2026 (5) TMI 1554

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....ment proceedings initiated under section 147 of the Income-tax Act, 1961, which were based solely on third-party information obtained from the Areion Group, thereby acting on borrowed satisfaction and without any independent application of mind by the Assessing Officer. 2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) erred in upholding the action of the Assessing Officer in invoking Explanation 2(iv) to section 148 without establishing that the seized material recovered from the Areion Group on 08.12.2021 in fact pertained to or related to the Assessee. The absence of such nexus vitiates the "reason to believe" and renders the reassessment void ab initio. 3. On the facts and circumstances of the case as well as in law, the Learned Commissioner of Income Tax (Appeals) erred in holding that mere reference to objections in the body of the assessment order amounts to sufficient compliance with the directions of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19, SC). The failure of the Assessing Officer to pass a separate and reasoned order disposing of objections renders the reassessment void ab initio....

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....ntified a sum of INR.1,12,50,000/- involving loan transactions which were categorized as accommodation entries based on the modus operandi admitted by the key persons of the Areion Group. Based on this information, the Assessing Officer reopened the assessment under Section 147 of the Act. During the reassessment proceedings, the Assessing Officer show-caused the Assessee regarding the nature of these transactions. The Assessee contested the reopening and the additions, claiming the transactions were genuine and through banking channels. The Assessing Officer rejected these contentions, holding that the banking entries were merely a layer to facilitate the accommodation entries as explained in the sworn statements of the search subjects. Consequently, the Assessing Officer passed the order under Section 147 read with Section 143(3) on 22/03/2025, treating the amount of INR.1,12,50,000/- as unexplained income under Section 69A of the Act. 4. Being aggrieved, the Assessee has preferred appeal before the Learned CIT(A) challenging the validity of the reassessment proceedings as well as addition of INR.1,12,50,000/- made under Section 69A of the Act on merits. The Learned CIT(A) rej....

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....s of Section 69A of the Income-tax Act, 1961, to make an addition of Rs.1,12,50,000/-, representing loan transactions between the Assessee and Areion Fincap Private Limited. The AO has incorrectly treated these bona fide financial transactions as 'unexplained money' without appreciating the documentary evidence and banking trail substantiating the same d) However, the invocation of Section 69A in this case suffers from fundamental legal and factual infirmities, as explained below: * The assessee has given loan to M/s. Areion Fincorp Private Limited of Rs. 1,12,50,000/- in two tranches of Rs. 72,00,000/- and 40,50,000/- on 18th June 2019 and 20th June 2019 respectively. * The transactions were duly recorded in the books of account of both parties, clearly supported by documents and corresponding bank entries. Copy of ledger is assessee company Exhibit 7 Bank statement of the assessee company showing the above transaction-Exhibit 8 Copy of Loan Confirmation Exhibit 9 Bank statement of the Areion Fincorp Private Limited showing the above transaction - Exhibit 10 Financials of Areion Fincorp Private Limited - E....

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....natural justice. Without issuing such notice, the AO made adverse inferences solely based on assumptions, without affording Areion Fincap Private Limited an opportunity to confirm or explain the transaction. * xx xx * The learned Assessing Officer's reliance on ex-parte statements obtained during search operations on other entities, without affording the Assessee opportunity for confrontation, violates established legal principles and renders the addition legally unsustainable. * Such omission amounts to a clear violation of the principles of natural justice and fundamentally undermines the validity of the addition made under Section 69A." 9. Per contra Learned Departmental Representative relied upon the findings returned by Assessing Officer and the Order passed by the Learned CIT(A). By placing the reliance upon Paragraph 8.10 of the impugned order passed by the Learned CIT(A), Learned Departmental Representative submitted that the Assessee has recorded false description of the transactions in its books of accounts. Therefore, requirement of the regarding recording of transactions in the books of accounts was not satisfied. Since the addition mad....

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....00/-, INR,50,00,000/- and 32,50,000/- was received by Areion Fincap Pvt. Ltd. on 17/07/2019, 18/07/2019 and 19/07/2019, respectively. Side by side, unsecured bank loan of INR.1,12,50,000/- was repaid through banking channel by Areion Fincap Pvt. Ltd. to the Assessee in three tranches (a) INR.30,00,000/- on 17/07/2019, INR,50,00,000/- on 18/07/2019 and INR.32,50,000/- on 19/07/2019. 13. Thus, in the facts of the present case, the source of cash was the funds transferred through banking channel and recorded in the books of accounts of the Assessee. In this regard, we note that the Learned CIT(A) has also recorded in Paragraph 8.10 of the impugned order as under: "8.10 Regarding the applicability of Section 69A, the section applies to "money... of which the assessee is found to be the owner." The "Personal Tally" indicates that the appellant was the owner of the funds involved in this accommodation structure. The term "not recorded in the books of account" in Section 69A refers to the true nature of the transaction not being recorded. While the appellant recorded a "loan", the seized evidence indicates it was an accommodation entry. Recording a false description of a tr....