Agrasen Polytex Private Limited Vs PCIT (ITAT Jaipur)
Paperwork Is Not Enquiry: ITAT Upholds Revision of ₹1.19 Crore Loan Assessment
Documents Accepted, Adverse Information Ignored
The Jaipur Tribunal upheld revision under Section 263 where the Assessing Officer accepted an unsecured loan as genuine on the strength of documents, without examining specific adverse investigation material already available with him.
The disputed loan of ₹1,19,50,000 had been received from Innovative Commercial Private Limited (ICPL). The assessment had been reopened because of information suggesting that the loan represented an accommodation entry. Nevertheless, the AO completed reassessment without making an addition, accepting the assessee’s documentary explanation.
The Tribunal held that collecting documents and raising routine queries did not constitute the enquiry required by these facts. The AO had to investigate the transaction against the adverse material, confront the assessee with that material and evaluate its response before reaching a conclusion.
Reopening Ended Without Examination of Its Foundation
The assessee’s case was reopened under Section 147 on information that it had obtained accommodation entries from ICPL in the form of unsecured loans. During reassessment, the company furnished documents to establish the lender’s identity, creditworthiness and the transaction’s genuineness.
The AO accepted the explanation and made no addition concerning the loan.
The PCIT subsequently examined the assessment records and found that the AO had merely accepted the documents without investigating the adverse information that had triggered reopening. By an order dated 5 March 2026, the PCIT set aside the assessment for fresh examination of the unsecured loan and the interest expenditure claimed on it.
The assessee challenged this revision before the Tribunal, contending that the AO had conducted enquiries and adopted a legally plausible view.
Banking Channels, Confirmations and Substantial Net Worth
The assessee argued that the loan had been received through banking channels and was supported by a loan confirmation, bank statements and the lender’s income-tax return acknowledgement.
It supplied ICPL’s CIN, PAN, incorporation details and active status on the MCA website. Interest had been paid on the loan, and the applicable TDS had been deducted and deposited.
To establish creditworthiness, the assessee relied on ICPL’s share capital and reserves of approximately ₹180 crore, substantially exceeding the loan advanced. It also pointed out that there was no cash deposit immediately preceding the advance in the lender’s bank account.
According to the assessee, these documents discharged its evidentiary burden. The AO’s acceptance of them therefore represented an informed view that could not be disturbed merely because the PCIT considered further enquiry desirable.
The Investigation Material Required Specific Verification
The Tribunal rejected this argument because the AO possessed information directly questioning the reliability of the documentary explanation.
The material recorded in the PCIT’s order indicated that a search conducted on 24 August 2022 had revealed no physical presence of ICPL at its registered address. Statements recorded under Section 132(4) from its directors, Vineet Kedia and Sachet Saraf, stated that ICPL was used to provide accommodation entries in the form of bogus loans for commission.
The AO also possessed information suggesting that the lender’s reported net worth had been created through circular transactions and book entries involving a network of shell companies.
Despite this, the AO accepted the incorporation records as proof of identity, banking transactions as proof of genuineness and financial statements as proof of creditworthiness. He did not test those documents against the specific information challenging each of these aspects.
Adverse Material Had to Be Confronted to the Assessee
The Tribunal noted that the AO had not supplied the directors’ statements to the assessee or confronted it with the other adverse information.
This omission required further enquiry. The AO should have disclosed the material, sought the assessee’s explanation and then determined the genuineness of the loan.
The Tribunal emphasised that the AO acts as both adjudicator and investigator. Relying on Gee Vee Enterprises v. Additional CIT, 99 ITR 375 (Delhi), it held that failure to conduct an enquiry warranted by the circumstances could render an assessment erroneous.
It also referred to Explanation 2 to Section 263, covering orders passed without enquiries or verification that should have been undertaken. A conclusion reached by ignoring material requiring investigation could not claim protection simply as a “plausible view”.
Earlier Decisions Distinguished
The assessee relied on CIT v. Nirav Modi and PCIT v. Shreeji Prints Pvt. Ltd.
The Tribunal distinguished these authorities. In Nirav Modi, the AO had examined the evidence, and there was no material indicating that it was unreliable. In the present case, specific adverse information existed but remained unexamined.
