Chandermauli Vs ITO (ITAT Ahmedabad)
Section 68 Cannot Tax an Entry That Never Entered the Books: ITAT Deletes ₹13.29 Lakh Addition Built Solely on Insight-Portal Information
The Ahmedabad Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal and deleted an addition of ₹13,29,120 made under section 68 of the Income-tax Act, 1961 for Assessment Year 2018-19. The Tribunal held that the primary condition for invoking section 68 is that the relevant sum must actually be found credited in the books of the assessee. In the absence of evidence establishing such a credit entry, the addition could not legally be sustained.
The case of the assessee was reopened on the basis of information available on the Insight portal alleging that the assessee was one of the beneficiaries of accommodation-entry transactions aggregating to ₹13,29,120 through M/s. Asti Vinayak Textile, M/s. Ganpati Textile, Narayan and Company and M/s. Hanuman Fabrics. The assessee categorically and repeatedly denied having undertaken the alleged transactions and submitted its bank statements, cash ledger and books of account before the Assessing Officer. According to the assessee, the alleged accommodation entries were not reflected in those records.
Despite the submissions, the Assessing Officer proceeded to add ₹13,29,120 on the basis of the information available with him. The addition was made as unexplained cash credits under section 68 read with section 115BBE, and penalty proceedings under section 270A were also initiated.
Before the CIT(A), the assessee again contended that there were no such transactions in its books of account, cash ledger or bank statements. It further submitted that the Assessing Officer had relied upon material relating to Shri Sanjay Tibrewal without properly examining whether any corresponding transaction was actually undertaken by the assessee. The CIT(A), however, upheld the addition by relying upon the information received through the Insight portal and the findings of the Deputy Director of Income Tax (Investigation).
The Tribunal examined the assessment order and the material reproduced therein. It noted that, despite the assessee’s repeated denial of the alleged transactions and production of its books, cash ledger and bank statements, the authorities below had not established that any corresponding credit entry existed in the assessee’s books.
The Tribunal specifically observed that the primary condition for making an addition under section 68 is that the sum must be found credited in the books of account of the assessee. Unless the Revenue establishes that such a credit entry is recorded in the assessee’s books and the assessee fails to satisfactorily explain its nature and source, section 68 cannot be invoked.
The Tribunal further noted that neither the date of the alleged transactions had been recorded by the Assessing Officer in the assessment order, despite the assessee’s denial, nor had the Assessing Officer brought evidence on record to substantiate how the alleged transaction constituted an accommodation entry. The addition was therefore held to be legally unsustainable.
Accordingly, the Tribunal deleted the addition of ₹13,29,120 and allowed the appeal filed by the assessee.
Cases Discussed
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 20.02.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2018-19.
2. The Assessee has raised following grounds of Appeal:-
“1. The Ld. CIT(A) erred in confirming the order of the AO making additions of ₹13,29,120 u/s 68, relying entirely on third-party investigation material without corroborating with the documents and details furnished.
2. Any other ground which may be urged before OR during the time of hearing of the appeal.”
3. There has been a delay of 275 days in filing the present appeal for which the Assessee has preferred a separate application for condonation of delay. For the reasons stated in the application for condonation of delay, the delay of 275 days in filing the appeal is condoned.
4. Brief facts of the case are that the case of the Assessee was reopened on the basis of information available on Insight portal that the Assessee was one of the beneficiaries of accommodation entry transactions made aggregating to Rs. 13,29,120/- through M/s. Asti Vinayak Textile (Rs. 1,99,400/-), M/s. Ganpati Textile (Rs. 4,02,700/-), Narayan and Company (Rs. 4,03,420/-), M/s. Hanuman Fabrics (Rs. 1,99,100/-). In reassessment, the Assessee in his reply has categorically and repeatedly submitted that the alleged accommodation entries do not pertain to them as there was no such transaction reflecting in their bank accounts and cash ledger which were submitted before the AO during the assessment proceeding.
4.1 The AO, without addressing the submission made by the Assessee, went on to add the amount of Rs. 13,29,120/- in terms of the information available with him.
4.2 Aggrieved, the Assessee preferred appeal before the 1st Appellate Authority i.e. Ld. CIT(A). The Ld. CIT(A) also, despite the Assessee having taken the ground that it had no such transactions in its books of account, dismissed the appeal of Assessee in a mechanical way confirming the additions made by the Assessing Officer.
