Case Law Details
ITO Vs Nimit Agarwal (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has dismissed an appeal from the Income Tax Department, reinforcing a key legal principle that tax additions cannot be made without sufficient evidence. The ruling, pronounced on July 23, 2025, sided with assessee Nimit Agarwal, upholding the deletion of a substantial addition of ₹3,62,60,000/- that had been made to his income. The tribunal found that the department failed to provide the necessary proof to substantiate its claim of unexplained accommodation entries.
Reassessment Followed Third-Party Search
The case originated from a reassessment proceeding for the Assessment Year 2013-14. The Income Tax Department had reopened the assessment based on information received from its Investigation Wing. This information was a result of a search action conducted under Section 132 of the Income Tax Act on April 12, 2019, targeting a third-party individual, Sanjay Govindram Agrawal (also known as Sanjay Tibrewal). The department alleged that Tibrewal was a key player in a network of entities that provided accommodation entries—bogus financial transactions designed to create fake credits—to various beneficiaries. Based on this, the Assessing Officer concluded that Nimit Agarwal, an individual and proprietor of Nimit Fabrication, was a beneficiary who had received entries totaling ₹3,62,60,000/-.
During the reassessment proceedings, the department’s notices were complied with, but Nimit Agarwal consistently denied receiving any loans or deposits from Sanjay Tibrewal or his associated concerns. He informed the Assessing Officer that without specific details of the alleged transactions, he was unable to provide a full explanation. However, he did admit to having engaged in short-term Sharafi transactions with a separate entity, M/s. Radhe Corporation, with a closing balance of ₹9,50,000/-. The Assessing Officer was not satisfied with the assessee’s explanations and, relying on the third-party information, proceeded to make a full addition of ₹3,62,60,000/- to Agarwal’s income under Section 69A of the Act, which pertains to unexplained money. This also resulted in a tax demand under Section 115BBE.
Appellate Authority Found No Evidence
Aggrieved by the Assessing Officer’s order, Nimit Agarwal took his case to the Commissioner of Income Tax (Appeals), or CIT(A). The CIT(A) conducted a detailed review of the documents, including the assessee’s bank statements, which had been furnished during the assessment. The appellate authority’s findings were pivotal to the case’s outcome.
In the appellate order, the CIT(A) noted that a meticulous perusal of the bank statements revealed that the total credit entries in the assessee’s account amounted to just over ₹1 crore, while the total debit entries were around ₹96.84 lakh. Critically, the CIT(A) observed that even the cumulative total of these entries was far below the alleged addition of ₹3,62,60,000/-. Based on this direct evidence, the CIT(A) agreed with the assessee’s contention that the department’s allegation was “incorrect prima facie” and deleted the entire addition made under Section 69A. While this major relief was granted, the CIT(A) did make a separate addition of ₹15,40,000/- based on the “peak credit” from the Sharafi transactions that the assessee had admitted to.
ITAT Dismisses Department’s Appeal
The Income Tax Department then filed an appeal with the ITAT, arguing that the CIT(A) had erred in deleting the addition. The department’s representative relied on the Assessing Officer’s order but could not present any fresh evidence to support the claim of accommodation entries. The assessee’s representative, in turn, highlighted the CIT(A)’s finding that the alleged transaction of ₹3,62,60,000/- was not supported by any entries in the assessee’s bank account.
After reviewing the material on record and considering the arguments from both sides, the ITAT bench upheld the decision of the CIT(A). The tribunal’s order stated that since the CIT(A) had made a clear observation that there was no loan transaction of the alleged amount from Sanjay Tibrewal, the very basis for reopening the assessment was invalid in law. The tribunal further noted that the Revenue could not place on record any evidence of the alleged accommodation entries, and as such, it found no infirmity in the CIT(A)’s order. The ITAT thus dismissed the department’s appeal.
Judicial Precedents and Legal Principles
The ITAT’s ruling, while not explicitly citing specific case law in the provided text, aligns with long-standing judicial principles in tax matters. The foundational principle at play is the burden of proof. While Section 69A places the burden on the assessee to explain the source of any unexplained money, this obligation only arises after the tax authority has established a prima facie case. The department must first demonstrate a direct link between the alleged unexplained funds and the assessee, which in this case, it failed to do.
Courts have repeatedly held that additions to income cannot be made based on mere suspicion, presumptions, or unsubstantiated third-party statements. A direct nexus, supported by verifiable documentation such as bank records, must be proven. The ITAT’s decision reinforces this legal standard, reminding tax authorities that while information from a search operation can be a starting point for an investigation, it is not, on its own, sufficient to prove a tax evasion charge without corroborating evidence.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Revenue as against the appellate order dated 28.05.2024 passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre(NFAC), Delhi, arising out of the reassessment order passed under section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] relating to the Asst. Year 2013-14.
