SAPPHIRE DEVELOPERS,MUMBAI vs. ACIT, CENTRAL CIRCLE 8(2), MUMBAI

Assessment year 2013-14 is taken as the lead year, since the assessment order for the said year contains the detailed discussion concerning the nature of the material relied upon by the Assessing Officer as incriminating material. The orders for the subsequent assessment years substantially adopt or extend the findings recorded in the lead year. The year-wise particulars of the assessment and appellate proceedings are as under:

The assessee, M/s Sapphire Developers, is a partnership firm stated to be engaged in the business of real estate development. A search and seizure action under section 132 of the Act was carried out on 04.10.2018 at the business premises of M/s Shine Shilpi Jewellers Pvt. Ltd. and its group entities. On account of the common

Notices under section 153A of the Act were issued on 23.11.2019. In response thereto, the assessee filed returns of income on 04.02.2020 declaring nil income for the assessment years under consideration. Thereafter, notices under sections 143(2) and 142(1) were issued calling for the requisite details. The assessment orders available for assessment years 2014-15 to 2017-18 record that the notice under section 143(2) was issued on 20.02.2020. The assessee furnished replies and supporting documents from time to time through its authorised representative.

Vide notice dated 20.02.2020, the Assessing Officer called upon the assessee to furnish the ledger account of the lender, the bank statement of the assessee, the return of income and financial statements of the lender and evidence establishing the identity and creditworthiness of the lender and genuineness of the transaction. The

In response to the show-cause notice, the assessee filed a detailed reply dated 12.04.2021. It was submitted that the loan had been advanced by the lender through regular banking channels and that there was no cash deposit in the bank account of the lender immediately preceding the advancement of the loan. According to the assessee, requiring it to establish that the funds credited in the bank account of the lender belonged to the lender would amount to calling upon it to establish the source of the source.

The assessee submitted that M/s Antique Exim Pvt. Ltd. was a company duly incorporated and registered with the Registrar of Companies, held a valid Permanent Account Number, maintained regular books of account and operated through a disclosed bank account. The assessee also relied upon the financial statements available on the website of the Ministry of Corporate Affairs and contended that the same constituted authentic statutory records of the lender.

It was further submitted that the lender had advanced only Rs.1,00,00,000/- to the assessee. The loan had been received and

As regards the spot verification, the assessee submitted that it was not aware of the basis on which it had been stated that the lender was not operating from its registered address. It was contended that the lender might have shifted its premises or might not have been available at the registered address at the particular point of time. According to the assessee, the mere non-availability of the lender at its registered address during a particular visit could not displace its statutory records, bank account, income-tax particulars and confirmation of the transaction.

The assessee also contended that no incriminating document, loose paper, digital record or other material was found during the course of the search to suggest that the unsecured loan received from M/s Antique Exim Pvt. Ltd. was non-genuine or represented an accommodation entry. It was submitted that the assessment for the relevant assessment year had already attained finality and, therefore, no addition could be made in the proceedings under section 153A in the absence of incriminating material found during the search. The assessee maintained that the interest expenditure of Rs.3,11,301/- was consequential to a genuine loan and could not be treated as unexplained expenditure under section 69C of the Act.

The assessment order does not refer to any particular seized document, loose paper, electronic record or entry found from the premises of the assessee evidencing that the loan of Rs.1,00,00,000/- represented an accommodation entry. The Assessing Officer, however, relied upon the following statements, inquiries and circumstances in support of his conclusion that the transaction was not genuine:

In paragraph 4.1 of the assessment order, the Assessing Officer referred to the statement of Shri Pramod Mehta, a director of M/s Shine Shilpi Jewellers Pvt. Ltd., recorded under section 132(4) of the Act. The Assessing Officer recorded that Shri Pramod Mehta stated that the loans had been arranged through an agent at Surat, but he could not furnish the name or address of the agent. It was further recorded that no agreement had been entered into with the lender or the agent.

In paragraph 4.3, the Assessing Officer referred to the statement of Shri Shilpin Tater, who was stated to be connected with the partner of the assessee firm. The material portion of paragraph 4.3 reads as under:

The Assessing Officer treated the inability of the persons connected with the assessee’s group to furnish the address and contact particulars of the lender or the identity of the agent through whom the loans were allegedly arranged as a circumstance casting doubt upon the identity of the lender and the genuineness of the loan transaction.

Paragraph 4.4 of the assessment order records that, during the search action, the ADIT (Investigation) conducted spot verification at the registered address of M/s Antique Exim Pvt. Ltd., namely, A-104, Shailalekh Commercial Co-operative Society, Bhojabhai Ni Sheri, Mahidharpura, Surat, Gujarat-395003. The Assessing Officer

During the course of the spot verification, the ADIT (Investigation) recorded the statement of Shri Pravinbhai Jasoliya under section 131 on 05.10.2018. The assessment order records that Shri Jasoliya claimed to be the head of the society, collected maintenance through the watchman and had worked in the society for about ten years. According to him, Flat No.104 remained closed and was opened only occasionally for cleaning.

In paragraphs 4.6 and 4.6.1, the Assessing Officer also referred to the inability of the assessee to produce the lender. The assessee had requested the Department to exercise its statutory powers and summon the lender directly. The Assessing Officer did not accept the request as sufficient compliance and observed that the Department had already conducted spot verification and the lender had not been found at its registered address. He further observed that the assessee had not furnished any alternative address or contact particulars through which the lender could be reached.

Paragraph 4.5 records that, in response to the summons issued under section 131, M/s Antique Exim Pvt. Ltd. furnished its acknowledgment of return, ledger account and bank statement by post. According to the Assessing Officer, however, the lender did not furnish its complete financial statements in response to the summons. The assessee subsequently furnished an unsigned standalone balance sheet stated to have been downloaded from the website of the Ministry of Corporate Affairs.