4.3 Aggrieved, the Assessee filed the present appeal before us.
5. Ld. AR submitted that despite repeated and categorical submission by the Assessee before Ld. AO as well as Ld. CIT(A) to the effect that it did not have any transaction with said parties i.e. M/s. Asti Vinayak Textile (Rs. 1,99,400/-), M/s. Ganpati Textile (Rs. 4,02,700/-), Narayan and Company (Rs. 4,03,420/-), M/s. Hanuman Fabrics (Rs. 1,99,100/-) associate source of Shri Sanjay Tibrewal, the authorities did not bother to ascertain whether any such transaction was made by the Assessee during the relevant Assessment Year. He, therefore, submitted the addition needs to be deleted.
6. Per contra, Ld. DR supported the order of Ld. AO and Ld. CIT(A).
7. We have heard the parties and perused the material on record. Ld. AO in paragraph six of the Assessment Order has reproduced the reply dated 14.02.2023 and at para 7, Ld. AO has given the finding rejecting the reply of the Assessee. Paras 6 and 7 of the Assessment Order is reproduced herein below:
“6. A show cause notice was issued to the assessee on 01/03/2023. In response to the show cause notice issued the assessee replied on 14.02.2023 and stated as under,
With reference to your above mentioned notice issued, we hereby repetitively denying that the accommodation entries mentioned in the notice issued are not in our knowledge and even in our bank statements/cash book which were submitted two times in previous submissions, the same accommodation entries are not reflecting. All the required information and documents were previously submitted.
We were alleged that as per the information the assessee was one of such beneficiary of accommodation entry transactions aggregating Rs. 13,29,120/- through M/s. Aust Vinayak Textiles (Rs.1,99,400/-), M/s. Ganapati textile (Rs.5,27,200/-), Narayan & Company (Rs.4,03,420/-) & M/s Hanuman Fabrics (1,99,100/-) being associate concerns of Shri Sanjay Tibrewal. We are not agreeing with the information received by your honor as we have already submitted our bank statements and cash ledger which do not reflect any such type of accommodation entries. Therefore, we cannot be held liable for the misinformation received by your honor as such type of accommodation entries and transactions are not reflecting in our cash ledger and bank statements which were previously submitted.
We hereby request your honor not to issue notices repetitively for such accommodation entries as no such transactions are reflecting in cash ledger and bank statement as we have not entered in such type of transactions.
Your honor is kindly requested to close the case as no such accommodation entries were made by us. We hope that the case will be closed as soon as possible as no such income was underreported by us for taxation purpose.
7. The submission of the assessee was perused and not tenable. As per the information received in the Insight portal it can be seen that the assessee is involved in facilitating cash transaction and earned income by cash from such financing business. Thus the assessee was found to be one such beneficiary of accommodation entry transactions aggregating Rs. 1329120/- through M/s. Aust Vinayak Textiles (Rs.199400/-), M/s. Ganapati textile (Rs.527200/-), Narayan & Company (Rs.403420/-) & M/s. Hanuman Fabrics (199100/-) being associate concerns of Shri Sanjay Tibrewal. Shri Sanjay Tibrewal was the main person who was into the business of accommodation entry and sarafi business. All the business was operated and controlled by Shri Sanjay Tibrewal through his employees and third parties whose accounts was used. Shri Sanjay Tibrewal was enabling several persons in routing their unaccounted funds by layering into their books of accounts without payment of tax. Shri Sanjay Tibrewal was also facilitating cash transactions and was earning income from such cash financing business which was not accounted in their books of accounts. Thus it is elaborately established by Deputy Director of Income-tax(Inv), Unit-1(2), Ahmadabad that the assessee was also involved and was the beneficiary of accommodation entry transaction of Rs. 13,29,120/- by way of cash and did not offer the income earned in the return filed for the AY 2018-19. Hence the transaction made by the assessee of Rs. 13,29,120/- is treated as unexplained cash credits u/s 68 rws 115BBE of the Income Tax Act, 1961, and added to the total income of the assessee.
Penalty proceedings u/s. 270A initiated for under reporting of income which is in consequent of mis-reporting of income.”
