Case Law Details
Kalpana Ramesh Jain Vs DCIT (ITAT Mumbai)
ITAT Deletes ₹50 Lakh Addition – Mere Search Allegations Against Lender Cannot Make Every Loan Bogus
The Mumbai ITAT deleted an addition of ₹50 lakh made u/s 69A in respect of an unsecured loan received through banking channels from M/s Aneri Fincap Ltd. The reassessment was triggered based on search proceedings conducted in the case of “One World Group”, where certain entities including the lender were allegedly found involved in accommodation entry operations. The AO treated the loan as non-genuine and also disallowed consequential interest expenditure and denied set-off of interest income.
The assessee contended that the entire loan transaction was genuine, duly recorded in books, routed through banking channels, supported by loan agreement, confirmations, audited financial statements, RBI registration certificate of the lender NBFC, PAN, ITR acknowledgements, repayment proofs and no-dues certificate. It was further argued that no direct incriminating material existed against the assessee and no cash trail or evidence showed routing back of assessee’s own unaccounted funds.
The Tribunal held that the Department had merely relied on generalized allegations arising from third-party search statements without bringing any independent material linking the assessee to accommodation entry operations. The ITAT emphasized that suspicion, however strong, cannot replace legal evidence. It observed that the lender’s audited financials demonstrated substantial financial strength and that the entire transaction – receipt, utilization and repayment of loan – stood fully evidenced through contemporaneous records and bank statements.
Importantly, the Tribunal held that section 69A itself was wrongly invoked since the transaction was fully recorded in the books and no unaccounted money or asset was found with the assessee. The ITAT ruled that additions cannot be sustained merely because the lender was allegedly involved in accommodation entries unless there is direct evidence connecting the assessee with such activity. Accordingly, the addition of ₹50 lakh and the consequential disallowance of interest/set-off of ₹17.50 lakh were deleted in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against the order dated 21.05.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), arising out of reassessment proceedings framed under section 147 of the Income Tax Act, 1961 for the assessment year 2018-19. In various grounds of appeal, including the additional ground raised before us, the assessee has challenged the validity of reassessment proceedings on multiple legal and jurisdictional issues, inter alia, assailing the assumption of jurisdiction under section 147 instead of section 153C of the Act, validity of reopening under section 148, and, on merits, challenging the addition of Rs.50,00,000/- made under section 69A by treating the unsecured loan received from M/s Aneri Fincap Ltd. as non-genuine and in the nature of accommodation entry. Consequentially, the assessee has also challenged the disallowance of interest expenditure and denial of set off of interest income amounting to Rs.17,50,000/-, which, according to the Assessing Officer, was intrinsically linked to the alleged bogus loan transaction.
2. Briefly stated, the facts borne out from the assessment records are that during the relevant previous year the assessee had received unsecured loan of Rs.50,00,000/- from M/s Aneri Fincap Ltd. through banking channels and the same was duly recorded in the regular books of account maintained in the normal course of business. The reassessment proceedings came to be initiated pursuant to certain information allegedly received from the Investigation Wing and material emanating from search and seizure proceedings conducted under section 132 in the case of “One World Group” and related entities. During the course of such search proceedings, statements of Shri Rajesh G. Mehta and Shri Urvil Jani were recorded under section 131, wherein it was allegedly admitted that several entities controlled and operated by them were engaged in providing accommodation entries in the nature of bogus purchases, bogus sales and financial layering transactions. One of the entities allegedly named during the course of such investigation was M/s Aneri Fincap Ltd., from whom the assessee had received the impugned unsecured loan.
3. The Assessing Officer, while framing the reassessment order, referred extensively to the background of search proceedings carried out in the case of One World Group on 06.11.2019 and the alleged modus operandi unearthed during the course of investigation. The Assessing Officer observed that Shri Rajesh Mehta, in his sworn statement recorded under section 131 on 08.11.2019, had admitted that various entities controlled by him were engaged in providing accommodation entries without actual underlying business activities. Reliance was also placed upon the corroborative statement of Shri Urvil Jani, stated to be the key person of One World Group, wherein it was allegedly admitted that entities of the said group had availed bogus transactions from concerns controlled by Shri Rajesh Mehta. The Assessing Officer further observed that M/s Aneri Fincap Ltd. was one of the entities allegedly identified as being used for providing accommodation entries to beneficiaries and, therefore, according to him, the unsecured loan transaction entered into by the assessee lacked genuineness.
