Source-of-Source Proviso Inapplicable to AY 2011-12: ITAT Chennai

Swiss Park Vanijya Pvt. Ltd. Vs DCIT (ITAT Chennai)

₹24 Crore Share Capital Addition: ITAT Deletes ₹17 Crore, Sends ₹7 Crore Back for Examination

Facts of the case

Swiss Park Vanijya Pvt. Ltd. v. DCIT concerned a ₹24 crore addition under Section 68 for assessment year 2011–12. The company had received ₹2.4 crore as share capital and ₹21.6 crore as share premium. Of the total, ₹23 crore came through four Kolkata companies and ₹1 crore was invested directly by Arvind Gupta.

Following a search of the OPG Power Generation group, the tax department alleged that undisclosed funds belonging to the promoter had been routed through Kolkata entities and returned to Swiss Park as share subscriptions. The Assessing Officer reopened the company’s assessment and added the entire ₹24 crore on a protective basis. A substantive addition relating to ₹23 crore had already been made in Arvind Gupta’s assessment.

The Commissioner (Appeals) divided the receipts into three parts. He deleted ₹16 crore because an accepted declaration under the Income Declaration Scheme, 2016 (IDS) by Arvind Gupta’s HUF specifically covered the cash used to obtain those entries. He also deleted the ₹1 crore direct investment after examining evidence of its disclosed source. He sustained the remaining ₹7 crore as a substantive addition, finding that the explanation for its circuitous movement through other companies needed scrutiny. Both Swiss Park and the Revenue appealed.

Tribunal’s ruling on the ₹17 crore deletion

The Chennai Bench of the ITAT upheld the deletion of ₹16 crore. The HUF’s IDS declaration specifically identified the funds used for the accommodation entries into Swiss Park; the prescribed tax, surcharge and penalty had been paid, and Form 4 had been issued. The Revenue did not show that the declaration had been withdrawn or that the Commissioner (Appeals)’ factual finding was wrong. Nor had it established that Swiss Park itself generated the ₹16 crore. On those facts, the Tribunal declined to tax the same identified income again in the company’s hands.

The Tribunal also upheld deletion of the ₹1 crore directly invested by Arvind Gupta. The Commissioner (Appeals) had accepted documentary evidence explaining its source, and the Revenue brought no material to dislodge that finding. The Revenue’s appeal was dismissed.

Why the ₹7 crore was remanded

The Tribunal reached a different conclusion on the balance of ₹7 crore. Swiss Park said that ₹3 crore had originally been advanced by it to Spectra Solar Pvt. Ltd. and later returned, through Kolkata companies, as share subscription money. That account itself raised a question: why had the company’s own advance returned in the form of outside share capital? The Tribunal held that the purpose and actual flow of this transaction required focused examination, after giving Swiss Park an opportunity to respond.

For the other ₹4 crore, Swiss Park described a trail from OPG Energy Pvt. Ltd. to IKE Electric Pvt. Ltd., then through Kolkata entities to itself. The statement of the alleged entry operator referred to receiving both cash and cheques from the group, but the authorities had not determined whether cash was involved in this particular ₹4 crore trail. Bank entries alone did not settle that factual question.

The Tribunal therefore sent the ₹7 crore issue back to the Assessing Officer for a fresh examination and a reasonable hearing. It neither confirmed nor deleted that amount. Swiss Park’s appeal was partly allowed for statistical purposes.

Reopening and the scope of Section 68

Swiss Park’s challenge to reopening failed. The Tribunal found that the entry operator’s sworn statement obtained during the search directly connected the company to the alleged transactions. That was sufficient tangible material for a prima facie belief that income had escaped assessment. It also found that the company’s objections had been substantively addressed, although they were dealt with in a subsequent notice rather than an entirely separate order.

On the merits, the Tribunal stressed an important distinction. The source-of-source proviso to Section 68, effective from 1 April 2013, did not apply to assessment year 2011–12. Yet that did not prevent the Assessing Officer from examining a transaction that appeared to recycle the company’s own money through apparent investors. The ordinary questions of identity, creditworthiness and genuineness still mattered.

