VIKRAN ENGINEERING LIMITED,THANE WEST vs. OFFICE OF ASSISTANT COMMISSIONER OF INCOME TAX, THANE WEST

The Hon’ble CIT(A) erred in upholding the addition made by the ld AO on the basis of surmises, conjectures and assumptions. 5. The Hon’ble CIT(A) erred in confirming the addition of Rs. 42,54,220/- being interest on disputed unsecured loans, disallowed u/s 37 of the 1. T. Act. 1961, which action being not justified the addition may kindly be deleted. 6. The Hon’ble CIT(A) erred in not appreciating that the ld AO had relied upon the statements of certain persons/adverse information received from Kolkata Investigation Wing, which information/evidences were neither shared with the appellant nor tested by cross examination and therefore such adverse information/evidences had no evidential value and the addition based thereon is in breach of the salient principles of equity, fair play and natural justice. 7. The ld AO has erred in charging interest u/s 234A, 234B and 234C. 8. The aforesaid grounds of appeal are without prejudice to each other. 9. The appellant craves leave to add, amend, alter vary and/or withdraw any or all the above grounds of appeal.” 2. Brief facts of the case are that the assessee is a company engaged in setting up of the power transmission and distribution lines on a contract basis. The assessee is a flagship company of Vikran Global Infra Projects Private Limited. The assessee filed its return of income for A.Y. 2016-17 on 30.09.2015, declaring income of Rs. 33,29,030/-. The return was processed under Section 143(1) on 03.10.2016.The search action was carried out on the assessee group on 24.03.2021. In the search action, certain incriminating material was found and seized. The search action was concluded on 05.04.2021. Consequent upon the search action, the case of the assessee was centralized. Notice under Section 153A was issued to the assessee on 03.12.2021 for filing the return of income for A.Y. 2016-17. In response to the notice under Section 153A dated 03.12.2021 served upon the assessee, the assessee filed its return of income for A.Y. 2016-17 on 10.12.2021, declaring income of Rs. 33,29,030/-.The AO, after serving notice under Section 143(2), proceeded with the assessment. During the assessment, the Assessing Officer recorded that the assessee has taken unsecured loans from certain companies situated in Kolkata. The AO recorded the names of such lenders-companies, the amount of loan, interest paid, and the amount of TDS on such interest in para 5 of his order. The Assessing Officer (AO) noted that the assessee has availed unsecured loans of Rs. 6.37 crore and has debited interest expenses of Rs. 42,54,200/-. In para 5.2 of his orderrecorded that during the search action, seized material reflecting unsecured loans availed by the assessee was found and seized. 3. In para 6 of the assessment order, the Assessing Officer recorded information that a search and seizure action was carried out in the case of Jagdish Purohit on 31.01.2015 by the Kolkata Investigation Wing. In the said search action, it was found that Jagdish Purohit and his family members were providing accommodation entries through 246 companies. The AO recorded the modus operandi of the entries provided by Jagdish Purohit and stated that persons connected with Jagdish Purohit were controlling various lender companies as directors, from whom the assessee has shown unsecured loans. The AO also referred to certain details of various companies managed by Jagdish Purohit and his group and their shareholding pattern. In para 7 of the assessment order, the AO recorded that the modus operandi of various companies managed by Jagdish Purohit and his group was brought to the notice of Nakul 3 Markhedkar during his statement recorded under Section 131(4) on 25.03.2021. Certain part of the statement of Nakul Markhedkar is also recorded by the AO. The AO recorded that in answer to Question No. 22, Nakul Markhedkar replied that the loans taken by the lenders were genuine and was repaid as per the ledger account. The loans were used for business purposes. They were new in the market, and no Non-Banking Finance Company (NBFC) was ready to lend money to them. Again, in answer to Question No. 3, Nakul Markhedkar reiterated that the loans were genuine. 