CITYGOLD INVESTMENTS PRIVATE LIMITED,THANE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(4), MUMBAI

Briefly stated, the assessee-company is a Non-Banking Financial Company (NBFC). ITR for AY 2016-17 was filed on 30.03.2017 declaring total income at Rs.16,24,170/-. A search was conducted u/s 132 of the Act in the case of M/s. Hubtown Ltd. and others on 30.07.2019. According a notice u/s 153A was issued on 12.11.2020, in response to which the assessee had filed a return on 09.02.2021 declaring total income of Rs.16,24,170/-. The Ld. AO during the assessment proceedings has raised a question regarding bogus unsecured loan. It is observed that the assessee-company and other Hubtown group entities have received such precise loans/share premium in the balance sheet for various assessment years. These loans were received from entities controlled by persons of dubious reputation based upon enquiries of Income Tax investigation in their cases previously.

The Ld. AO has reproduced statement of Shri Ramesh Ramchandani, partner of Ashok Commercial Enterprises, recorded during survey u/s 133A in the assessment order. Having information that certain sums of money had been routed from assessee through M/s. Spaceline Realty Pvt Ltd. and M/s. Holiac Realty Private Limited in the books of Hubtown Limited, a survey was conducted at the premises of Shri Rajkumar Jamunadas Gulati, who was a

On an analysis of the statements of various persons and the discussion made, it is observed that the assessee-company is established and controlled by the promoters of M/s. Hubtown Limited. It is further observed that the assessee- company is merely used as a conduit by M/s. Hubtown Limited in order to route the unaccounted funds into the books of accounts of his subsidiaries. The Ld. AO further held that the assessee-company had received suspicious loans from various entities controlled by persons established to be entry providers. These persons among others include Shri Shirish Shah, Shri Praveen Aggarwal, Shri Bhawarlal Jain and Shri Arvind Kumar Kayan.

In order to verify the genuineness of the loans, a survey was conducted at the premises of some of these concerns and the statements of key persons were recorded. In this regard, the statements of Shri Shirish Shah, Shri Praveen

A final show-cause notice was issued on 23.09.2021 for clarification on the aforesaid issues to which the assessee has filed a reply. The submissions of assessee were carefully examined by the Ld. AO and has observed that the assessee has received unsecured loans in the form of accommodation entries for Rs.1,78,00,000/- during the year under consideration and, therefore, in absence of any plausible explanation, the same was treated as cash credit u/s 68 of the Act and added back to the income of assessee. It is further noted by the Ld. AO that the assessee has paid a commission in cash amounting to Rs.1,78,000/- for obtaining all such accommodation entries. Therefore, the same is treated as unexplained money u/s 69A of the Act.

Before us, the assessee represented by the Counsel (Ld. AR) had submitted that the additions in the present cases were made without any incriminating material and the year under consideration was unabated year, therefore as per settled principle of law, no addition u/s 68 was called for. It is submitted that the statements recorded u/s 131 of the Act, cannot be equated with incriminating materials. The statements have to be further corroborated with empirical evidence brought on record by the Revenue except for the reference to assessee in the statement, the statement is not recorded during the course of search proceedings. It is submitted that no evidence or incriminating material has been referred to by the investigation wing. Ld. AR placed his reliance on the decision of CIT vs. Best Infrastructure Private Limited (397 ITR 82), wherein Hon’ble Delhi High Court has held that the statements recorded u/s 132(4) of the Act do not, by themselves, constitute incriminating material and in support of the same, Hon’ble Court placed their reliance upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Harjeev Aggarwal (70 taxmann.com 95). The assessee also placed reliance on the decision of ITAT Mumbai in the case of Deepak Kakubhai Mehta vs. DCIT-Central Circle-4(1) (ITA No. 6505 / MUM 2025 dated January 6, 2026), wherein the Hon'ble Tribunal held that a statement 5

Regarding submissions, it is submitted that the assessee, due to paucity of time could not furnish certain documents before the Ld. AO. However, to justify the identity, creditworthiness of the lenders and genuineness of the transactions, the assessee has furnished all such documents and additional evidence before the Ld. CIT(A) during the remand proceedings for examinations of the Ld. AO. Such documents were loan confirmation of M/s. Needful Financial Consultants Pvt Ltd., bank statement, ledger account, ITR acknowledgement and copy of PAN number. It is further clarified by the Ld. Counsel of the assessee that the assessee has received a loan of Rs.5 lakhs only in the year under consideration and the balance of Rs. 1,73,00,000/- was received in an earlier year. The Ld. AO therefore has made the addition on entire amount which shows that there was no independent investigation by the Ld. AO and has simply relied upon the information supplied by the investigation wing. It was the submission that the assessee has discharged his primary onus for establishing genuineness as well as creditworthiness of NFCPL, whereas the Revenue could not bring on record any corroborative evidence in support of the allegation that unsecured loans which have been repaid subsequently is nothing but an accommodation entry that has 6