Similarly, Shreeji Prints concerned detailed enquiry into unsecured loans. The Tribunal found that comparable enquiry had not occurred here.
Accordingly, it upheld the Section 263 order and dismissed the appeal.
Author’s Comments
This decision marks the boundary of the “AO made enquiries” defence. An enquiry must address the actual doubt arising from the assessment records, particularly where the same adverse information formed the basis of reopening.
Loan confirmations, banking channels, TDS and substantial reserves remain relevant evidence. However, their production does not conclude the enquiry when investigation material specifically questions their substance.
Equally, the outcome was upholding revision for fresh assessment, rather than finally sustaining a loan addition. The assessee must receive an opportunity to answer the adverse material, and the fresh assessment must evaluate that response before determining liability.
Cases Discussed
- Gee Vee Enterprises Vs. Addl. CIT & Ors. [1975] 99 ITR 375 (Delhi High Court) — Relied upon for the principle that the Assessing Officer is not merely an adjudicator but also an investigator and failure to make an enquiry warranted by the circumstances can render the assessment order erroneous.
- CIT Central III Vs. Shri Nirav Modi, ITA No. 117 of 2014, dated 16.06.2016 (Bombay High Court) — Relied upon by the assessee on inadequate enquiry; distinguished because there was nothing in that case indicating that the evidence accepted by the AO was unreliable.
- PCIT Vs. Shreeji Prints Pvt. Ltd. [2021] 130 taxmann.com 294 (Supreme Court) — Relied upon for the proposition that Section 263 cannot be invoked where detailed enquiry regarding unsecured loans has been made; distinguished because proper and complete enquiry was absent in the present case.
FULL TEXT OF THE ORDER OF ITAT, JAIPUR BENCH
The present appeal has been filed by the assessee against the order passed by the Office of the Principal Commissioner of Income Tax, PCIT Jaipur 02(hereinafter referred to as “Ld. PCIT”), dated 05.03.2026under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised by the assessee read as under:-
1. Based on the facts and circumstances of the case and in law, the order passed under section 263 of the Income-tax Act, 1961 by the Ld. PCIT -2 is illegal and bad in law.
2. Based on the facts and circumstances of the case, the Ld. PCIT 2 has erred in holding that the order passed by the Faceless Assessing Officer (FAO) under section 147 of the Act is erroneous in so far as it is prejudicial to the interest of the revenue directing for a de novo fresh assessment on the issue of unsecured loan of Rs 1,19,50,000 holding that the FAO failed to carry out proper enquiry on the genuineness of the transaction and creditworthiness of the lender Innovative Commercial Private Limited and also failed to apply the correct principles of law ignoring the investigation report by the DDIT (Inv), Unit 3(3), Kolkata, without appreciating that the Assessee had duly submitted all the documents during assessment proceedings such as loan confirmation, bank statement of the assessee and lender, ITR acknowledgement, etc to otherwise prove the genuineness of the transaction and creditworthiness of the lender.
3. Briefly stated, the Ld. PCIT found that the AO had passed order u/s 147 of the Act for the impugned year in the case of the assessee without properly and adequately examining the issue for which the case of the assessee was reopened in terms of the provision of Section 147 of the Act.
4. Facts on record reveal that the reopening was resorted to on account of the information in the possession of the AO that the assessee had allegedly taken accommodation entries amounting to Rs.1,19,50,000/- from one M/s Innovative Commercial Pvt. Ltd.in the form of unsecured loans. The AO had passed the order u/s 147 of the Act without making any addition on account of the same. The case of the Ld. PCIT was that the AO had simply accepted the documents filed by the assessee, without making inquiries on the genuineness of the transaction more particularly in the context of information in his possession that the said unsecured loans were merely accommodation entries. The ld. PCIT accordingly, in his order passed u/s 263 of the Act, held the order passed by the AO u/s 147 of the Act to be erroneous insofar as it was prejudicial to the interest of the Revenue stating the order to have been passed in routine and perfunctory manner without taking into consideration the facts on record of the case. The assessment order was therefore set aside and the AO directed to initiate fresh assessment de novo regarding the issue of genuineness of unsecured loans and interest expenditure claimed to have been incurred thereon in the impugned year.
