Case Law Details
Ratul Tex Private Limited Vs DCIT (ITAT Mumbai)
The Mumbai ITAT deleted an addition of ₹1.09 crore made under section 69A where the entire case of the Revenue was based on the statement of an alleged accommodation entry operator, without granting the assessee an opportunity to cross-examine him. The Tribunal held that denial of cross-examination amounts to a serious violation of natural justice, relying on the Supreme Court ruling in Andaman Timber Industries v. Commissioner of Central Excise.
The assessee had received a loan from Surya Diamonds Pvt. Ltd., which the Department treated as a bogus accommodation entry based on information gathered during investigation into alleged entry provider Shri Deepak Jain. However, the assessee produced income-tax returns, audited financials, confirmations and bank statements proving receipt and repayment of the loan along with interest within the same financial year.
The Tribunal also noted an important factual flaw in the Department’s case – the alleged entry operator, Shri Deepak Jain, was not even a director of the lender company during the relevant assessment year.
Rejecting the Revenue’s reliance on minor address discrepancies and generalized suspicion, the ITAT held that once the assessee establishes the identity of the lender, source of funds and repayment through banking channels, the addition cannot survive merely on the basis of third-party allegations.
The Tribunal further observed that repayment of the entire loan with interest during the same year substantially strengthens the genuineness of the transaction and arbitrary doubts about creditworthiness cannot override documentary evidence on record.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the Assessee against the order dated 31.07.2025 passed by the National Faceless Appeal Centre (NFAC), Delhi/ the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as “Ld. Commissioner”] under Section 250 of the Income Tax Act, 1961 (in short, “the Act”) for Assessment Year 2018–19.
2. Brief relevant facts for adjudication of this appeal are that the Assessee filed its return of income for the year under consideration on 29th September 2013, declaring total income of 84,65,238/-, which was assessed under section 143(3) of the Act, vide assessment order dated 16th October 2015.
3. Subsequently, information was received through the Insight Portal from the office of the Deputy Director of Income Tax (Investigation), Mumbai, to the effect that a search and seizure action had been carried out in the case of Shri Deepak Jain. During the course of investigation, it was ascertained that Shri Deepak Jain was an entry provider, providing accommodation entries through the following entities:
- M/s Surya Diamonds Pvt. Ltd.
- M/s Sanmati Gems Pvt. Ltd.
- M/s Abhinandan Diamonds Pvt. Ltd.
- M/s Marudha Diamonds Pvt. Ltd.
- M/s Siddhant Gems Pvt. Ltd.
4. In his statement recorded during investigation, Shri Deepak Jain admitted that he provided accommodation entries in lieu of commission to various persons. The Assessee was also identified as one of the beneficiaries, having received an accommodation entry of 1,09,53,000/- from M/s Surya Diamonds Pvt. Ltd.
5. Thus, on the basis of the above information, the case of the Assessee was reopened by issuing notice under section 148 of the Act on 8th June 2021 and assessment was completed under section 147 read with section 144B of the Act, vide order dated 30thMarch 2022, wherein addition of Rs. 1,09,53,000/- was made under section 69A of the Act.
6. Subsequently, proceedings under section 148A of the Act were initiated, and after obtaining approval from the Principal CCIT, notice under section 148 was issued again on 29th July 2023 and re-proceedings were carried out.
7. The Assessing Officer doubted the transaction of Rs. 1,09,53,000/-inter alia, on the following grounds:
- The lender company had share capital of about Rs. 1 lakh only;
- It had no substantial assets or investments;
- Despite this, it reported large turnover;
- Notices issued under section 133(6) were not complied with;
- There were discrepancies in the addresses of the lender;
8. The Assessing Officer also observed that the financials of the lender companies reflected disproportionate turnover vis-à-vis its infrastructure and expenses.
