NIKITA SHILPIN TATER,MUMBAI vs. ACIT, CENTRAL CIRCLE 8(2), MUMBAI

Since common facts and interconnected issues are involved in all the six appeals, they were heard together with the consent of both the parties and are being disposed of by this consolidated order. ITA No. 4095/Mum/2026 for Assessment Year 2013-14 is taken as the lead appeal and the findings adjudicated therein shall apply, mutatis mutandis, to the remaining appeals.

Briefly stated, the assessee is an individual. A search and seizure action under section 132 of the Act was conducted on 04.10.2018 at the premises of the assessee. Consequent thereto, notice under section 153A of the Act was issued, in response to which the assessee filed her return of income.

During the course of assessment proceedings under section 153A read with section 143(3) of the Act, the Assessing Officer (“AO”) noticed from the balance sheet and other details furnished by the assessee that she had availed unsecured loans aggregating to Rs. 57,00,000/- from M/s. Saffron Gems Pvt. Ltd. during the financial year relevant to Assessment Year 2013- 14. The said amount comprised of Rs. 30,00,000/- received on 22.06.2012 and Rs. 27,00,000/- received on 11.02.2013.

During the course of collateral enquiries, the Department conducted spot verification at the business premises of M/s. Saffron Gems Pvt. Ltd. and recorded the statement of Shri Manishbhai Kalathiya under section 131 of the Act. It was stated that he was not aware of any company by the name of M/s. Saffron Gems Pvt. Ltd. The AO also referred to the statement of Shri Shilpin Tater, husband of the assessee, recorded under section 132(4) of the Act, as well as certain third-party statements.

On the basis of the aforesaid enquiries and material, the AO treated the unsecured loan of Rs. 57,00,000/- as an accommodation entry and made an addition of the said amount under section 68 of the Act. The AO further disallowed interest expenditure of Rs. 2,40,599/- relating to the said loan and added the same under section 69C of the Act.

Aggrieved, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A), however, sustained the additions made by the AO.

Before us, the learned Authorised Representative (“AR”) submitted that the assessment for Assessment Year 2013-14 had attained finality and was, therefore, an unabated assessment as on the date of search. It was contended that no incriminating material relating to the impugned unsecured loan was found during the course of search conducted at the premises of the assessee. The AR submitted that the loan transaction was already duly reflected in the regular books of account and balance sheet of the assessee and that the AO had made the addition on the basis of information and enquiries undertaken subsequent to the search.

The AR placed reliance upon the judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd., (2023) 454 ITR 212 (SC), and submitted that, in respect of completed/unabated assessments, an addition under section 153A can be made only on the basis of incriminating material found during the course of search. It was further submitted that entries already disclosed in the regular books of account cannot themselves be regarded as incriminating material. Reliance was placed, inter alia, on ACIT v. Vinod Kumar Taneja, 2022 (9) TMI 1424 (ITAT Delhi).

The AR further submitted that the statements relied upon by the AO did not constitute incriminating material found during the course of search. It was argued that the statement recorded from the assessee's husband did not contain any admission concerning the impugned loan. It was also submitted that the statement of Shri Manishbhai Kalathiya under section 131 was recorded during a separate enquiry at the premises of the lender and not during the course of search at the assessee's premises. According to the AR, such subsequent or collateral enquiries could not be treated as incriminating material found during the search for the purpose of making an addition in an unabated assessment under section 153A. Reliance was placed on, inter alia, ACIT v. M/s. G Nine Modular Pvt. Ltd. & M/s. G Trade and Capital Venture Pvt. Ltd., 2023 (4) TMI 1402 (ITAT Mumbai), and ACIT v. M/s. GM Modular Pvt. Ltd., 2023 (5) TMI 1428 (ITAT Mumbai).