Ld. AR further raised a contention that the assessee was not allowed cross- examination of Mr. Agarwal, whereas the assessee has specifically requested for cross-examination before the Ld. AO and also before the Ld. CIT(A). The entire addition was made on the basis of statements and has resulted in serious consequences to the assessee. Therefore, cross-examination ought to have been granted to the assessee, failure to do so vitiates the entire addition. Further without prejudice, Ld. Counsel submitted that only credit entries made during the year under consideration can be brought to tax, it is established that only unsecured loan obtained by the assessee from NFCPL in the year under consideration for Rs.5 lakhs. Therefore, the question of adding opening balance u/s 68 of the Act does not arise. It was the submission that even on merits, no addition can be made u/s 68 of the Act. Consequently, the alleged commission paid by the assessee that has been added u/s 69A of the Act also ought to be deleted.

For AY 2017-18, it is submitted by the Ld. Counsel of the assessee that a similar addition u/s 68 was made for Rs.55 lakhs with respect to an unsecured loan received by the assessee from M/s. Namaste Management Private Limited and an unexplained money u/s 69A for Rs.55,000/- alleging that the unsecured loan and commission thereupon are accommodation entries. It is submitted that

During the course of assessment proceedings, the assessee was show- caused to explain the nature and source of unsecured loan received by assessee within the meaning of section 68 of the Act. The assessee vide letter dated 24th September, 2021 had furnished the documents such as loan confirmation, ITR acknowledgement, balance sheet, P & L account, bank statement and also requested for cross-examination of parties on whose statement’s, reliance was placed by the Ld. AO. It is also submitted that an affidavit was furnished stating retraction from statements by Mr. Arvind Kumar Kayan. The Ld. AO has made the addition solely relying upon the statement of Mr. Arvind Kumar Kayan dated July 30, 2019 recorded u/s 133A(3)(iii) of the Act, which was recorded during the course of survey on NMPL.

The matter was carried before the Ld. CIT(A), however, the assessee remained unsuccessful as the contentions raised are rejected and the appeal of assessee was dismissed.

It is further submitted that NMPL had approached Hon’ble National Company Law Tribunal in connection with the loan that it had advanced to the assessee. The application was subsequently dismissed as withdrawn. The fact that NMPL had taken legal recourse against the assessee establishes that unsecured loan transactions were genuine. Finally, the assessee amicably settled the dispute by repaying the loan. It was therefore, the prayer that the Ld. AO solely relied on the statement of Mr. Arvind whereas such statements were subsequently withdrawn. Therefore, in absence of any corroborative evidence, no reliance can be placed on such statements. Accordingly, it is prayed that addition made u/s 68 and consequential interest u/s 69A of the Act ought to be deleted.

We have considered the rival submissions, perused the material available on record and the case laws relied upon by the assessee. On examination of the assessment order as well as the order of the Ld. CIT(A), we find that neither of the said orders refers to any incriminating material, in the nature of any document, asset, books of account or other material evidence, which was found and seized during the course of search action at the premises of the assessee and which could form the basis for the additions made for the years under consideration. The additions have, essentially, been founded upon statements recorded from various persons, including persons alleged to be entry operators, 10

We further find that, under materially similar circumstances, the coordinate Bench of the Tribunal, Mumbai, in the case of Deepak Kakubhai Mehta v. DCIT, Central Circle-4(1) in ITA No. 6505/Mum/2025, has examined the scope of jurisdiction under section 153A of the Act and held that, although section 153A confers jurisdiction upon the Assessing Officer to assess or reassess the six assessment years preceding the year of search, such jurisdiction, particularly in respect of completed/unabated assessment years, is subject to the settled judicial limitations governing the exercise of such power.

In respect of completed or unabated assessment years, the exercise of jurisdiction under section 153A is circumscribed by the existence of incriminating material found during the course of search. The aforesaid principle stands authoritatively settled by the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC), wherein it has been held that, in the absence of incriminating material found during the course of search, no addition can be made in respect of completed/unabated assessments while framing an assessment under section 153A of the Act.