4. In paragraph 7 of the assessment order, the AO noted that the assessee was asked to prove the identity of the parties, genuineness of the transactions, and creditworthiness of the lenders. The AO recorded that, in response to his show-cause notice, the assessee filed a reply dated 25.02.2022. Along with the reply, the assessee filed supporting evidence. The AO issued notices under section 133(6) to the parties. The parties/ lenders furnished their replies. The explanation of the assessee and the replies of the lenders were not accepted by the Assessing Officer. The Assessing Officer concluded that the assessee company failed to explain as to how they came in touch with the lender companies or through whom the loan deals were negotiated, the rate of interest agreed upon with the lender companies, and the repayment thereof. The AO treated the entire amount as unexplained under section 68 and interest payment as unexplained expenditure under Section 69 in the assessment order dated 31.03.2022. 4

Aggrieved by the additions made in the assessment order, the assessee filed an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the action of the Assessing Officer in making addition under Section 153A, taxing the addition under Section 115BBE, and disallowing the interest expenses. The assessee also filed detailed written submissions dated 12.04.2021. The assessee also furnished copies of confirmations, ITRs, bank statements, and audited financial statements of all the four creditors to prove their identity and creditworthiness and the genuineness of the loan transactions. The assessee also relied upon various case laws. 6. The learned CIT(A) referred to various case laws in his order and took his view that various Courts and Tribunals have held that where accommodation entries have been provided through a well-planned mechanism, in such cases, make-believe documents cannot be considered sufficient to discharge the onus cast by Section 68. The learned CIT(A), without referring to any specific case law, also noted that the Pune Tribunal has held that the principles of natural justice have no application in cases which is based on fraud, involving accommodation entries. The assessee had availed loans from four creditor companies which were not carrying any substantial business activities, as was clear from their financial statements. All four lender companies have raised share capital along with substantial share premium from shell companies which were not carrying on any business activities. A commission was appointed to investigate and verify the lender companies and found that none of the 5 companies was available at the given address. The assessee failed to produce the lenders before the AO. The assessee had furnished make- believe documents, which were not sufficient to discharge the onus cast by Section 68. The learned CIT(A), on the basis of such observations, upheld the addition. Further aggrieved, the assessee has filed the present appeal before the Tribunal. 7. We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue.The ld AR of the assessee submits that assessee is a domestic company engaged in setting up of power transmission, and distribution lines on contract basis. The assessee filed its return of income for AY 2016-17 declaring total income of Rs. 33,29,030/-. A search action under section 132 was carried out on the assessee on 24.03.2021. Pursuant to search action, notice under section 153A of the Act was issued on 03.12.2021. The assessee filed its return of income in response thereto declaring the same total income of Rs.33,29,030/- on 10.12.2021. Assessment under section 153A was passed by AO on 31.03.2022, making addition of Rs 6,79,64,220/- as unexplained cash credits under section 68 of the. The addition has been confirmed by the Hon. CIT(A) by bifurcating the same between section 68 for unsecured loans Rs. 6,37,10,000/- and for disallowance of Interest under section 37 amounting to Rs. 42,54,220/- aggregating of Rs. 6,79,64,220/-. The assessee has revised/modified the grounds of appeal vide letter dated 30.012.2025, which may kindly be considered. The ld AR 6 of the assessee submits that addition under section 68 as unexplained cash credit in unabated 153A assessment, without existence of incriminating material not appropriate by law. The assessment under appeal is an assessment order passed under section under section 153A. The AO while passing assessment order held that analysis of loans taken by the assessee revealed that the lenders were Kolkata based shell concerns providing accommodation entries and that the seized material at page no. 13 to 18 /bundle no. 3/Party A-1 revealed the details of such loans and interest thereon. The ld AR of the assessee submits that the relevant seized papers relied upon by the AO