In paragraphs 5.1 to 5.3, the Assessing Officer examined the aggregate loans advanced by M/s Antique Exim Pvt. Ltd. to the assessee and the other group concerns. For the financial year 2012- 13, he quantified such loans at Rs.7,41,30,000/-. He also recorded that the lender had disclosed turnover of approximately Rs.229.13 crore, but had shown net profit before tax of approximately Rs.3,23,000/-, returned income of approximately Rs.3,15,000/-, share capital of Rs.5,00,000/-, reserves and surplus of Rs.8,23,000/- and fixed assets of approximately Rs.17,000/-.

On the basis of the aforesaid financial particulars, the Assessing Officer held that the negligible profits, reserves and fixed assets of the lender were inconsistent with the magnitude of its turnover and the loans advanced to the assessee and the other group concerns. He consequently held that the lender did not possess genuine financial capacity to advance the loans.

In paragraph 5.4, the Assessing Officer referred to a separate search and seizure action under section 132 conducted by Investigation Unit-4(1), Mumbai, in the case of Shri Deepak Bhanwarlal Jain on 10.11.2019. The statement of Shri Deepak Jain was recorded under section 132(4). As reproduced in the assessment order, Shri Deepak Jain stated that five companies in which he was a director, including M/s Surya Diamond Pvt. Ltd. and M/s Sanmati Gems Pvt. Ltd., were paper companies used for providing accommodation entries.

Paragraph 5.4.3 records that, according to the KYC information obtained from the bank, M/s Antique Exim Pvt. Ltd. maintained a bank account at the Opera House Branch, Mumbai, and that the said account was connected with the entities referred to in the statement of Shri Deepak Jain. The Assessing Officer recorded the following conclusion:

In paragraph 5.4.4, the Assessing Officer recorded that the bank statements of M/s Surya Diamond Pvt. Ltd. and M/s Sanmati Gems Pvt. Ltd. had been obtained during the assessment proceedings. The assessment order reproduces a detailed fund-flow statement to demonstrate transfers between those entities and M/s Antique Exim Pvt. Ltd. The Assessing Officer concluded that the funds received by M/s Antique Exim Pvt. Ltd. from entities associated with Shri Deepak Jain were thereafter transferred to the assessee, the other group concerns and other beneficiaries.

In paragraphs 7.1 to 7.6, the Assessing Officer summarised the circumstances on which the proposed addition was founded. These comprised the non-availability of the lender during spot verification; the inability of persons connected with the assessee’s group to furnish complete particulars concerning the lender and the alleged agent; the failure of the assessee to produce the lender; the financial position of the lender; the statement of Shri Deepak Jain; and the movement of funds from companies associated with Shri Deepak Jain to M/s Antique Exim Pvt. Ltd.

The Assessing Officer did not accept the contention of the assessee that the assessment for the relevant year could not be disturbed in the absence of incriminating material found during the search. In paragraph 10.2, the Assessing Officer did not refer to any particular seized document or digital record. He treated the failure of the assessee to establish the requirements of section 68 and the surrounding circumstances noticed by him as incriminating in nature. The relevant portion of paragraph 10.2 reads as under: “In addition to this, as various judicial pronouncement as discussed in para 8 of this order and section 68 required the creditworthiness of the lender party to be proved by assessee. when the assessee claimed unsecured loans and failed to prove the creditworthiness of lender party, failed to produce the

On the basis of the aforesaid material and circumstances, the Assessing Officer held in paragraph 11 that the assessee had failed to establish the creditworthiness of the creditor and genuineness of the loan transaction during the search, post-search proceedings and assessment proceedings. Accordingly, the unsecured loan of Rs.1,00,00,000/- was added under section 68 of the Act. In paragraph 12, the corresponding interest expenditure of Rs.3,11,301/- was treated as non-genuine and disallowed under section 69C. The total income was consequently assessed at Rs.1,03,11,300/-.

Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). The assessee challenged the validity of the addition made under section 153A on the ground that assessment year 2013-14 was a completed or unabated assessment year and that no incriminating material pertaining to the impugned loan transaction had been found during the search.

The assessee submitted that the statement of Shri Pramod Mehta merely indicated that the loans had been arranged through an agent. According to the assessee, the inability of Shri Pramod Mehta or the other persons connected with the group to furnish particulars of the agent could not, by itself, constitute incriminating material establishing that the loan represented undisclosed income of the assessee.

It was further contended that the material gathered during post- search inquiries, bank-account analysis undertaken in the assessment proceedings and the statement recorded during the separate search on Shri Deepak Jain could not be equated with incriminating material found during the search of the assessee. The assessee also disputed the reliance placed upon third-party statements without furnishing complete copies thereof and without affording an effective opportunity of rebuttal and cross-examination.

On the merits, the assessee reiterated that the identity and creditworthiness of the lender and genuineness of the transaction stood established through the confirmation, Permanent Account Number, return of income, financial statements, bank statements and ledger account of M/s Antique Exim Pvt. Ltd. It was submitted that the loan was received and repaid through banking channels and that the interest had been paid after deduction of tax at source.

During the appellate proceedings, the assessee furnished additional evidence comprising a confirmation letter and supporting documents from M/s Antique Exim Pvt. Ltd. The additional evidence was forwarded by the CIT(A) to the Assessing Officer for examination. In the remand proceedings, summons under section 131 were issued to the lender. Shri Shantilal Paldecha, Director of M/s Antique Exim Pvt. Ltd., appeared before the Assessing Officer on 25.04.2025 and his statement was recorded. The Assessing Officer thereafter submitted his remand report dated 29.04.2025.

In its rejoinder dated 09.10.2025, the assessee submitted that the appearance of the director of the lender, his confirmation of the transaction and the documents furnished by him established the identity of the lender and genuineness of the transaction. It was further submitted that the lender had advanced the loan out of its business funds and that the loan had subsequently been repaid through regular banking channels.

The CIT(A), in paragraphs 9.1.1 to 9.1.7 of the impugned order, considered the challenge to the validity of the assessment under section 153A. The CIT(A) accepted that assessment year 2013-14 was a completed or unabated assessment year as on the date of the search. He, however, rejected the contention that no incriminating material had been found during the search.

