TaxTMI 
TaxTMI 
2025 (11) TMI 1602
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....ore, both the appeals filed by the Revenue are decided by a common order. ITA No.3906/Del/2023 [Assessment Year : 2018-19] 3. First we take up the appeal of Revenue in ITA No. 3906/Del/2023 for Assessment Year 2018-19. 4. Brief facts of the case are that assessee company is engaged in the business of developing, building, owning and operating power generation facility and furnished its return of income declaring Income at NIL for AY 2018-19 on 31.03.2019 and claimed loss of INR 11,05,11,469/-. A search & seizure operation u/s 132 of the Act was conducted by Investigation Wing on 07.04.2019 on Moser Baer group and office premises of the assessee was also search as assessee is one of the company of that group. Thereafter, notice u/s 153A of the Act was issued on 18.11.2020, in response to which return of income was filed on 26.03.2021, declaring a loss of INR 11,05,11,469/-. During the search at the residence of Shri Rajiv Agarwal, an employee of one of the companies with Moser Baer Group, some documents were found including an excel sheet titled "Funds Position" from his laptop. This document also contained details of funds received and payments made by the assessee company....
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....epartment on 07.04.2019 on Moser bear group which includes the business premises of the assessee. During the search at the residence of Shri Rajiv Agarwal, one of the employees, an excel sheet titled "Funds Position" was found from his laptop and when he was confronted about the contents of this sheet, it was explained that the entries contained in the said sheet represents the accommodation entries in the form of unsecured loans taken by some of the group companies including the assessee company. He further stated one Shri Neeraj Jain had acted as mediator/facilitator for providing such accommodation entries on commission basis. Ld. CIT DR submits that the statement of Shri Neeraj Jain was also recorded wherein Shri Neeraj Jain also concurred the statements of Shri Rajiv Agarwal that he had provided accommodation entries in lieu of cash to various companies of the group which includes the assessee company also. Ld. CIT DR submits that these statements, though retracted however, cannot be brushed aside and had evidentiary value. 8. Ld. CIT DR further submits that additions were not only based on the statements of aforesaid two persons, but the Investigation Wing had made indepen....
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....aptop of Shri Rajiv Agarwal contains details of the loans taken /repaid from various parties which were duly recorded in the books of accounts thus, the entries found recorded in the said Excel sheet cannot be held as incriminating document. He further submits that Shri Rajiv Agarwal & Shri Neeraj Jain had retracted from their statements recorded where they have admitted the loan entries appearing in the Excel Sheet as accommodation entries within a short period of 15-30 days and as such, these retracted statement cannot be made sole basis for making addition for the alleged bogus accommodation loans. 11. Ld.AR for the assessee drew our attention to the statement of Shri Ratul Puri, Director of the assessee company wherein he categorically denied indulging in any transactions of alleged accommodation entries as has been stated by Shri Rajiv Agarwal in his statement recorded u/s 131(1a) of the Act on 10.04.2019. Ld. AR further drew our attention to the fact that the assessee had filed all the necessary evidences in order to establish identity and creditworthiness of the lender companies and since all transactions were carried out through banking channel therefore, their genuinene....
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....porting evidence such as PAN, bank statements, financial statements, and confirmations were filed for each creditor; * All funds were received through regular banking channels, and there is no allegation or evidence of receipt of cash; * There was no indication in the excel sheet or elsewhere of any cash exchange, unrecorded income, or concealment of any asset. 4. The said excel sheet, therefore, did not qualify as incriminating material either factually or in law. The AO failed to establish any direct nexus between the sheet and any alleged undisclosed income of the Respondent-Assessee. In fact, the reliance on such a document found from a third party and unaccompanied by any supporting evidence renders the entire foundation of the addition unsound and untenable. 5. Even the excel sheet titled "Funds Position", which formed the sole basis of the allegation, was seized from the possession of Shri Rajeev Agarwal, who is neither a director nor a shareholder of the Respondent-Assessee. The document was not found from the premises or possession of the Respondent-Assessee. Consequently, the presumption under Section 132(4A) of the Act cannot be invoke....
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.... limit to issue the notice u/s 143(2) of the Act has already been expired therefore the assessment year under consideration being completed, assessment could not be disturbed in the assessment made u/s 153A of the Act in the absence of any incriminating material found during the course of the search. As could be seen from the order of the Ld. CIT(A), the Ld. CIT(A) at Paragraph 4.5 observed that the addition of Rs. 49 lakhs, (50% in the hands of the appellant) made on account of statement of Rajesh Mangla recorded u/s 132(4) of the Act recorded during the search proceedings in the case of SRS Ltd. The Ld. CIT(A) treating the said statement as incriminating material unearthed during the course of the search proceedings accordingly upheld the certain additions made by the A.O. It is now well settled law that statement recorded u/s 132 of the Act does not constitute incriminating material in the absence of any other corroborative evidence as held in following judicial pronouncements: .... 7. Further the Hon'ble Supreme Court in the case of Abhisar Buildwell Put. Ltd. (supra) held that addition cannot be made in the absence of any incriminating material found during the co....