4. The assessment order further reveals that the Assessing Officer had heavily relied upon findings recorded in the assessment proceedings of M/s Aneri Fincap Ltd. itself. It was noted therein that summons issued under section 131 to persons shown as directors of M/s Aneri Fincap Ltd. did not evoke meaningful compliance and that one of the directors, namely Smt. Leena Krishnan Kavassery, allegedly admitted in her statement that she was merely a dummy director and had no knowledge regarding day-to-day affairs of the company. The Assessing Officer further observed that she had allegedly stated that the affairs of M/s Aneri Fincap Ltd. were being entirely controlled by Shri Rajesh Mehta. The Assessing Officer also referred to certain findings allegedly recorded in the assessment orders passed in the case of M/s Aneri Fincap Ltd., wherein it was held that the said entity was not carrying out genuine NBFC business during the relevant period and was merely engaged in routing accommodation entries to various beneficiaries.
5. Apart from the aforesaid search-related material, the Assessing Officer also drew adverse inference on the ground that the assessee had initially stated during the course of assessment proceedings that there was no formal loan agreement executed between her and M/s Aneri Fincap Ltd., but subsequently a loan agreement was furnished before the Department. According to the Assessing Officer, this change in stand adversely affected the credibility of the assessee’s explanation. The Assessing Officer further observed that the loan amount received from M/s Aneri Fincap Ltd. had thereafter been advanced by the assessee to three concerns, namely M/s Rishabh World Pvt. Ltd. (formerly M/s Rishabh Apparel Pvt. Ltd.), M/s Vardha Mercantile Pvt. Ltd. and M/s Dhandeep Mercantile Pvt. Ltd., in which the assessee was stated to be a director. It was further observed that two out of these three companies were allegedly loss-making concerns and that the assessee had earned interest income only from one company which, according to the Assessing Officer, ultimately stood neutralized by interest paid to M/s Aneri Fincap Ltd. Thus, according to the Assessing Officer, the entire transaction lacked commercial prudence and economic rationale and was merely a colourable arrangement to route accommodation entries.
6. On the basis of the aforesaid material, statements and surrounding circumstances, the Assessing Officer concluded that the unsecured loan transaction was not genuine and represented unexplained money routed in the guise of loan through accommodation entry provider. Consequently, the amount of Rs.50,00,000/- was treated as unexplained money under section 69A of the Act. The Assessing Officer further held that once the principal loan transaction itself was found to be bogus and non-genuine, the consequential claim of interest expenditure and set off of interest income amounting to Rs.17,50,000/- could not survive independently and, accordingly, the same was also disallowed.
7. Before the learned CIT(A), the assessee challenged the reassessment proceedings both on legal grounds as well as on merits. One of the primary contentions raised by the assessee was that the entire reopening was admittedly founded upon material and information gathered during search proceedings conducted in the case of third parties and, therefore, once the Assessing Officer had relied upon seized material and information pertaining to a searched person, the only permissible statutory route available under law was section 153C and not section 147 of the Act. It was contended that section 153C specifically contemplates a complete mechanism where books of account, documents or information seized during the course of search pertain to or relate to a person other than the searched person and, therefore, the assumption of jurisdiction under section 147 by bypassing the mandatory procedure prescribed under section 153C rendered the entire reassessment proceedings without jurisdiction and contrary to the express scheme of the Act.
8. The assessee further submitted that, as evident from the reasons recorded as well as the discussion made in the assessment order itself, the information relied upon by the Assessing Officer had admittedly emanated from search proceedings conducted in the case of One World Group and had allegedly been received from the Assessing Officer of the searched person. Therefore, according to the assessee, once the very genesis of the reassessment proceedings was search-related material pertaining to third parties, strict compliance of section 153C was mandatory and resort to section 147 was wholly impermissible in law. In support of the aforesaid contention, reliance was also placed upon the decision of the Coordinate Bench in the case of Parshwa Investment vs. DCIT, wherein, according to the assessee, on identical factual matrix the reopening proceedings had been quashed for failure to follow the statutory mandate of section 153C.
9. The assessee had also challenged the reopening on the ground that the reasons recorded were vague, factually incorrect and mechanically reproduced without there being any independent application of mind by the Assessing Officer. It was submitted that the reasons recorded referred to allegations of bogus purchase and sale transactions carried out by concerns allegedly controlled by Shri Rajesh Mehta, whereas in the assessee’s case the transaction under consideration pertained only to unsecured loan transaction and not to any bogus purchase or sale activity. Thus, according to the assessee, the very factual foundation on the basis of which belief of escapement was formed was itself erroneous and misconceived and, therefore, the assumption of jurisdiction under section 147 was invalid in law.
