Case Law Details
ITO Vs Kala Eswaran Iyr (ITAT Mumbai)
The appeal before the ITAT Mumbai concerned whether an addition of ₹20,00,130 made under Section 69A read with Section 115BBE could be sustained solely on the basis of information from the Investigation Wing and a third-party statement recorded during search proceedings. The assessee, a practising anaesthetist, had filed a return declaring income of ₹48,87,520. Based on a search conducted under Section 132 in the case of an alleged accommodation entry provider, the Assessing Officer treated the assessee as a beneficiary and made the addition. The assessee denied any such transaction, filed an affidavit, and contended that no cross-examination opportunity was given. The CIT(A) deleted the addition, noting absence of independent evidence, lack of nexus with “Kala Enterprises,” and failure to establish receipt of unexplained money. The ITAT upheld the deletion, holding that mere third-party statements without corroboration, independent enquiry, or cross-examination cannot justify an addition under Section 69A. The Revenue’s appeal was dismissed.
Core Issue:
Whether the addition of ₹20,00,130/- made under Section 69A r.w.s. 115BBE solely on the basis of Investigation Wing information and a third-party statement recorded during search proceedings can be sustained.
Facts of the Case:
The assessee, an individual practising anaesthetist, filed a return declaring income of ₹48,87,520. The case was selected for complete scrutiny based on information from the Investigation Wing, Ahmedabad.
A search u/s 132 was conducted in the case of Shri Sanjay Govindram Aggarwal @ Sanjay Tiberwal (alleged accommodation entry provider). Based on Annexure-A and the statement recorded during the search, the AO treated the assessee as a beneficiary of accommodation entries. An addition of ₹20,00,130 was made u/s 69A and taxed u/s 115BBE.
Revenue’s Arguments:
Addition was based on credible information from the Investigation Wing. PAN mentioned in Annexure-A matched that of the assessee.
CIT(A) erred in observing that the counter-party name was different. CIT(A) failed to exercise co-terminus powers to verify whether “Kala Enterprises” was the proprietary concern of the assessee.
Assessee’s Arguments:
No transaction was ever entered into with the alleged entry operator.
Addition was based solely on a third-party statement recorded behind the assessee’s back.
No opportunity of cross-examination was provided.
Annexure-A mentioned “Kala Enterprises,” not the assessee. No evidence was produced:
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No bank statement
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No transaction date
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No place of transaction
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No mode of receipt
An affidavit was filed denying the transaction; it was not rebutted by the AO.
Findings of CIT(A):
CIT(A) deleted the addition holding:
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No independent evidence to prove receipt of accommodation entry.
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No nexus established between the assessee and “Kala Enterprises.”
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No corroborative material such as bank entries.
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Addition made merely on third-party information.
ITAT Findings:
ITAT upheld the deletion and held:
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Addition under Section 69A requires proof of possession of unexplained money.
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Mere third-party statement without corroboration is insufficient.
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No independent enquiry was conducted by the AO.
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The affidavit filed by the assessee remained unrebutted.
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Denial of cross-examination vitiates the addition.
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CIT(A) was justified in deleting the addition instead of remanding for a roving enquiry.
Legal Principles Reaffirmed
Burden of Proof under Section 69A:
The onus lies on the AO to establish by cogent evidence that:
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The assessee was in possession of money, and
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Such money is unexplained.
Suspicion or third-party allegation is not enough.
Third-Party Statement:
A statement recorded behind the back of the assessee:
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Cannot be the sole basis of addition
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Requires corroboration
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Cross-examination opportunity is mandatory
Co-terminus Powers of CIT(A):
CIT(A) is not required to conduct a fresh roving enquiry to cure defects in the assessment where the AO failed to discharge the primary burden.
Final Outcome:
Deletion of ₹20,00,130 upheld.
Revenue’s appeal dismissed.
Some Important Decisions:
Right of Cross-Examination – Mandatory
Andaman Timber Industries v. CCE – The Supreme Court held that denial of cross-examination of a witness whose statement is relied upon is a serious flaw and violates the principles of natural justice.
Addition Cannot Be Based Solely on Third-Party Statement
CIT v. Odeon Builders Pvt Ltd – Addition based only on the statement of an entry operator without independent corroboration is unsustainable.
PCIT v. Best Infrastructure India Pvt Ltd.
Statements Recorded u/s 132(4)
Statements recorded u/s 132(4) must be supported by incriminating material; otherwise, the addition fails – CIT v. Lavanya Land Pvt Ltd.
Third-party statements without cross-examination and corroboration cannot justify addition.
Burden of Proof under Section 69A
CIT v. Smt. P.K. Noorjahan – Section 69A confers discretion; addition cannot be automatic merely because the explanation is not accepted.
Umacharan Shaw & Bros. v. CIT – Suspicion, however strong, cannot take the place of proof.
Dhakeswari Cotton Mills Ltd v. CIT – Assessment cannot be based on conjectures or surmises.
