Dhiren Pradip Sadiwala Vs ITO (ITAT Mumbai)
Reassessment Addition Based Solely on Retracted Third-Party Statements Quashed: ITAT Mumbai Deletes ₹17 Lakh Cash Loan Addition
The Mumbai ITAT (SMC Bench) allowed the appeal of the assessee for AY 2012-13 and deleted an addition of ₹17 lakh made as “income from other sources” on account of alleged unexplained cash loan, arising from reassessment proceedings under sections 147/148.
The reassessment was initiated based on information emanating from a search on Evergreen Enterprises, wherein its partner allegedly stated that the assessee had advanced cash loans. The Assessing Officer relied exclusively on such third-party statements and loose papers recovered during the search to make the addition, without any direct incriminating material linking the assessee to the transaction. The assessee consistently denied the transaction, highlighted retraction of the statements by the key person, and specifically sought cross-examination, which was never granted.
The Tribunal noted that the addition was made without corroborative evidence, without establishing the identity, nature, or particulars of the alleged cash lending, and in complete violation of principles of natural justice. It further observed that the CIT(A)’s order was cryptic and unreasoned, failing to meet the mandate of section 250(6). Relying on a consistent line of coordinate bench decisions arising from the same Evergreen Enterprises search (Laxmichand Jethalal Dedhia, Parag Motilal Savla, Mayur Kanjibhai Shah, etc.), the ITAT held that retracted third-party statements and uncorroborated loose papers cannot constitute substantive evidence.
The Tribunal also reiterated that presumptions under section 292C can be invoked only against the searched person and not against third parties, unless the documents are conclusively proved to belong to and incriminate such third party. As the basic conditions of sections 69A/69C were not satisfied, the reassessment addition was held to be legally unsustainable.
Accordingly, the impugned reassessment order and the addition of ₹17 lakh were set aside, and the appeal of the assessee was allowed in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is preferred by assessee challenging the order of Addl./ JCIT(A), Agra dated 29.08.2025 for the Assessment Year (AY) 2012-13), which in turn arises from the assessment order passed u/s 143(3) r.w.s. 147 of Income Tax Act, 1961 (for short “The Act”), dated 19/12/2019, by ITO, Ward-23(1)(6), Mumbai (for short “the Ld. AO”). The grounds of appeal raised by the assessee are as under:
“The following grounds of appeal are independent of, and without prejudice to, one another
1. The Additional Commissioner of Income-tax (Appeals), Agra(hereinafter referred to as the Addl CIT(A)) erred in upholding the action of the Income-tax Officer 23(1)(6) Mumbai (hereinafter referred to as the Assessing Officer) in issuing a notice under section 148 of the Act.
The appellant contends that on the facts and in the circumstances of the case and in law, the Addl CIT(A) ought not to have upheld the action of the Assessing Officer in issuing notice under section 148 of the Act.
2 The Addl CIT(A) erred in upholding the action of the Assessing Officer in making an addition under the head “income from other sources” of a sum of Rs 17,00,000, being unexplained cash loan given to Mr Nilesh Bharani
The appellant contends that on the facts and in the circumstances of the case and in law, the Addl CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as there is no basis or iota of evidence available with the Assessing Officer to make the impugned addition.
The appellant further, contends that on the facts and in the circumstances of the case and in law. the impugned addition ought not to have been upheld inasmuch as the only basis is the statement of Mr Nilesh Bharani (Partner at M/s Evergreen Enterprises) which has since been retracted by him, no details of lending has been furnished that is, date or particulars of lending, and no opportunity of cross-examination has been provided and as such, the impugned addition requires to be deleted.
The appellant further, contends that on the facts and in the circumstances of the case and in law, there is non-application of mind by the Assessing Officer inasmuch as the Assessing Officer does not specify the section in which he has brought the impugned addition to tax, and hence, the impugned addition requires to be deleted.”
2. Briefly stated the assessee had filed his return of income for the relevant year on 25.09.2012 declaring total income of Rs. 7,55,020/-. Further as per information received from the office of DDIT (Inv.), Unit-5(4), Mumbai, a search and seizure action under section 132 of the Act was carried out in the case of M/s Evergreen Enterprises, in which Mr. Nilesh Bharani is one of the partners. It is reported that the Evergreen Enterprises was involved in undisclosed activity of money lending and borrowing. On the basis of documents found and seized during the aforesaid search and statements recorded on oath under section 132(4) of the key persons, it is found that the assessee Mr. Dhiren Pradip Sadiwala is one of the beneficiaries, who had lent cash loan of Rs. 17,00,000/- to /through the aforesaid concerns. Accordingly, the case of assessee was reopened u/s 147/148. During the assessment proceedings the assessee was show-caused, to explain the transactions surfaced from the material seized during the said search, however the assessee has not furnished any explanation/documentary proof, but have merely filed his objection against the reopening of assessment. Such objection of assessee was disposed of vide letter dated 18.12.2019 by the ld. AO. Further, it is observed by the ld. AO that the assessee failed to discharge the onus on him to prove the genuineness of the impugned transaction. Finally, the subject amount of Rs. 17,00,000/- was added to the income of assessee under the head “Income from other sources”.