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....rd person. We may note that the AO has used this statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of Pradeep Kumar Jindal) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A), then the only legal recourse available to the department was to proceed in terms of Section 153C of the Act by handing over the same to the AO who has jurisdiction over such person. Here, the assessment has been framed under section 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act). As noted above, the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed. On this count alone, we find no perversity in the view taken by the ITAT. Therefore, we do not find any substantial question of law that requires our consideration." * Best Infrastructure (India) (P.) Ltd. vs. CIT [2017] 397 ITR 82 [Delhi High Court....
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....tricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment. * Principal Commissioner of Income-tax, Central -3, New Delhi v. M/s PGF Ltd., ITA 528/2019, High Court of Delhi 7. It is well settled from the judicial precedents cited above that the statements recorded under Section 132, in the absence of any corroborating incriminating material, do not constitute valid grounds for making additions. Moreover, where such statements have been retracted, the AO is duty-bound to consider the retractions and independently verify the facts before relying on them. In the present case, no incriminating material was found during the course of the search in relation to the Respondent-Assessee. 8. In light of the above, it is respectfully submitted that the additions made by the AO in the absence of any search-based incriminating material are invalid and liable to be deleted. II. RET....
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....and answers and compelled him to sign the statement without any opportunity to review its contents. Consequently, he too formally retracted his statement and clarified that no part of it should be used to draw adverse conclusions against the assessee. 13. The Hon'ble Rajasthan High Court in Pr. CIT v. Roshan Lal Sancheti [2023] 150 taxmann.com 66 has recognized that retraction of a statement can be considered valid where it is accompanied by cogent reasons and made within a reasonable time. 14. In the present case, the following key features distinguish the factual matrix and reinforce the bona fides of the retractions made: * The statements of Mr. Rajiv Agarwal and Mr. Neeraj Jain were retracted within a short and reasonable span 13 days and 34 days, respectively. Each retraction was made by way of a detailed written affidavit citing clear grounds including the involuntary nature of the statement, undue pressure, and denial of an opportunity to review the contents. This timely action lends strong credibility to the retraction and demonstrates absence of delay or afterthought. * No documents, cash, or material incriminating the Respondent-Ass....
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....rt, when the revenue had relied upon the retracted statement of Shri S.K. Gupta, it ought to have provided an opportunity to the assessee to cross-examine Shri S.K. Gupta, which was however denied. Thus, revenue was not justified in disallowing the claim of professional expenses of the assessee on account of payment to Shri S.K. Gupta and his group of companies. 52. Therefore, we agree with the view taken by the High Court. As noted by the High Court, the entire issue is based on appreciation of the materials on record. The Tribunal had scrutinized the materials on record and thereafter had recorded a finding of fact that there was sufficient evidence to justify payment made by the assessee to Shri S.K. Gupta, a consultant of the assessee, and that the assessing officer had wholly relied upon the statement of Shri Gupta recorded during the search operation, which was retracted by him within a reasonable period. In these circumstances, we are of the view that there is no admissible material to deny the claim of expenditure made by the assessee. Accordingly, this issue is answered in favour of the assessee and against the revenue. * CIT v. Harjeev Aggarwal [2016] 70....
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.... Officer made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine. We do not hesitate to observe that an Assessing Officer does not have any power, right or jurisdiction to tell, much less to decide, upon the nature of withdrawal or retraction. His duty ends where the statement is recorded. If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force. It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing Officer can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated 10.03....
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....e Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to he borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has .specifically mentioned that such an opportunity was sought by the assessee. However-, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As, far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exiactory prices remain st....
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....tement of Shri Sardari Lal was recorded on 23rd August, 1969, in the absence of the assessee. On that date, a letter had been submitted on behalf of the assessee to state that the grandmother of Shri Madan Mohan Gupta. managing partner of the assessee, had died and some other dale after a fortnight should be fixed. It seems that the ITO recorded the statement in the absence of the assessee thus excluding cross-examination by the assessee. This shows that the statement of Shri Sardari Lal has to be excluded from consideration. Significantly, one of the questions put to Shri Sardari Lal by the ITO was as to what was the explanation for all other payments being made either by an account payee cheque or against receipted vouchers and even against a bearer cheque, signature had been taken on the counterfoil. The witness was unable to explain why the assessee had been treated differently. If the so-called receipt signed by Shri Brij Mohan and the statement of Shri Sardari Lal as well as the cheque dated 27th July. 1967, are excluded from consideration, we would he left with a case with no evidence." * Rajuram Savaji Purohit vs. ITO [2024] 169 taxmann.com 18 (Mumbai - Trib.) ....
