M/S ANKUR DEVELOPERS & REALTORS ,MUMBAI vs. DCIT CC-3(4), MUMBAI

"On the facts and in the circumstances of the case as well as law on the subject, the learned Assessing Officer has erred in relying on the statement of Shri Dinesh V. Shah, recorded u/s. 131 of the I.T. Act on 24.03.2014, when the statement itself was invalid, as it was recorded by the Deputy Director of Income Tax (Inv.), Unit- 1(4), Mumbai, who is not the Assessing Officer and when no proceeding was pending before him".

5.2 The assessee thereafter filed its return of income on 05.11.2014 declaring total income at ‘Nil’. The case was selected for scrutiny and statutory notices were issued and duly complied with. The Assessing Officer, while completing the assessment under section 143(3) vide order dated 29.12.2016, made addition of the credit received from three parties treating the same as unexplained cash credit under section 68 of the Act. Further, an addition on account of alleged commission, calculated at three per cent of the loan amount, purportedly paid for procuring accommodation entry loans, was also made.

Findings of the Assessing Officer 5.3 The Assessing Officer, upon perusal of material seized during the course of search and post-search inquiries, observed that the assessee had obtained unsecured loans aggregating to Rs. 3.50 crores during the relevant previous year from three concerns, namely, M/s Indira International, M/s Kaveri Jewels, and M/s Yogi Diam, having detail of laon as under:

S. No. Name of the F.Y. Amount of Loan 1 concern Indira International 2013-14 Rs. 2,00.00,000/- 2 Kaveri Jewels 2013-14 Rs. 1,00,00,000/- 3 Yogi Diam 2013-14 Rs. 50,00,000/- Total Rs. 3,50,00,000/- 5.4 These concerns were alleged to be controlled and operated by entry providers and the loans were arranged through one Shri Vijay Batki, a broker, against equivalent payment of cash. The admission of Shri Dinesh V. Shah, the key person of the group, recorded under section 131 of the Act on 24.03.2014, fortified this finding.

5.5 It was further noted that despite issuance of notices under section 133(6) of the Act, neither M/s Indira International nor M/s Kaveri Jewels responded. The notice to Kaveri Jewels returned unserved. Even upon furnishing of alternative address by the assessee, the notice could not be served. The third party, M/s Yogi Diam, also did not furnish any substantive details in support of the transactions. Thus, the basic test of identity, creditworthiness, and genuineness of the creditors remained unsubstantiated.

5.6 The Assessing Officer examined the financial particulars of the aforesaid parties and found that their balance sheets disclosed negligible capital, a matching pattern of creditors and debtors, and substantial turnover with insignificant profits. The bank accounts of such concerns exhibited a pattern of receiving funds through RTGS from diamond traders and immediate onward transfer to real estate developers, leaving no real business substance. These features, according to the Assessing Officer, were typical indicators of entities engaged solely in providing accommodation entries.

5.7 In paragraph 8.1 of the assessment order, the Assessing Officer also elaborated the modus operandi of the group, which was based upon the statement of Shri Dinesh V. Shah. The findings showed that cash received as on-money from customers was systematically introduced in the books of account through a circuitous mechanism of obtaining unsecured loans from entry providers, supported by bogus interest payments, confirmations and ledger accounts. Such loans were eventually repaid through banking channels, while equivalent cash, earlier parted with, was returned in lieu thereof, thus completing the accommodation cycle.

5.8 Reliance was also placed on the findings of search action carried out in the case of Shri Praveen Jain, a well-known accommodation entry operator, who had admitted under oath that he controlled a web of entities exclusively engaged in providing bogus loans, share application money and sales entries. The Assessing Officer observed that the pattern of transactions in the case of the assessee was identical to that of the concerns operated by Shri Praveen Jain, thereby lending further corroboration to the conclusion that the impugned loans were accommodation entries.

5.9 On the strength of the above material, the Assessing Officer concluded that the assessee had failed to discharge the onus cast under section 68 of the Act to establish the identity and creditworthiness of the creditors and genuineness of the loan transactions. Consequently, the entire sum of Rs. 3,50,00,000/- was treated as unexplained cash credit under section 68 of the Act.

5.10 Further, in view of the prevalent practice in accommodation entry transactions, the Assessing Officer also held that the assessee would have necessarily paid commission for arranging such bogus loans. Applying a rate of three per cent, the Assessing Officer made an additional disallowance towards commission expenditure, treating the same as income of the assessee.