2. Brief facts of the case are that assessee is an individual and proprietor of Nimit Fabrication. The assessee filed his return of income for the Assessment Year 2013-14 dated 30.01.2014 declaring total income of Rs.2,12,000/-. Assessment was reopened on the grounds that information received from the Investigation Wing, based on the search action u/s.132 of the Act, undertaken on 12.04.2019 in the case of Sanjay Govindram Agrawal (also known as Sanjay Tibrewal) that various entities not carrying out any genuine business activity but run, controlled and managed by him are engaged in providing accommodation entries to various beneficiaries. Thus, accommodation entries amounting to Rs.3,62,60,000/- were made to the assessee. Hence, the assessment was re-opened by issuing notice u/s.148 of the Act on 24.11.2021. During the re-assessment proceedings, various notices were issued to the assessee which were duly complied by the assessee. The assessee submitted that there is no loan or deposits either in the name of Sanjay Tibrewal or his concerned aggregating to Rs. 3,62,60,000/-. In the absence of any details of the above amount, the assessee was unable to furnish necessary explanation on the same. However, the assessee admitted that he was in short term Sharafi transactions with M/s. Radhe Corporation and the closing balance was Rs.9,50,000/- only. The Assessing Officer was not satisfied with the above explanation offered by the assessee, thereby, made an addition of Rs.3,62,60,000/- u/s.69A of the Act and charged the tax u/s.115BBE of the Act and demanded tax thereon.
3. Aggrieved against the addition, the assessee filed an appeal before the Ld.CIT(A), who deleted the addition of Rs.3,62,60,000/- by observing that it is incorrect to state that the assessee received accommodation loans from Shri Sanjay Tibrewal as follows:
“…I have considered the facts of the ground, material available on record, contention of the appellant and impugned assessment order. It is seen that an addition to the tune of Rs.3,62,60,000/- has been made by the AO u/s.68 of the IT Act. The AO has alleged that the appellant was beneficiary of accommodation entry from Shri Sanjay Tibrewal as he was involved in providing accommodation entries through various entities controlled and managed by Shri Sanjay Tibrewal. The AO has also relied upon various documents and statement of Shri Sanajy Tibrewal and Shri Harish M Purohit, who have admittedly accepted their role in providing accommodation entries to various beneficiaries.
I have meticulously gone through the impugned assessment order of the AO and argument put forth by the appellant. In my considered view, since the addition has been made to the tune of Rs.3.62,60,000/-has been made by the AO, the said amount must be reflecting in the bank account of the appellant. However, on minute or detailed perusal of the bank statement furnished by the appellant, the total entry to the credit side of the appellant’s bank account stands at Rs.1,02,75,351/-and the entire debit side is Rs.96,84,950/-. Even if the total amount of both the sides is taken cumulatively, then the total figure is way below than Rs.3,62,60,000/-, which is alleged to have been received by the appellant as being beneficiary of accommodation entries being provided by Sh. Sanjay Tibrewal. Hence, I am in agreement with the contention of the appellant, that Rs.3,62,60,000/- as alleged to have been received by the appellant appears to be incorrect prima facie. Therefore, in such circumstances, the plea of the appellant is liable to be accepted…”
4. Aggrieved against the appellate order, the Revenue is in appeal before us, raising the following Grounds of Appeal.
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.3,62,60,000/-made u/s 69A of the Act on account of unexplained credits being in the nature of accommodation entries in the order passed u/s 147 r. w.s.1448 of the Act, without appreciating the facts of the case.”
2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.”
3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.
5. The Ld. Sr. DR appearing for the Revenue, in support of the grounds of appeal, relied upon the order passed by the Assessing Officer and requested to sustain the addition.
6. Per Contra, the Ld. AR appearing for the assessee submitted that it is undisputed fact that the assessee has never received any loans from Shri Sanjay Tibrewal by way of accommodation entries. The Ld.CIT(A) on detailed perusal of the bank account found the credit entries in the account stand at Rs.1,02,75,351/- and debit entries at Rs.96,84,950/. The total amount of both the sides is taken cumulatively is still below Rs.3,62,60,000/- as alleged by the Assessing Officer. Thus, he deleted the addition, however, the Ld.CIT(A) made addition on account of Sharafi transactions made with M/s. Radhe Corporation by applying peak credit of Rs.15,40,000/- as unexplained income of the assessee. Thus, the findings arrived by the Ld.CIT(A) does not require any interference.
7. We have given our thoughtful consideration and perused the materials available on record. The Ld.CIT(A), after perusal of the bank statements, made a clear observation that there is no loan transaction of Rs.3,62,60,000/- by way of accommodation entries from Shri Sanjay Tibrewal. Thus, the very basis of reopening of Assessment itself is invalid in Law. Further, the Revenue could not place on record the alleged accommodation entries availed by the assessee from Shri Sanjay Tibrewal with necessary evidences. Thus, we do not find any infirmity in the order passed by the Ld.CIT(A) by deleting the addition made u/s.69A of the Act. Thus, the grounds raised by the Revenue are devoid of any merit and is hereby dismissed.
8. In the result, the appeal filed by the Revenue is dismissed.
The order is pronounced in the open Court on 23.07.2025
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