In paragraph 9.1.2, the CIT(A) expressed the view that incriminating material was not confined to physical books of account or documents seized during the search but included statements recorded under section 132(4) and the results of immediate field

In paragraph 9.1.3, the CIT(A) treated the spot verification carried out at the registered address of M/s Antique Exim Pvt. Ltd. as incriminating material. According to him, the failure to find the lender operating from its registered address and the statement of the person connected with the society directly cast doubt upon the existence of the lender and the genuineness of the loan transaction.

In paragraph 9.1.4, the CIT(A) treated the statements of Shri Pramod Mehta and Shri Shilpin Tater recorded under section 132(4) as incriminating evidence. He held that the statement that the loans had been arranged through agents, when considered with their inability to furnish the particulars of those agents or to substantiate the lenders during the search, created a direct link between the search proceedings and the conclusion that the entries were not genuine.

In paragraphs 9.1.5 and 9.1.6, the CIT(A) considered the subsequent appearance of the director of the lender during the remand proceedings. The material findings recorded by the CIT(A) read as under: “The appellant has relied heavily on the Remand Report where the director of Antique Exim Pvt Ltd appeared in 2025 (seven years after the search) to claim they were operating. However, this subsequent appearance during remand proceedings does not erase the ‘incriminating material’ found at the time of the search in 2018.”

In paragraph 9.1.7, the CIT(A) concluded that the statements recorded during the search and the spot-verification findings constituted incriminating material for the purposes of section 153A. The jurisdictional grounds raised by the assessee were accordingly dismissed.

On the merits, the CIT(A), in paragraphs 9.2.1 to 9.2.6, relied upon the alleged layering of funds, the negligible profits and assets of the lender, its non-availability at the registered address and the statements recorded during the search. The CIT(A) held that the subsequent appearance of the director of the lender did not negate the circumstances recorded contemporaneously during the search.

The CIT(A) further held that the documents furnished by the assessee, the movement of funds through banking channels, deduction of tax at source and subsequent repayment of the loan were not, by themselves, sufficient to establish the creditworthiness of the lender and genuineness of the transaction. Accordingly, the addition of Rs.1,00,00,000/- under section 68 and the disallowance of interest expenditure of Rs.3,11,301/- were sustained.

The controversy in the remaining assessment years also concerns the loans received from M/s Antique Exim Pvt. Ltd. and M/s Vallabh Diamond Pvt. Ltd. and the interest expenditure claimed

In assessment year 2014-15, the assessee furnished a detailed reply dated 12.04.2021 to the show-cause notice dated 06.04.2021. It was submitted that M/s Antique Exim Pvt. Ltd. had advanced only Rs.23,00,000/- to the assessee, that the transaction had been undertaken through regular banking channels, that interest had been

The Assessing Officer did not accept the explanation. He relied substantially upon the statements recorded during the search, the spot verification at the address of the lender, the inability of the assessee to produce the lender and the movement of funds in the bank account of the lender. He also noted that M/s Antique Exim Pvt. Ltd. had returned income of approximately Rs.7.88 lakh against turnover of approximately Rs.356.63 crore and had advanced aggregate loans of approximately Rs.3.34 crore to the assessee and the other group entities. The Assessing Officer added the loan of Rs.23,00,000/- under section 68 and disallowed the corresponding interest expenditure of Rs.10,22,822/-.

In assessment year 2015-16, no fresh loan was added under section 68. The assessee, in its reply dated 12.04.2021, referred to the detailed explanations furnished for assessment years 2013-14 and 2014-15 and maintained that the loan received from M/s Antique Exim Pvt. Ltd. was genuine. The Assessing Officer, following the findings recorded in the earlier assessment years, disallowed the interest expenditure of Rs.12,12,750/- pertaining to the said loan.

In assessment year 2016-17, the assessee had received loans of Rs.1,50,00,000/- from M/s Antique Exim Pvt. Ltd. and Rs.1,31,00,000/- from M/s Vallabh Diamond Pvt. Ltd. In its reply dated 20.04.2021, the assessee made substantially similar submissions concerning the identity and creditworthiness of the

The Assessing Officer did not accept the explanation and added the aggregate loan amount of Rs.2,81,00,000/- under section 68. The corresponding interest expenditure of Rs.17,98,736/- paid to M/s Antique Exim Pvt. Ltd. and Rs.5,89,992/- paid to M/s Vallabh Diamond Pvt. Ltd., aggregating to Rs.23,88,728/-, was also disallowed.

In assessment year 2017-18, no fresh loan was added under section 68. The assessee, in its reply dated 20.04.2021, referred to the explanations furnished for assessment years 2014-15 and 2016-17 and contended that the loans received from M/s Antique Exim Pvt. Ltd. and M/s Vallabh Diamond Pvt. Ltd. were genuine. The Assessing Officer, following the conclusions recorded in the earlier years, disallowed interest expenditure of Rs.27,57,218/- paid to M/s Antique Exim Pvt. Ltd. and Rs.12,26,700/- paid to M/s Vallabh Diamond Pvt. Ltd., aggregating to Rs.39,83,918/-.

Before the CIT(A), the assessee raised substantially common jurisdictional and substantive contentions for the remaining assessment years. It was contended that the assessments were completed or unabated assessments and that no incriminating

On the merits, the assessee reiterated that the loans were supported by confirmations, Permanent Account Numbers, returns of income, audited financial statements, bank statements and ledger accounts of the lenders. It was submitted that the loans and interest payments had been routed through regular banking channels, that tax had been deducted at source on the interest payments and that the principal amounts had subsequently been repaid.

During the appellate proceedings, the assessee furnished additional evidence comprising confirmation letters and supporting documents from the lenders. The evidence was forwarded to the Assessing Officer for examination. The Assessing Officer furnished a remand report dated 29.04.2025. In the remand proceedings, summons under section 131 were issued to the lenders. Shri Shantilal Paldecha, Director of M/s Antique Exim Pvt. Ltd., and, in relation to assessment year 2016-17, Shri Ashok Vaishnav, Director of M/s Vallabh Diamond Pvt. Ltd., appeared before the Assessing Officer on 25.04.2025 and their statements were recorded.