Finding of ld CIT(A) 6. On further appeal, the Ld. CIT(A) examined the matter in detail and upheld the action of the Assessing Officer. The assessee had raised primary objections that: (i) the addition was based solely on the statement of Shri Dinesh V. Shah, a key person of the group, which had been subsequently retracted; (ii) the assessee had discharged its onus by producing confirmations, returns of income, financials, and bank statements of the lenders; and (iii) no unaccounted cash was found in search to suggest that the impugned loans represented the assessee’s own undisclosed income.

6.1 In dealing with the issue of retraction, the Ld. CIT(A) observed that the original statement of Shri Dinesh V. Shah under section 132(4), recorded on 24.03.2014, was a categorical admission of having availed accommodation entries in the form of unsecured loans from several entry operators. The search had revealed the absence of any formal documentation such as loan agreements, security details, or repayment terms. Shri Dinesh V. Shah had, in fact, identified numerous concerns controlled by entry operators from whom such accommodation entries aggregating to more than Rs. 103 crores were taken. The subsequent retraction, filed after more than two years by way of a letter dated 21.11.2016, was held to be an afterthought. In law, for a retraction to be valid, the assessee must demonstrate coercion, threat, or misconception at the time of the original statement, which was not shown in the present case. Reliance was placed on judicial precedents such as Ravindra Trivedi (215 CTR 312), Hiralal Maganlal & Co. (96 ITD 113), and D. Abdul Razak (350 ITR 71), which establish that delayed retractions, unsupported by cogent reasons, cannot dislodge admissions made voluntarily.

6.2 With respect to the contention that necessary documentation was filed, the Ld. CIT(A) held that mere furnishing of confirmations, financial statements, PAN details, and bank extracts cannot, in the face of contrary evidence, discharge the burden under section 68. The Delhi High Court in Nova Promoters & Finlease (P) Ltd. had clearly distinguished between cases where only routine verifications are required, and cases such as the present, where incriminating material and statements of entry operators established that the alleged creditors were merely shell concerns. In such circumstances, the onus on the assessee is much higher — it must establish the real existence and creditworthiness of the lenders by producing them and their books, or at the very least, by seeking summons from the AO. The assessee’s failure to do so rendered its explanation unsatisfactory.

6.3 On the argument that the Revenue was required to show that the unaccounted funds emanated from the coffers of the assessee, the Ld. CIT(A) clarified that section 68 places the primary obligation upon the assessee to explain the nature and source of any sum credited in its books. It is well-settled by decisions of the Hon’ble Supreme Court in A. Govindarajulu Mudaliar (34 ITR 804), Kale Khan Mohammad Hanif (50 ITR 1), Roshan Di Hatti (107 ITR 938) and P. Mohanakala (291 ITR 278), that the Revenue is not required to prove the precise source of the monies so credited once the assessee’s explanation is found unsatisfactory. In the present case, moreover, Shri Dinesh V. Shah had himself admitted that on-money receipts in cash were routed back into the group’s books through the guise of such unsecured loans, thereby clearly establishing the nexus.

6.4 The plea of violation of natural justice, premised on the absence of cross-examination of the entry operators, was also rejected. The Ld. CIT(A) observed that cross-examination is not an absolute right and arises only once the assessee has discharged its primary burden of proof. In this case, the assessee not only failed to produce the alleged creditors, but also did not request the AO to issue summons under section 131. The basic loan documentation itself was missing, and the confirmations filed were belated and perfunctory. In such a factual setting, the claim of violation of natural justice was held to be untenable.

6.5 In view of the above, the Ld. CIT(A) concluded that the concerns from which the assessee claimed to have received loans were nothing but shell entities engaged in providing accommodation entries. The AO’s addition of Rs. 3.50 crores under section 68 was accordingly upheld.

6.6 On the issue of commission expenditure added by the AO, the Ld. CIT(A) held that the very nature of accommodation entry transactions presupposes payment of commission to the operators. While the AO had estimated such commission at 3%, reliance was placed on the statement of Shri Praveen Jain, a known entry operator, who had admitted charging commission at the rate of 2%. Accordingly, the addition on account of commission was sustained, though restricted to 2% of the accommodation loans, resulting in confirmation of an amount of Rs. 7,00,000/- as against Rs. 10,50,000/- added by the AO.