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....per banking channels, coupled with the corresponding entries in the books of accounts, confirm the commercial exigency behind availing the said loans. At no point has the AO brought any material on record to indicate otherwise or to suggest that the loan proceeds were used for any purpose other than business. 24. Further in order to establish the identity, creditworthiness and genuineness of the lenders the Respondent-Assessee submitted as under: Identity of the Lenders 25. The Respondent-Assessee submitted comprehensive documentation during the assessment proceedings to establish the identity of each lender entity from whom unsecured loans were received. The documents furnished included: * Copy of Permanent Account Number (PAN) of each lender; * Certificate of Incorporation issued by the Registrar of Companies; * Memorandum of Association (MoA) and Articles of Association (AoA); * Company Master Data as available on the Ministry of Corporate Affairs (MCA) portal. These documents conclusively established the separate legal existence and identity of the lenders. The AO has not disputed the authenticity or legal ....
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.... 34,200,000 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 4 Attractive Capital Services Pvt Ltd 28,900,000 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 5 Mover Realtech P Ltd 25,000,000 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 6 SA Sheilds Security Services P Ltd 5,000,000 ✓ ✓ ✓ ✓ ✓ ✓ X ✓ ✓ 7 Lenient Consultant P Ltd 12,700,000 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Total 25,05,00,000 AY 2019-20 (Page No. 188-699 of Paper Book) S.No Name Amount Identity Genuineness Creditworthiness PAN COA, MOA, AOA MCA Confirmation Repayment Financial Statement Income Tax Return 1 Alps Management Solution 69,000,000 ✓ ✓ ✓ ✓ ....
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....d the bank statement of the creditor which had shown sufficient balance at the relevant point of time and given all material particulars to the assessing officer with regard to her creditworthiness and the genuineness of the transaction. On the facts of the case, both authorities held that the transaction was a genuine transaction. We cannot find any fault with the view taken by both the Commissioner (Appeals) as well as by the Tribunal." * CIT v. Gangeshwari Metal (P.) Ltd. [2014] 361 ITR 10 (Delhi High Court) "9. As can be seen from the above extract, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer 'its back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the assessing officer, after noting the facts, merely rejected the same. ............ 10. ...............There was a clear lack of inquiry on the part of the assessing officer once the assessee had fur....
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.... 2007, dated 11-1-2008] wherein it was held that if the assessee produces the names, addresses, PAN details of the shareholders then the onus on the assessee to prove the source of share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned. The Tribunal has relied upon an order of the Supreme Court in case of CIT v. Divine Leasing & Finance Ltd. [2007] 158 Taxman 440 (Delhi). 6. We further find that in Lovely Exports (P.) Ltd. (supra) the Supreme Court held on 11.1.2008 as follows: - "Delay condoned. 2. Can the amount of share money be regarded as undisclosed income under S. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 3. Subject to the a....
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....by bringing on record cogent material to dislodge assessee's evidences. However, except for the fact that summons remained un- served, there is nothing in the armory of revenue to unsettle the assessee's claim. The allegations are not supported by any corroborative evidences. Once the initial onus was discharged by the assessee, it was incumbent upon revenue to carry out further investigation to support the allegation that the credits were unexplained. However, nothing of that sort has been shown to have been carried out. So far as the information of DGIT (Inv.) is concerned, we find that these were merely third party statements which were never confronted to the assessee and those statements on standalone basis could not form the basis of making additions in the hands of the assessee. It is trite law that no additions could be based merely on doubts, conjectures or surmises. Therefore, the additions as made by Ld. AO, in our considered opinion, are not sustainable in the eyes of law. The settled legal position as enumerated by us in the opening paragraphs duly support the said conclusion. Therefore, we delete the impugned additions as sustained by Ld. CIT(A). The grounds, ....
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....king the investments. The case of the Department before us has been that these companies had very meager income however the Revenue from the operations did not justify such an investment. First of all, what is required to be seen is whether the lender/investor companies had sufficient funds available with them in the books/ balance sheets and it is not necessary that loan or advances or shares are subscribed, should be out of taxable income only. Either it could be from borrowed funds or from the investments standing in their balance sheet. If the Assessing Officer doubted the source of the fund of the investor companies, then Assessing Officer was required to at least conduct prima facie inquiry from these investors to rebut the assessee's explanation about the source of the funds in the hands of the investor companies." * ITO Ward -20(3) v. RMP Holding (P) Ltd. ITA no. 6017/Del/2018 "27. ..................... One of the reasons cited by the DR after referring to these judgments was that these companies were showing very meagre income or loss. In our opinion what is required to be seen is, whether these companies has sufficient source of funds duly disclosed in t....
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....e updated addresses were provided in response dated 29.09.2021 to the queries raised by the AO wherein the name, address along with other details of the lender were asked. To dispel any doubt and ensure clarity, the Respondent not only submitted the current addresses but also furnished comprehensive supporting documents, including lender confirmations, copies of PAN, bank statements evidencing the loan transactions through proper banking channels, and audited financial statements of the creditor companies. Relevant extract of the reply is reproduced below: For AY 2018-19 S. No. Name of the Company PAN Old Address New Address 1 M/s Attractive Capital Services P Limited AABCA1120B 32/1, Gali No 8, G/F, Bhikam Singh Colony, Delhi - 110032 A-8, Shop No. 02, Block -A Kanti Nagar, East Krishna Nagar, Gandhi Nagar, New Delhi - 110031. 2 M/s CEA Consultants P Limited AAACC2342N H. No .- 146, BLK-H, JJ Colony, Mangol Puri, New Delhi - 110083. Plot No. A-30, Pvt No. UG-3, Gali No.1, Upper Ground Floor, Madhu Vihar, IP Extn., Delhi - 110092. 3 M/s Lenient Consultants P Limited AAACL0193Q Office No. 12, 2nd Floor, DDA Market, Ni....