being page nos. 13 to 18/bundle no. 3 /Party A-1 (appearing at page nos. 41 to 46 of the paper book) are the ledger accounts of lender Suncity Financial Consultants Private Limited for the period 01.04.2016 to 31.03.2020. Neither, there is anything incriminating about the said seized papers nor any addition made in respect thereof by the AO. The transactions recorded therein do not pertain to the year under appeal. Thus, the AO relied upon irrelevant and innocent seized papers to assume jurisdiction under section 153A and to make unjustified additions. The assessment is bad-in-law for this reason alone. The ld AR of the assessee submits that assessee borrowed unsecured loans from four parties and provided the names of all the lenders at the time of hearing in the following manner; Sr. Name of the party F.Y. Loan taken Interest Repayment No. (incl. interest and TDS) 1 Kathrene 2015-16 4,17,10,000/- 27,59,152/- 4,44,69,152/- Suppliers Pvt. Ltd. 2 Subhrashi 2015-16 75,00,000/- 5,42,466/- 80,42,466/- 7 Properties Pvt. Ltd 3 Ravishing 2015-16 20,00,000/- 1,63,068/- 21,63,068/- DealcomPvt. Ltd. 4 Manikala Iron & 2015-16 1,25,00,000/- 7,89,534/- 1,32,89,534/- Steel Pvt. Ltd. Total 6,37,10,000/- 42,54,220/- 6,79,64,220/- 8. The ld AR of the assessee submits that during the course of search action under section 132, the search party seized ledger accounts of certain parties as per audited books of accounts. The said ledger accounts reflected receipt of unsecured loans and repayment thereof, alongwith interest charged in respect of such loans. All the loan transactions are through banking channels. The ledger accounts of the above disputed loan parties appear at pg nos. 19 to 24 of seized bundle no. 3/party A-1. The entire seized bundle no. 3 is enclosed at pages nos. 34 to 58 of the paper book and the explanation given by the assessee in respect thereof to Investigation Wing, Thane is filed at pages nos. 59 to 62 of the paper book. During search action, statement of director, Nakul R. Markhedkar was recorded under section 132(4) on 25.03.2021, copy of which is also enclosed at pages nos. 20 to 33 of paper book. The director of the company clearly stated in the statement under section 132(4), that all the loans were genuine loans and utilized for business purposes of the company. On the basis of such statement, it is clear that during the course of search action no incriminating material was found with regards to the disputed loans, which in any manner indicated any wrong doing on the part of the appellant. The ledger accounts seized by searches team are from the audited books of accounts of the appellant. No admission of any wrong doing is made by the assessee company during search or post search proceedings. The seized ledger accounts do not incriminate the assessee. 9. The search action under section 132 was carried out on 24.03.2021and no assessment for the year under consideration was pending at the time of search as present appeal relates to A.Y. 2016-17. Thus, the year under appeal is unabated year of assessment. Hence no addition can be made in respect of unabated assessment in absence of incriminating material found during search under section 132 as has been held in On the above background, as held by the Hon. Supreme Court in the case of Pr. CIT-vs- Abhisar Buildwell (P) Ltd., 454 ITR 212 (SC) (2023). Reliance also placed on Paras Chandreshbhai Kotecha-vs-ITO, 485 ITR 628 (Gujarat) [2026]. 10. The ld AR of the assessee further submits that the seized paper relied upon by the AO are not related to the parties in respect of which addition is made. Even otherwise, no incriminating material with regards to the 4 unsecured loan parties referred above have been found in the course of search action. The seized ledgers accounts are as per audited books of accounts and do not in any manner incriminate the assessee. For considering any seized paper as incriminating, such document should incriminate the assessee of any wrong doing, prima facie establishing that apparent is not real. The Guwahati High Court in CIT-vs-Goldstone Cements Ltd. 156 taxmann.com 529 (Gauhati) [2023] while dealing with similar issue of absence of incriminating material in an unabated 153A assessment, defined incriminating material. As per decision of High Court it was held that in order to constitute an incriminating material or 9 evidence, it is necessary for the AO to establish that the information, document or material, whether tangible or in-tangible, is of such nature which incriminates or militates against the