PADAMKUMAR RAMCHANDRA SONI,MUMBAI vs. ACIT, CENTRAL CIRCLE 8(2), MUMBAI

PER Bench:

These captioned appeals filed by two separate assessees are directed against separate orders passed by learned Commissioner of Income-Tax Appeals [ in short the ld “CIT(A)”] for respective assessment years indicated above. Since common and identical issues arise for consideration these appeals, same were heard together and disposed off by way of this consolidated order for the sake of convenience and brevity.

1) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. AO without appreciating the facts that the appellant was subjected to search

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI u/s 132 of the Act, therefore assessment order should have been passed u/s 153A instead of section 153C of the Act. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O. without appreciating the fact that no incriminating material was found during the course of search therefore, the assessment proceedings initiated under section 153C is bad in law and liable to be quashed. 3) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) and the Ld. A.O. erred in making additions despite the fact that no incriminating material relating to the year under consideration was found during the search. Since the assessment for the year was unabated, no addition could have been made in the absence of any incriminating material, as held by the Honble Supreme Court in PCIT v. Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212. (S.C). 4) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) and the Ld. A.O. erred in upholding the assessment order and making additions without appreciating that no incriminating material was found during the course of search of Shine Shilpi Jewellers Private Limited. The authorities failed to consider that (i) statements of directors of Shine Shilpi Jewellers Private Limited recorded under section 132(4), (ii) statements of third parties and findings from spot verification conducted at the premises of lenders, (iii) statement of Mr. Deepak Jain recorded under section 132 of the Act on 10.11.2019 during separate search proceedings, and (iv) post-search enquiries and financial statements furnished during assessment proceedings, do not constitute incriminating material found during the course of search of Shine Shilpi Jewellers Private Limited. Hence, the proceeding and additions made are unsustainable in law. 5) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O., wherein addition of unsecured loan of Rs. 35,00,000/- was made u/s. 68 of Act. 6) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O., wherein a disallowance of interest expenses of Rs.1,64,836/- is made by treating the same as unexplained expenditure u/s. 69C of the Act.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI 7) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating the fact that Appellant had already furnished all necessary documents and discharged its onus to prove the identity, genuineness and creditworthiness of the lender party and that it was not required to explain the source of source. 8) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating that the Appellant had availed the loan through regular banking channels, the interest thereon was duly paid after deduction and deposit of TDS with the Government Treasury, and the loan itself was duly repaid. The Ld. CIT(A) further failed to appreciate that the lender parties had duly acknowledged the transactions, furnished supporting documentation, and confirmed the same during the course of remand proceedings. Therefore, no addition could be made under section 68 of the Act, nor any addition in respect of interest thereon under section 69C of the Act. 9) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition made by the Ld. A.O. in making the impugned additions without appreciating that the same were based solely on third-party information and statement, which is not binding, and which was neither furnished to nor confronted with the Appellant. The Appellant was also denied the right to cross-examine, resulting in a gross violation of the principles of natural justice. Therefore, the additions is unsustainable in law. 10) The appellant craves leave to alter, amend, modify OR substitute any ground OR grounds and to add any new ground OR grounds on OR before the appeal is disposed of. 3. Briefly stated, facts of the case are that a search and seizure action under section 132 of the Income-tax Act, 1961 ("the Act") was carried out on 04.10.2018 in the case of M/s Shine Shilpi Jewellers Pvt. Ltd. In the course of the said action, the residential premises of the assessee, situated at Flat Nos. 801 and 802, Indraprastha, Neelkanth Valley, Rajawadi, Ghatkopar, Mumbai, were also covered, the assessee being a director of the searched

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI entity. Consequent thereto, a notice under section 153C of the Act was issued to the assessee, in response to which the return of income was filed on 21.02.2020 declaring total income of Rs. 20,80,750/-. Thereafter, statutory notices under the Act were issued requiring the assessee to file the necessary details.

(i) The lender showed a negligible profit margin of 0.01%, disproportionate to the ordinary margins prevailing in the jewellery manufacturing and diamond-polishing trade, had claimed refund of the entire TDS deducted, and owned no fixed assets. No liability on account of its huge trade payable was discharged by the company and whatever the funds received by providing entries in the form of sales, were transferred to other beneficiaries in the form of purchase or giving advances in the form of unsecured loans and bogus trade receivables and payables , which were features indicative of an accommodation- entry-providing shell entity, on the analogy of the profile described by

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI the ITAT, Chennai Bench in K.I. International v. ITO, ITA Nos. 897 & 898/Mds/2017, order dated 24.08.2017;

(ii) The spot verification conducted during the search at the lender's registered address and statements recorded/ enquiries from neighborhood shops owners revealed that no business was being carried on from that place for last 4-5 years;

(iii) During the course of statement recorded of the husband of the assessee and other group concerns, they were given sufficient time to recollect and furnish the procedure that how the alleged loans are arranged, to furnish the correct name, address, PAN of lender parties or any agents, however, the same were not provided by none of persons of group concerns.