Adjudication of additional Ground

relating thereto, it shall be competent for him to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending 96 before him or any other income- tax authority.] 97[(2) For the purpose of making an inquiry or investigation in respect of any person or class of persons in relation to an agreement referred to in section 90 or section 90A, it shall be competent for any income-tax authority not below the rank of Assistant Commissioner of Income-tax, as may be notified by the Board in this behalf, to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before it or any other income-tax authority.] (3) Subject to any rules made in this behalf, any authority referred to in sub-section (1) 98[or sub-section (1A)] 99[or sub-section (2)] may impound and retain in its custody for such period as it thinks fit any books of account or other documents 1 produced before it in any proceeding under this Act : Provided that an 2[Assessing] Officer 98[or an 3[Assistant Director 4[or Deputy Director]]] shall not- (a) impound any books of account or other documents without recording his reasons for so doing, or (b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the 5[ 6[ 7[Principal Chief Commissioner or] Chief Commissioner or 7[Principal Director General or] Director General or 7[Principal Commissioner or] Commissioner or 7[Principal Director or] Director therefor, as the case may be.]]”

7.3 The Hon’ble Supreme Court in Pooran Mal v. Director of Inspection [1974] 93 ITR 505 (SC) has categorically upheld the wide sweep of powers conferred on the income-tax authorities in the context of investigation and collection of evidence, holding that such powers are to be construed in furtherance of the object of effective administration of the Act. Following the same principle, various Benches of the Tribunal have consistently held that a statement recorded by the Investigation Wing under section 131(1A) is legally valid and can form part of the evidentiary material, even if no proceedings are pending before the Assessing Officer.

7.4 In the present case, the statement of Shri Dinesh V. Shah was recorded by the Deputy Director of Income-tax (Investigation) in exercise of powers under section 131(1A), during the course of post- search enquiries based on reasonable suspicion of accommodation entries. Such exercise of power is squarely within the four corners of the statute, fortified by the ratio of the above judicial pronouncements. We are therefore unable to accept the plea of the assessee that the statement suffers from any legal infirmity merely because no assessment proceedings were pending at the relevant time.

7.5 Accordingly, the additional ground raised by the assessee on this issue is devoid of merit and stands rejected.

Arguments of assessee on merit

8. In respect of the grounds raised on merits, the learned counsel for the assessee filed a detailed written submission. It was contended that the assessee had duly discharged its initial onus under section 68 of the Act by furnishing confirmations, bank statements, financial statements etc to establish the identity of the creditors, genuineness of the transactions, and the creditworthiness of the lenders. It was urged that the Assessing Officer, instead of pointing out any specific defect in the documents so produced, proceeded to make the addition merely on the basis that the lenders had declared negligible profit on substantial turnover and had claimed refunds. The Assessing Officer further noted that the lenders’ bank accounts reflected substantial RTGS receipts from diamond traders, which were in turn transferred to the bank accounts of certain real estate developers; however, according to the assessee, such inference is wholly misplaced. 8.1 The learned counsel further submitted that all the creditors were income-tax assessees regularly assessed by the Department. It was his submission that the statements of such creditors or of the alleged entry operators were never furnished to the assessee, thereby depriving it of the opportunity to cross-examine them. It was contended that the Assessing Officer, without making any independent inquiry from such concerns, brushed aside the documentary evidence adduced by the assessee.

8.2 The learned counsel challenged the finding of the Assessing Officer that the statement of persons engaged in providing accommodation entries was made available to the assessee. It was emphatically submitted that neither the statement of Shri Bhawarlal Jain nor that of his employees was ever confronted or supplied to the assessee. He pointed out that no incriminating material was unearthed in the course of search or survey in the assessee’s case, except the regular ledger accounts of the lenders. The so-called confession of the partner of the assessee-firm, Shri Dinesh V. Shah, was submitted to have been obtained under coercion and duress, and was duly retracted. It was also argued that the Assessing Officer failed to bring on record any statement of the lenders or of Shri Vijay Batki, through whom the assessee was allegedly said to have routed the loans. 8.3 The learned counsel further submitted that the subsequent retraction of Shri Dinesh V. Shah rendered his earlier statement unreliable, and in the absence of any corroborative material found during the course of search, no addition could be sustained. It was submitted that even the statements of the alleged entry providers, Shri Bhawarlal Jain or Shri Pankaj Jain, were not brought on record in the assessment proceedings. Placing reliance on the decision of the Hon’ble Supreme Court in Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC), it was urged that no addition can be made on the basis of third-party statements which are neither furnished to the assessee nor subjected to cross-examination. 8.4 The learned counsel also assailed the reliance placed by the CIT(A) upon judicial precedents. It was contended that the judgment in Pawan Kumar M. Sanghvi (supra) was distinguishable on facts, since that case related to receipts from sales and not unsecured loans. Similarly, the decision in Nova Promoters & Finlease (P) Ltd.(supra) was said to be inapplicable, as in that case the Assessing Officer was in possession of cogent material showing that the share subscriptions were part of a pre-meditated accommodation entry plan. In contrast, in the present case, the assessee had received genuine loans through normal banking channels, and the creditors were identifiable, assessed to tax, and had confirmed the transactions. Reliance was placed on the judgment of the Hon’ble Gujarat High Court in PCIT v. D&H Enterprise & Co. (2016) 72 taxmann.com 91 (Guj.), wherein it was held that once the assessee discharges its initial burden by producing confirmations, bank statements and financials of the lenders, no addition can be made under section 68 in the absence of further inquiry by the Department. It was also submitted that the assessee was not obliged to prove the “source of the source”, as the requirement introduced by way of amendment to section 68 by the Finance Act, 2022 was prospective in nature and not applicable to the assessment year 2014-15.