On the merits of the addition, the AR submitted that the assessee had discharged the primary onus cast upon her under section 68 by furnishing the PAN, income-tax return acknowledgement, confirmation of the lender, audited financial statements and bank statements of M/s. Saffron Gems Pvt. Ltd. It was submitted that the loan was received through banking channels, interest was paid through banking channels after deduction of tax at source, and the lender had confirmed the transaction during the remand proceedings.

It was further submitted that the entire loan amount of Rs. 57,00,000/- was subsequently repaid through banking channels and the account was squared off during financial year 2018-19, with the final repayment having been made on 23.10.2018. The AR placed reliance upon the Coordinate Bench decision of the Mumbai Bench of the Tribunal in DCIT v. Shah and Parikh, 2025 (10) TMI 1142 (ITAT Mumbai) (LB), contending that the said decision involved the very same lender, namely M/s. Saffron Gems Pvt. Ltd., and the same Assessment Year, i.e. Assessment Year 2013-14. Reliance was also placed upon the decisions of the Hon’ble Bombay High Court in PCIT v. M/s. Skylark Build, 2018 (10) TMI 1513 (Bom) and PCIT v. Bairagra Builders (P.) Ltd., [2024] 164 taxmann.com 162 (Bom), as well as the decision of the Tribunal in Jet Speed Realtors v. ACIT, ITA No. 77/Mum/2022.

The learned Departmental Representative (“DR”), on the other hand, supported the orders of the lower authorities. He submitted that the spot verification conducted at the premises of M/s. Saffron Gems Pvt. Ltd. revealed that the lender was not functioning at its registered address and that Shri Manishbhai Kalathiya had denied knowledge of the said company. According to the learned DR, the surrounding circumstances established that the loan was not genuine and that the AO was justified in lifting the corporate veil and treating the transaction as an accommodation entry.

We have heard the rival submissions and perused the material available on record.

The first issue which requires our consideration is whether the impugned addition could validly be made in the assessment framed under section 153A of the Act for Assessment Year 2013-14.

It is an admitted position that the search under section 132 of the Act was conducted on 04.10.2018. The assessment year under consideration is Assessment Year 2013-14. Thus, on the date of search, the assessment for the year under consideration stood completed and had not abated.

The law governing the scope of assessment under section 153A in respect of unabated assessments now stands settled by the judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd. (supra). The Hon’ble Supreme Court has held that in respect of completed/unabated assessments, the AO can make additions only on the basis of incriminating material found during the course of search under section 132 of the Act.

In the present case, the impugned loan transaction was admittedly reflected in the regular books of account and balance sheet of the assessee. The assessment order itself records that the AO noticed the loan transaction from the balance sheet and details furnished by the assessee. Therefore, the existence of the loan entry in the regular books of account cannot, by itself, constitute incriminating material found during the course of search.

The next question is whether the material relied upon by the AO can be regarded as incriminating material found during the course of search.

On perusal of the assessment order, it is evident that the AO principally relied upon the statement of the assessee's husband, third-party information and the spot verification subsequently conducted at the premises of M/s. Saffron Gems Pvt. Ltd., including the statement recorded from Shri Manishbhai Kalathiya under section 131 of the Act.

In our considered view, such material cannot be equated with incriminating material found during the course of search at the premises of the assessee. The statement under section 131 was recorded in the course of a subsequent enquiry at the premises of the lender. Likewise, the post-search enquiries and documents obtained during the assessment proceedings are not, in themselves, material found as a result of the search conducted on the assessee.

The distinction between material found during search and material subsequently gathered during assessment proceedings is material for determining the jurisdiction to disturb an unabated assessment under section 153A. A disclosed entry in the regular books may subsequently be shown to be false or non-genuine on the basis of independent material; however, that subsequent material cannot, merely by virtue of its being adverse to the assessee, be treated as incriminating material found during the search for the purposes of section 153A.