In the rejoinders filed before the CIT(A), the assessee submitted that the directors of the lenders had confirmed their respective business activities, registered addresses, advancement of the loans and receipt of interest. They also furnished their Permanent Account Numbers, returns of income, financial statements, ledger accounts

In relation to assessment year 2016-17, the assessee pointed out that M/s Antique Exim Pvt. Ltd. had reported turnover of approximately Rs.625.11 crore and M/s Vallabh Diamond Pvt. Ltd. had reported turnover of approximately Rs.379.30 crore. It was contended that the appearance of the directors and the documents furnished during the remand proceedings established the existence and financial capacity of the lenders and genuineness of the transactions.

The CIT(A), following substantially the same reasoning as recorded in the lead assessment year 2013-14, did not accept the jurisdictional or substantive contentions of the assessee. He held that the statements recorded under section 132(4), the inability of persons connected with the group to explain the manner in which the loans had been arranged, the spot verification at the registered addresses of the lenders and the statements recorded from the persons connected with those premises collectively constituted incriminating material.

On the merits, the CIT(A) held that the documents furnished by the assessee, movement of funds through banking channels, deduction of tax at source and subsequent repayment of the loans were not, by themselves, sufficient to establish the creditworthiness of the lenders and genuineness of the transactions. He relied upon the non-availability of the lenders at their registered addresses during spot verification, the comparatively low profits, reserves, assets and

The CIT(A) further held that the subsequent appearance of the directors of the lender companies during the remand proceedings, approximately six years after the search, did not efface the contemporaneous findings recorded during the search and spot verification. According to him, the magnitude of the turnover disclosed by the lenders, when considered with their negligible profits, assets and infrastructure, did not establish genuine financial capacity.

The CIT(A) accordingly sustained the additions of Rs.23,00,000/- and Rs.2,81,00,000/- made under section 68 for assessment years 2014-15 and 2016-17 respectively. He also sustained the disallowance of interest expenditure of Rs.10,22,822/-, Rs.12,12,750/- and Rs.23,88,728/- for assessment years 2014-15, 2015-16 and 2016-17 respectively.

While sustaining the interest disallowances for assessment years 2014-15 to 2016-17, the CIT(A) observed that, if the interest expenditure had been debited to the profit and loss account, it would constitute a simple disallowance of expenditure and that section 69C would apply only if the expenditure was not reflected in the books of account. The appeals for these assessment years were dismissed.

Insofar as assessment year 2017-18 is concerned, the introductory and factual portions of the impugned appellate order correctly identify the assessee as M/s Sapphire Developers, the

The material relied upon by the Assessing Officer in the lead assessment year can, therefore, be classified into the following distinct categories:

The assessee is, therefore, in further appeal before us against the additions and disallowances sustained by the CIT(A). The assessee has raised substantially common grounds in all these appeals. Since assessment year 2013-14 has been taken as the lead year, the grounds raised in ITA No.4344/Mum/2026 for assessment year 2013-14 are reproduced below: Below mentioned grounds may be considered independently and without prejudice to one another :- 1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in upholding the order of the Ld. AO, whereby the Learned Assessing Officer has initiated proceedings and passed the assessment order under Section 153A of the Income Tax Act, 1961, which is bad in law, without jurisdiction, and liable to be quashed.

The grounds raised in ITA No.4345/Mum/2026 for assessment year 2014-15 and ITA No.4347/Mum/2026 for assessment year 2016- 17 are identical to the grounds reproduced above, except for the quantum of the unsecured loans challenged in ground No.5 and the corresponding interest expenditure challenged in ground No.6. The year-wise variations are as under: ITA No. Assessment Ground No.5: Ground No.6: year addition under interest section 68 disallowance under section 69C 4344/Mum/2026 2013-14 Rs.1,00,00,000/- Rs.3,11,301/- 4345/Mum/2026 2014-15 Rs.23,00,000/- Rs.10,22,822/- 4347/Mum/2026 2016-17 Rs.2,81,00,000/- Rs.23,88,728/-

In ITA No.4346/Mum/2026 for assessment year 2015-16 and ITA No.4348/Mum/2026 for assessment year 2017-18, no addition in respect of any fresh unsecured loan has been challenged under section 68. Consequently, the ground corresponding to ground No.5 of the lead year does not appear in these two appeals. Ground Nos.1 to 4 are identical to ground Nos.1 to 4 reproduced above. Ground Nos.5 to 9 in these two appeals correspond to ground Nos.6 to 10 of the lead year,

Thus, ground Nos.1 to 4 in all the five appeals raise a common jurisdictional challenge to the assessments framed under section 153A, principally on the ground that no incriminating material was found during the search. The remaining grounds challenge, on merits and on the ground of violation of the principles of natural justice, the additions made under section 68 and the disallowance of the corresponding interest expenditure under section 69C, wherever applicable.

During the course of hearing before us, the learned Authorised Representative (AR) reiterated the facts and referred to the relevant portions of the assessment order and the impugned appellate order reproduced in the preceding paragraphs. The learned AR submitted that assessment year 2013-14 was an unabated assessment year and, therefore, the assessment already completed could not be disturbed under section 153A in the absence of incriminating material found during the course of the search.

The learned AR also placed on record written submissions dated 03.09.2026, filed pursuant to the directions issued during the hearing

Referring to paragraph 9 of the assessment order, the learned AR submitted that the Assessing Officer concluded that the assessee had failed to discharge the onus of establishing the identity and creditworthiness of the lender and genuineness of the transaction. He further observed that section 68 had been amended by the Finance Act, 2012, whereby the burden of establishing the creditworthiness of the creditor and genuineness of the transaction was cast upon the assessee. The learned AR submitted that these observations relate to the merits of the addition under section 68 and do not answer the jurisdictional objection raised by the assessee that, in respect of an unabated assessment, an addition under section 153A must be founded upon incriminating material found during the search.