person from whom it is found. It was also held that any and every seized material, which comes in AO's possession, cannot be construed as incriminating material straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as 'incriminating material' unless the AO establishes nexus or connect of such notings with unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent man properly instructed in law must be able to understand or correlate so as to justify the AO's inference of undisclosed income from such seized incriminating material. This exercise is therefore found to be essentially a question of fact. 11. The ld AR of the assessee submits that Hon’ble Gujarat High Court in Paras Chandreshbhai Kotecha vs ITO, 485 ITR 628 (Gujarat) [2026] also define the word incriminating material. Reliance is also placed on the decision Tribunal in Annapurna Buildcon Infra Private Limited vs DCIT, in ITA No. 6818/Mum/2024 & others dated 06.03.2025. On the basis of aforesaid submissions, the ld AR of the assessee prayed that the addition made by the AO under section 68and disallowance under section 37 in unabated assessment in absence of any incriminating material found during search action under section 132 is not justified and may be deleted. 10

In without prejudice submissions, the ld AR of the assessee submits that addition under section 68 on account of unsecured loans borrowed Rs. 6,37,10,000/-even otherwise is uncalled for. The assessee has borrowed unsecured loans from 4 parties, all of which have been repaid during the year itself. All the loans have been borrowed and repaid through banking channels. During assessment proceeding as well as before the ld CIT(A), the assessee furnished sufficient evidences in support of the unsecured loans. The evidences placed on record by the appellant comprised of the following documents in respect of each of the loan parties. (a)Duly signed confirmation, (b) Ledger Confirmation, (c) Copy of PAN Card, (d) ITR Acknowledgement for A.Y. 2016-17 (e) Bank statements recording payment and repayment of loans (f) Directors Report of the lender (g) Annual Return (Form MGT-9) for F.Y. 2015-16 of the lender (h) Audited Financial Statements alongwith Audit Report for A.Y. 2016-17

The assessee has discharged its primary onus cast as per section 68 of in respect of all the unsecured loan credits. The AO made general observation on the creditworthy of lenders that share application money was received by them and held that it was accommodation entry. However, the AO failed to establish funds flowing from the assessee to the alleged entry provider. The assessment is totally silent on this issue. In the search action under section 132 was carried out on the assessee and no evidence of any wrong doing is unearthed by the department. Thus, the conclusions drawn by the AO to make the addition are factually and legally unsound.The loan parties may or may not have suffered tax on the funds raised. However, thereafter, sufficient funds stood available with the lenders to grant interest bearing loans to the assessee in the subsequent years. No adverse view can be taken thereafter in the hands of the appellant vis-à-vis the source of funds. The issue of creditworthiness of the loan parties is resolved by the Id AO himself in the assessment order.On the charge of loan transaction being an accommodation entry. So far as the allegation of accepting accommodation entry is concerned, there is not an iota of evidence or whisper in the assessment of assessee indulging in any untoward activity of financing the loan parties for receipt of accommodation entry. No evidence of any such act by the assessee is detected during search action under section 132 nor any such charge established during post-search as well as asst. proceedings. The said charge is baseless and totally unjustified. The assessee has not availed any accommodation entry from any party. On the allegation of report of commission issued under section 131(1)(d), the ld AR of the assessee submits that alleged report of the Investigation Wing, Kolkata is not shared with the appellant. Thus, the veracity of the verification carried out is not free from doubt. The assessee apprehends that verification may have been carried out at the old addresses of the loan parties. In any case, when the person alleged to be the operator of the lender companies was available as the notice under section 133(6) were replied directly by them as recorded in para-7 of assessment order. Thus, the existence of the loan parties cannot be disputed.