Author’s comments

This order turns on the evidence for each identified portion of the credit, rather than a single conclusion about all ₹24 crore. The accepted IDS declaration was decisive for ₹16 crore because it was specifically linked to the entries received by Swiss Park and the Revenue did not undermine that link. It should not be read as saying that every IDS declaration automatically resolves a recipient company’s Section 68 assessment.

Equally, the inapplicability of the later source-of-source proviso does not make a circular fund flow immune from inquiry. The ₹7 crore remand leaves the substantive tax treatment open: the Assessing Officer must examine the two trails separately, put the concerns to the company, and decide them on the resulting evidence.

Cases Discussed

• GKN Driveshafts (India) Ltd. v. ITO & Ors., (2003) 259 ITR 19 (SC) — Relied upon by the assessee for the procedure requiring objections against reopening to be disposed of by a speaking order.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

These cross appeals are directed against the order of the Commissioner of Income Tax (Appeals)-18, Chennai [hereinafter referred to as the “CIT(A)”], dated 29.11.2025 passed u/s.250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”]. The CIT(A)’s order arises out of the assessment order passed by the Deputy Commissioner of Income Tax, Central Circle-1(1), Chennai [hereinafter referred to as the “AO”] u/s.143(3) r.w.s 147 of the Act. The relevant assessment year is 2011-12.

2. The brief facts of the case are that the assessee, M/s.Swiss Park Vanijya Pvt. Ltd., is a private limited company. For the A.Y.2011-12, the assessee filed its original return of income on 04.02.2012 declaring total income of Rs.1,08,584/-. A search and seizure operation u/s.132 of the Act was conducted on 07.08.2014 in the case of M/s.OPG Power Generation Pvt. Ltd. and its group/associate concerns by the Investigation Wing, Chennai. Consequent to the search, the cases of the group companies were centralized for completion of assessments. During the course of search, statements were recorded from, inter alia, Shri A.K. Khemka and Shri S.K.Tibrewala. On the basis of such statements and the findings of the Investigation Wing, the Revenue was of the view that the assessee was one such company through which Shri Arvind Gupta, main promoter of the group, had routed his unaccounted money. The Assessee was taken over by Shri Arvind Gupta and his family members from the entry operator Shri A K Khemka during the FY 2009-10. The AO noticed that during the relevant previous year, the assessee had received an aggregate amount of Rs.24,00,00,000/- towards share capital and share premium, comprising share capital of Rs.2,40,00,000/- and share premium of Rs.21,60,00,000/-. The investments were received from the following persons/entities:

3. Based on the material gathered by the Investigation Wing and the statements referred to above, the AO was of the view that the aforesaid share capital and share premium represented unaccounted money routed through accommodation-entry providers. Accordingly, the assessment was reopened u/s.147 of the Act and notice u/s.148 of the Act was issued on 28.03.2018. In response thereto, the assessee filed its return of income on 17.04.2018 declaring the same income of Rs.1,08,584/-. During the reassessment proceedings, notices under sections 143(2) and 142(1) of the Act were issued and the reasons recorded for reopening were furnished to the assessee vide communication dated 11.10.2018. The assessee objected to the assumption of jurisdiction under sections 147/148 of the Act. The AO rejected the objections through a communication contained in the subsequent notice dated 24.12.2018 issued u/s.142(1) of the Act. On merits, the AO was of the view that the assessee had failed to satisfactorily explain the share capital and share premium of Rs.24 crores and accordingly treated the same as unexplained cash credit u/s.68 of the Act. However, since an amount of Rs.23 crores, excluding Rs.1 crore invested directly by Shri Arvind Gupta, had already been brought to tax on a substantive basis in the hands of Shri Arvind Gupta in the assessment completed u/s.143(3) r.w.s 153A of the Act dated 29.12.2016, the AO made the addition of Rs.24 crores in the hands of the assessee-company on a protective basis. Consequently, vide assessment order dated 30.12.2018 passed u/s.143(3) r.w.s 147 of the Act, the total income of the assessee was determined at Rs.24,01,08,584/- as against the returned income of Rs.1,08,584/-.