8.5 Without prejudice to the above contention, the learned counsel in his written submission, as an alternative, further prayed that the matter may be restored to the file of the Assessing Officer for fresh examination, as had been directed in the cases of sister concerns, namely, M/s Sahaj Ankur Developers for assessment years 2011-12 to 2013-14, and M/s Micro Ankur Developers for assessment years 2011-12 to 2014-15.

Arguments of the Revenue

9.1 The learned DR pointed out that the creditors in question were identified by the Investigation Wing as part of a well-established accommodation entry syndicate run by ‘Shri Bhawarlal Jain’ and ‘Shri Pravin Jain’, whose modus operandi was brought on record in the search proceedings. It was emphasised that the partner of the assessee-firm, Shri Dinesh V. Shah, in his categorical statement recorded under section 131, admitted that the loans received from the said concerns were in the nature of accommodation entries obtained against cash payments. This admission, though later retracted, was corroborated by independent material gathered in the course of search and investigation, and cannot be brushed aside.

9.2 It was further contended that the retraction of Shri Dinesh V. Shah after a lapse of more than two years was a self-serving attempt without any supporting evidence, and therefore deserved to be discarded. Reliance was placed on the settled proposition of law that a bald retraction, unaccompanied by cogent material, cannot efface a clear and categorical admission made in the course of investigation.

9.3 The learned DR also emphasized that the financials of the creditors themselves showed that they had negligible profits and no real business activities. Their bank accounts revealed systematic routing of funds — large sums received from diamond traders were immediately transferred to real estate developers, including the assessee group, in a manner consistent with accommodation entries. The very nature of such transactions established that these were paper entities with no creditworthiness of their own.

9.4 The learned DR also rebutted the plea of violation of natural justice. It was argued that the addition was not made solely on the basis of third-party statements, but on the assessee’s own admission, corroborative evidences from search and investigation, and the failure of the assessee to prove identity, creditworthiness and genuineness in terms of section 68. Reliance was placed on the judgment of the Hon’ble Delhi High Court in CIT v. Nova Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del.), wherein it was held that if the AO demonstrates that the parties were part of an accommodation entry network, then mere furnishing of PAN, bank statements and confirmations cannot absolve the assessee of its burden under section 68. The DR submitted that this principle squarely applies in the present case.

9.5 In conclusion, the learned DR submitted that the orders of the Assessing Officer and the CIT(A) are well reasoned and based on cogent material unearthed in search and investigation, and therefore, the addition made under section 68 as well as the addition towards commission deserved to be upheld.

Our Finding

10.1 At the threshold, we may observe that the law on section 68 of the Act is fairly well-settled. The initial onus lies squarely on the assessee to establish, by credible and cogent evidence, the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor. Only when such primary burden is discharged, the onus shifts upon the Revenue. It is in this backdrop that the facts of the present case are to be tested.

10.2 We are unable to accept the contentions advanced on behalf of the assessee for following reasons:

(i) The undisputed and admitted position is that Shri Dinesh V. Shah, the key person of the group, in his categorical statement recorded under section 131 on 24.03.2014, admitted that the impugned loans were mere accommodation entries procured against cash payments. The relevant part of statement is reproduced as under:

“Q.4. In your statement recorded on oath during search action u/s 132 of Income Tax Act, 1961 in the case of M/s. Ankur Shubham Developers, M/s. Micro Ankur Developers, M/s. Sahaj Ankur Developers and M/s. Shubham Developers at your residence at Flat No.201, Sabari Shikhar, Plot No.434, R.C. Marg, Chembur, Mumbai-400 071 on 10-12-2013, answer to the Q.No.16 reproduced as under: "Q.No.16 During the course of search & seizure action in the cases of diamond traders in the month of October 2013 by Investigation Wing, Mumbai, certain traders have admitted of giving accommodation entries with respect to bogus cheques given in lieu of cash against unsecured loans. The statement of one such trader namely Shri Vijay Narendra Kothari, Director in M/s. Keshariya Diam Private Limited and M/s. Khushi Gems Pvt Ltd, and proprietor in M/s. Kothari Impex was recorded on oath u/s.131 of the I.T.Act who has admitted of giving accommodation entries to various persons and the modus operandi of providing entries as admitted by diamond traders.