The learned AR thereafter referred to paragraph 10 of the assessment order and submitted that the assessee had specifically relied upon the decision of the Special Bench of the Tribunal in All Cargo Global Logistics Limited reported in 16 ITR (Trib.) 380

The learned AR pointed out that, instead of dealing with the binding precedent of the Hon’ble jurisdictional High Court, the Assessing Officer, in paragraph 10.1, relied upon the decision of the Hon’ble Karnataka High Court in Canara Housing Development Co. reported in 274 CTR 122, which, according to the Assessing Officer, had taken a view contrary to the decision of the Special Bench in All Cargo Global Logistics Limited. The learned AR submitted that the Assessing Officer could not disregard the decision of the Hon’ble jurisdictional High Court merely because another High Court had expressed a different view.

Referring to paragraph 10.2, the learned AR submitted that the Assessing Officer rejected the objection of the assessee on the further ground that Special Leave Petition No.18506 of 2015 filed by the Revenue against the decision in Continental Warehousing Corporation (Nhava Sheva) Ltd. had been admitted by the Hon’ble Supreme Court on 12.10.2015. The learned AR contended that the mere admission of a Special Leave Petition did not efface or suspend the binding character of the judgment of the Hon’ble jurisdictional High Court.

The learned AR submitted that the aforesaid observations demonstrate that no document, loose paper, digital data or other material evidencing the alleged accommodation entry had been found during the search. According to him, the Assessing Officer treated the alleged failure of the assessee to discharge the onus under section 68 during the assessment proceedings as a substitute for incriminating material found during the search. The learned AR contended that the evidentiary requirements for sustaining an addition under section 68 could not be conflated with the jurisdictional requirement governing an addition in an unabated assessment under section 153A.

The learned AR submitted that the statements recorded during the search did not identify the impugned loan of Rs.1,00,00,000/- as an accommodation entry. Similarly, the spot verification at the registered address of the lender did not disclose any material showing that the funds received by the assessee belonged to it or represented its undisclosed income. The statement of Shri Deepak Bhanwarlal Jain was recorded during a separate search conducted on 10.11.2019, more than one year after the search in the case of the assessee’s group.

The learned AR also invited our attention to paragraphs 9.1.1 to 9.1.7 of the impugned order. Referring to paragraph 9.1.1, he submitted that the CIT(A) had expressly accepted that the assessment for assessment year 2013-14 was completed or unabated as on the date of the search. Thus, according to the learned AR, the applicability of the principle laid down by the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd. was not in dispute. The only question was whether any incriminating material pertaining to the impugned loan transaction had been found during the search.

Referring to paragraph 9.1.2, the learned AR submitted that the CIT(A) had proceeded on an unduly expanded understanding of the expression “incriminating material” by including within its scope all evidence gathered during the search, statements recorded under section 132(4) and the results of immediate field inquiries initiated as a consequence of the search. The relevant finding of the CIT(A), to which our attention was invited, reads as under: “Incriminating material” is not restricted to physical books of account but encompasses all evidence gathered during the search action, including statements recorded u/s 132(4) and the results of immediate field enquiries initiated as a direct consequence of the search.

The learned AR thereafter referred to paragraph 9.1.3 of the impugned order, wherein the CIT(A) treated the spot verification carried out at the registered address of M/s Antique Exim Pvt. Ltd. as a vital piece of incriminating material. The learned AR submitted that the company was treated as non-existent merely because it was not found operating from its registered address during the particular visit and on the basis of a statement recorded from a neighbour or society member. No books of account, document, money, bullion, jewellery, digital data or other material relating to the loan transaction was found during such verification. The learned AR contended that the temporary non-availability of a company at its registered address could, at the highest, give rise to a reason for further inquiry. It could not, by itself, establish that the company was a shell entity or that the loan advanced by it represented unaccounted income of the assessee. He emphasised that the lender was a company duly registered with the Registrar of Companies, held a valid Permanent Account Number, had filed its returns of income and maintained a disclosed bank account. The transaction was also recorded in the books of both parties.

The learned AR next referred to paragraph 9.1.4, wherein the CIT(A) held that the statements of Shri Pramod Mehta and Shri Shilpin Tater recorded under section 132(4) constituted incriminating evidence. The CIT(A) observed that these persons had admitted that the loans were arranged through agents and were unable to furnish the details of the agents or substantiate the genuineness of the lenders during the search.

In this regard, the learned AR submitted that the CIT(A) had incorrectly characterised the statements as containing an admission that the loans were non-genuine. The persons whose statements were recorded had neither admitted that the loans were accommodation entries nor stated that the loan amounts represented unaccounted income of the assessee. The statement that the loans had been arranged through an agent, coupled with the inability to furnish the particulars of the agent at the time of the search, could not be elevated to an admission that the loan transactions were bogus. According to the learned AR, there was no admission concerning any payment of cash, receipt of accommodation entries or introduction of the assessee’s own unaccounted funds.

Referring to paragraph 9.1.5, the learned AR submitted that the CIT(A) had declined to give due effect to the evidence collected during the remand proceedings merely because the director of M/s Antique Exim Pvt. Ltd. appeared in the year 2025. The learned AR pointed out that the director had appeared in response to summons issued under section 131 by the Assessing Officer and had confirmed the business

The learned AR contended that the evidence collected by the Assessing Officer in the remand proceedings formed part of the appellate record and could not be disregarded merely because it was produced subsequently. According to him, the appearance of the director and the documentary evidence furnished by the lender directly answered the doubts arising from the earlier spot verification. The CIT(A), therefore, ought to have considered such evidence on its merits instead of rejecting its evidentiary value only on account of the time elapsed after the search.

The learned AR invited our attention to paragraphs 9.1.1 to 9.1.7 of the impugned order. He pointed out that the CIT(A) had accepted that assessment year 2013-14 was a completed or unabated assessment year but had treated the statements recorded under section 132(4) and the results of the spot verification as incriminating material.