10. On merits, the assessee had vehemently contended before the lower authorities that the unsecured loan of Rs.50,00,000/- was received through proper banking channels for legitimate business purposes and the same stood duly reflected in the regular books of account maintained in the ordinary course of business. It was specifically submitted that all primary evidences in support of the loan transaction had been furnished before the Assessing Officer, including loan confirmation, ledger account, bank statements, financial statements of the lender, loan agreement, no-dues certificate, PAN details, income tax return acknowledgements and RBI registration certificate of M/s Aneri Fincap Ltd. demonstrating that it was a registered NBFC since the year 1998. It was further submitted that the lender possessed sufficient financial capacity to advance the loan and had disclosed substantial interest income in its financial statements. The assessee also pointed out that the entire loan transaction was subsequently squared up and repaid along with interest in subsequent years and the repayment stood duly substantiated from bank statements and no-dues certificate issued by the lender.
11. The assessee further submitted that the loan was availed due to business exigencies and the funds were advanced to companies in which the assessee was a director for business requirements. It was also submitted that the interest income earned by the assessee stood duly supported from Form 16A and financial statements already placed on record. According to the assessee, the transaction was entirely commercial in nature and there was no material whatsoever to suggest that the assessee had introduced her own unaccounted income in the guise of unsecured loan. The assessee also submitted that no discrepancy had been pointed out by the Assessing Officer in the books of account, bank statements, confirmations or financial statements furnished during the course of assessment proceedings.
12. It was further contended by the assessee that the addition had been made merely on the basis of generalized allegations and statements recorded during third-party search proceedings without there being any direct incriminating material against the assessee establishing that the impugned loan transaction represented accommodation entry or unaccounted money. According to the assessee, her name nowhere appeared in the statement of Shri Rajesh Mehta and there was no specific allegation therein that the transaction entered into by the assessee was bogus in nature. It was also submitted that no independent inquiry had been carried out by the Assessing Officer to establish any cash trail or to demonstrate that the money received by the assessee had emanated from her own undisclosed sources. The assessee further submitted that although adverse inference had initially been drawn due to non-availability of loan agreement, however, considering the time gap since the transaction pertained to financial year 2016-17, the agreement was subsequently traced and voluntarily furnished before the Department. It was also pointed out that M/s Aneri Fincap Ltd. had responded to notices issued under section 133(6) and had duly confirmed the transaction.
13. Another important plank of the assessee’s submissions before the lower authorities was that the provisions of section 69A themselves had no application to the facts of the present case. It was argued that section 69A could be invoked only where the assessee is found to be owner of money, bullion, jewellery or other valuable article not recorded in the books of account and where the assessee either offers no explanation regarding the nature and source thereof or the explanation furnished is found unsatisfactory. According to the assessee, in the present case the amount in question was neither an unrecorded asset nor unexplained money found in possession of the assessee. On the contrary, the entire loan transaction was duly recorded in the regular books of account maintained in the ordinary course of business and fully supported by documentary evidences placed on record. It was further submitted that there was no finding in the assessment order that the amount represented unaccounted cash belonging to the assessee or that any cash had moved from the assessee to the lender for obtaining accommodation entries. Thus, according to the assessee, the Assessing Officer had merely proceeded on assumptions, suspicion and presumptions without establishing any actual cash trail or bringing any contrary material on record to rebut the evidences furnished by the assessee.
14. The learned CIT(A), however, was not persuaded by the explanation and submissions advanced on behalf of the assessee and substantially affirmed the action of the Assessing Officer. The learned CIT(A), while confirming the addition of Rs.50,00,000/- as well as the consequential disallowance of interest expenditure and denial of set off of interest income amounting to Rs.17,50,000/-, primarily concurred with the findings of the Assessing Officer that M/s Aneri Fincap Ltd. was one of the entities unearthed during the course of search proceedings as being engaged in providing bogus accommodation entries and that the assessee had failed to satisfactorily establish the genuineness of the impugned loan transaction in light of the surrounding circumstances and material gathered during search and post-search investigations. The learned CIT(A.) further held that mere routing of funds through banking channels or furnishing of documentary evidences such as confirmations, financial statements and income tax returns would not, by themselves, establish genuineness once the lender entity itself had been found during investigation proceedings to be engaged in accommodation entry operations. Accordingly, the learned CIT(A.) confirmed the addition made under section 69A and also upheld the consequential disallowance of interest expenditure and denial of set off by holding that the entire arrangement was part of a bogus accommodation entry transaction unearthed during the course of search proceedings.
