Gajpal BuildInfra Pvt. Ltd. Vs ITO (ITAT Mumbai)
CIT(A) Must Independently Examine Evidence—Suspicion Cannot Substitute for Adjudication of Bank Credits
Background
The assessee challenged a reassessment in which bank credits aggregating to ₹1,48,01,731 were added as unexplained income.
The proceedings originated from information concerning deposits of ₹97,01,731 in the company’s bank account. During reassessment, the AO examined total credits of ₹1,48,01,731 and concluded that their nature and source had not been satisfactorily explained.
The CIT(A) confirmed the addition. Before the Tribunal, the assessee contested both the validity of proceedings against an allegedly struck-off company and the failure to properly examine its evidence explaining the bank credits.
Challenge Based on the Company’s Alleged Dissolution
The assessee argued that its name had been struck off by the Registrar of Companies before the notice under section 148 dated 27 April 2023 was issued. It maintained that the AO had been informed of this fact and that proceedings against a non-existent entity were invalid.
Reliance was placed on Zaheer Syed Abbas v. Union of India, 187 taxmann.com 794 (Bom.), dated 15 June 2026.
As discussed in the Tribunal’s order, that High Court decision concerned a company whose name had been struck off following a voluntary application before reopening. Despite being informed of its dissolution, the Department issued the reopening notice and completed the assessment. The High Court quashed those proceedings.
The assessee sought similar relief.
Tribunal Rejected the Non-Existence Ground
The Tribunal distinguished the Bombay High Court decision on the facts before it.
It referred to the MCA information and recorded that the company was shown as “Active Non-Compliant”. It also noted that the financial statements reflected substantial non-current investments and cash, and that the auditors had not reported closure of the company’s business and activities.
The Tribunal further observed that the assessee had not produced evidence of a voluntary strike-off application comparable to that in the cited High Court case.
On this basis, it rejected the contention that the company was non-existent and dismissed the jurisdictional ground.
However, the order contains an important inconsistency: paragraph 8 initially records the company’s status as “Strike Off”, but subsequently refers to “Active Non-Compliant” and proceeds on the latter description. The precise MCA status and its effective date therefore remain significant when considering this part of the ruling.
Explanation of the Bank Credits
On merits, the assessee furnished explanations and supporting documents for several credits.
Three receipts of ₹31 lakh each, from Akansha Media and Entertainment Pvt. Ltd., Abjayoni Trading Pvt. Ltd. and Aadhaar Ventures India Ltd., were explained as proceeds from selling 10,000 shares each of Secunderabad Healthcare Ltd.
The supporting material included confirmations, banking records and, for certain purchasers, financial statements or return acknowledgements.
A further receipt of ₹5.70 lakh from Adamina Traders Pvt. Ltd. was explained as recovery of an outstanding balance in a running account, supported by an account confirmation and bank statements.
These items were explanations for identified components of the total bank credits; the order does not reproduce a complete item-wise reconciliation of the entire ₹1.48 crore.
CIT(A)’s Reasons for Confirming the Addition
The CIT(A) considered the transactions suspicious because Secunderabad Healthcare Ltd. was alleged to be a penny-stock accommodation-entry vehicle.
He viewed the receipt of identical amounts from three companies as indicative of a pre-arranged arrangement. He also referred to the absence of evidence establishing the original acquisition of the shares and the market price supporting their sale consideration.
Regarding the Adamina Traders receipt, the appellate order relied on alleged circular movement and immediate onward transfer of funds.
The CIT(A) consequently concluded that the assessee had failed to establish the requirements concerning identity, capacity and genuineness under section 68.
Independent Examination Was Missing
The Tribunal found that the CIT(A) had confirmed the additions through general observations without adequately considering the assessee’s submissions and supporting evidence.
It held that the appellate authority had not adjudicated the issue with independent application of mind and had instead endorsed the AO’s findings.
The Tribunal therefore considered a fresh examination necessary in the interests of natural justice and fair play. It directed the CIT(A) to reconsider the explanations and evidence and pass a de novo appellate order after providing sufficient opportunity of hearing.