Referring to paragraphs 9.1.2 and 9.1.3, the learned AR submitted that the spot verification merely showed that M/s Antique Exim Pvt. Ltd. was not found operating from its registered address during the particular visit. No material relating to the loan of Rs.1,00,00,000/- was found during such verification. The temporary non-availability of the lender at its registered address could justify

Referring to paragraph 9.1.4, the learned AR submitted that the statements of Shri Pramod Mehta and Shri Shilpin Tater contained no admission that the loan was bogus, that cash had been paid in exchange for the loan or that the assessee’s unaccounted funds had been introduced. The mere statement that the loans were arranged through agents, coupled with the inability to furnish their particulars during the search, could not be treated as an admission that the transactions were non-genuine.

As regards paragraph 9.1.5, the learned AR invited our attention to paragraph 7 at pages 8 and 9 of the impugned order, wherein the CIT(A) reproduced the relevant portion of the remand report. He submitted that the remand report itself recorded that the director of M/s Antique Exim Pvt. Ltd. had appeared in response to summons issued under section 131, confirmed the business activities of the lender and the advancement, repayment and interest receipt relating to the loan, and furnished the returns of income, financial statements, ledger accounts and bank statements. According to the learned AR, this evidence formed part of the appellate record, answered the doubts arising from the earlier spot verification and could not be disregarded merely because it was furnished subsequently.

The learned AR submitted that a statement recorded under section 132(4), by itself and without corroboration from any material found during the search, could not constitute incriminating material. He relied upon the decision of the Hon’ble Delhi High Court in PCIT v. Anand Kumar Jain (HUF), reported in 432 ITR 384. Referring specifically to paragraph 7, he pointed out that the Hon’ble High Court held that the statement under section 132(4), which formed the foundation of the assessment, could not alone justify the addition when the Revenue had failed to produce any corroborative material.

The learned AR further relied upon the decision of the Co- ordinate Bench in Chandrika Mansukhlal Dodhia v. DCIT, IT(SS)A No.199/Mum/2025, order dated 15.04.2025. Referring to paragraph 6.1, he submitted that the Tribunal, after considering the

The learned AR also referred to the common order of the Co- ordinate Bench in DCIT v. Skyway Infra Projects Pvt. Ltd., ITA No.2665/Mum/2022 and connected appeals, order dated 18.11.2025. He submitted that the character of each item claimed to be incriminating material had to be examined with reference to its source, the stage at which it was obtained and its nexus with the particular addition. According to him, material gathered through subsequent inquiries or third-party proceedings could not be treated as incriminating material found during the search of the assessee.

Reliance was also placed upon the decision of the Delhi Bench of the Tribunal in Genus Apparels Ltd. v. DCIT, ITA No.44/Del/2021, order dated 26.11.2024. Referring to paragraph 7, the learned AR submitted that, where the Assessing Officer failed to refer to any incriminating material unearthed during the search in an unabated assessment, the addition made under section 153A was held to be unsustainable. He submitted that the same principle applied to the present appeals.

Per contra, the learned DR relied upon the assessment order and the impugned order. He submitted that the assessment was not founded upon suspicion or routine post-search inquiries, but upon prima facie incriminating material having a direct nexus with the

The learned DR further submitted that, despite summons under section 131, the lender furnished only limited documents and did not produce its audited financial statements, while the assessee also failed to produce the lender. The financial analysis undertaken by the Assessing Officer revealed negligible capital, reserves, fixed assets and returned income despite substantial loans advanced to the assessee and other group concerns. The learned DR also referred to the common order of the Surat Bench in ITA Nos.444, 445, 446, 468, 512, 518, 521 and 525/SRT/2023 for assessment year 2018-19, not as a precedent governing the present assessment years, but to explain the alleged modus operandi and the DRI observations concerning overvaluation of diamond imports, outward remittances and routing of funds through interconnected entities. Read with the statement of Shri Deepak Bhanwarlal Jain, the KYC records and bank- account analysis, the learned DR submitted that the material established the nexus of M/s Antique Exim Pvt. Ltd. with the accommodation-entry network.

The learned DR relied upon the decision of the Hon’ble Kerala High Court in CIT v. St. Francis Clay Decor Tiles, reported in 70 taxmann.com 234 (Ker.), for the proposition that statements recorded under section 132(4), when considered with other material

On the merits, the learned AR submitted that the assessee had furnished the lender’s confirmation, Permanent Account Number, returns of income, audited financial statements, bank statements and ledger account. The loan was received and repaid through banking channels and interest was paid after deduction of tax at source. He further submitted that, during the remand proceedings, the director of M/s Antique Exim Pvt. Ltd. appeared in response to summons under section 131, confirmed the transaction and furnished the relevant documents. No adverse finding regarding these documents or the confirmation of the lender was recorded in the remand report.

The learned AR submitted that, once the assessee had established the identity and creditworthiness of the lender and genuineness of the transaction, it could not be required to establish the source of the funds in the hands of the lender. He relied upon the decision of the Hon’ble Delhi High Court in PCIT v. KRBL Infrastructure Ltd., [2026] 486 ITR 88 (Delhi).

The learned AR also relied upon the common order of the Delhi Bench of the Tribunal in ACIT v. KRBL Infrastructure Ltd., ITA No.3963/Del/2019, order dated 08.06.2023. He submitted that the facts were comparable, since the lender therein had confirmed the

The learned AR accordingly submitted that the assessee had discharged the initial onus cast upon it under section 68 and that, in the absence of any adverse finding in the remand report or contrary material rebutting the documents furnished, the addition under section 68 and the consequential disallowance of interest could not be sustained.

On merits, the learned DR relied upon the findings of the Assessing Officer and the CIT(A). He submitted that the assessee had failed to discharge the onus under section 68 merely by furnishing confirmations, Permanent Account Numbers, returns of income and bank statements. The spot verification revealed that M/s Antique Exim Pvt. Ltd. was not carrying on business from its registered address. Further, despite summons under section 131 and repeated opportunities, complete audited financial statements were not furnished and the assessee failed to produce the lender before the Assessing Officer.