The observation of the Ld. CIT(A) that, in an appropriate case, a statement recorded during search proceedings may itself constitute evidence or may have corroborative value, cannot, by itself, dispense with the jurisdictional requirement applicable to an unabated assessment under section 153A. The question in the present case is not merely whether a statement constitutes evidence, but whether the material relied upon by the Assessing Officer constitutes incriminating material found during the course of search so as to validly support the impugned additions in respect of unabated assessment years. On the facts recorded in the assessment order and the appellate order, no such search-found incriminating material has been identified.

In the absence of any incriminating material found during the course of search relatable to the impugned additions, the Assessing Officer could not have validly assumed jurisdiction under section 153A to disturb the completed assessments for the aforesaid assessment years by making the additions in question. The jurisdictional foundation for making the impugned additions is, therefore, absent. Accordingly, the additions made for Assessment Years 2016- 17 and 2017-18 cannot be sustained in the assessments framed under section 153A.

We, accordingly, set aside the orders of the Ld. CIT(A) in respect of the impugned additions and direct deletion thereof for Assessment Years 2016-17 and 2017-18. Accordingly, ITA Nos. 44 and 74/Mum/2026, filed by the assessee for Assessment Years 2016-17 and 2017-18 respectively, are allowed on the aforesaid legal ground.

The case of assessee was re-opened u/s 153A and decided by order dated 30.09.2021. The issue herein is also identical to the issues for AYs 2016-17 and 2017-18. However, there are certain variation of facts, therefore, this appeal is being adjudicated separately under the following observations:

The year under consideration i.e., AY 2018-19 is admittedly an abated year, therefore, the issue incriminating material found during the search action shall not apply in the present case.

Before us, Ld. AR of the assessee submitted that the Ld. AO had made addition of Rs.18,50,50,000/- for receipt of unsecured loan from the following parties – (i) M/s. Needful Management Pvt. Ltd. (NMPL) – Rs.13,55,00,000/- (ii) M/s. Ganak Conglomerate Private Limited (GCPL) – 4,95,50,000/-

Further, the Ld. AO also made an addition u/s 69A for Rs.18,50,500/- alleging that 1% commission would have paid on such accommodation entries in the form of unsecured loans. Regarding doubt of Ld. AO qua the alleged

The Ld. AR after briefing the aforesaid facts of the case has raised his contentions that the assessee had discharged its primary burden by bringing material on record in support of the transactions of obtaining unsecured loans from NMPL and GCPL. The assessee in assessment proceedings as well as the appellate proceedings submitted documentary evidence. It is submitted that the Ld. AO as well as the Ld. CIT(A) commented adversely upon the document furnished by the assessee without simply relying on the statement of Mr. Arvind Kumar Kayan which was withdrawn immediately on the next day. It is submitted regarding a loan obtained from NMPL that it was nothing but transfer of an unsecured loan taken by the assessee from M/s Ignited Real Estate Pvt Ltd. (IREPL), which was taken over by NMPL during the year under consideration. It was an unsecured loan obtained from IREPL which was transferred or taken over by NMPL. In the year under consideration, no fresh unsecured loan was obtained by assessee from NMPL. The assessee further submits that from the ledger of NMPL, the assessee has made part payment of Rs.19,00,000/- to NMPL. The assessee furnished acknowledgement of return of income of NMPL wherein it is evident that NMPL disclosed a total income of Rs.27,83,960/-. Further from balance sheet of NMPL, it is clear that its financial health is robust as it has a balance sheet of NMPL earned profit before tax of Rs.27,74,353 in the year under consideration. Similar submissions were made with respect to GCPL 16

Per contra, Ld. DR relied upon the decision of Ld. CIT(A) and Ld. AO.

We have considered the rival submissions and perused the materials available on record. For AY 2018-19. Admittedly the assessee has received unsecured loans of Rs.18,50,50,000/- from two concerns – (i) NMPL and (ii) GCPL. The assessee submitted necessary primary documents before the Ld. AO and also submitted that the statements of Mr. Arvind Kumar Kayan, which constitutes the principal foundation for additions, were retracted on the next day on which the statements were recorded.