Decision
The appeal was partly allowed.
The non-existence challenge was dismissed. Other reopening grounds were dismissed as not pressed, while the unexplained bank-credit issue was restored to the CIT(A), rather than the AO, for fresh adjudication.
The addition of ₹1,48,01,731 was not finally deleted on merits.
Author’s Comments
An appellate order must explain why the evidence fails; describing transactions as suspicious does not complete that exercise. Allegations concerning a particular scrip, identical receipts or rapid movement of funds may warrant scrutiny, but the assessee’s explanation and documents must still be evaluated.
Equally, the remand does not establish that the share sales or other receipts were genuine. The assessee must substantiate the underlying transactions, including acquisition, ownership, transfer and receipt of consideration, and reconcile the full amount under dispute.
The company-status issue also requires careful presentation. “Active Non-Compliant” and “Struck Off” describe materially different situations. Given the inconsistent descriptions in the order, this decision should not be cited as establishing that assessments against all dissolved companies are valid.
The practical principle emerging from the merits is clear: the CIT(A) must independently adjudicate the evidence before confirming an addition. Suspicion may prompt investigation, but a reasoned appellate finding must address the taxpayer’s actual case.
Cases Discussed
Zaheer Syed Abbas v. Union of India & Ors. (Bombay High Court; 187 taxmann.com 794; 15 June 2026): The Bombay High Court quashed reassessment proceedings against a company that had voluntarily applied for strike-off and had been dissolved before issuance of the reopening notice. The Mumbai Tribunal distinguished that decision because the assessee’s MCA status and evidence of voluntary dissolution were different.
NRA Iron & Steel (P.) Ltd. v. Principal Commissioner of Income Tax (Supreme Court; [2019] 103 taxmann.com 48): The CIT(A) referred to this decision when examining whether the assessee had established the identity, financial capacity and genuineness of the transactions. The Tribunal’s remand required the evidence to be independently evaluated rather than treating the reference as finally establishing the addition.
CIT v. P. Mohanakala (Supreme Court; [2007] 161 Taxman 169): The CIT(A) referred to the principle that the apparent character of a transaction must be assessed in light of surrounding circumstances. The Tribunal did not finally decide the genuineness of the disputed receipts and instead directed fresh appellate examination.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal emanating from the appellate order dated 13.02.2026 is preferred by the Assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 29.03.2025 for the Assessment Year [A.Y.] 2016-17.
2. The grounds of appeal are as under:-
1) That the order passed by Ld. AO u/s 148A(d) of the Act, assessment order passed by Ld. AO u/s 47 of the Act as well as the appellate order passed by Ld. CIT(A) are bad in law and are passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.
2) That looking into the facts of the case Revenue shall be directed to reimburse cost of litigation including appeal fee and fee paid to AR.
3) That the appellate order passed by Ld. CIT(A) is mechanical, arbitrary and devoid of merits because of being passed taking incorrect cognizance of facts of the case or by using some Artificial Intelligence module.
4) That the reassessment proceedings initiated in case of assessee company is illegal and not tenable under the law because of being passed in name of a struck off company.
5) That the Ld. JAO as well as Ld. FAO grossly erred in law and in facts of the case in issuing notice u/s 148 of the Act and completing assessment proceedings u/s 147 of the Act, that too without possessing and without providing (for rebuttal) the reports forming basis of information as defined under Explanation 1 to Section 148 of the Act.
6) That the notice issued u/s 148A(b) of the Act as well as the order passed by Ld. AO u/s 148A(d) of the Act are illegal and not tenable under the law because of being passed relying on incorrect information alleging total credits of Rs. 97,01,731/- in Kotak bank account no. 561011013580 of assessee company whereas said bank contained total credits of Rs. 1,48,01,731/- for the year under consideration.