4. Aggrieved by the reassessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A) apart from challenging the addition on merits, the assessee also questioned the validity of reopening of assessment under sections 147/148 of the Act. The Ld.CIT(A), vide impugned order dated 29.11.2025, upheld the validity of the reassessment proceedings and rejected the legal ground raised by the assessee challenging the assumption of jurisdiction under section 147 of the Act. As regards the addition u/s.68 of the Act, the Ld.CIT(A) examined the source and movement of the impugned share capital and share premium. The Ld.CIT(A) took note of the assessee’s contention that, out of the total sum of Rs.24 crores, an amount of Rs.16 crores had been declared by Arvind Gupta (HUF) under the Income Declaration Scheme, 2016 (“IDS, 2016”) as income utilized for obtaining accommodation entries through various companies of Shri A.K. Khemka and his associates for investment in the shares of the assessee-company. The Ld.CIT(A) further took note of the fact that the declaration under IDS, 2016 had been accepted by the Revenue and Form No.4 had been issued by the competent authority upon payment of the applicable tax, surcharge and penalty. The Ld.CIT(A), therefore, accepted the assessee’s explanation regarding the source of investment to the extent of Rs.16 crores. The Ld.CIT(A) also accepted the explanation in respect of the sum of Rs.1 crore directly invested by Shri Arvind Gupta, holding that the said investment stood explained from his disclosed sources. The relevant findings of the CIT(A) in this regard is extracted below –

8. In ground nos. 2, 3, 4, 6, 7, and 8, the appellant contends that the addition of Rs.24,00,00,000/- made under section 68 on a protective basis is unjustified since the investment was received through proper banking channels; the identity of the investors has been duly established; the appellant is not obligated to prove the source of funds in the hands of the investors; a similar addition was made in the case of Sri Arvind Gupta; not considering the submissions made by the appellant and also not considering the admission of undisclosed income made in the hands of Arvind Kumar, HUF

8.1 The total share capital and share premium brought in into the appellant company is Rs.24.00 crores during the year under consideration. On the issue of sources for the same, the appellant initially contended that since the monies were brought in through banking channels in the name of four identifiable entities and Sri Arvind Gupta himself, the same have to be accepted. It is during the course of assessment proceedings, the appellant referring to the admission made by Sri Arvind Gupta, HUF under IDS 2016, submitted that the sources for the investment of Rs.24.00 crores in the appellant company is that Sri Arvind Gupta, HUF had admitted Rs.16 crores as undisclosed income and the same has to be considered. It is a fact on record, that out of total investment of Rs.24.00 crores into the appellant company, Sri Arvind Kumar, HUF admitted Rs.16 crores as made out of his undisclosed income and filed IDS 2016. The said declaration was accepted as such and accordingly the total addition made in the hands of Sri Arvind Kumar, Individual, on substantive basis, was deleted since the credit towards share application money is appearing / credited in the books of M/s Swiss Vanijya Pvt Ltd. As such, the total addition made in the hands of the appellant company has to be considered on substantive basis only and has to be decided on merits.

8.2 Now coming to the facts of the appellant, since out of Rs.24.00 crores introduced during the year towards share capital / premium, an amount of Rs.16.00 crores was admitted as made out of funds sourced by HUF, and therefore, addition to this extent is directed to be deleted in the hands of the appellant.