The learned DR submitted that the financial statements and bank accounts of M/s Antique Exim Pvt. Ltd. revealed negligible share capital, reserves, fixed assets and returned income, despite substantial turnover and advancement of aggregate loans of approximately Rs.7.41 crore to the assessee and other group concerns. The funds credited to its bank account were immediately

The learned DR further relied upon the statement of Shri Deepak Bhanwarlal Jain, the KYC records and the bank-account analysis of the connected entities. He submitted that the repeated routing of funds through entities operating bank accounts at the same branch established the connection of M/s Antique Exim Pvt. Ltd. with the accommodation-entry network. He also referred to the material concerning investigations into the activities of M/s Antique Exim Pvt. Ltd. and submitted that the surrounding circumstances outweighed the documents relied upon by the assessee.

For assessment year 2016-17, the learned DR made similar submissions regarding M/s Vallabh Diamond Pvt. Ltd. He pointed out that the lender had returned income of approximately Rs.3.94 lakh against turnover of approximately Rs.379.30 crore and had advanced aggregate unsecured loans of approximately Rs.7.21 crore despite negligible capital, reserves and fixed assets. He submitted that the immediate transfer of funds received from other entities showed an absence of independent financial capacity. Accordingly, he contended that the additions under section 68 and the consequential disallowances of interest in the respective assessment years deserved to be sustained.

In the rebuttal, the learned AR submitted that the statement of Shri Deepak Bhanwarlal Jain had subsequently been retracted and that neither the assessee nor M/s Antique Exim Pvt. Ltd. was named therein as a beneficiary or as an entity controlled by him. He further submitted that the entities referred to in the DRI investigation were not shown to be related to Shri Deepak Bhanwarlal Jain. The DRI observations relied upon by the learned DR concerned alleged overvaluation of diamond imports and transactions undertaken in a subsequent assessment year by different entities. According to the learned AR, such observations could not establish any nexus between the assessee’s loan transaction in the year under consideration and Shri Deepak Bhanwarlal Jain or the alleged accommodation-entry network.

Continuing his rebuttal, the learned AR submitted that Saffron Gems Pvt. Ltd., one of the entities referred to by the learned DR, was an existing assessee and had furnished its income-tax and statutory particulars. He relied upon the order in DCIT v. Shah and Parikh, ITA No.2624/Mum/2023, order dated 01.10.2025, and specifically referred to paragraph 22, wherein the Tribunal, after reproducing the relevant findings of the first appellate authority, observed as under: “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.” The learned AR submitted that the first appellate authority had examined the documentary evidence relating to the loans, including confirmations, returns of income, financial statements, bank statements, statutory data, interest, tax deducted at source and repayment. Therefore, according to him, the mere reference to transactions with Saffron Gems Pvt. Ltd. could not establish that M/s Antique Exim Pvt. Ltd. or its loan transaction with the assessee was non-genuine.

At the outset, it is necessary to distinguish between the Assessing Officer’s jurisdiction to issue notice and frame an assessment under section 153A and his power to make an addition in a completed or unabated assessment. The former arises upon a valid search under section 132. The latter, in the case of a completed or unabated assessment, is conditional upon the existence of incriminating material found during the search and having a nexus with the addition proposed to be made.

The legal position now stands concluded by the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd., [2023] 149 taxmann.com 399 (SC)/454 ITR 212 (SC). The relevant observations in paragraphs 11 to 14 read as under: “11. As per the provisions of Section 153A, in case of a search under section 132 or requisition under section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.…

The CIT(A), in paragraph 9.1.1 of the impugned order, expressly accepted that assessment year 2013-14 was a completed or unabated assessment year on the date of the search. Therefore, the decisive question is whether the material relied upon by the Assessing Officer constituted incriminating material found during the search and whether it bore a direct nexus with the loan of Rs.1,00,00,000/- received from M/s Antique Exim Pvt. Ltd.

On a careful examination of the assessment order, we find that the Assessing Officer has not identified any seized document, loose paper, digital data, unaccounted asset or unrecorded transaction showing that the impugned loan was an accommodation entry or represented the assessee’s undisclosed income. On the contrary, paragraph 3.1 of the assessment order records that the unsecured loans came to the notice of the Assessing Officer “from the details filed

In paragraphs 4.1 to 4.3 of the assessment order, the Assessing Officer referred to the statements of persons connected with the assessee’s group. The statements merely indicated that loans had been arranged through agents and that the persons examined could not immediately furnish the address or particulars of the lender or the agents. None of the persons admitted that the impugned loan was fictitious, that cash had been exchanged for a banking entry, or that the amount represented the assessee’s unaccounted money.

The CIT(A), in paragraph 9.1.4, characterised these statements as an “admission” of arranged loans. In our considered view, the statement that a loan was arranged through an agent is not equivalent to an admission that it was an accommodation entry. An inability to furnish the agent’s particulars may give rise to a doubt or justify further inquiry, but a suspicion requiring investigation cannot, without more, be treated as incriminating evidence revealing undisclosed income.

The evidentiary value of a statement recorded under section 132(4) was considered by the Hon’ble Delhi High Court in PCIT v. Anand Kumar Jain (HUF), 432 ITR 384 (Delhi). Paragraphs 7 and 8 read as under: “7. The preliminary question under consideration before us is whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) of the Act. A reading of the impugned order reveals that the statement of Mr. Jindal recorded under Section 132(4) forms the foundation of the assessment carried out under Section 153A of the Act. That statement alone cannot justify the additions

The Co-ordinate Bench in Chandrika Mansukhlal Dodhia v. DCIT, IT(SS)A No.199/Mum/2025, order dated 15.04.2025,

Tested against the aforesaid principles, the statements relied upon in the present case do not constitute incriminating material relating to the impugned loan. They are not connected with any seized document or other material revealing undisclosed income. More importantly, they contain no admission of an accommodation entry or of introduction of the assessee’s unaccounted funds.