7.1 Similarly, the grounds raised by the Assessee before Ld. CIT(A) recorded at para 4 of the impugned order is reproduced herein below:
“4.0 Aggrieved by the order of the AO, the assessee filed the appeal raising the following specific grounds of appeal:
“1. The Ld. Assessing officer has alleged on us that we were one of the benefciary of the accommodative transactions made in cash aggregating to Rs. 13,29,120/- through M/s. Aust Vinayak Textiles (Rs.1,99,400/-, M/s. Ganapati textile (Rs.5,27,200/), Narayan & Company (Rs.4,03,420/-), M/s. Hanuman Fabrics (1,99,100/-) being associate concern of Shri Sanjay Tibrewal even after all the documents & informations submitted by us and no such accommodative transactions were reflecting in our books of accounts, cash ledger and bank statements.
2. Even after our repetitively denying of accommodative transactions, assessing officer had not gone through properly our books of accounts and other documents submitted by us and passed an order u/s 147 r.w.s. 144B and made additions improperly.
3. The Ld. Assessing officer has attached photos of order passed in case of Shri Sanjay Tibrewal as a proof and on the basis of that only passed our order us/147 r.w.s. 1448.
4. The Ld. Assessing officer has not gone through properly in our books of accounts and other documents submitted by us and just on the basis of the order passed in case of Shri Sanjay Tibrewal, passed an order in our case.”
7.2 Again, Ld. CIT(A) mechanically, without ascertaining the transactions, upheld the addition made by the AO and dismissed the appeal of the Assessee observing as under:
“5.0 I have perused the assessment order, appeal documents and the submissions of the assessee. The AO made addition of Rs. 13,29,120/- u/s 68 of the Act stating that the assessee company was a beneficiary of Bogus Transactions. The assessee firm during the course of appellate proceedings denied to have entered any such accommodation entries transactions.
I have considered the contention of the assessee, however the same is not acceptable. As per the information received in the Insight portal and findings of Deputy Director of Income Tax (Inv.)- Unit-1(2), Ahemdabad, the assessee firm was a beneficiary of accommodation entries to the tune of Rs. 13,29,120/-through M/s AustVinayak Textiles (Rs. 1,99,400/-), M/s Ganapati Textile (Rs. 5,27,200/-), Narayan & Company (Rs. 4,03,420/-), M/s Hanuman Fabrics (Rs. 1,99,100/-) being associate concerns of Shri Sanjay Tiberwal. Shri Sanjay Tiberwal was a accommodation entry providers to various beneficiaries helped in routing their unaccounted funds by layering into their books of account giving benefit to the beneficiaries in reducing their taxes. The assessee was a beneficiary of accommodation entry transaction of Rs. 13,29,120/- by way of cash and did not offer the income for taxes for the income earned during F.Y. 2017-18 relevant to A.Y. 2018-19. The addition made by the AO to the tune of Rs. 13,29,120/- u/s 68 of Act is upheld and grounds of appeal filed by the assessee are dismissed.
In result, the appeal is dismissed.”
8. Section 68 of the Act reads as under:
“68. 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 by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :
Provided…”
9. A bare perusal of the aforesaid Section would show that primary condition of making any addition u/s 68 is that such sum is found credited in the books of account of Assessee. No addition can be confirmed/upheld u/s 68 unless Revenue has established that such a credit entry is recorded in the books of account of the Assessee, which the Assessee fails to explain or is not able to explain satisfactorily. As mentioned elsewhere in this order that it was repeatedly submitted before Ld. AO and Ld. CIT(A) that no such transaction is recorded in his books of account, the Assessee had also submitted its cash ledger/bank statements/books of accounts before the authorities, however, both the authorities below failed to take note of objection raised by the Assessee and thereby made the addition without specifying whether such transaction was at all entered into by the Assessee. Neither the date of the alleged transactions was recorded by the AO in the assessment order, in spite of denial of transaction by the assessee, nor the AO had brought any evidence on record to substantiate as to how the alleged transaction was accommodation entry. This addition so made cannot be legally sustained and, therefore, the same are deleted.
10. In the result, the appeal filed by the Assessee is allowed.
The order pronounced on 10.09.2026.
