Mumbai ITAT Rejects Section 68 Loan Additions Based on Investigation Report Alone

ACIT 2(2)(1) Vs Ashok Kirtanlal Shah (ITAT Mumbai)

Summary: The Income Tax Appellate Tribunal, Mumbai Bench, dismissed two appeals filed by the Revenue against the orders of the CIT(A), National Faceless Appeal Centre, dated 26 September 2025, deleting additions aggregating to Rs.1,35,68,652 made under Section 68 of the Income-tax Act, 1961, for Assessment Years 2008-09 and 2009-10. The additions comprised Rs.60,00,000 in respect of unsecured loans from Meridian Gems for AY 2008-09 and Rs.75,68,652 relating to Mahalaxmi Gems Pvt. Ltd. and Amit Diamonds for AY 2009-10. The assessments had originally been completed under Section 143(3) but were reopened under Sections 147 and 148 following information received from the Investigation Wing alleging that entities associated with the Bhanwarlal Jain Group were providing accommodation entries through unsecured loans and advances.

During reassessment proceedings, the assessee furnished loan confirmations, PAN particulars, income-tax returns, audited financial statements, ledger accounts and bank statements of the creditors. The assessee also established that the loans had been received through banking channels, interest had been paid after deduction of tax at source, and the principal amounts had subsequently been repaid through normal banking channels. The Assessing Officer nevertheless treated the transactions as unexplained cash credits, principally relying upon investigation reports and statements recorded during proceedings concerning the Bhanwarlal Jain Group. The CIT(A), after examining the documentary evidence, held that the assessee had discharged the primary burden of establishing the identity and creditworthiness of the creditors and genuineness of the transactions, while the Assessing Officer had failed to produce independent corroborative material linking the impugned loans to accommodation entries.

Before the Tribunal, the Revenue contended that documentary records and banking transactions could not, by themselves, establish genuineness where the creditors were identified as accommodation entry providers. The assessee maintained that the additions rested upon general allegations without any assessee-specific adverse evidence. The Tribunal examined the documentary record, including affidavits confirming the loan transactions, and observed that the Assessing Officer had not disputed repayment of the loans through banking channels or demonstrated that the assessee had introduced its own unaccounted money through the alleged creditors. The Tribunal also considered coordinate-bench precedents involving similar allegations concerning the Bhanwarlal Jain Group, including ITO Vs Grace Development Associates.

The Tribunal held that the general findings of an investigation report, without specific evidence establishing that the assessee’s loan transactions were sham or bogus, could not justify additions under Section 68 where the relevant documentary evidence supported the transactions. Finding no infirmity in the CIT(A)’s conclusions, it dismissed both Revenue appeals and sustained deletion of the additions for both assessment years. The assessee’s cross-objections challenging the validity of reopening under Section 147 were dismissed as infructuous because the additions had already been deleted on merits. The Tribunal therefore did not adjudicate the legality of reopening.

Cases Discussed

• ITO Vs M/s Grace Development Associates (ITAT Mumbai) – ITA No. 712/Mum/2018, order dated 16.03.2023. Cited among coordinate-bench decisions concerning additions arising from Bhanwarlal Jain Group investigation material and the need for independent verification.
• ACIT, Central Circle 4(4), Mumbai Vs Nadiadwala Grandsons Entertainment Pvt. Ltd. (ITAT Mumbai) – ITA Nos. 2221 to 2223, 2237 and 2238/Mum/2021, order dated 07.06.2022. Cited for the treatment of alleged accommodation entries where the assessee has furnished documentary evidence.
• ITO Vs Neminath Homes Pvt. Ltd. (ITAT Mumbai) – ITA No. 1330/Mum/2021, order dated 28.03.2022. Referred to among decisions concerning Section 68 additions and evidence supporting financial transactions.
• Neminath Associates Vs DCIT, Central Circle 1(3), Mumbai (ITAT Mumbai) – ITA No. 2641/Mum/2018. Cited among the coordinate-bench decisions concerning similar allegations. The order date is not specified in the supplied judgment.
• ACIT Vs Shri Vashu Bhagnani (ITAT Mumbai) – ITA No. 5648/Mum/2016, order dated 30.05.2018. Cited as a coordinate-bench precedent concerning alleged accommodation entries linked to the Bhanwarlal Jain Group.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These appeals are filed by the Revenue against the orders of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”], both dated 26.09.2025, passed under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “CIT(A)”], for Assessment Years 2008–09 and 2009–10. The assessee has also filed Cross Objections in both the appeals challenging the validity of reopening of the assessments under section 147 of the Act and the consequential reassessment orders passed under section 143(3) r.w.s. 147 dated 28.03.2016.