In support of contention that once the assessee discharged the burden placed under section 68, no addition can be sustained relies upon the following decisions.  CIT-vs-Gagandeep Infrastructure (P) Ltd., 394 ITR 680 (Bombay) [2018]  CIT-vs-Orchid Industries (P) Ltd., 397 ITR 136 (Bombay) [2017]  Pr.CIT-vs-Ami Industries (India) (P.) Ltd., 424 ITR 219 (Bombay) [2020]  Mr. Gaurav Triyugi Singh-vs-ITO, ITA No. 1750 OF 2017 (Bombay High Court) dated 22.01.2020

While summing up his submissions, that all the loans were borrowed and repaid in the same financial year relevant to A.Y. 2016-17 itself. In such circumstances, borrowing of loans cannot be disputed. Reliance is placed on Pr. CIT-vs-Skylark Build ITA No. 616 of 2016 (Bombay High Court) dt. 24.10.2018. On the disallowance of interest under section 37, it was argued that since the addition in respect of unsecured loans itself is not justified, the disallowance of interest thereon amounting to Rs.42,54,220/- is also uncalled for. The interest on unsecured loans is paid by the appellant in the year under appeal after deduction of TDS and therefore adverse view is not required to be taken. 16. On the issue of Cross examination, which is subject matter of Ground no. 6, the ld AR of the assessee submits that in view of the submissions made hereabove vis-à-vis the time line of raising of funds by the lender companies, the search action thereon and the borrowing of funds by the assessee, it is imperative that before taking any adverse, the evidences relied upon by the AO to justify the addition be shared with the assessee and a reasonable opportunity to cross examine the relevant parties should have been allowed, in absence thereof, such adverse information/evidence has no evidential value and the addition based thereon is in breach of the salient principles of equity, fair play and natural justice. Reliance is placed on the decision of Apex Court in Andaman Timber Industries-vs-CCE 281 CTR 241 (SC) (2015). The ld AR of the assessee prayed for allowing the appeal of the assessee. 17. On the other hand, the learned CIT-DR for the revenue supported the order of lower authorities. The ld CIT-DR for the revenue submits that he has also filed short written submissions, which may also be considered. In the submission the ld CIT-DR for the revenue submitted that a search action was carried out at the premises of assessee. Consequent upon search action the case of assessee was centralized with Central Circle-1, Thane. Pursuant to search action notice under section 153A was issued to the assessee to file its return of income for AY 2016- 17. In response to notice under section 153A, the assessee filed its return of income declaring income of Rs. 33,29,030/-. During the course of search action, the statement of Director of assessee was recorded and he was confronted the material found search action, relating to unsecured loan availed by assessee from Kolkata-based entity. In response to a specific question to him he was asked to explain the name of person through whom loan was arranged, but he failed to furnish the name of such person. He also expressed his ignorance regarding agreement governing the condition of loan. Search action was also carried out at Calcutta-based company which revealed that such companies were shell companies 14 having negligible business activities, meagre profit and abnormal financial features except receipt of share application money. The AOafter referring the modus operandi of Kolkata-based companies which were engaged providing accommodation activities and on the basis of seized material, statement recorded during such action and on analyzing financial credentials of lender companies and surrounding circumstances made addition under section 68 in respect of loan availed by assessee in treating the loan as an accommodation entry not genuine. The AOalso made addition to disallowance of interest payment. The learned CIT-DR for the revenue also fairly submits that assessment year 2016-17 was an unabated assessment year. However, the fact of the present case clearly establish that the addition made under section 68 is based on incriminating material found and seized during the course of search action and therefore satisfied the requirement applicable on the unabated assessment year. A plain reading of section 153A, shows that once search action under section 132 is conducted, the assessing officer is required to issue notice to assessee the total income of the six assessment years immediately preceding the year of search. The 2nd Proviso to section 153A further provides that only that assessment which are pending on the date of search shall abate. Consequently, the assessment which has already been attain finality remained unabated assessment. Judicial precedent is that in such unabated years, and the addition must have a nexus with incriminating material found during course of search. In the present case though the current present year is an unabated assessment year still the 15 requirement of law stands satisfied. The addition is not based on a mere change of opinion in or on a roving enquiry conducted after search. The AOwhile framing assessment order clearly recorded that during the course of search, documents relating to unsecured loans were found and seized. During course of search action certain documents seized as A-1, bundle No.3-page No. 13 to 18 were related with loan transaction. During the search action the record of search action carried