15. We have heard the rival submissions, carefully perused the assessment order, the impugned order of the learned CIT(A), the material placed in the paper book and the various documentary evidences furnished before the authorities below. Though the assessee has raised multiple legal and jurisdictional grounds challenging the validity of reassessment proceedings under section 147, including the plea that proceedings ought to have been initiated under section 153C inasmuch as the entire foundation of reopening emanates from search material pertaining to third parties, however, after considering the entire factual matrix and the evidences placed before us, we find that the controversy can conveniently be adjudicated on merits itself because, in our considered opinion, the additions made by the Assessing Officer and sustained by the learned CIT(A.) are wholly unsustainable on facts as well as in law. The central issue requiring adjudication before us is whether the unsecured loan of Rs.50,00,000/- received by the assessee from M/s Aneri Fincap Ltd., through banking channels and duly recorded in the books of account, can be treated as unexplained money under section 69A merely on the basis of generalized allegations unearthed during search proceedings conducted in the case of third parties and whether the consequential disallowance of interest expenditure and denial of set off of interest income amounting to Rs.17,50,000/- can independently survive once the principal addition itself fails.
16. From the records placed before us, it is manifest that the assessee had furnished extensive documentary evidences before the lower authorities substantiating not only the identity and creditworthiness of the lender but also the genuineness of the entire loan transaction. The paper book contains copy of show cause notice issued under section 148A(b), order passed under section 148A(d), copy of statement of Shri Rajesh Mehta relied upon by the Department, loan confirmation received from M/s Aneri Fincap Ltd., no-dues certificate confirming repayment of the loan, ledger account of the lender in the books of the assessee, RBI registration certificate demonstrating that M/s Aneri Fincap Ltd. was a registered NBFC, MCA details showing active corporate status of the lender company, copy of letter filed before the Assessing Officer during assessment proceedings, copy of ITR acknowledgment and audited financial statements of M/s Aneri Fincap Ltd., bank statements evidencing receipt of loan through banking channels and subsequent repayment thereof along with interest, copy of loan agreement and disbursement letter, financial statements of concerns to whom funds were subsequently advanced and Form 16A and TDS certificates evidencing receipt of interest income. Thus, the entire chain of transaction right from disbursement of loan by the lender, receipt thereof by the assessee, utilization of funds for business purposes, payment of interest and eventual repayment stood fully evidenced from contemporaneous records already forming part of assessment proceedings. None of these documents have been found to be fabricated, false or non-genuine by the authorities below.
17. A careful examination of the audited financial statements of M/s Aneri Fincap Ltd. further reveals that the lender company possessed substantial financial strength and huge fund availability during the relevant period. The financial statements placed before us show that the company had borrowed funds aggregating to several hundreds of crores and had current assets and loan portfolios exceeding several hundred crores. It has also been demonstrated from the audited financial statements that the lender had advanced loans to various parties as part of its financing business and had disclosed substantial interest income in its books of account. Thus, the financial capacity and creditworthiness of the lender cannot be brushed aside merely on generalized allegations made during third-party investigations. Once the audited financial statements, bank statements and statutory records demonstrate that the lender had sufficient financial wherewithal to advance the loan, the primary burden cast upon the assessee stood duly discharged. Merely because subsequently certain allegations may have surfaced against the lender during search proceedings, the same, by itself, cannot automatically render every transaction undertaken by such entity as sham or fictitious unless specific material is brought on record establishing direct nexus between the assessee and the alleged accommodation entry mechanism. In tax jurisprudence, additions cannot be sustained on broad probabilities or generalized assumptions divorced from the facts and evidences pertaining to the assessee’s own case.
18. The entire edifice of the assessment order rests predominantly upon statements recorded during the course of search proceedings in the case of One World Group and alleged findings recorded in proceedings relating to M/s Aneri Fincap Ltd. However, neither from the reasons recorded nor from the assessment order do we find any direct incriminating material establishing that the assessee had routed her own unaccounted money through the impugned loan transaction. There is no evidence of any cash movement from the assessee to the lender; no evidence of any cash deposit preceding issuance of loan; no evidence of any accommodation entry commission; and no material whatsoever demonstrating circulation of unaccounted funds belonging to the assessee. The Assessing Officer has merely proceeded on the assumption that since M/s Aneri Fincap Ltd. was allegedly found involved in providing accommodation entries to certain beneficiaries, therefore every transaction undertaken by it must necessarily be non-genuine. Such generalized inference, in our considered opinion, cannot substitute legal proof. Suspicion, however grave or compelling, cannot partake the character of evidence unless supported by independent corroborative material. Once the assessee had furnished all primary evidences such as confirmation, PAN, audited financial statements, bank statements, loan agreement, repayment details and no-dues certificate, the burden shifted upon the Department to rebut these evidences with cogent material specifically relatable to the assessee. No such exercise appears to have been undertaken by the Assessing Officer.