2. Since the issues involved in the Revenue’s appeals as well as the Cross Objections filed by the assessee arise out of common facts and relate to the same reassessment proceedings, both the appeals and the cross objections were heard together and are being disposed of by this common order for the sake of convenience.

3. The brief facts of the case are that the assessee is an individual deriving income from business and other sources. The returns of income for the assessment years under consideration were filed declaring income under the normal provisions of the Income-tax Act, 1961. The cases were originally subjected to scrutiny assessment under section 143(3) of the Act. Subsequently, the Assessing Officer received information from the Investigation Wing of the Department relating to investigation conducted in the case of Bhanwarlal Jain Group, wherein it was alleged that several entities controlled by the said group were engaged in providing accommodation entries in the nature of unsecured loans and advances. Based on the said information, the Assessing Officer formed a belief that income chargeable to tax had escaped assessment in the hands of the assessee for the years under consideration. Accordingly, notices under section 148 of the Act dated 16.03.2015 were issued and served upon the assessee on 21.03.2015, and the assessments were reopened under section 147 of the Act. Thereafter, reassessment proceedings were carried out and reassessment orders were passed under section 143(3) r.w.s. 147 of the Act on 28.03.2016.

4. During the course of reassessment proceedings, the Assessing Officer observed that the assessee had received unsecured loans from certain entities allegedly belonging to the Bhanwarlal Jain Group, which according to the Investigation Wing were entities engaged in providing accommodation entries. The Assessing Officer required the assessee to establish the identity and creditworthiness of the lenders and the genuineness of the loan transactions. In response, the assessee furnished various documentary evidences including loan confirmations, copies of PAN, income-tax returns of the lenders, financial statements, ledger accounts and bank statements evidencing receipt of loans through banking channels. It was also submitted that interest had been paid on such loans and tax had been deducted at source on the interest payments, and that the loans were subsequently repaid through banking channels.

5. The Assessing Officer, however, relying primarily upon the information received from the Investigation Wing and the statements recorded during the investigation in the case of Bhanwarlal Jain Group, held that the concerns from which the loans were obtained were merely paper entities engaged in providing accommodation entries. According to the Assessing Officer, the assessee had failed to establish the genuineness of the transactions and the creditworthiness of the lenders. Accordingly, the loans were treated as unexplained cash credits under section 68 of the Act and added to the income of the assessee in the reassessment orders.

6. The details of reassessment proceedings and additions made by the Assessing Officer for the years under consideration are summarised as under:

7. Aggrieved by the reassessment orders, the assessee preferred appeals before the learned CIT(A). Before the CIT(A), the assessee reiterated that the loan transactions were genuine and supported by documentary evidences including confirmations, financial statements and bank statements of the lenders. It was further contended that the Assessing Officer had made the additions merely on the basis of the investigation report without bringing any independent material on record to demonstrate that the loan transactions in question were accommodation entries.

8. After considering the submissions of the assessee and examining the material placed on record, the learned CIT(A) held that the assessee had discharged the onus cast upon it under section 68 of the Act by furnishing documentary evidences establishing the identity and creditworthiness of the lenders and the genuineness of the transactions. The CIT(A) also observed that the additions made by the Assessing Officer were primarily based on the investigation report and statements recorded during the investigation in the case of Bhanwarlal Jain Group without any corroborative evidence linking the impugned loan transactions with accommodation entries.

9. Accordingly, the learned CIT(A) deleted the additions made under section 68 of the Act for both the years under consideration. Being aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before us. The assessee has also filed cross objections challenging the validity of reopening of the assessments under section 147 of the Act and the consequential reassessment orders passed under section 143(3) r.w.s. 147 of the Act.

10. The grounds raised by the Revenue in both the appeals are identical in substance except the quantum. Grounds of Appeal in ITA No. 7477/MUM/2025 for A.Y. 2008-09 are as follows:

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition of Rs. 60,00,000/- made under section 68 of the Income-tax Act, 1961, in respect of unexplained cash credit in the name of M/s Meridian Gems, without appreciating that the said entity was identified as a paper company involved in providing accommodation entries, as revealed during the investigation in the case of Bhanwarlal Jain Group.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that mere submission of documents such as PAN, loan confirmations, bank statements, and repayment details does not establish the genuineness of the loan, particularly when the lender has been found to be a habitual entry provider.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in holding that the assessee had discharged the onus under section 68, without proper verification of the creditworthiness and genuineness of the lender, and despite the absence of any direct evidence to demonstrate the actual capacity of the lender to provide such a loan.