On perusal of balance sheet of Dinesh V. Shah HUF, the following position emerges being unsecured loan obtained by you from diamond traders which were proved to be bogus entry providers: Sr. No. Name of the 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Grand Total Party 1. B Ashok - 30,00,000 -- -- -- 30,00,000 Kumar & Co.

3. Raghukul -- -- 25,00,000 -- -- -- 25,00,000 Diamonds Pvt. Ltd.

4. Paradise -- -- -- 40,00,000 18,75,000 -- 58,75,000 Gems P. Ltd.

5. Kurukshetra -- -- -- -- 18,75,000 -- 18,75,000 Diamond Pvt. Ltd.

without any force, fear and coercion and the same has been given in sound state of mind. I have read the statement, understood its contents and confirm that it has been correctly recorded.” (ii) This statement dated 24.03.2014 was not a solitary admission. It only reaffirmed what had earlier been admitted under section 132(4) during the course of search. Such an unequivocal admission, coming from the controlling person of the assessee group, is a highly relevant piece of evidence. The belated retraction, made after more than two years without any cogent or convincing explanation of coercion or duress, cannot be accepted to dilute its evidentiary worth. The Hon’ble Supreme Court in CIT v. P. Mohanakala (291 ITR 278) has laid down in clear terms that where the assessee’s explanation is found to be false or not bona fide, the Revenue is justified in treating the amount credited as income under section 68.

(iii) The evidentiary force of this admission stands fortified by the surrounding circumstances. The material gathered in the course of search revealed complete absence of any loan agreements, security documents, repayment terms, or correspondence indicative of genuine borrowing. The lenders in question had negligible capital, minuscule profits, and exhibited the classic profile of entry- providing entities. The pattern of immediate rotation of funds through RTGS, without any commercial rationale, only reinforces this inference.

(iv) The assessee has attempted to argue that confirmations and bank statements were filed. We are unable to accept this plea. Mere production of bank extracts does not, by itself, prove creditworthiness or genuineness. When the creditworthiness of the alleged creditors is itself suspect, and when their identities remained unverified despite notices under section 133(6) returning unserved or unanswered, the assessee’s failure to produce the creditors assumes significance. The law enjoins that the assessee must do what lies within its special knowledge, namely, to bring forth the lenders and substantiate their financial capacity. This was not done.

(v) The assessee has attempted to argue that confirmations and bank statements were filed. We are unable to accept this plea. Mere production of bank extracts does not, by itself, prove creditworthiness or genuineness. When the creditworthiness of the alleged creditors is itself suspect, and when their identities remained unverified despite notices under section 133(6) returning unserved or unanswered, the assessee’s failure to produce the creditors assumes significance. The law enjoins that the assessee must do what lies within its special knowledge, namely, to bring forth the lenders and substantiate their financial capacity. This was not done.

(vi) We also do not find any merit in the plea of violation of principles of natural justice. It is trite that the right of cross- examination arises only when the assessee has discharged its initial burden and the Revenue seeks to rely upon third-party statements. Here, the addition is not based merely on third-party evidence, but primarily on the admission of the assessee’s own group head, coupled with incriminating circumstances and failure of the assessee to discharge its burden under section 68. Hence, reliance placed on Kishinchand Chellaram (125 ITR 713) is entirely misplaced and factually distinguishable.

10.3 As regards the plea that the matter be remanded to the file of the Assessing Officer, we see no justification. The assessee had ample opportunity to establish its case both before the Assessing Officer and the Ld. CIT(A). The assessee neither produced the lenders, nor sought summons to compel their attendance. In such circumstances, remand would serve no purpose except to prolong litigation.

10.4 In sum, therefore, the position is that (a) there is a categorical admission by the key person of the group of receiving accommodation entries against cash, (b) the admission stands corroborated by absence of any genuine loan documentation, adverse financial profile of the creditors, and the unserved notices issued under section 133(6), and (c) the assessee has miserably failed to discharge the statutory onus placed upon it under section 68. The addition, therefore, was both legally justified and factually warranted. We find no infirmity in the conclusion of the Assessing Officer, as upheld by the Ld. CIT(A). The addition of Rs. 3.50 crores on account of unexplained cash credit is upheld in full, and the addition towards commission is sustained at 2% as rightly confirmed by the Ld. CIT(A). The grounds of appeal on merit stand dismissed.

7. In the result, the appeal of the assessee is rejected.

Order pronounced in the open Court on 14/10/2025.