19. Another important aspect which substantially weakens the Department’s case is that the transaction in question is fully recorded in the regular books of account maintained by the assessee in the ordinary course of business. The loan amount was received through normal banking channels and the repayment thereof along with interest in subsequent years is also duly evidenced from bank statements placed on record. Once the entire transaction stands transparently reflected in the books and supported by documentary evidences, invocation of section 69A itself becomes wholly misconceived. Section 69A contemplates a situation where the assessee is found to be owner of money, bullion, jewellery or other valuable article not recorded in the books of account and the assessee either offers no explanation regarding the nature and source thereof or the explanation furnished is found unsatisfactory. In the present case, neither any unaccounted asset has been found in possession of the assessee nor any unexplained money outside the books has been detected. On the contrary, the transaction is duly recorded in the books and fully traceable through banking channels. The Assessing Officer has not demonstrated that the explanation offered by the assessee is inherently false or impossible. Rather, the addition has been made merely on presumptions flowing from third-party statements and surrounding circumstances without establishing the basic jurisdictional facts necessary for invoking section 69A.
20. The Assessing Officer has also drawn adverse inference from the fact that initially the assessee had stated that no formal loan agreement existed and subsequently furnished the same. However, in our considered opinion, such discrepancy by itself cannot become determinative factor to disregard the entire transaction, particularly when the agreement was later traced and voluntarily furnished and the transaction otherwise stands corroborated from multiple independent evidences already available on record. Human errors, inconsistencies or inability to immediately trace old documents cannot ipso facto lead to inference that the transaction itself is fictitious. Similarly, the observation of the Assessing Officer that the assessee had advanced funds to companies in which she was director or that some of such companies were loss-making concerns also cannot be basis to hold that the original loan transaction lacked genuineness. The commercial expediency or prudence of business decisions lies within the domain of the businessman and not that of the Assessing Officer unless the transaction itself is demonstrated to be sham or colourable device. The fact remains that the assessee has explained the purpose of availing loan and subsequent utilization thereof and such explanation stands supported from books of account and financial records.
21. We also find considerable force in the contention advanced on behalf of the assessee that no effective material directly implicating the assessee has emerged from the statements relied upon by the Department. Even from the statements of Shri Rajesh Mehta referred to in the assessment order, no specific allegation directly naming the assessee or referring to the impugned transaction has been brought to our notice. Further, though much emphasis has been laid by the Assessing Officer on alleged accommodation entry operations, no meaningful independent inquiry was conducted to establish actual cash trail or flow back of funds from the assessee. The addition has thus been made merely on inferential reasoning and generalized allegations emanating from third-party search proceedings. The learned CIT(A.), while affirming the addition, has also substantially reiterated the same reasoning without dealing with the crucial evidences furnished by the assessee, particularly the audited financial statements of the lender showing substantial funds and current assets, bank statements evidencing loan disbursement and repayment, RBI registration certificate of the NBFC lender, confirmations, loan agreement and no-dues certificate. Once these documentary evidences remain unrebutted and no contrary material is brought on record establishing that the money actually emanated from the coffers of the assessee herself, the addition cannot be sustained merely on generalized investigation findings against the lender entity.
22. Accordingly, considering the entirety of facts and circumstances of the case, the documentary evidences placed on record, the financial credentials and audited financial statements of the lender company, the banking trail evidencing receipt and repayment of loan, the fact that the transaction stood duly recorded in the regular books of account, and in absence of any direct incriminating material establishing that the impugned loan represented assessee’s own unaccounted income routed back in the guise of loan, we are of the considered opinion that the Assessing Officer was not justified in treating the unsecured loan of Rs.50,00,000/-as unexplained money under section 69A of the Act. The addition so made and sustained by the learned CIT(A.) is directed to be deleted. Consequently, since the disallowance of interest expenditure and denial of set off of interest income amounting to Rs.17,50,000/- are purely consequential to the alleged non-genuineness of the loan transaction and once we have held the principal transaction itself to be genuine and duly substantiated from documentary evidences, the consequential disallowance and denial of set off also cannot survive independently. Accordingly, the Assessing Officer is directed to allow the consequential relief to the assessee.
23. In the result, the appeal of the assessee is allowed.
Order pronounced on 18th May, 2026.
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