4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to consider that the investigation report and third-party statements were part of a larger departmental inquiry into bogus entries, and the Assessing Officer was justified in relying on such credible material to doubt the genuineness of the transaction.

5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in giving undue weight to procedural aspects such as non-provision of cross-examination at the assessment stage, ignoring the settled legal position that cross-examination is not mandatory where other reliable material is available on record.

6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the timing of the loan (i.e., prior to the search) does not dilute the evidentiary value of the findings of the investigation, especially when a pattern of accommodation entries by the lender is clearly established.

7. The appellant prays that the total tax effect is Rs. 18,00,000/- for A.Y. 2008-09 in the case of the assessee, which is below the prescribed monetary limit of Rs. 60 lakhs (CBDT Circular No.09/2024 dated 17.09.2024) but the case falls under the clause 3.1(h) of the CBDT’s Circular No.5 of 2024 dated 15.03.2024.

8. The appellant craves leave to amend or alter any ground or submit additional ground which may be necessary.

11. In case of Appeal in ITA No. 7478/MUM/2025 the quantum of addition is Rs. 75,68,652/-.

12. Similarly, the cross objections filed by the assessee for both the years also raise identical grounds which are as follows:

I. RE-OPENING UNDER SECTION 147 AND CONSEQUENTIAL ASSESSMENT ORDER UNDER SECTION 143(3) DATED 28.03.2016 IS BAD IN LAW.

1. On the facts and circumstances of the case Learned CIT(A) erred in considering there is no infirmity in reopening the assessment proceedings under section 147 of the Income-tax Act, 1961 (the Act).

2. The Learned CIT(A) erred in not adjudicating all contentions raised by the appellant with regard to the proceedings under section 147 being bad in law.

3. The Learned CIT(A) erred in not dealing with all the propositions or distinguishing the judicial precedents specifically relied upon by the appellant in support of its contentions.

4. The appellant craves leave to add to, alter, amend and/or delete in all the foregoing grounds of appeal. 

13. The learned Departmental Representative (DR) relied upon the reassessment orders passed by the Assessing Officer and invited our attention to the findings recorded therein. Referring to the relevant paragraphs of the assessment order for A.Y. 2009–10, the learned DR submitted that the Assessing Officer had received specific information from the Director of Income Tax (Investigation), Unit-II, Mumbai vide letter dated 10.03.2014, relating to accommodation entries provided by various concerns operated and managed by the group led by Shri Bhanwarlal Jain. It was submitted that the information gathered during the course of investigation revealed that Shri Bhanwarlal Jain along with Rajesh Bhanwarlal Jain and Manish Bhanwarlal Jain controlled and managed a large number of concerns, which were used for the purpose of providing accommodation entries in the nature of unsecured loans, advances and bogus sales. According to the learned DR, the investigation carried out by the Department had unearthed the modus operandi adopted by the Bhanwarlal Jain Group, wherein cheques were issued to beneficiaries through a network of benami concerns after accepting equivalent cash from the beneficiaries.

14. The learned DR further submitted that during the course of search and investigation proceedings, statements of several persons associated with the said group were recorded under sections 132(4) and 131 of the Act, wherein it was admitted that the group was engaged in providing accommodation entries through various concerns controlled by them. Reference was made to the statements of persons such as Basant D. Jain and Anil Khicha, who were stated to be trusted employees of Shri Bhanwarlal Jain and who confirmed that accommodation entries pertaining to loans and advances were being provided through the concerns operated by the group.

15. The learned DR also referred to the statement of Lunkarn Parasmal Kothari, who in his sworn statement recorded under section 131 of the Act stated that the Bhanwarlal Jain Group provided accommodation entries of bogus unsecured loans by issuing cheques to beneficiaries against receipt of equivalent cash. It was further pointed out that in his statement recorded under section 132(4), Shri Bhanwarlal Jain himself admitted that he was managing and controlling the business affairs of various concerns in which his employees were shown as directors, partners or proprietors.