7) That Ld. AO grossly erred in law and in facts of the case while passing order u/s 148A(d) of the Act in holding that income alleged to have escaped assessment being credits of Rs. 97,01,731/- in bank statement is represented by assets and pre-condition specified u/s 149 of the Act is fulfilled.
8) That reassessment proceedings are further not tenable under the law because of granting of mandatory approval u/s 151 of the Act in a mechanical manner.
9) That the reassessment proceedings completed in the case of assessee company are further illegal and not tenable under the law because of not providing approval, if any, obtained u/s 151 of the Act.
10) That the reassessment proceedings undertaken in case of assessee company is further bad-in-law because of being initiated in violation of provisions of Sec. 151A of the Act.
11) That the Ld. AO grossly erred in law and in facts of the case in assessing credits of Rs. 1,48,01,731/- appearing in bank account of assessee as income of assessee.
3. Ground nos.1 to 3 are general in nature and in the absence of arguments regarding the merits therein, such baseless grounds without any substance but mere allegations are not required to be adjudicated and are accordingly, dismissed.
4. Brief facts of the case are that the assessee company filed its return income declaring total income Nil for the relevant year. In this case, information was received by the AO that there were deposits of Rs.97,01,731/- in its bank account. Accordingly, the case was re-opened under section 147 of the Act, by issuing notice under section 148 of the Act and finally an amount of Rs. 1,48,01,731/-,being Unexplained deposit were added to the total income of the assessee for the year under consideration.
5. At the outset, the ld.AR has drawn our attention to the ground no.4 in which the validity of the assessment order has been contested claiming that entire proceedings were taken up by the AO in respect of a non-existent entity as the assessee company was struck off from the Registrar of Companies much earlier and the AO was duly communicated of this fact. However, despite it, the AO proceeded to make assessment. Before the ld.CIT(A), the assessee argued that the assessment proceedings were invalid as they were conducted against an entity that had been struck off by the Registrar of Companies (ROC). The assessee’s contention was that since the company was struck off by the ROC, no assessment could be framed against it. According to the appellate authority, section 248 of the Companies Act, 2013, specifically provides that the liability of every director, manager, or other officer and every member of the company shall continue and may be enforced as if the company had not been dissolved. Furthermore, the Department has the power to apply for restoration of the company under Section 252 of the Companies Act to recover taxes. In this case, the Revenue had already initiated the process of restoration. It is a settled principle that for the purposes of the Act, a “person” includes a company even if its status is “struck off,” as long as there are liabilities to be determined. Therefore, the ground challenging the jurisdiction based on the struck-off status was dismissed by the ld.CIT(A).
6. Before us, the ld.AR has reiterated the same contentions as made before the lower authorities. It is contended that no assessment could be made on a non existent entity. It is submitted that in this case name of the company was already struck already off when the notice u/s 148 of the Act was issued on 27.04.2023. Since the assessee seized to exist on the date of issuance of notice, any proceeding initiated subsequently is liable to be quashed. In this connection, he placed reliance on the decision of the hon’ble jurisdictional High Court in the case of Zaheer Syed Abbas Vs Union of India & Ors. 187 taxmann.com 794 dated 15.06.2026 (Bom) claiming that on identical set of facts the entire assessment order was quashed.
7. We find that in the above quoted order the hon’ble High Court examined the validity of the assessment proceeding and allowed the writ petition filed by the erstwhile director of Cicero Realty Ventures Pvt. Ltd. (CRVPL), challenging the notice dated 31 March 2021 issued under Section 148 of the Act for AY 2016-17 and the consequential assessment order dated 30 March 2022 passed under Sections 144 read with 147. CRVPL had applied for voluntary strike-off under Section 248 of the Companies Act, 2013 on 3 May 2017, and its name was struck off by the Registrar of Companies on 2 July 2018.Before dissolution, CRVPL had filed its return of income on 30 September 2016. During the original scrutiny proceedings, notices under Sections 143(2) and 142(1) were issued, and the petitioner informed the Assessing Officer through communications dated 30th November 2018 and 14th December 2018 that the company had already been struck off and dissolved. Despite this, an assessment order under Section 143(3) dated 26 December 2018 was passed in the name of CRVPL accepting its returned income as nil.