Affidavit Evidence – If Not Rebutted
Mehta Parikh & Co. v. CIT – An affidavit filed by the assessee must be accepted if not cross-examined or rebutted by the Revenue.
No Independent Enquiry by AO
CIT v. Kamdhenu Steel & Alloys Ltd – The AO must conduct proper enquiry; addition cannot rest merely on Investigation Wing information.
Pr. CIT v. G&G Pharma India Ltd – Mechanical reliance on the investigation report is invalid.
Co-terminus Powers of CIT(A)
CIT v. Kanpur Coal Syndicate – CIT(A) has co-terminus powers with the AO.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal filed by the Revenue is directed against the order of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, dated 17.06.2025 for the assessment year 202021, arising from the order passed by Ld. Assessing Officer (AO) under Section 143(3) r.w.s 144B of Income Tax Act.
2. The only issue arising for our consideration is whether the Ld. CIT(A) was justified in deleting the addition of ₹20,00,130/- made by the Assessing Officer under section 69A read with section 115BBE of the Income-tax Act, 1961.
3. Briefly stated, the assessee is an individual and a practising anaesthetist. The return of income was filed declaring total income of ₹48,87,520/-. The case was selected for complete scrutiny on the basis of information received from the Investigation Wing, Ahmedabad, consequent to a search conducted under section 132 in the case of Shri Sanjay Govindram Aggarwal alias Sanjay Tiberwal, who was stated to be engaged in providing accommodation entries. Relying upon Annexure-A forwarded by the Investigation Wing and the statement of the said person recorded during search proceedings, the Assessing Officer treated the assessee as a beneficiary of accommodation entries and made an addition of ₹20,00,130/- under section 69A of the Act.
4. Before us, the Ld. Departmental Representative supported the order of the Assessing Officer. It was submitted that the addition was based on credible information received from the Investigation Wing pursuant to a search under section 132 and on the statement of Shri Sanjay Tiberwal recorded on oath. It was argued that the Ld. CIT(A) erred in holding that the counter-party name and PAN were different, whereas the PAN mentioned in Annexure-A was the same as that of the assessee. It was further submitted that the Ld. CIT(A), being the first fact-finding authority, failed to exercise co-terminus powers to ascertain whether “Kala Enterprises” was a proprietary concern of the assessee and, therefore, the order of the Ld. CIT(A) is perverse and liable to be set aside.
5. Per contra, the Ld. Authorised Representative for the assessee submitted that the assessee had never entered into any transaction with Shri Sanjay Aggarwal/Tiberwal or his concerns and had consistently denied the alleged transactions during the assessment proceedings. It was submitted that the addition was made solely on the basis of third-party information and a statement recorded behind the back of the assessee, without granting any opportunity of cross-examination. The Ld. AR drew our attention to the fact that the name appearing in Annexure-A was “Kala Enterprises” and not the assessee, and no material was brought on record by the Assessing Officer to establish any nexus between the assessee and the said concern. It was further submitted that the Assessing Officer failed to bring on record any evidence in the form of bank statements, dates of transactions, place of transactions or mode of receipt to establish that the assessee had actually received any accommodation entry. The Ld. AR thus supported the order of the Ld. CIT(A).
6. We have heard the rival submissions and perused the material available on record. We find that the entire addition has been made by the Assessing Officer solely on the basis of information received from the Investigation Wing and the statement of a third party recorded during search proceedings. The assessee has consistently denied having any such transactions and has also filed an affidavit to that effect. The Assessing Officer has not rebutted the affidavit nor carried out any independent enquiry to establish that the assessee was the beneficiary of the alleged accommodation entries.
7. We find that the Ld. CIT(A), after examining the assessment record, has recorded a clear finding of fact that the Assessing Officer did not bring any evidence on record in the form of date of transaction, place of transaction or bank details establishing any receipt of accommodation entries by the assessee. It has also been observed that the name mentioned in Annexure-A was “Kala Enterprises” and that the Assessing Officer failed to establish any connection between the assessee and the said concern. These findings have not been controverted by the Revenue by producing any cogent material before us.
8. It is well settled that an addition under section 69A cannot be sustained merely on suspicion or on the basis of unverified third-party information. The burden lies on the Assessing Officer to establish, by cogent evidence, that the assessee was in possession of unexplained money. In the present case, apart from the statement of a third party recorded behind the back of the assessee, no independent or corroborative evidence has been brought on record. Further, the denial of opportunity of cross-examination also vitiates the addition.
9. As regards the contention of the Revenue that the Ld. CIT(A) failed to exercise co-terminus powers, we are of the view that when the Assessing Officer himself has failed to conduct basic enquiry and the addition is found to be unsustainable on the material on record, the Ld. CIT(A) was justified in deleting the same rather than restoring the matter for a roving enquiry.
10. In view of the foregoing discussion, we find no infirmity in the order of the Ld. CIT(A). Accordingly, the deletion of the addition of ₹20,00,130/- is upheld.
11. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 09/02/2026 at Mumbai.
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