(iv) The lender's response to summons under section 131 was unaccompanied by financial statements, the address mentioned on the letter head are same as are registered address and verified during the course of search action, the fact is that when the address of company is not changed, why the room of registered address is remains closed and all the letter received by post used to collect through watchman of complex so as to make response for the same merely by furnishing papers through post only to give the colour of accommodation entries transactions as genuine ones. Therefore, from the reply furnished (copy of ITR ack, bank statement, ledger confirmation), the identity and creditworthiness of lender party also not proved.

(v) Despite specific direction, the assessee failed to produce the lender, furnishing instead an unsigned standalone balance sheet downloaded from the MCA portal in lieu of audited financials; and

(vi) The funds credited to the lender's account were traced to other entities controlled by one Shri Deepak Jain, namely M/s Surya Diamonds Pvt. Ltd., M/s Sanmati Gems Pvt. Ltd., M/s Siddhant Gems

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI Pvt. Ltd. and M/s Rajat Diamonds Pvt. Ltd., themselves recipients of funds from the Deepak Jain group, indicating circular routing of funds.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI Nahar, appeared and confirmed the transaction. The Ld. CIT(A), however, upheld the additions, holding, inter alia:

(i) that a valid satisfaction note preceded initiation of proceedings under section 153C, and that the statement of Shri Pramod Mehta recorded under section 132(4), the spot-verification report, the statement of the neighbouring occupant Shri Manishbhai Kalathiya recorded under section 131, and the statement of the entry operator Shri Deepak Jain, taken together, constituted incriminating material sufficient to sustain the addition under section 68, which is a deeming provision requiring the assessee to independently establish identity, genuineness, and creditworthiness;

(ii) that mere production of PAN, income-tax returns, ledger confirmations, and bank statements routed through banking channels does not, without more, discharge the onus under section 68, particularly where field enquiry rebuts the documentary claim;

(iii) that the lender's director's appearance in remand proceedings, occurring nearly six years after the search, could not retrospectively cure the contemporaneous findings recorded at the time of search, and that a company reporting turnover exceeding Rs. 251 crores alongside negligible profit, nil fixed assets, and no discernible office establishment lacked the financial capacity to advance loans of this magnitude — the routing of high-value turnover through banking channels being a recognised hallmark of accommodation-entry operations; and

(iv) that the interest disallowance under section 69C followed as a necessary consequence of the principal loan being held non-genuine.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI 9. Before us, the assessee pressed both the legal grounds impugning the assumption of jurisdiction under section 153C in the absence of incriminating material , placing reliance on PCIT v. Abhisar Buildwell (P) Ltd., (2023) 454 ITR 212 (SC) and the grounds on merits. On merits, the Ld. Counsel drew our attention to the decision of the Third Member of the Tribunal in DCIT, Central Circle, Mumbai v. Shah & Parikh, (2025) (10) TMI 1142, wherein an identical unsecured-loan addition in respect of the very same lender, M/s Saffron Gems Pvt. Ltd., together with two other lenders, M/s Raja Antibiotics Ltd. and M/s Shikha Diamonds Mfg. Co. Ltd., was deleted. Reliance was also placed on the fact that, in the remand proceedings in the present case as well, the lender had been produced and its statement recorded.

“22. Thus, as could be seen from the above, the genuineness of loan transactions between the assessee and Saffron Gems P. Ltd., Raja Antibiotics Ltd. and Shikha Diamonds Mfg. Co. Ltd. were very much the subject matter of consideration before the First Appellate Authority in the appellate proceedings relating to A.Ys. 2014-15 to 2020-21. It is further relevant to observe, the evidences relating to entire loan transaction of the aforesaid lenders, from the first loan availed till the account was squared off, were furnished before the First Appellate Authority. This would be evident from the observations made in paragraphs 9.3.9 and 9.3.10 which are reproduced as under:

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI …………………………….