5. In respect of the balance amount of Rs.7 crores, however, the CIT(A) observed that though the funds had moved through banking channels, the assessee had not satisfactorily explained the circuitous routing of the funds through various Kolkata-based/group companies and the commercial rationale for such movement. According to the CIT(A), mere movement of money through banking channels would not establish the genuineness of the transaction when the alleged round-tripping of funds remained unexplained. On the aforesaid reasoning, the CIT(A) sustained the addition of Rs.7 crores u/s.68 of the Act and treated the same as a substantive addition in the hands of the assessee-company. The relevant findings of the CIT(A) in this regard are extracted hereunder –

8.3 With regard to the balance amount of Rs.7 crores, it is the claim of the appellant that a sum of Rs.4,00,00,000/- was given by M/s OPG Energy Pvt Ltd to M/s IKE Electric Pvt Ltd through banking channels and the said amount was advanced to various Kolkatta companies, which in turn made their way into M/s Swiss Park Vanijya Pvt Ltd. As regards balance of Rs.3,00,00,000/-, it was explained that the appellant company had advanced money to M/s Spectra Solar Pvt Ltd, which had paid the same to Kolkatta based companies, which in turn invested the same in M/s Swiss Park Vanijya Pvt Ltd. In this connection, it was also claimed that Sri Khemka also averred that he has received funds both by cash and cheque from the group companies. In support of the above, the appellant filed bank statements of M/s OPG Energy and the appellant.

8.4 The above averments of the appellant and the evidences filed were perused. From the bank account statements, it is not clear why the appellant company, in the first place, had paid monies through cheques to the Kolkatta based companies. It is also not clear that the recipient companies only had returned the money as investments into the appellant company, through companies controlled by Sri Khemka at Kolkatta. Though the source of funds is through banking channels, the nature of roundabout routing the group funds through Kolkatta based companies was not explained anywhere by the appellant. As long as the circuitous nature of funds received was not explained, the receipts cannot be treated as out of explained funds and accordingly, the same have to be treated as unexplained funds only. Accordingly, the sources for the investment into share capital / premium of Rs.7 crores stood unexplained and therefore, the same stands confirmed in the hands of the appellant on substantive basis.

6. Aggrieved by the above order of CIT(A), both assessee and revenue are in appeal before the Tribunal. We shall first adjudicate the revenue’s appeal.

ITA No.413/Chny/2025 – Revenue’s Appeal

7. The Ld.DR contended that the Ld.CIT(A) erred in deleting the addition of Rs.16 crores merely on the strength of the declaration made under IDS, 2016 in the hands of Arvind Gupta (HUF). The Ld.DR further submitted that acceptance of an IDS declaration in the hands of a different taxable person did not, by itself, discharge the assessee-company’s burden u/s.68 of the Act in respect of the share capital and share premium credited in its own books. The Ld.DR also submitted that the assessee was independently required to establish the nature and source of the credits appearing in its books and the genuineness of the share subscription transactions. According to the Ld.DR, the Ld.CIT(A) ought to have considered the IDS declaration in conjunction with the findings of the Investigation Wing, the statements of the entry operators and the entire chain through which the funds were routed rather than treating the IDS declaration as conclusive for the purposes of section 68 of the Act. The Ld.DR also contended that the relief granted in respect of Rs.1 crore invested by Shri Arvind Gupta was also not warranted and that the assessee had failed to satisfactorily discharge the burden cast upon it with regard to the entire share capital and share premium of Rs.24 crores. The Ld.DR, therefore, prayed that the order of the Ld.CIT(A) be reversed to the extent of the relief of Rs.17 crores granted to the assessee and the addition made by the AO be restored.