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....cord, the AO failed to initiate any independent enquiry to verify the same. No summons were issued under Section 131 of the Act, nor were any notices sent under Section 133(6) to the lender entities. The AO did not exercise the statutory powers available to him for verification and instead proceeded solely on the basis of an unverified and outdated Inspector's report. This omission reflects a lack of due diligence and vitiates the entire basis of the additions made under Section 68 of the Act 34 The law mandates that the AO must conduct a fair and independent inquiry before drawing adverse conclusions against the assessee. Mere reliance on an unverified and one-sided report of the Inspector without any cross-verification or follow-up does not satisfy the threshold required under Section 68 of the Act. Such a mechanical and perfunctory approach violates the principles of natural justice and renders the addition unsustainable. 35. The Hon'ble Courts have consistently held that the failure to conduct independent verification and blind reliance on Inspector reports or third-party statements cannot be the basis for adverse findings under the Income-tax Act. ....
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.... reliance placed solely on the Inspector's report without conducting any independent inquiry or verifying the documents submitted by the assessee is not only inadequate but also contrary to the settled legal position. The additions made on this basis are, therefore, liable to be deleted. VI. ADDITION UNDER SECTION 68 UNJUSTIFIED WHEN LOANS ARE REPAID AND FULLY SUBSTANTIATED 38. It is respectfully submitted that the additions made by the AO under Section 68 of the Act are unsustainable in law and on facts, particularly in view of the fact that a substantial portion of the unsecured loans received by the Respondent-Assessee during the year under consideration stood duly repaid through proper banking channels. The transactions were supported by comprehensive documentation, clearly establishing the identity of the lenders, their creditworthiness, and the genuineness of the loan transactions. 39. Except for a few lender entities where repayments were either pending or only partial repayments were made (due to prevailing business requirements or ongoing financial arrangements), the majority of the loan amounts were repaid in full, thereby further negating t....
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....it to prove the ingredients of Section 68 of the I.T. Act. We rely upon Judgment of the Hon'ble Gujarat High Court in the case of Rohini Builders 256 ITR 360 (Guj.) and Gauhati High Court in the case of Nemichand Kothari 264 ITR 254 (Gauhati). Since in this case the repayment made by assessee in subsequent year have not been disputed by the Revenue Department, therefore, case of assessee would also be covered by Judgment of Hon'ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji (supra) and Hon'ble Allahabad High Court in the case of CIT vs. (supra). The authorities Kapoor Chand Mangesh Chand below rejected the explanation of assessee because in response to notice issued by A.O. the creditors did not respond. The Hon'ble Delhi High Court in the case of Divine Leasing and Finance Ltd., 299 ITR 268 (Del.) held that " no adverse inference should be drawn if shareholders failed to respond to the notice issued by the A.O. " Similar view is taken by Hon'ble Delhi High Court in the case of CIT vs. Winstrall Petro Chemicals Pvt. Ltd., 330 ITR 603 (Del.). Further no material has been brought on record that the credit amount introduced by the cre....
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....e these parties from whom cash was received had share trading transactions and major portion of credit was repaid during year and Assessing Officer had accepted debit entries of trading transactions as genuine - Whether, on facts, additions were to be deleted - Held, yes [Para 7] [In favour of assessee] * Ravindra Madanlal Khandelwal v. Deputy Commissioner of Income-tax [2024] 169 taxmann.com 457 (Nagpur - Trib.) "19. Accordingly, we set aside the impugned order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for verification of the fact as to whether loans were duly repaid back by the assessee either in current year or subsequent years and if so, the same need not be added back. Needless to say that the assessee be provided reasonable opportunity of being heard. Thus, ground no.1, raised by the assessee is allowed for statistical purposes." * Pr. Commissioner of Income Tax-12, Delhi vs. Jagmag Builders ITA No. 325/2024 [Delhi High Court] 2. The issue itself pertains to additions under Sections 68 and 37 of the Income Tax Act, 1961 ['Act'] which were made by the Assessing Officer ['....
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....spector's report, without any independent verification or corroborative material. It is a settled principle that retracted statements without any supporting evidence cannot be the sole basis for additions especially in search- based proceedings which require incriminating material found during the course of search. Therefore, the findings of the CIT(A) deleting the impugned additions are well-reasoned, legally sound, and merit no interference." 14. In the last, Ld.AR requested for the confirmation of the order of Ld.CIT(A) wherein the ld. CIT(A) had deleted the additions after due consideration of the facts and the evidences filed by the assessee in support of the loans taken. He prayed accordingly. 15. Heard the contentions of both parties and perused the material available on record. The AO has observed that assessee has obtained accommodation entries in the shape of unsecured loans from various companies as stated by one of the employees, Shri Rajiv Agarwal in his statement, recorded u/s 131(1A) of the Act and further, Shri Neeraj Jain who is being referred as mediator and entry provider has also accepted this fact. Before us, it was the arguments of the assessee that ....