16. Drawing attention to the findings recorded by the Assessing Officer, the learned DR submitted that the concerns from which the assessee had received loans, namely M/s Meridian Gems, M/s Mahalaxmi Gems Pvt. Ltd. and M/s Amit Diamonds, were found to be part of the network of concerns operated by the Bhanwarlal Jain Group. It was therefore concluded by the Assessing Officer that the unsecured loans received by the assessee from these entities represented accommodation entries.

17. The learned DR further submitted that though the assessee had furnished certain documentary evidences such as confirmations, copies of income-tax returns, financial statements and bank statements of the creditors, the Assessing Officer observed that entities involved in providing accommodation entries generally create and maintain documentary records in order to give a colour of genuineness to such transactions. Therefore, according to the Assessing Officer, the mere production of such documents could not by itself establish the genuineness of the loan transactions.

18. It was further submitted that the Assessing Officer had also issued notices under section 133(6) of the Act to the loan creditors and the parties had furnished certain documents. However, considering the findings of the investigation conducted in the case of the Bhanwarlal Jain Group and the statements recorded during the course of search and investigation, the Assessing Officer held that the most crucial aspect in such transactions was the creditworthiness of the loan creditors, which in the present case was not satisfactorily established.

19. The learned DR also invited our attention to the observations of the Assessing Officer that in order to discharge the onus under section 68 of the Act, the assessee is required to establish three essential ingredients, namely identity of the creditor, creditworthiness of the creditor, and genuineness of the transaction.

20. Per contra, the learned Authorised Representative (AR) for the assessee relied upon the orders of the learned CIT(A) and submitted that the learned CIT(A) had examined the entire material placed on record and had rightly deleted the additions made by the Assessing Officer under section 68 of the Act. The learned AR submitted that the assessee had furnished complete documentary evidences in support of the loan transactions including confirmations of the lenders(paper book page No. 85), copies of PAN, income-tax returns, audited financial statements, bank statements (paper book page No. 86-87) and ledger accounts, which clearly established the identity of the creditors, their creditworthiness and the genuineness of the transactions. It was further submitted that the loans were received through account payee cheques, interest had been paid thereon after deduction of tax at source, and the loans were subsequently repaid through normal banking channels. It was pointed out that the assessee had regularly paid interest on the loans obtained from the said parties and tax was duly deducted at source on such interest payments in accordance with the provisions of the Act.

21. The learned AR further submitted that the additions made by the Assessing Officer were based solely on the information received from the Investigation Wing and the statements recorded during the investigation in the case of Bhanwarlal Jain Group, without bringing any independent material on record to establish that the loan transactions entered into by the assessee were accommodation entries.

22. The learned AR invited our attention to the findings recorded by the learned CIT(A) and submitted that the learned CIT(A) had granted relief to the assessee by placing reliance on various judicial precedents of the coordinate benches of the Tribunal involving similar loan transactions with entities belonging to the Bhanwarlal Jain Group, wherein the additions made under section 68 were deleted after holding that the assessee had discharged the primary onus cast upon it under the Act by producing documentary evidences in support of the transactions.

23. It was submitted that the learned CIT(A), after considering the evidences placed on record and the judicial precedents dealing with similar entities of the Bhanwarlal Jain Group, had come to the conclusion that the Assessing Officer had not brought any cogent material on record to establish that the impugned loans were accommodation entries. Accordingly, the learned AR submitted that the learned CIT(A) was justified in deleting the additions made by the Assessing Officer for the assessment years under consideration.

24. We have heard the rival submissions and perused the material available on record including the orders of the authorities below. Since the grounds raised by the Revenue in both the appeals as well as the grounds raised by the assessee in the cross objections are identical except for the quantum involved, both the appeals and cross objections were heard together. For the sake of convenience, the facts for A.Y. 2009–10 are taken as the lead year and the decision shall apply mutatis mutandis to A.Y. 2008–09.

25. The issue in the Revenue’s appeals relates to the deletion of additions made by the Assessing Officer under section 68 of the Act in respect of unsecured loans received by the assessee from entities allegedly belonging to the Bhanwarlal Jain Group, namely M/s Meridian Gems, M/s Mahalaxmi Gems Pvt. Ltd. and M/s Amit Diamonds. The Assessing Officer treated the said loans as accommodation entries primarily on the basis of information received from the Investigation Wing and statements recorded during investigation in the case of the Bhanwarlal Jain Group.