8. The Ld.AR on the other hand supported the order of the Ld.CIT(A) with regard to the deletion of the addition to the extent of Rs.17 crores. The Ld.AR submitted that Rs.16 crores had specifically been disclosed under IDS, 2016 in the hands of Arvind Gupta (HUF), wherein Shri Arvind Gupta was the Karta, as cash income utilized for obtaining accommodation entries through the companies of Shri A.K. Khemka and his associates for investment in the assessee-company. The ld AR in this regard drew our attention to pages 19 to 35 of the paper book, submitting that the declaration in Form No.1 contained the relevant particulars concerning the investment in the assessee-company and that, after payment of the requisite tax, surcharge and penalty, the declaration had been accepted by the Principal Commissioner of Income Tax by issuance of Form No.4. The Ld.AR contended that once the declaration of Rs.16 crores under IDS, 2016 had been accepted by the revenue and the taxes thereon had been duly discharged, the source of the corresponding investment stood explained and the same amount could not again be brought to tax as unexplained cash credit in the hands of the assessee-company. As regards the balance sum of Rs.1 crore out of the relief of Rs.17 crores granted by the Ld.CIT(A), the Ld.AR submitted that the said amount represented direct investment by Shri Arvind Gupta out of his disclosed sources and the Ld.CIT(A) had accepted the same after verification of the relevant documentary evidence. The Ld.AR also emphasized that the original addition of Rs.24 crores in the assessee’s hands was only protective. Once the source stood explained to the extent of Rs.17 crores, there could be no justification for retaining a corresponding protective addition in the hands of the assessee. The Ld.AR further submitted that no independent incriminating material had been brought on record to show that the assessee-company itself had generated any unaccounted income which was subsequently introduced as share capital/share premium. The assessment, according to the Ld.AR, was founded predominantly upon third-party statements and the Investigation Wing report, without establishing a direct nexus between such material and the impugned credits after taking into account the IDS declaration accepted by the Department. The Ld.AR, therefore, prayed that the order of the Ld.CIT(A) deleting the addition of Rs.17 crores be upheld.

9. We have heard the Ld. AR and the Ld. DR and perused the material on record. The AO has made the addition only on a protective basis, considering the statements of Shri A.K. Khemka and the findings of the Investigation Wing, that said sum represented unaccounted money of Shri Arvind Gupta routed into the assessee-company through accommodation entries, where the substantive addition was made in his individual hands. We notice that to the extent of Rs.16 crores out of this sum, Arvind Gupta (HUF) has since declared the very same amount under the IDS, 2016 as its own undisclosed cash income utilised for obtaining accommodation entries for investment in the assessee-company, and that this declaration has been accepted by the Department upon issuance of Form No.4 after payment of the applicable tax, surcharge and penalty. It is the argument of the Ld AR that it is not a case of the assessee claiming impunity towards another person’s IDS filing to explain away a credit, but one where the Revenue’s own search-based case identified Shri Arvind Gupta as the source of these very funds, and that said claim of ownership of the funds and payment of tax thereon is accepted by the revenue.

10. Therefore, the question before us is not whether the assessee-company can claim any immunity for itself, but whether the true nature and source of the credit found in its own books, as required to be explained u/s.68 of the Act, stands established by this sequence of events. There is no dispute that immunity under Section 183 of the Finance Act, 2016 operates only in favour of the declarant in respect of the declarant’s own liability to further tax, penalty or prosecution on the income so declared. But this is a different question from whether the source of a credit in another assessee’s books has been satisfactorily explained from such declaration. It is a settled legal position that immunity under the IDS is personal to the declarant and does not preclude the Revenue from examining or reopening the assessment of a connected entity suspected of having received unaccounted money through the same channel. However, we are of the view that the said ratio operates at the stage of reopening of assessment and does not lay down that an accepted and tax paid declaration cannot thereafter be relied upon as evidence of the nature and source of a credit once the assessment stands validly reopened. We accordingly hold that the assessee, in relying upon the declaration made by Arvind Gupta (HUF), is not claiming any derivative immunity for itself, but is relying upon the said declaration as evidence establishing that the sum of Rs.16 crores credited in its books represents money belonging to Arvind Gupta (HUF), which has since been brought to tax in the hands of the said HUF. We notice that there is also no material on record showing that the assessee-company itself generated unaccounted income of Rs.16 crores which was first sent out to the alleged entry providers and thereafter received back as share capital and share premium, and no cash trail, undisclosed business activity or asset of the assessee capable of generating such a sum has been identified by the Revenue. We are of the view that material gathered during investigation, however relevant, may justify a detailed enquiry into a transaction, but an addition u/s.68 of the Act must ultimately rest on evidence tied to the specific credit in question, and information which merely triggers suspicion is not, by itself, sufficient to sustain it. We further notice that the Ld. CIT(A) has recorded a categorical finding of fact that the source of Rs.16 crores stands explained by the accepted IDS declaration, and where such a finding is under challenge in appeal, it is for the Revenue to identify the specific error in the factual appreciation made by the first appellate authority, rather than merely reiterate the general suspicion that originally triggered the enquiry.