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....ies in the form of unsecured loans. ii. The statement of Shri Rajiv Agarwal, relied on by the AO, was confronted to Shri Ratul Puri, main person of the group, in the course of recording his statement on 11.04.2019 wherein he was questioned about accommodation entries allegedly provided to M/s Indian Hydro Electric Power Private Limited. However, Shri Ratul Puri in answer to question number 24 of his statement recorded on 11.04.2019 has denied the same stating that "I do not know why Shri Rojiv Agarwal has stated so. He is responsible for business development and coal sourcing from various mines in Indonesia. I strongly reject the statement of Shri Rajiv Aggarwal". On this categorical denial, no further question was asked either to Mr. Ratul Puri or Mr. Rajiv Aggarwal. iii. In the assessment order, the Id. AO has extracted the excel sheet found in the laptop of Mr. Rajiv Agarwal. As regards the excel sheet extracted, there is nothing incriminating against the appellant in the said excel sheet as all these entries have already been declared by the appellant in its Books of account for relevant AYs. iv. No evidence was found during the course of search opera....
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....esaid view in the following words :- "This provision clearly stipulates that the undisclosed income of the block period has to be determined or computed "on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence". This Court in Ravi Kant Jain (supra), as indicated above, has already observed that the procedure of assessment under Chapter XIV-B is a special procedure intended to provide a mode of assessment of undisclosed income which has been detected as a result of search. The procedure under Chapter XIV-B is not intended as a substitute to regular assessment and its scope and ambit is limited in that sense to materials unearthed during the search. As pointed out in Ravi Kant Jain (supra), the assessment for the black period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other, materials or information as are available with the Assessing Officer and relatable to such evidence. It is, therefore, clear that the undisclosed inc....
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....sets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person ore relevant for the purposes of the Investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 15BBB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can he used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent its relatable to the incriminating evidence/ material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/ mate....
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....nding of the Tribunal was based on the above well settled principle." 23. It is also necessary to mention that the aforesaid interpretation of Section 132141 of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 15888(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any Incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment. 24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extrac....
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....ction." In this case, appellant has submitted all the material available with it to establish its case. Now it is the duty of the AO to ask specifically what more supporting evidence she would like to have to satisfy herself about the identity, creditworthiness and genuineness of the transaction. The Id. AO cannot pass general remarks that the assessee has to furnish enough evidences which can convince the AO. She had all the options and powers available in the IT Act to call for information/ enforce the personal attendance of the principle officers of the lending companies/to record the statement of concerned persons/etc. However, the Id. AO chose not to exercise these powers and even did not examine Mr. Rajiv Aggarwal and Mr. Niraj Jain during the assessment proceeding. iv. Interest income shown by the lender companies along with TDS deducted on it has been accepted by the Department v. All the companies from whom unsecured loans had been received by the appellant and which have been held to be bogus are MCA 'Active' compliant. Hon'ble ITAT, Ahmedabad in the case of Adarsh Capital Finstock TS-1193-ITAT-2021 (Ahd) has held that companies with....
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....not having high income yet they have sufficient reserves in their balance sheet to justify the loan extended. All these companies are filing their ITRs on regular basis along with audited financials. In none of these cases, the IT Department has made any addition on account of non-genuine share capital. Once receipts in the form of share capital/ share premium etc. has been accepted as genuine then its application in the form of lending/ expenditure can not treated as sham/ non-genuine. 5.2.4 In view of the above discussion, it is held that addition of Rs. 25,05,00,000/- for AY 2018-19 and Rs. 16,14,00,000/- for AY 2019-20 u/s 68 of the Income Tax Act, 1961 on account of alleged bogus loans received during the year are not found to be sustainable and therefore same are deleted and these grounds of appeal are hereby allowed." 18. In the instant case, the Revenue's main allegation is regarding the unsecured loans taken by the assessee company held as bogus and this conclusion was reached on the basis of statement of Shri Rajiv Agarwal, one of the employee and one Shri Neeraj Jain who was stated to be the facilitator and further based on the field inquiries conducted t....
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....called statements of Shri Rajev Agarwal and Shri Neeraj Jain, which were retracted within a month by both the persons, no incriminating/supporting material whatsoever was found during the course of search nor brought on record by making independent inquires by the AO and all the entries pertaining to the assessee company as appearing in the excel sheet containing the details of the loans as found in the laptop of Shri Rajev Agarwal, have already been recorded in the books of accounts of the assessee company. This fact has not been denied or disputed by the Revenue. 22. Since entries contained in the excel sheet are duly recorded in the books of accounts of the assessee and assessee has been able to substantiate all these entries by filing the bank statements and the financial statements of all the lender companies, it cannot be said that excel sheet is the incriminating material. It is further relevant to state that though the year under appeal is unabated year however, the statements recorded during the course of search which were later retracted, cannot be made the sole basis for making the additions, more particularly, when such statements are of third party and therefore, th....