The Coordinate Bench of the Tribunal in ACIT v. M/s. G Nine Modular Pvt. Ltd. & M/s. G Trade and Capital Venture Pvt. Ltd. (supra) has also considered the distinction between an entry in the books of account and incriminating material demonstrating the falsity of such entry. The Tribunal observed that an entry in the books of account does not itself constitute incriminating material unless its falsity is established on the basis of material found during the search. A similar view was taken by the Coordinate Bench in ACIT v. M/s. GM Modular Pvt. Ltd. (supra).

In the present case, no document or other material found and seized during the course of search at the premises of the assessee has been brought to our notice which establishes that the unsecured loan of Rs. 57,00,000/- was bogus or represented an accommodation entry. The material relied upon by the AO consists essentially of the entries already disclosed by the assessee and information gathered during collateral/post-search enquiries.

We therefore hold that the jurisdictional condition necessary for making an addition in respect of an unabated assessment under section 153A is not satisfied in the present case. Consequently, the addition of Rs. 57,00,000/- made under section 68 of the Act cannot be sustained.

Even otherwise, the addition is not sustainable on merits.

The assessee furnished the confirmation, PAN, income-tax return acknowledgement, audited financial statements and bank statements of M/s. Saffron Gems Pvt. Ltd. The loan was received through banking channels. The assessee also furnished evidence regarding payment of interest through banking channels after deduction of tax at source. Further, the lender confirmed the transaction during the remand proceedings.

It is also not in dispute that the loan amount was subsequently repaid through banking channels and the account was squared off during financial year 2018-19. The material placed before us shows that the final repayment was made on 23.10.2018.

We have also considered the reliance placed by the learned AR on the Coordinate Bench decision of the Mumbai Tribunal in DCIT v. Shah and Parikh (supra). The said decision, as brought to our notice, involved the same lender, M/s. Saffron Gems Pvt. Ltd., and the same Assessment Year, namely Assessment Year 2013-14. The Coordinate Bench considered the effect of subsequent repayment of the loan through banking channels in the context of the genuineness of the loan transaction. The ratio of the said decision, read with the facts available on record before us, supports the assessee's contention.

In these circumstances, and particularly having regard to the documentary evidence furnished by the assessee, the banking trail of the transaction, confirmation by the lender and subsequent repayment of the entire loan, we find no justification for sustaining the addition under section 68 of the Act. Accordingly, the addition of Rs. 57,00,000/- made under section 68 is directed to be deleted. The grounds raised by the assessee on this issue are allowed.

The AO has also disallowed interest expenditure of Rs. 2,40,599/- relating to the aforesaid loan and made a corresponding addition under section 69C of the Act. In our view, once the principal loan addition itself does not survive, the consequential addition in respect of interest attributable to such loan cannot independently be sustained on the facts of the present case. Accordingly, the addition of Rs. 2,40,599/- is also directed to be deleted.

Ground No. 10 is general in nature and does not require any separate adjudication.

In the result, ITA No. 4095/Mum/2026 for Assessment Year 2013-14 is allowed.

We now take up the appeals for Assessment Years 2014-15 to 2018- 19.

The common grievance in these appeals relates to the disallowance of interest expenditure claimed by the assessee in respect of the unsecured loan of Rs. 57,00,000/- obtained from M/s. Saffron Gems Pvt. Ltd.

The learned representatives of both sides agreed that the issue in these appeals is consequential to the controversy adjudicated in the lead appeal for Assessment Year 2013-14.

We have, while deciding ITA No. 4095/Mum/2026, held that the addition of Rs. 57,00,000/- in respect of the unsecured loan from M/s. Saffron Gems Pvt. Ltd. is not sustainable and have directed its deletion. Once the very basis on which the interest expenditure has been disallowed does not survive, the consequential disallowance of interest cannot be sustained independently.

Accordingly, following our findings in ITA No. 4095/Mum/2026, the respective disallowances of interest made in Assessment Years 2014-15 to 2018-19 are directed to be deleted.

Consequently, ITA Nos. 4096 to 4100/Mum/2026 for Assessment Years 2014-15 to 2018-19 are also allowed.

In the result, all the six appeals filed by the assessee are allowed.