11. We notice that the Ld. DR has not brought any material on record to controvert the finding of the Ld. CIT(A) that the declaration made under the IDS, 2016 specifically covers the sum of Rs.16 crores credited in the assessee’s books, nor has it been shown that the said declaration was false, invalid or subsequently withdrawn. Therefore we are of the view that once the true source of the credit stands identified and independently brought to tax, taxing the very same sum again in the hands of the assessee-company would amount to double taxation of the same income. We accordingly hold that there is no infirmity in the decision of the Ld. CIT(A) in deleting the addition to the extent of Rs.16 crores. As regards the sum of Rs.1 crore invested directly by Shri Arvind Gupta, we notice that the Ld. CIT(A) has accepted the same after verification of the relevant documentary evidence establishing that Shri Arvind Gupta had sufficient disclosed sources of income to make the said investment. During the course of hearing the Revenue has not brought any material on record to show that he lacks the financial capacity to do so or that the money in fact emanated from the assessee-company. Accordingly, we see no reason to interfere with the decision of the CIT(A) to delete the addition of Rs.1 crore. We thus uphold the deletion of Rs.17 crores by the Ld. CIT(A) and the ground raised by the revenue in this regard are dismissed.

ITA No: 4102/CHNY/2025 – Assessee’s appeal

12. As regards the addition of Rs.7 crores sustained by the Ld.CIT(A), the Ld.AR submitted that the assessee had discharged the initial onus cast upon u/s.68 of the Act by establishing the identity and creditworthiness of the investors and genuineness of the transactions. In support thereof, the assessee had furnished PAN particulars of the investors, audited financial statements, Board resolutions authorising the investments, net-worth certificates and relevant bank statements. The Ld.AR drew our attention to the fund-flow statement and the corresponding bank statements placed at pages 1 to 18 of the paper book and submitted that the complete movement of the impugned sum of Rs.7 crores through the group companies of Shri Arvind Gupta and ultimately to the assessee-company had been demonstrated. It was submitted that neither the AO nor the Ld.CIT(A) had disputed the authenticity of these documents or recorded any finding that the banking transactions were fictitious or fabricated. The Ld.AR submitted that the Ld.CIT(A) had sustained the addition merely because the movement of funds was perceived to be circuitous and because the commercial rationale for routing the funds through intermediary entities had not been explained. According to the Ld.AR, these considerations travelled beyond the requirements of section 68 of the Act as applicable to the A.Y.2011-12. The Ld.AR further submitted that the proviso to section 68 of the Act casting an additional burden upon a closely held company receiving share capital/share premium to explain the source of source was introduced only with effect from 01.04.2013. The said proviso, according to the Ld.AR, was prospective in operation and had no application to the A.Y.2011-12. Therefore, once the identity and creditworthiness of the investors and genuineness of the transactions had been established, the assessee could not be called upon to explain the source of funds at every preceding stage or the commercial expediency underlying each inter-company transaction. The Ld.AR also submitted that the AO himself had consciously made the addition only on a protective basis, since a substantive addition of Rs.23 crores had already been made in the hands of Shri Arvind Gupta. It is argued that in the absence of any independent material demonstrating that Rs.7 crores represented the assessee-company’s own undisclosed income, the Ld.CIT(A), was not justified in converting the protective addition into a substantive addition in the hands of the assessee. Therefore, it was thus contended that the addition of Rs.7 crores rested essentially on suspicion arising from the manner in which the funds had moved and not upon any positive evidence establishing that the assessee had introduced its own unaccounted money. The Ld.AR accordingly prayed for deletion of the addition of Rs.7 crores.