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.... favour of assessee]." 24.1. Para 10 & 11 of the order is as under: 10. Before proceeding with the matter, it will not be out of place to mention that except the statement in the letter, the AO has no other material on record to assess the income of Rs. 1,82,00,000/-. 11. It is settled proposition of law that merely on the statement that too also was taken in view of threat given in question No.36 as narrated by Mr. Gupta and the same sought to have been relied upon, there is no other material either in the form of cash, bullion, jewellery or document in any other form which can come to the conclusion that the statement made was supported by some documentary evidence. We have gone through the record and find that the CIT(A) has rightly observed as stated hereinabove, which was confirmed by the Tribunal. " 24.2. It would not be out of place to mention that this order of Hon'ble Rajasthan High Court has been confirmed by Hon'ble Supreme Court also. 25. In the case of Smt. S. Jayalakshmi Ammal [2016] 74 taxmann.com 35 (Madras) the Hon'ble High Court has held that mere statement is not enough to make addition, the relevant observations are as unde....
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.... be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section132(4) of the Act, does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under Section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement .. " 27. Similarly, the Hon'ble Gujarat High Court, vide its order dated 14.07.2016, in the case of Chetanben J Shah Legal Heir of Jagdish Chandra K. Shan in Tax Appeal No. 1437 of 2007, laid down the ratio that no additions can be made in the hands of the assessee merely on the basis of statements recorded, during the course of search, under section 132(4). Hon'ble High Court in the above-mentioned case relied on its earlier order in the case of Kailashben Manharlal Chokshi reported in [2008] 174 Taxman 466 (Guj.), wherein a simi....
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....E in Civil Appeal No. 4228 of 2006 has held as under: "5. According to us, not allowing the assessee to cross examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to he borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However-, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As, far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not....
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....roborated by some evidence to establish a link that assessee indulged into this activity. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions must be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee. 33. On the merits of the addition of unsecured loans, it is seen that to prove the identity, genuineness and creditworthiness of the lender companies, the assessee has filed following details before the AO: To prove the Identity of the Lender companies: * Copy of Permanent Account Number (PAN) of each lender company; * Certificate of Incorporation issued by the Registrar of C....
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....necessary acknowledgement of return, balance sheet, profit and loss account, etc., to prove identity, creditworthiness and genuineness of transaction of unsecured loan taken by it, addition under section 68 was not warranted." 36. Similarly in the case of Deputy Commissioner of Income-tax v. Paswara Papers Ltd. reported in [2024] 159 taxmann.com 604 (Allahabad), the Hon'ble Court has held as under: INCOME TAX : Where assessee received loan from various creditors who sold their old jewellery and gave loan to assessee out of sale consideration, since assessee had disclosed name of jewellers to whom jewellery was sold and also established mode of payment through banking channel, and moreover existence of deposits made to assessee by creditors was not in dispute, impugned addition under section 68 with respect to loan could not be sustained. 37. The Co-ordinate Bench of ITAT Delhi in the case of ITO Vs. Alpha Contech Put. Ltd. in ITA No.3351/Del/2016 vide order dt. 28.07.2023 held as under: 7. On careful consideration of above rival submission, first of all, we note that the Assessing Officer made addition u/s. 68 of the Act, by observing that despite severa....
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....ort is submitted as under: "4. As per directions received, the submissions made by the assessee before your good self as well as additional evidence submitted by it for admission at the appellate stage have been carefully perused. Besides, the additional evidence furnished by the assessee has also been independently verified from this Office by way of issue of letter us 133(6) of the Income Tax Act, 1961, to the third party concerned, i.e., to Ms Fennie Commercial Private Limited, 96-AV9, Neelkanth Apartments, Kishan Ganj, Vasant Kunj, New Delhi - 110070. 5. The said party has furnished its detailed reply to the letter issued us 133(6) vide its letter dated 08.01.2016, which is placed on record. The said party has given the details of the share application money of Rs. 3.60 crores advanced by it to the appellant company and also produced the ledger account of the assessee company in its books for the relevant period, apart from the copy of the ITR-V in its case, copy of the Audit Report, Balance sheet, P & L Account and annexures. It is also seen from the annexures to the Audit Report that under the head "Loans & Advances (totaling Rs. 7,41,00,000/-), the name of ....
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....t enquiry with the lender party us 133(6) of the I.T. Act. The said party furnished the detailed reply vide its letter dated 08.01.2016. It has been reported by the AO that Ms Fennie Commercial Put. Ltd. has confirmed that it has given share application money of Rs. 3.60 crore which has been accounted for by the appellant as unsecured loan in its balance sheet. The AO has also examined the ledger account of the appellant company from the lender party's books of accounts. The lender party has also filed copy of its return of income, audit report, balance sheet, profit & loss account and annexures. It has been observed by the AO from the annexures of the audit report that lender has shown loans and advances totalling Rs. 7,41,00,000/- in its balance sheet. The appellant's name is also appearing in the loan and advances and has been shown as share application money of Rs. 3.60 crore in the name of appellant. AO has also verified the balance sheet of the lender company and it is seen that said company has shown share premium reserve in its balance sheet in A.Y. 2010-11 out of which the amount has been given to the appellant. All these facts establish the identity, creditworthin....