We have gone through the retraction statement of Shri Arvind Kumar Kayan placed at pages 135 to 137 of the assessee’s paper book. It is noticed that, by letter dated 14th August, 2019 addressed to the Ld. Assessing Officer, Shri Kayan stated that his statements had been recorded during the course of survey proceedings conducted at the office premises of M/s. Namaste Management Pvt. Ltd. and M/s. Ganak Conglomerate Pvt. Ltd. on 30th July, 2019. The grievance articulated in the said letter was that his signatures had been obtained on certain documents/papers without affording him an opportunity to go through or peruse the contents thereof. The affidavit annexed to the said letter is also substantially 17

On a careful perusal of the aforesaid retraction, we find that, apart from describing the communication as a “submission of my retraction of statement recorded u/s 133A of the Act”, the substantive grievance raised therein is essentially with regard to the circumstances in which the signatures of Shri Kayan were obtained on the documents/papers. The retraction does not, in specific terms, identify the particular statements, assertions or documents recorded/signed by him which, according to him, were factually incorrect, nor does it set out any detailed explanation demonstrating how the contents thereof were contrary to the contemporaneous documentary evidence or other facts available on record. Thus, the evidentiary significance of the retraction, as a matter of fact, has to be appreciated in the context of its contents and the material available on record, rather than merely on the nomenclature given to the communication.

At the same time, it is the specific contention of the assessee that the statements of Shri Kayan were relied upon by the Assessing Officer for drawing adverse inferences in respect of the unsecured loans received from NMPL and GCPL, whereas no opportunity of cross-examination of Shri Kayan was afforded to the assessee. We find that, although this contention has been specifically raised

We therefore find it necessary to examine the evidentiary foundation of the impugned additions in the light of the statements relied upon by the Assessing Officer, the subsequent retraction, the documentary material furnished by the assessee in support of the loan transactions, and the assessee’s specific grievance regarding non-affordance of cross-examination. These aspects require consideration with reference to the material available on record and the manner in which the statements have been utilised for drawing the adverse inference against the assessee.

Regarding merits of the facts, the Ld. CIT(A) had made certain observations qua each of the parties which are as under:

We further find that the material on record, including the activities of the lender companies and the manner in which the funds were routed through various entities before ultimately reaching the coffers of the assessee-company, requires a more comprehensive factual examination. The findings recorded by the Ld. CIT(A), considered in the light of the material placed before us, do not sufficiently address the entire factual chain of the transactions. Equally, the documentary material relied upon by the assessee requires examination in its entirety, particularly with reference to the financial capacity of the lenders, the

As regards the retraction of Shri Arvind Kumar Kayan, we find that the same, on its plain reading, is not specific with reference to the particular allegations emerging from his statements which have subsequently been relied upon by the Revenue Authorities against the assessee. In particular, the retraction does not specifically clarify whether the assertions attributed to Shri Kayan regarding the nature of the transactions, including the transactions stated by him to be bogus, were factually incorrect or whether the transactions referred to therein were, in fact, genuine. The evidentiary effect of the retraction, therefore, cannot be examined in isolation and requires to be considered along with the original statements, the documentary evidence furnished by the assessee and the other material relied upon by the Revenue.

At the same time, since the statements of Shri Kayan constitute an important part of the evidentiary foundation of the impugned additions and the assessee has specifically sought an opportunity to cross-examine him, we consider it appropriate that the assessee be afforded such opportunity in accordance with law. The evidentiary value of the statements, the effect of the subsequent retraction and the documentary evidence furnished by the assessee can thereafter be examined by the Assessing Officer in their proper factual context.

We further take note of the additional factual submission made before us that M/s. Namaste Management Private Ltd. is presently before the NCLT. This fact does not appear to emerge from the orders of the authorities below and, therefore, has not been subjected to factual verification or examination at the earlier stages. The said submission, along with supporting material, if any, shall also be examined by the Ld. Assessing Officer in accordance with law, without being influenced by any observation contained herein on the ultimate merits of the transactions.

In view of the foregoing discussion, and without expressing any opinion on the genuineness, creditworthiness or taxability of the impugned transactions, we deem it appropriate to restore the issues raised by the assessee to the file of the Ld. Assessing Officer for fresh examination and de novo adjudication. The

In the result, the appeal of the assessee for AY 2018-19 is allowed for statistical purposes.

Any other contention raised by the assessee in the grounds of appeal which is not argued before us stands dismissed as not pressed. However, the assessee would be at liberty to raise such grounds before the authorities below.

In combined result, appeals of assessee for AYs 2016-17 and 2017-18 are allowed in above terms, whereas the appeal for AY 2018-19 is allowed for statistical purposes.