13. The Ld.DR submitted that the assessee had received an unusually large amount of share capital and share premium from entities identified during the investigation as accommodation-entry providers. The Ld DR further submitted that mere production of incorporation particulars, PAN, financial statements and bank statements would not by itself establish the genuineness of the transactions when the surrounding circumstances indicated a pre-arranged routing of funds through several entities. The Ld.DR further submitted that the Ld.CIT(A) had himself noticed the circuitous movement and round-tripping of funds. According to the Ld.DR, routing the money through banking channels did not establish the genuineness of the credits when the assessee was unable to satisfactorily explain the real nature and source of the funds and the commercial rationale underlying the transactions.

14. The assessee has raised two sets of grounds before us, one challenging the validity of reopening of the assessment u/s.147/148 of the Act, and the other challenging the addition of Rs.7 crores sustained by the Ld. CIT(A) u/s.68 of the Act on merits. We propose to first take up the merits of the addition of Rs.7 crores. The Ld. AR submitted that the assessment year under consideration is AY 2011-12, and that the proviso to Section 68 of the Act, which casts a burden on a closely held company to explain the source of source of share capital and share premium, was inserted only by the Finance Act, 2012 with effect from 01.04.2013, and has consistently been held to operate prospectively. The Ld. AR accordingly submitted that for the year under consideration, the assessee was required only to establish the identity of the investor, the genuineness of the transaction and the creditworthiness of the investor and was under no obligation to explain the source of funds in the hands of the investor. We see merit in the submission of the Ld. AR that the source of source proviso has no application to the year under consideration, and that the statutory burden on the assessee is confined to establishing identity, genuineness and creditworthiness. However in our view, this principle governs the extent of the statutory burden and does not foreclose the AO from examining the fund trail more so when an adverse inference remains open that the investor is shown to be a name-lender, that funds are shown to have originated from the assessee itself, that the documents produced are shown to be self-serving etc.

15. We notice that two specific aspects of the impugned sum of Rs.7 crores bear directly on this qualification and have not, on the record before us, actually been examined by either the AO or the Ld. CIT(A) in these terms. The first aspect concerns the sum of Rs.3 crores, in respect of which the explanation furnished by the assessee itself, and recorded by the Ld. CIT(A), is that the assessee-company advanced this very sum to M/s Spectra Solar Pvt. Ltd., which routed it through Kolkata based companies, which in turn invested the same amount back into the assessee as share capital and share premium. We are of the view that this is not a case of third party funds moving through intermediary entities, but of the assessee’s own money leaving its own account and returning to it in the guise of an external investment, and no explanation has been placed before us as to why the assessee advanced this sum to Spectra Solar in the first place or what purpose the round trip served. We notice that this aspect has not been specifically put to the assessee at any stage, and the assessee’s submissions before us have treated the entire Rs.7 crores as a single block without addressing this component separately. We are therefore of the view that this issue requires fresh examination at the level of the AO, and we accordingly restore the question of the sum of Rs.3 crores to the file of the AO with a direction to examine the commercial rationale for the advance made by the assessee to Spectra Solar Pvt. Ltd. and its return to the assessee as share capital.

16. As regards the balance sum of Rs.4 crores, which the assessee’s case attributes to an advance by M/s OPG Energy Pvt. Ltd. to M/s IKE Electric Pvt. Ltd. through banking channels, thereafter, moving through Kolkata based companies before reaching the assessee. We notice that in this very connection, the CIT(A) has recorded a finding that Shri A.K. Khemka averred that he received funds both by cash and cheque from the group companies. However, we notice that there are no findings as to whether the said admission has been examined further by the Ld. CIT(A) with reference to the specific sum of Rs.4 crores now in question. We are of the view that the existence of a banking trail for this leg does not, by itself, address whether cash formed part of what was received by the impugned entities before the banking trail commences, particularly where the very person operating those entities has admitted to receiving funds in both forms from the group companies. Further we notice that the AO’s assessment order treats the entire sum of Rs.24 crores as a single undifferentiated addition without engaging with this component at all. We are therefore of the view that this aspect also requires verification at the level of the AO. We accordingly restore the issue of addition amounting to Rs.4 crores also to the file of the AO with a direction to examine the bearing, if any, of Shri A.K. Khemka’s admission regarding receipt of funds in cash and cheque on the said sum. Needless to say that the assessee be given a reasonable opportunity of being heard.