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....cluding certified copies issued by Registrar of Companies in relation to share application, affidavits of directors, Form 2 filed with Registrar of Companies by such applicants, confirmations by applicants for company's shares, certificates by auditors, etc., Assessing Officer was not justified in making addition under section 68 on account of share application money merely on general inference to be drawn from the reading of the investigation report. The least that Assessing Officer ought to have done was to enquire into matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. b. Commissioner of Income-tax v. Mark Hospitals (P.) Ltd. [2015] 58 taxmann.com 226 (Madras) HIGH COURT OF MADRAS "Section 68 of the Income-tax Act, 1961 - Cash credit (Burden of proof - Assessment year 2006-07 - Assessee had obtained unsecured loans from agriculturists and submitted their names and addresses, but did not provide their PAN cards - Assessing Officer made addition under section 68 - It was found that loans were given to assessee through cheques and all creditors had confirmed that they had advanced loans mentioned against their na....
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....ansaction and the same were not accommodation entries. He did not find any evidence collected by the Assessing Officer which could prove otherwise and deleted the additions in dispute. As regard the addition of Rs. 12,500 made on account of commission which was presumed to have been allowed by the assessee for obtaining the hawala entry in dispute, the learned Commissioner of Income-tax (Appeals) observed that the Assessing Officer was not able to bring anything on record that it was the assessee's own money which was routed in the form of share application money and has rightly deleted the same. 7. Keeping in view all the facts and circumstances, we are of the considered view that the learned first appellate authority has passed the impugned order under the law and according to the facts of the present case and has rightly deleted the addition in dispute. We find no infirmity in the impugned order and uphold the impugned order by dismissing the appeal filed by the Revenue." d. Honorable Supreme Court of India in the case of CIT v. Kamdhenu Steel & Alloys Ltd., SLP (CC) no. 15640 of 2012, dated 17-09- 2012 (Supreme Court), wherein the Hon'ble Supreme Court has dism....
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.... Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law. 5. In the facts and circumstances of the present appeals, the Court is satisfied that no substantial question of law arises. The appeals are dismissed." The facts of the above cited judicial pronouncements are identical with the facts of the appellant case, therefore, the ratio of the above cited judicial pronouncements is squarely applicable to the facts of the appellant case, hence, unsecured loan received by the appellant from M/s Fennie Commercial Put. Ltd. cannot be termed as unexplained income of the appellant and cannot be added u/s 68 of the I.T. Act. Therefore, the unsecured loan received from the above mentioned party is treated as genuine transaction and cannot be added us 68 of the I.T. Act. Therefore, the addition of Rs. 3,60,00,000/- is deleted. 38. On the issue of discharging the onus, the Hon'ble Delhi High Court in the case of Mod. Creations (P.) Ltd. v. ITO reported in [2013] 354 ITR 282, held as under: "It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption again....
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....he company, i.e., the recipient of the loan and not that its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/ or sub-creditors. [See CIT v. Divine Leasing & Finance Etd (20092-229-178.268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. 2006) 215 CTR 495 (SC) .* " 40. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Put. Ltd. etc. in ITA. No.71 of 2015 dated 12th August, 2015 held as under : "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. lt was observed by the ITAT that the Assessing Officer had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High court." 41. The Hon'ble Delhi High Court in the case of PCIT vs. Agson Global Put. Ltd reported in [2022]134 Taxmann.com 256 (Delhi) while allowing the appeal in favour of the assessee towards the additions made u/s 68 of the Act has held as under : "Section 68 of the Income-t....
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....blished that the entire loan, which is subject matter of addition, as unexplained cash credit has been repaid either in the year under consideration or subsequent assessment years. The entire transaction relating to availing of and repayment of loan has been done through banking channel. All details relating to loan availed and repayments made have been furnished before the departmental authorities, the details of which have been produced at pages 24 to 29 of the order of learned First Appellate Authority. It is also a fact on record that assessee has furnished all supporting evidences not only to prove the identity of the lenders but even creditworthiness as well as genuineness of the transaction by furnishing their bank statements, income-tax return copy, confirmations etc. Thus, it is evident, assessee has discharged its onus of proving the identity and creditworthiness of the creditors as well as genuineness of the loan transactions. Therefore, in our considered opinion, learned First Appellate Authority was justified in deleting the addition of Rs. 2,67,05,959 made under Section 68 of the Act. Since, the addition made under Section 68 of the Act has been deleted, as a natural ....