5. Both the parties were heard at length. The primary argument of the ld. Counsel for the assessee before us was that, there was no error in the order of the AO since due inquiries were made by the AO and correct opinion formed based on the said inquiries; that it was not a case of no inquiry. Thateven if it was a case of inadequate inquiry the Ld. PCIT could not have exercised his powers of revision u/s 263 of the Act. Reference was made to several case laws in support of his contention as under:-
i) PCIT Vs. Shreeji Prints Pvt. Ltd.. [2021] 130 taxmann.com 294 (SC) for the proposition that section 263 of the Act cannot be invoked when detailed inquiry was made with respect to the unsecured loans.
ii) The Hon’ble Bombay High Court in the case of CIT Central III Vs. Shri Nirav Modi ITA 117 of 2014 dated 16th June, 2016 for the proposition that section 263 of the Act cannot be invoked for inadequate inquiry by the AO
6. In support of his contention that inquiry was made by the AO and due opinion formed by him,Ld. Counsel for the assessee drew our attention to the submissions made before the ld. PCIT in this regard reproduced at page 2 to 5 of the order of the ld. PCIT. Referring to the same, he pointed out that during reassessment proceedings when the assessee was confronted with the issue of proving the genuineness of unsecured loans taken by him during the year amounting to Rs.1.19 crores from one M/s ICPL, the assessee had stated the loan to have been taken through banking channels, the assessee had filed loan confirmation from the ICPL certifying the transaction to have been taken through banking channels and interest being paid thereon and also deduction and deposit of TDS thereon. He pointed out that the assessee had submitted information to establish the identity of ICPL by giving its CIN No., PAN No., date of incorporation and pointed out that its current status as per MCA website is “ACTIVE” compliant,. Copy of acknowledgement of Return of Income filed by ICPL for the impugned year i.e. AY 2019-20 was also stated to be filed. To prove the creditworthiness of the lender, it was pointed out that ICPL had more than sufficient share capital and reserves approximating 180 crores to justify its creditworthiness of advancing loans to the assessee of Rs.1.19 crores. He contended that it was also pointed out to the AO from the Bank statement of ICPL that there was no cash deposit in the Bank account of ICPL immediately before granting loan to the assessee.
7. Referring to all the above documents filed by the assessee to the AO, ld. Counsel for the assessee contended that the assessee had sufficiently discharged its onus of proving the genuineness of loan taken from ICPL establishing, the identity of the creditors, the creditworthiness of the lender and the genuineness of the transaction. That the AO accordingly had formed a plausible view of the transaction of loan taken by the assessee from ICPL being genuine and made no addition on account of the same.
8. He drew our attention to the findings of the AO at page 9 of his order, wherein the AO, he pointed out, noted the assessee to have explained all the three ingredients to prove that the loan of Rs.1.19 crores availed from M/s ICPL was genuine i.e. identity of creditor, creditworthiness of the lender and the genuineness of transaction by furnishing cogent evidences and accordingly drawing no adverse inference and making no addition on account of the same in the hands of the assessee.
9. We are not in agreement with the contentions made by the ld. Counsel for the assessee as above, that the AO had made inquiry and formed a plausible opinion of the loan taken from ICPL being genuine and that it was not a case of non-inquiry and therefore no order u/s 263 of the Act ought to have been passed in the case of the assessee.
10. The reason for the same being that the order of the Ld. PCIT records information regarding ICPL available with the AO regarding the same being an accommodation entry which, we note, was not considered by the AO and his inquiry was not conducted in accordance with the information available with him .
11. The order of the Ld. PCIT reveals that the AO was in possession of information that ICPL had no physical presence at its registered address on account of a search conducted on 24.08.2022. The AO also was in possession of the statements recorded u/s 132(4) of the Act of the Directors of ICPL ,Sh. Vineet Kedia and Sh. Sachet Saraf who had admitted that M/s ICPL was used solely to provide accommodation entries (bogus loans) in lieu of commission by rotating unaccounted cash. The AO also was aware of the fact that the net worth of ICPL was created through circular transaction/book entries among a web of shell companies to project fake creditworthiness. This fact is recorded at page 5 of Ld. PCITs order.