17. This leaves us with the legal grounds raised by the assessee challenging the validity of reopening under sections 147 and 148 of the Act. The Ld.AR for the assessee, at the outset, assailed the validity of reopening of the assessment. The Ld.AR submitted that the AO had merely acted upon the information and findings furnished by the Investigation Wing and the statements recorded during the search proceedings without independently applying his mind to the material so received. The Ld.AR submitted that the reasons recorded did not disclose any independent satisfaction on the part of the AO as to how the material referred to therein gave rise to a reason to believe that income chargeable to tax had escaped assessment in the hands of the assessee. According to the Ld.AR, the reopening was founded on borrowed satisfaction and, therefore, the assumption of jurisdiction u/s.147 of the Act was invalid. The Ld.AR further contended that the objections filed by the assessee against the reopening were not disposed of by a separate speaking order as contemplated by the judgment of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO & Ors. (259 ITR 19). It was submitted that the AO merely incorporated his rejection of the objections in a subsequent notice dated 24.12.2018 issued u/s.142(1) of the Act, which, according to the Ld.AR, did not satisfy the procedure mandated by the Hon’ble Supreme Court. The Ld.AR therefore prayed that the reassessment be quashed as being without valid jurisdiction.

18. Per contra, the Ld.DR strongly supported the assessment order insofar as the addition u/s.68 of the Act was concerned and supported the order of the Ld.CIT(A) insofar as the validity of reopening was upheld. On the issue of reopening, the Ld.DR submitted that the AO was in possession of specific information emanating from the search and seizure proceedings conducted in the OPG group and the statements recorded from Shri A.K.Khemka and Shri S.K.Tibrewala. The Ld.DR further submitted that the material gathered by the Investigation Wing clearly indicated that the investor companies were being used for providing accommodation entries and that substantial share capital and share premium had been introduced in the assessee-company. Accordingly, it was argued thar the AO had sufficient tangible material to form a prima facie belief that income chargeable to tax had escaped assessment. The Ld.DR submitted that at the stage of reopening what was required was the existence of relevant material giving rise to a bona fide reason to believe and not conclusive proof of escapement of income and therefore contended that the Ld.CIT(A) had rightly rejected the assessee’s challenge to the reassessment proceedings.

19. We have heard the Ld. AR and the Ld. DR and perused the material on record. We notice that the reasons recorded for reopening are founded on the statement of Shri A.K. Khemka, recorded during the course of search, wherein he deposed to having acted as an entry operator in accommodating the unaccounted money of Shri Arvind Gupta by arranging share capital and share premium into the books of the assessee-company through Kolkata based companies under his control. We are of the view that this constitutes specific and tangible material, and not a mere borrowed conclusion, since it arises from a statement recorded under oath during a search directly connected with the affairs of the assessee. In this regard we further notice that judicial precedence have consistently held that at the stage of reopening, what is required is a reason to believe founded on relevant material, and not the final, established fact of escapement of income, and that the sufficiency or correctness of such material is not a matter to be examined at that stage. As regards the objection concerning the manner in which the assessee’s objections to reopening were disposed of, we notice that the AO did in substance address the objections in the notice dated 24.12.2018, and we are of the view that this manner of disposal, even if it falls short of a wholly separate speaking order, does not by itself vitiate the reassessment where the reasons recorded independently justify the assumption of jurisdiction. We accordingly hold that no infirmity is made out in the reopening of the assessment. Therefore, we find no reason to interfere with the order of the Ld. CIT(A) dismissing this ground.

20. In result the appeal of the revenue is dismissed, and the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 23rd September, 2026 at Chennai.