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.... the order of ld. CIT(A) in deleting the same. Thus, the ground of appeal No. 2 raised by the revenue is hereby dismissed. 49. In the result, appeal of the Revenue in ITA No. 3906/Del/2018 [AY 2018-19] is hereby, dismissed. ITA No.3907/Del/2023 [Assessment Year : 2019-20] 50. In this appeal, during the course of hearing, both the parties agreed that facts involved are common and common submissions were made before us. In the case of Revenue in ITA No. 3906/Del/2018 [AY 2018-19], we have already hold that no addition could be made dehorse the incriminating material found from the possession of the assessee in the order passed u/s 153A of the Act and further on merits also held that the loans taken by the assessee are genuine which observations are Mutatis Mutandis applied to the facts of case under consideration. Accordingly, by respectfully following the observations and decision taken in the case of Revenue in ITA No.3906/Del/2025 for AY 2018-19, we hereby, confirmed the order of ld. CIT(A) who has deleted the additions made by AO. Accordingly, all the grounds of appeal taken by the revenue are dismissed. 51. In the result, appeal filed by the Revenue is dismissed. ....
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....ultants P Limited AAACC2342N Yes 20.10.2018 351512491201010 Yes 01.09.2010 Yes M/5 Lenient Consultants Limited AMACLO193Q Yes 20.10.2018 352141411201010 Yes 01.09.2010 Yes . M/s LTE Info Technologies Limited AADCL65478 Yes 31.10.2018 367547661311018 Yes 03.09.2010 Yes M/s Mover Realtech P Limited AAGCM8877] 30.10.2018 361815611381018 Ves 01.09.2018 Yex 6 M/s SA Shekh Security Services P Limited AAPCS4944M 29.10.2018 25ZH42R51291019 0%BR.2018 7 M/s Tish Consultant Limited AAACTZAASQ Vies ZH.11.2018 8517519931281018 Yes Yes Document 3 111 E0243421224IM IVR:696 SP LODI POAG H) Die1 1800 266 6868> The Deputy Director of Income Tax (Investigation)-Unit-3(2) "C" Block, Civic Centre " New Delhi Reg: Proceedings under section 132 of the Income Tax .Act. 1951- M/S Hindustan Power Group, Mr. Deepak Porri Mr. Rotul Puri andl Ms. Necta Punti Nab Statement of Sh. Rajiv Agarwal obtained through force coercion nad intimidation Dear Sir. 1. Search under section 132 of the Income Tax Act, 1961 was conducted at various business as well us residential premises of certain directors and officer bearers of the assessce group i.e M/s Hindustan Power Group....
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..... My younger son had recently arrived from abroad after completing his studies and was present at the house when the search took place. With certain punitive vengeance, they commenced cloning the mobile hand sets of my wife as well as my son including Lis laptops. When I requested the search party to stop this act, they started intimidatie me that they shall involve them in the matter, get them arrested and will ruin their social and personal life. In fact, they also issued to summons to my wife during the course of search to intimidate her though she has no connection with the company. The team also seized certain papers pertaining to business of my son from my residence who is a non resident and runs his company. They even threatened to involve him and ruin his business though he is no way associated with the company who is being searched. The IT team, also kept on calling the personnel of the police Force which accompanied them, inside the room wherein the statements were being recorded to threaten me that the said armed forces are there with all authority to arrest the person as per their direction. 7. With all such acts and actions of the search party accompanied by the pol....
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....etitive prices for the benefit of the group. I get a fixed salary from the company and am no way involved in managing the financial affairs of the company. I or any of my family members are neither shareholders or have any beneficial interest in the entire assessee group. Except my remuneration, I do not derive any direct or indirect benefit from the assessee group. !1. At the cost of repetition I state with a heavy heart that the search party exerted great pressure. undue influence and took all possible coercive measures to procure certain statements which were neither read be me nor understood by me or explained to me. The search lasted for such a long duration of 7 days and during this period ! was in their custody and hence I was totally exhausted and fatigued. 12. However, when I gathered my senses immediately after a break from such ordeal, I realized that the action of the search party was totally illegal and unwarranted. In fact, the threat to my family loomed so large that I was made to sign certain papers which were even not perused by me. 13. In view of the facts and circumstances as discussed above, I would like to inform you that all the statements which were ....
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.... business trip abroad and my family was also away at the place of some friend when I learnt that certain income tax personnel have reached my residence. I as a bonafide tax payer retuned back on my scheduled time in India with the intent to co-operate with the tax personnel. However, when I came out of the airport exit, I was astonished to see that the entire team of income tax along with security forces were waiting at such exit of the airport to practically arrest me. I tried my level best to explain but nothing was heard or considered by them. Instead I was put in the vehicle, surrounded by tax and security persons and drove towards my residence as if I was some notorious criminal who would have fleeced otherwise. Such being the situation, I could not understand as to what grave crime I had committed resulting into such behaviour. On my questioning, I was practically rebuked and threatened. The tax personnel failed to recognise that in case I had done something wrong, I would have preferred to remain outside India. After reaching my residence, I saw entire tax team ready for my interrogation. They created a so called camp office at my residence, started putting queries/que....