7.1 Subsequently, the AO issued a notice under Section 148 on 31 March 2021 seeking to reopen the assessment to examine the genuineness of the source of share capital and the applicability of Section 56(2)(vii)(b) of the Act. The petitioner again informed the Revenue by letter dated 7 June 2021 that CRVPL had ceased to exist and relied upon judicial precedents. Nevertheless, the AO passed an assessment order under Sections 144 read with 147 determining the total income of CRVPL at Rs.25,66,70,000/- and raising a tax demand of Rs.16,25,55,840/- through a demand notice under Section 156 in the name of the dissolved company. The hon’ble court, in such circumstances,quashed the assessment proceedings.
8. We find similarity in the case in hand to the extent that name of the company stood struck off. A copy of the company information downloaded from the site of Ministry of Corporate Affairs has been placed on record. On perusal thereof, we find that its status has been shown as ‘STRIKE OFF’. However, it is worth mentioning here in the said order the company has been shown as ‘ACTIVE NON COMPLIANT’. Thus, the company is stated be active by MCA. It is further noticed that as per the financials of the company for the relevant year including the Balance sheet filed before us, substantial investments in Non current investments are reflected therein as also cash in hand. The Auditors in their report, no where mentioned that the company has shut its business and other activities.
8.1 Further, on examination with the facts of the case qua the judgement of the hon’ble Bombay High Court in the case of Zaheer Syed Abbas(supra),we find that the decision rendered therein are distinguishable on the facts of the instant case. As per the said order, in the said case, the assessee entity had applied for voluntary striking off and the Registrar of Companies had struck off its name prior to the date of notice u/s 148 of the Act. However, in the instant case, the ld.AR has failed to bring out any evidence to show that the company had made such voluntary request to ROC. Rather, as apparent from the downloaded status report, the assessee has been shown as ‘Active but non compliant’. Thus, the company by no stretch of imagination could be stated to be non-existent.
8.2 In view of the above discussion, the ratio of decision of the hon’ble Bombay High Court in the case of Zaheer Syed Abbas(supra) is not applicable to the facts of the case. Accordingly, the ground taken claiming the assessment proceedings as invalid, being devoid of any merit, is dismissed.
9. Ground no.5 to 10, all of which challenge the validity of the reopening and reassessment proceedings on various counts have not been pressed as admitted by the ld.AR. Therefore, these grounds stand dismissed.
10. Brief facts of the case are that the assessee originally did not file a return of income. The case was reopened under Section 147 of the Act, based on information suggesting that income chargeable to tax had escaped assessment. Specifically, information was received regarding substantial credits in its bank account maintained with Kotak Mahindra Bank. Subsequently, a notice under Section 148 of the Act was issued and in response, the assessee filed a return of income. The AO’s investigation focused on bank credits totalling Rs. 1,48,01,731/-. Despite various notices under Sections 143(2) and 142(1), the AO concluded that the nature and source of these credits remained unexplained. Consequently, the AO passed an order under Section 147 of the Act adding the entire sum of Rs. 1,48,01,731/- to the total income of the assessee.
11. Aggrieved, the assessee filed appeal before the ld.CIT(A) contesting the addition who observed that the credits in its bank account were “suspicious” and represented unexplained income. The AO highlighted that while the assessee provided some details, they were insufficient to prove the genuineness of the transactions. The AO recorded that the bank statement showed credits which the assessee could not satisfactorily explain in terms of their nature and source as required under the law. Specifically, for transactions occurring towards the end of the financial year, the AO noted debits and credits that appeared to be circular or non business in nature.
12. Before the ld.CIT(A), the assessee provided a detailed factual break UP of the credits totalling Rs. 1,48,01,731/-reproduced as below:
- Rs. 31,00,000/- from M/s Akansha Media and Entertainment Pvt. Ltd. The appellant claimed this was on account of the sale of 10,000 shares of M/s Secunderabad Healthcare Ltd.. They submitted confirmations, bank statements of the buyer, and audited financials of the buyer as evidence.
