms of the requirements of Sec.68. Therefore, the onus had shifted on Ld. AO to dislodge the assessee’s documentary evidences and bring on record cogent material to establish that the assessee generated unaccounted money and routed the same through banking channels in the garb of loans and advances. Unless such an investigation is shown to have been carried out, the additions would not be sustainable in law since it is trite law that no addition could be made on the basis of mere suspicion, conjectures and surmises. No independent enquiry has been carried out by Ld. AO to dislodge the documentary evidences of the assessee. Therefore, by deleting the impugned addition, we allow the corresponding grounds of assessee’s appeal.

13. In one of the grounds, the assessee has raised the issue of mechanical approval u/s 153D.On the issue of approval u/s 153D, Ld. CIT(A) noted that Ld. AO sent the draft assessment order along with assessment record to Addl. CIT on 27-12-2022 and the approval was accorded on 28-12-2022. The Ld. Addl. CIT duly considered the issues involved in the draft assessment order and made the perusal of assessment record. The allegation that the approval was mechanical approval had no basis. In Central charges, all search and seizure assessments are regularly supervised and monitored by the range heads. The Addl. CIT as range head is actively involved in assessment of all such cases from beginning and at all stages of search and seizure assessment, the assessing officer discusses and seek his guidance. The CBDT Circular F.No.286/161/2006IT (Inv. II) dated 22-12-2006 highlight the consultative approach between the Assessing Officer and the Range Head in search and seizure assessments. The range head as well as AO have followed the instructions / guidelines of the Board for the completion of search and seizure assessment and the assessment order was finalized by Ld. AO after obtaining approval u/s 153D from the Range Head. The seized documents were part of the assessment records. The approval u/s 153D was accorded after due examination and verification by the Range Head. Therefore, the allegation of the assessee qua mechanical approval was without any basis. Further, the approval was in the nature of administrative power. The Range head do not examine or adjudicate upon rights and obligations of the assessee but only consider whether AO has fulfilled the requirement of Sec.153A or not. Reference was made to the decision of Hon’ble Karnataka High Court in the case of Rishabchand Bhansali (267 ITR 577) to support the conclusion. In the given facts of the case, it could be said that Addl. CIT had applied his mind on the issues involved and accorded the requisite approval in accordance with the provisions of Act. Such approval could be said to be mechanical and without application of mind.

14. The aforesaid factual matrix has brought on record could not ne controverted before us. The issue of approval as taken by Ld. AO from Addl. CIT, in our considered opinion, has adequately been dealt with by Ld. CIT(A) in the impugned order and we concur with the same. This adjudication does not warrant any interference on our part. The corresponding grounds of assessee’s appeal stand dismissed. No other grounds have been urged in assessee’s appeal.

Conclusion

15. The assessee’s appeal ITA No.1230/Chandi/2025 stand partly allowed. The revenue’s appeal ITA No.1592/Chandi/2025 stand dismissed.”

39. Respectfully, following the above ratios, once the assessee settled the loan taken from the lender before the end of assessment year and the assessee had properly proves the genuineness of the transaction by filing the supporting documents, the proceedings u/s 68 cannot be initiated. With the above observations, we are inclined to dismiss the grounds raised by the revenue.

40. With regard to other issues raised by the assessee, at this stage, we are keeping them open.

41. In the result, appeal filed by the Revenue is dismissed.

42. Since we have dismissed the Revenue’s appeal, the cross objections filed by the assessee has become infructuous and accordingly, the same is also dismissed.

43. To sum up : The appeal filed by the Revenue and the cross objections filed by the assessee are dismissed.

Order pronounced in the open court on this 2nd day of September, 2026.