27. At the outset, we find that the learned CIT(A) has examined the issue in detail and has recorded categorical findings after considering the documentary evidences placed on record by the assessee. The learned CIT(A) has observed that the assessee had furnished confirmations from the lenders, copies of PAN, income-tax returns, audited financial statements, bank statements and ledger accounts of the concerned parties evidencing the loan transactions. It was also noted that the loans were received through banking channels and that interest had been paid on the loans after deduction of tax at source, which was duly reflected in the books of account as well as in the TDS returns filed with the Department. The learned CIT(A) has further taken note of the fact that the loan amounts were subsequently repaid through normal banking channels, which fact was not disputed by the Assessing Officer. In addition to the documentary evidences placed on record, the assessee had also furnished affidavits of the concerned parties confirming the loan transactions, which were placed before the authorities below. The learned CIT(A) observed that these evidences sufficiently established the identity of the lenders, their creditworthiness and the genuineness of the transactions, thereby discharging the primary onus cast upon the assessee under section 68 of the Act.

27. We further find that the learned CIT(A), while granting relief to the assessee, has placed reliance on various judicial precedents of the coordinate benches dealing with similar transactions involving entities connected with the Bhanwarlal Jain Group. In those decisions(in the case of ACIT Central Circle 4(4),Mumbai vs Nadiadwala Grandsons Entertainment Pvt Ltd ITA Nos 2221 to 22232237 & 2238/Mum/ 2021 dated 07.06.2022, Neminath Associates vs DCIT, Central Circle 1(3), Mumbai ITA No. 2641/Mum/2018, ITO vs M/s Grace Development Associates ITA No. 712/Mum/2018 dated 16.03.2023, ITO vs Neminath Homes Pvt. Ltd. ITA No. 1330/Mum/2021 dated 28.03.2022, ACIT vs Shri Vashu Bhagnani ITA No. 5648/Mum/2016 dated 30.05.2018.), it has been consistently held that additions under section 68 cannot be sustained merely on the basis of statements recorded during investigation or general allegations regarding accommodation entries when the assessee has produced documentary evidences establishing the identity of the creditors, their creditworthiness and the genuineness of the transactions. The learned CIT(A) has also observed that in a number of cases involving similar entities of the Bhanwarlal Jain Group, the coordinate benches have deleted additions made under section 68 after considering identical sets of facts and evidences.

28. The learned CIT(A) has further recorded that the Assessing Officer had not brought any independent corroborative material on record to establish that the loan transactions entered into by the assessee were in fact accommodation entries. The additions were made primarily on the basis of the investigation report and statements recorded during the course of investigation in the case of the Bhanwarlal Jain Group. However, no material was brought on record by the Assessing Officer to demonstrate that the assessee had introduced its own unaccounted money in the garb of unsecured loans through the said entities.

29. It is a settled principle of law that in order to invoke the provisions of section 68 of the Act, the assessee is required to establish three essential ingredients, namely the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. In the present case, the assessee has furnished documentary evidences establishing the identity of the creditors and the genuineness of the transactions through banking channels. The loan transactions are duly reflected in the books of account of the assessee and the creditors. It is also not in dispute that interest was paid on the loans after deducting tax at source on a quarterly basis, which further lends credibility to the transactions. Moreover, the subsequent repayment of the loans through banking channels and the affidavits furnished by the concerned parties confirming the transactions reinforce the genuineness of the loans.

30. In such circumstances, merely relying upon the observations contained in the investigation report relating to the Bhanwarlal Jain Group, without bringing any specific material on record to establish that the transactions entered into by the assessee were sham or bogus, cannot be a valid ground to sustain the additions under section 68 of the Act.

31. Having regard to the totality of the facts and circumstances of the case, we find no infirmity in the findings recorded by the learned CIT(A) in deleting the additions made by the Assessing Officer. The learned CIT(A) has rightly appreciated the evidences placed on record and has correctly applied the judicial precedents dealing with similar issues. We therefore see no reason to interfere with the order of the learned CIT(A). Accordingly, the grounds raised by the Revenue in both the appeals are dismissed.

32. Since the additions made by the Assessing Officer have been deleted on merits, the cross objections filed by the assessee challenging the validity of reopening under section 147 of the Act become academic in nature and are therefore dismissed as infructuous.

33. In the result, the appeals filed by the Revenue as well as the cross objections filed by the assessee for both the assessment years are disposed of accordingly.

Order pronounced in the open court on 16.03.2026.