9. Thus, on the aforesaid reasons, the AO ultimately by passing assessment order dated 26-05-2023 treated the transacted amount of 1,09,53,000/- having been received by the Assessee from M/s Surya Diamonds Pvt. Ltd., as unexplained money under section 69A read with section 115BBE of the Act,
10. The Assessee being aggrieved with addition made and initiation of reopening of assessment proceedings, preferred 1stappeal before the Ld. Commissioner and to substantiate the transaction or its claim and to discharge its onus cast under relevant provisions of the Act as applicable, furnished various relevant documents including:
- Income Tax Returns of the lenders;
- Audited financial statements;
- Confirmation of transactions;
- Bank statements evidencing receipt and repayment of loan;
11. The Assessee also contended that the entire loan amount of approximately Rs. 1 crore was repaid within the same financial year along with interest; no opportunity of cross-examination of Shri Deepak Jain was provided despite being asked specifically and the addition was made solely on the basis of third-party statements. However, the Ld. Commissioner upheld the addition made by the Assessing Officer not on the legal aspect by also on merit by dismissing the grounds/issue raised by the Assessee on legal aspects and merit.
12. Thus, the Assessee being aggrieved has preferred this appeal.
13. We have heard the parties and perused the material available on record. We observe from the orders passed by the Authorities below that the Assessee during the year under consideration had taken loan of Rs. 1 Crore from the lender involved and during the AY under itself has repaid such loan amount along with interest of Rs. 9,53,000/- and in effect total amount of Rs. 1,09,53,000/-, which is neither in controversy nor in denial by the Revenue. Admittedly the Assessee has furnished relevant documentary evidences, including ITRs, financial statements, confirmations, and bank statements of the lenders. Further, the addition has been made primarily on the basis of the statement of Shri Deepak Jain. However: he was not a director in the lender company during the relevant assessment year. Further no opportunity of cross-examination was provided to the Assessee despite specific request and therefore this constitutes a violation of the principles of natural justice as held by Hon’ble Supreme Court in the case of Andaman Timber Industries vs, Commissioner of Central Excise, Kolkata-II (2015, 62 com3 SC) by observing and holding as under:
“Not allowing the Assessee to cross-examine the witnesses whose statements were relied upon is a serious flaw which makes the order a nullity, inasmuch as it amounts to violation of principles of natural justice.”
14. In the present case, since the statement of Shri Deepak Jain has been relied upon without granting opportunity of cross-examination, the same cannot be used against the Assessee and thus on this ground alone, the addition is liable to be deleted.
15. Further, the discrepancies in addresses between confirmation letter and MCA/PAN records, by themselves, are not sufficient to disregard the documentary evidences on record or minor discrepancies such as difference in addresses, cannot override substantive evidence.
16. It is also a matter of record as observed above that the Assessee has repaid the entire loan amount along with interest, within the same financial year, which strengthens the genuineness of the transaction.
We further observe that the Hon’ble Gujarat High Court in the cases namely PCIT vs. Ambe Tradecorp (P) Ltd. 2022 Taxpub (DT) 7021(Gujarat HC) and CIT vs. Ayachi Chandrashekhar Narsangji {Tax Appeal No. 992 of 2013, decided on 2nd December 2013} [ 2014 Taxman 146 {Guj HC] has held that when the Assessee establishes identity, source, and repayment of loan, the addition cannot be sustained or once identity, source, and repayment are established, creditworthiness cannot be doubted arbitrarily. Further if loan is repaid and accepted by the department, then addition is not justified.
17. Thus, on the aforesaid analyzations, we are of the considered view that in this case the Assessee by producing the relevant documents which were otherwise substantively not doubted by the Revenue, discharged its burden/onus cast under Sections 69 of the Act. Further the transaction was supported by documentary evidence and repayment. The addition is based on unverified third-party statement, without cross-examination. Further Mr. Deepak Jain on whose statement the Revenue relied on, in fact was not a Director in the Lender company. And therefore on the aforesaid reasons, the addition is un-sustainable and hence the same is deleted.
18. Since we have deleted the addition involved on merit and therefore other grounds including legal in nature, have otherwise become academic and thus are not adjudicated upon.
19. In the result, the appeal filed by the Assessee is allowed on the merit itself.
Order pronounced in the open court on dated 11-05-2026
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