- Rs. 31,00,000/- from M/s Abjayoni Trading Pvt. Ltd.: Similarly, this was claimed to be for the sale of 10,000 shares of M/s Secunderabad Healthcare Ltd. Confirmations and ITR acknowledgments of the buyer were submitted.
- Rs. 31,00,000/- from M/s Aadhaar Ventures India Ltd.: This was also attributed to the sale of 10,000 shares of M/s Secunderabad Healthcare Ltd.
- Rs. 5,70,000/- from M/s Adamina Traders Pvt. Ltd.: The appellant argued this was a recovery of an outstanding amount in a running account. They submitted a confirmation of account and bank statements showing the receipt.
12.1 The ld.CIT(A) further noted that the credits of Rs. 31,00,000/- each from three different entities (Akansha Media, Abjayoni Trading, and Aadhaar Ventures) were all claimed to be for the sale of shares of M/s Secunderabad Healthcare Ltd. According to him, it was well documented by the Investigation Wing and various judicial forums that Secunderabad Healthcare Ltd. had been used as a vehicle for providing accommodation entries (Penny Stock). Under Section 68 of the Act, the assessee must prove Identity, Capacity, and Genuineness. While the “Identity” of the buyers may be proven by PAN and bank statements, the “Genuineness” of selling shares of a known penny stock company at high prices to multiple entities simultaneously is highly suspect. The Hon’ble Supreme Court in NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC) and CIT vs. P. Mohanakala [2007] 161 Taxman 169 (SC) held that the AO is not required to look at transactions with “blinkers on.”
12.2 He further observed that the pattern of receiving exactly Rs. 31,00,000/- from three different companies for the same script suggested a pre-arranged accommodation entry rather than a genuine market transaction. The assessee had not provided any evidence of the original purchase of these shares or the market rate prevailing on the stock exchange to justify these specific amounts. Regarding the credit of Rs. 5,70,000/-in the name of Adamina Traders, the assessee called it a “recovery of outstanding” but the bank statement showed suspicious circular movement. The AO noted that these funds were immediately moved out via RTGS. This was a classic hallmark of money laundering where the bank account was used merely as a conduit.
12.3 The ld.CIT(A) finally concluded that the assessee failed to discharge the heavy onus cast upon them under Section 68 of the Act. The reliance on Secunderabad Healthcare Ltd. shares, a known script for accommodation entries, coupled with the immediate withdrawal of funds, confirmed that these were not genuine business receipts. The AO’s findings were found to be logical and based on the factual reality of the transactions.
13. In the course of hearing the ld.AR agitated the action of the ld.CIT(A) claiming that despite sufficient evidences filed before him, the appellate authority upheld the addition without examining the merits therein. His observations do not lead to the conclusion that the impugned transactions were not genuine and liable to be treated as Unexplained cash credit.
14. The ld.DR on the other hand placed reliance on the orders of the authorities below.
15. We have carefully considered all the relevant facts of the case. Before us, the ld.AR has filed paper books containing factual matters involving the case, submissions made before the lower authorities etc. while in the Legal paper book he relied upon certain judicial decisions in support of the contentions regarding genuineness of the impugned transactions. On careful consideration, we find that the ld.CIT(A) proceeded to upheld the additions on mere observations without talking due cognizance of the submissions of the assessee before him as also the evidences placed. It appears that the ld.CIT(A) did not adjudicate the issue with independent application of mind and endorsed the findings of the AO.
15.1 In such a situation, we are of the considered opinion and following the principles of natural justice and fairplay, that the entire issue requires a revisit by the appellate authority to examine the contentions of the assessee and take into account the evidences placed before him. He would pass de novo appellate order after allowing sufficient opportunity of hearing to the assessee. The ground is therefore, allowed for statistical purposes.
16. In the result, the appeal of the assessee stands partly allowed.
Order pronounced in the open court on 07/10/2026.