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI because the facts and evidences based on which the first appellate authority had decided the issue in the other assessment years would also apply to the impugned assessment year.” 11. The Hon’ble Third Member accordingly held, upon a year- wise analysis of the loan account, that the transactions with M/s Saffron Gems Pvt. Ltd., commencing with an opening balance of Rs. 1,09,00,000/- in Assessment Year 2013-14 and continuing through partial repayments in the succeeding years, culminated in the account being fully squared off by Assessment Year 2017- 18. This fact was considered material to the finding of genuineness of loan transaction.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI held non-genuine, cannot survive independently once the principal addition itself stands deleted, the disallowance of interest of Rs. 1,64,836/- is also deleted.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI 2018-19 and 2019-20, no addition was made in respect of the principal loan; the disallowance in those years was confined to the interest expenditure under section 69C, treated as consequential to the addition sustained for Assessment Year 2017-18.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI tracing the tax dues and their collection from the assessee including the above mentioned parties. Further we notice that AO disregarding the importance of MCA and existence of ROC. The existence of the company under the Companies act 1956 depends upon the compliance under the Companies act 1956 by complying with the required statutory formalities. As long as the companies are in existence under the Companies Act, AO cannot treat the companies as dummy or dead or no longer relevant. 19. We noticed from the record submitted before us that the assessee has submitted all the relevant information required to substantiate that the transactions are genuine. The assessee has received the funds through banking channel and recorded the same in its books of account and filed relevant information in order to prove the identity by filing PAN and address of the parties, in few cases the parties have moved their place of work and upon enquiry assessee was able to bring on record the present address. It is also facts on record that the parties are in existence as per the ROC records and they are traceable with the fact that they’ve filed the PAN detail and letter of confirmation. As discussed above, as long as the assessee submits the PAN and other details to trace the parties from whom assessee has taken unsecured loans and as per the financial records, all the parties are in a position to lend money to the assessee and the transactions are routed thru banking channel and there are no findings on record of the revenue that there is no involvement of cash deposits in the immediate past to the unsecured loan transaction. Further, there is no dispute with regard to utilization of funds in the business and applied for the business purpose. As long as it is utilized in the business and the assessee has demonstrated that it has repaid the same along with the relevant interest, it does demonstrate that the present transaction made by the assessee is proper and for the purpose of business, therefore the transaction can only be treated as genuine business transaction. 20. In our considered view, the genuineness has to be seen in two aspects, one, whether it is sourced from the concerns, who can be traced and second, whether it is sourced for the business requirement and utilized for the purpose of business. In the given case, the parties can be traced and it is utilized for the purpose of business. Therefore in our view, all the criteria mentioned in the provisions of section 68 of the Act were fulfilled by the assessee and we do not agree with the tax authorities who assessed the income of the assessee with the presumption and assumption, they also applied criteria for assessing the introduction of share capital and premium with the unsecured loan taken by the assessee, further applying the concept of human probabilities in the present transaction is far-fetched and it demonstrate that they rely on presumptions.” 19. We have given careful consideration to the decision in Nisha Industries Services (P) Ltd. (supra), which holds, in substance, that creditworthiness under section 68 of the Act stands established where the lender possesses adequate reserves and bank balances to advance the sum in question and where the Assessing Officer does not dispute the actual receipt of funds and

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI payment of interest thereon; that identity stands established where the lender is traceable through PAN, address, and continuing existence on the records of the Registrar of Companies; and that genuineness is to be tested with reference to (i) the traceability of the source and (ii) the utilisation of the funds for business purposes , criteria which, on the facts recorded therein, was found to be satisfied.

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI disallowances cannot survive independently and are accordingly deleted for all three years.

Order pronounced in the open court on 11th day of September 2026.

Sd/- Sd/- ANIKESH BANERJEE OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai Dated: 11/09/2026 SAUMYA, Sr.PS

Copy to: PADAMKUMAR RAMCHANDRA SONI, 802 INDRAPRASTHA, NILKANTH VALLEY, 1 RAJAWADI GHATKOPAR (EAST), MUMBAI-400077, MAHARASHTRA

ACIT, CENTRAL CIRCLE 8(2),, ROOM NO. 658, 6TH FLOOR, AAYAKAR 2 BHAVAN, M.K. ROAD, MUMBAI-400020, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

ITA 3991,3992,3993,4040,4041,4042,4043,4027,4028, 4079/MUM/2026 PADAMKUMAR RAMCHANDRA SONI TRUE COPY

ASSISTANT REGISTRAR / SR. PRIVATE SECRETARY I.T.A.T., MUMBAI