out at Jagdish Purohit was confronted with the director of the assessee while recording his statement. The relevant part of the statement is relied by AO while framing the assessment order. The addition in the assessment order is not based merely on third-party statement. The contention of assessee that no incriminating material was found in the course of search action is factually incorrect. The such documents relating to unsecured loan, statement recorded under section 132(4), the investigation wing finding, the financial analyses of the lender company and established connection of such entities with the accommodation entry network of Jagdish Purohitcollectively constitute incriminating material having a direct nexus with the addition made under section 68. The contention of assessee that genuine long-term loan transaction was treated as accommodation entry is devoid of merit and is to be rejected out rightly. The AOhas brought sufficient material on record to establish the impugned loan transaction were not genuine. The assessee failed to discharge the onus cast upon it under section 68. Merely furnishing copy of PAN, ITR, confirmation, financial statement and bank statement of the lender company is not 16 sufficient. The AOcarried out detailed enquiries in respect of land companies as has been recorded in the assessment order itself. The assessee failed to rebut these detailed finding of the AOto an independent, cogent or credible evidence. The statement recorded during the search action which is supported by documents and the material found during the course of search action has evidentiary value. Such view has been affirmed by Hon’ble Delhi High Court in Smt Dayawati Vs CIT (2016) 75 taxmann.com 308 (Delhi). The learned CIT-DR for the revenue submits that addition made by assessing officer and confirmed by ld CIT(A) may be upheld and the appeal filed by assessee may be dismissed. 18. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also gone through and deliberated on the various documents and the case laws relied by the parties. We find that before us the assessee has raised multiple grounds of appeal and also made multiple fold submission of legal issue as well as on merits. Firstly, we are considering the merits of the case. We find that the AO made addition of unsecured loan and disallowances of consequential interest payment. We find that before the AO, the assessee in its first submissions explained that entire loan with interest has already been repaid. The assessee also furnished various documents in respect of each of the loan parties, which consist of duly signed confirmation, ledger confirmation, Copy of PAN Card, ITR Acknowledgement for A.Y. 2016-17, Bank statements recording payment and repayment of loans, Directors Report of the lender entities, Annual 17 Return (Form MGT-9) for F.Y. 2015-16 of the lender and Audited Financial Statements alongwith Audit Report for A.Y. 2016-17 of all the lenders. The AO issued notice under section 133(6) to all the lenders, who confirmed the transaction of loan with repayment thereof. The reply of notice was directly furnished by all the lenders. All these facts are not disputed by the AO. Before CIT(A), the assessee apart from raising legal plea against the validity of the assessment also pleaded that entire loan has already been repaid. The assessee also furnished the bank statement of all the lenders. Thus, we find that the assessee has duly discharged the primary onus lies on them to prove the identity, creditworthy and genuineness of transaction. We find that lower authorities have not disputed the repayment of loan. The AO referred the report of the commission issued during assessment. However, the copy of report of such commissions is not provided to the assessee. The AO has not discussed the report of such commission, nor confronted the assessee about report of such commission. 19. We find that Hon’ble Jurisdictional High Court in Pr. CIT-vs-Skylark Build (supra) held the assessee establishes the identity of the creditors and substantiates the transactions by producing bank statements, income tax returns, and evidence of repayment, the onus under Section 68 is fully discharged. Hon’ble Gujarat High Court in CIT vs Ayachi Chandrasekhar Narsangji (Tax Appeal No. 992 of 2013), 42 taxmann.com 251 (Guj) also held that where the department has accepted the factum of repayment of a loan or advance (whether within the same financial year or in subsequent years), the original transaction cannot be treated as an unexplained cash credit under Section 68 of the Act. Thus, in view of the aforesaid factual and legal position, we do not find any justification in making addition of loan and disallowances of interest payment. In the result, the assessee succeeded on merit. 20. Considering the facts that the assessee has succeeded on merit, therefore, consideration on the other submissions on various other grounds of appeal either on the validity of addition under section 153A, in absence of incriminating evidence in abated assessment year, or there no incriminating evidence was found in the search action, has become academic. 21. In result, the appeal of assessee is allowed. Order pronounced on 15.09.2026 as per Rule 34 of Income Tax (Appellate Tribunal) Rule, 1963. S- S Sd/- /-SS/-SSSS Sd/- SdSd/- MANOJ KUMAR AGGARWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated:15/09/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT and (5) Guard file. By Order