12. It is an admitted fact, as pointed out by the ld. Counsel for the assessee also above, that except for taking on record the documents filed by the assessee, as noted above, establishing the identity, the genuineness and the creditworthiness of the transaction ,no inquiry worth its while was made by the AO, considering the adverse information in his possession regarding the bogus transaction of unsecured loan undertaken by ICPL as noted above. The AO admittedly did not confront the assessee with the above adverse information. He did not confront the assessee with the fact that ICPL had no physical presence at its registered office. He did not confront the assessee with the statements of the Directors of ICPL admitting to have provided accommodation entries of bogus loans nor to the information in his possession that the net worth of ICPL was created through circular transactions/book entry amount the web of shell companies to project fake creditworthiness .For that matter we find that even the assessee admitted before the Ld. PCIT that the copy of statements of Directors of ICPL examined on oath, were never provided to the assessee. This fact finds mention at page 5 of the Ld. PCITs order. Further, the assessee has admitted to the fact that all the adverse information in the possession of the AO was never confronted to him; relating to the said company having no physical presence at its registered address, the Directors of the company admitting to have provided only accommodation entries and the net worth of ICPL being created through circular transactions/book entries along. The aforesaid fact is recorded at page 5 of the Ld. PCITs order. The AO clearly made no inquiry vis-à-vis the said loans in the light of the fact that there was information in his possession that the net worth of ICPL was created through circular transactions/book entry amount the web of shell companies to project fake creditworthiness. In fact, the AO accepted the identity, genuineness and creditworthiness of the transaction being established when he had adverse information in his possession with respect to all the aforestated aspects.
13. He accepted the identity of IPCL being established on the basis of its CIN No. ,PANNo. ,date of incorporation ,its current status as per MCA website is “ACTIVE” compliant, copy of acknowledgement of Return of Income filed by ICPL for the impugned year i.e. AY 2019-20, when he had information that the said entity had no physical presence at its registered address.
14. He accepted the genuineness of the transaction on the basis of documentary evidences furnished by the assessee showing the loan to have been taken through banking channels, loan confirmation being filed, interest being paid thereon and deduction and deposit of TDS thereon, when he had on record the statements of the directors of the company admitting to have provided only accommodation entries.
15. He accepted the creditworthiness of ICPL on the basis of figures reported in the financials of ICPL despite being in possession of information that ICPL had projected fake creditworthiness through circular transactions/book entries.
16. We therefore, agree with the Ld. PCITthat while the AO verified the paper trail, he completely failed to examine the genuine nature of the lender and this constitutes “lack of proper inquiry”. We concur with the Ld. PCIT that mere raising of queries or collection of documents does not satisfy the requirement of law if the AO fails to apply his mind to the specific legal issue inherent in those documents. The Ld. PCIT has rightly pointed out that the AO is not merely adjudicator but also investigator and if he fails to conduct an inquiry which he ought to have conducted, the order becomes erroneous. Reliance placed by the Ld. PCIT on the decision of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises Vs. Addl. CIT & Ors. [1975] 99 ITR 375 (Del.) is apt wherein Hon’ble High Court has held that if the AO fails to conduct an inquiry which he ought to have conducted, the order becomes erroneous.
17. It is amply clear that all the above adverse information was not confronted to the assessee, and no inquiry conducted by AO on the information in his possession. In fact it is basis this adverse material only , revealing the assessee to have taken accommodation entry of unsecured loan from ICPL, that the AO believed the income of the assessee to have escaped assessment and reopened the case of the assessee for framing assessment u/s 147 of the Act. The AO was duty bound to have examined the genuineness of the transaction of loan in the backdrop of adverse information in his possession. He was duty bound to have conducted all inquiries from the assessee, confront all adverse information with the assessee, seek the assesses response to the same and thereafter arrive at any finding of genuineness of the transaction. In the present case the AO has miserably failed to conduct any inquiries with respect to the information in his possession. He has merely accepted the documents filed by the assessee and held the loan transaction to be genuine. It is a classic case of abdication of duty by the AO andwe concur with the Ld. PCIT that the present is case of improper inquiry/inadequate inquiry conducted by the AO. The ld. PCIT has referred to Explanation 2 to Section 263 of the Act which explicitly deems an order erroneous if it is passed without making inquiries or verification which should have been made.
18. Concurring as above with the findings of the Ld. PCIT that the AO had not conducted inquiries which were warranted on issue of unsecured loans taken by the assessee from M/s ICPL in the light of adverse information in his possession, the contention of the ld. Counsel for the assessee that the AO had formed a plausible opinion of the unsecured loans being genuine on the basis of documents filed by the assessee, we find merits no consideration and has been , we hold,rightly rejected by the ld. PCIT.
19. The ld. PCIT at page 15 of his order has held that by allowing the credit without verifying the real source of the funds, the AO had committed an error of law and the view taken by him of the transaction being genuine being contrary to the law cannot be termed as a plausible view. We fully concur with the Ld. PCIT in this regard.
20. We therefore, hold that the Ld. PCIT has rightly held the order passed by the AO u/s 147 of the Act to be erroneous so as to cause prejudice to the Revenue for having accepted the transaction of unsecured loan taken by the assessee from ICPL amounting to Rs.1.19 crores to be genuine without conducting any inquiries in the light of adverse information in his possession regarding the impugned loan being a mere accommodation entry/bogus transaction.
21. The ld. Counsel for the assessee has referred to the decision of the Hon’ble Bombay High Court in the case of Shri Nirav Modi (Supra) for the proposition that Section 263 of the Act cannot be invoked for inadequate inquiry by the AO. We have gone through the said decision and we find that the said decision is distinguishable on facts. In the facts of the said case, the Hon’ble High court found that the AO was satisfied about the genuineness of the gift received by the assessee consequent to making an inquiry and examining the evidence produced by the assessee. The Hon’ble high court noted that the Ld.CIT did not indicate any doubts in respect of the genuineness of the documents produced, in his order passed u/s 263 of the Act. Noting so the Hon’ble high court held that the Ld. CIT cannot exercise his power of revision without stating how and why the order is erroneous due to not examination of thedonorifthe AO is satisfied with the evidence produced by the assessee and there is nothing on recordto indicate that the evidence is not reliable
22. The facts of the case of Shri Nirav Modi (Supra) clearly are distinguishable from the facts of the present case before us. In the facts of the present case, the evidence on record, showed that the transaction of loan taken by the assessee from ICPL was bogus, but the AO still do not make any inquiry vis-à-vis the said adverse information in his possession and merely accepted documentary evidences filed by the assessee as prove of genuineness of transaction. In the facts of Shri Nirav Modi (Supra) as noted above, the Hon’ble High Court had noted that there was nothing on record to indicate that the evidence produced by the assessee was not reliable and in the backdrop of this fact, the Hon’ble High Court held that the Ld. CIT(A) could not have exercised his powers of revision on account of further inquiries not being conducted by the AO on the evidences produced by the assessee. The said decision therefore, is of no assistance to the assessee’s case.
23. Ld. Counsel for the assessee has also relied on the decision of the Hon’ble Apex Court in the case of Shreeji Prints Pvt. Ltd. (Supra) for the proposition that Section 263 of the Act cannot be invoked when detailed inquiry was made with respect to the unsecured loans. The said decision is also of no assistance to the assessee, since as noted above, we have concurred with the Ld. PCIT that proper and complete inquiries were not made by the AO with regard to the genuineness of the unsecured loans more particularly in the light of adverse information in his possession regarding the bogus character of the said loans. It is clearly not a case of detailed inquiry made by the AO in the present case, and therefore, we hold the decision of the Hon’ble Apex Court in case of Shreeji Prints Pvt. Ltd. (Supra) is of no assistance to the assessee being distinguishable on facts.
24. In the light of the above, we hold that the Ld. PCIT has rightly held the assessment order passed in the present case u/s 147 of the Act to be erroneous so as to cause prejudice to the Revenue. The grounds raised by the assessee are dismissed.
25. In effect, the appeal of the assessee is dismissed.
Order pronounced in the Open Court on 28.09.2026.