The next item relied upon is the spot verification conducted at the registered address of M/s Antique Exim Pvt. Ltd. and the The next item relied upon is the spot verification conducted at the registered

The CIT(A), in paragraphs 9.1.3 and 9.1.5, elevated the lender’s non-availability at the address into a finding that the company was “physically non-existent” and was a shell entity. In our view, non- availability at a particular address and non-existence of a legal entity are not interchangeable propositions. The spot verification did not yield any document, digital record, evidence of cash exchange or other material concerning the impugned loan. At the highest, it provided a reason for further verification.

Paragraph 7 at pages 8 and 9 of the CIT(A)’s order reproduces the relevant portion of the remand report. It records that the director of M/s Antique Exim Pvt. Ltd. appeared before the Assessing Officer in response to summons under section 131, confirmed the business activities of the lender, advancement and repayment of the loan and receipt of interest, and furnished returns of income, financial

The learned DR relied upon CIT v. St. Francis Clay Decor Tiles, 385 ITR 624 (Ker.)/[2016] 70 taxmann.com 234 (Ker.), wherein the Hon’ble Kerala High Court observed in paragraph 18: “Thus viewing the provision in such manner, it is an admitted fact that the Managing Partner of the firms in question has given a voluntary statement to the Assessing Officer that there is an undisclosed income of Rs.2.75 Crores, which according to the learned counsel, was retracted by the Managing Partner subsequently.… Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke section 153A of the Income Tax Act, 1961.” 127. The said decision does not assist the Revenue. In that case, the managing partner had made a clear and voluntary disclosure of undisclosed income of Rs.2.75 crore during the search and books, including a day book and ledger, had also been seized. In the present case, there is neither an admission of undisclosed income nor any seized material relating to the impugned loan. Further, the Hon’ble Kerala High Court ultimately remanded the matter to the Tribunal. In any event, the scope of additions in completed or unabated assessments now stands conclusively settled by the subsequent decision of the Hon’ble Supreme Court in Abhisar Buildwell.

The common order in DCIT v. Skyway Infra Projects Pvt. Ltd. and connected appeals is also fact-specific. To the extent the Bench

The statement of Shri Deepak Bhanwarlal Jain cannot improve the Revenue’s case. It was recorded on 10.11.2019 during a separate search conducted more than one year after the search upon the assessee’s group. Paragraph 5.4 of the assessment order identifies the five companies allegedly connected with Shri Deepak Jain as M/s Manudhar Diamond Pvt. Ltd., M/s Siddhant Gems Pvt. Ltd., M/s Surya Diamond Pvt. Ltd., M/s Sanmati Gems Pvt. Ltd. and M/s Abhinandan Diamond Pvt. Ltd. Neither the assessee nor its lenders, M/s Antique Exim Pvt. Ltd. and M/s Vallabh Diamond Pvt. Ltd., find mention in the said list. The statement also does not identify the assessee as a beneficiary of any accommodation entry or refer to the impugned loan transactions. The learned AR has further stated that Shri Deepak Jain retracted the statement by an affidavit dated 18.11.2019. We need not adjudicate upon the validity or effect of the alleged retraction because, irrespective thereof, the statement was not material found during the assessee’s search and has no direct reference to the assessee or the impugned loans.

Likewise, the KYC particulars, bank statements and fund-flow analysis relied upon by the Assessing Officer were obtained or

The learned DR’s reference to the Surat Bench order relating to assessment year 2018-19 and the DRI observations concerning overvaluation of diamond imports, outward remittances and transactions involving other entities may be relevant to explain the alleged modus operandi relied upon by the Department. However, such observations neither formed part of the search conducted upon the assessee on 04.10.2018 nor identified the impugned loan in the years before us. They cannot retrospectively become incriminating material found during the assessee’s search.

The Assessing Officer’s reasoning in paragraph 10.2 of the assessment order is particularly significant. He observed: “When the assessee claimed unsecured loans and failed to prove the creditworthiness of lender party, failed to produce the lender party, failed to furnishing any address on which revenue can reached the said party, the said circumstances are itself are incriminating in nature as requirement of section 68 is not fulfilled. This is not a case of bogus purchase or sales where the any incriminating material in the form of any page, or digital data should be required….”

The aforesaid reasoning conflates two distinct requirements. The first is the jurisdictional requirement that incriminating material relating to the addition must have been found during the search in order to disturb a completed assessment. The second is the

The CIT(A) adopted a similar approach in paragraph 9.1.7 by holding that doubts regarding the identity and creditworthiness of the lender and genuineness of the transaction themselves constituted incriminating material. The finding cannot be sustained. The merits of an explanation under section 68 arise for consideration only after the jurisdictional threshold governing a completed assessment under section 153A is crossed.

We accordingly find that the material relied upon by the Revenue consists partly of statements and a field inquiry contemporaneous with the search which do not reveal the impugned loan to be undisclosed income, and partly of evidence gathered during a subsequent third-party search or during the assessment proceedings. Neither category satisfies the requirement laid down in Abhisar Buildwell. There is no incriminating material found during the assessee’s search having a direct nexus with the additions.

The Revenue has not controverted the assessee’s plea that the assessment years involved in these appeals were completed or unabated on the date of the search. No year-specific incriminating

The interest disallowances are based upon the Assessing Officer’s conclusion that the underlying loans were non-genuine. No independent incriminating material relating to the interest expenditure was found during the search. Consequently, the disallowances of interest also fall outside the permissible scope of the unabated assessments under section 153A.

We, therefore, hold that although the Assessing Officer assumed jurisdiction to issue notice and frame an assessment under section 153A consequent to the search, he could not make the impugned additions in the completed or unabated assessment year 2013-14 in the absence of incriminating material found during the search. Ground Nos.1 to 4 in ITA No.4344/Mum/2026 are accordingly allowed to this extent and the impugned additions and disallowances are deleted.

The facts and the jurisdictional issue involved in assessment years 2014-15 to 2017-18 are identical to those considered in the lead assessment year 2013-14. No independent year-specific incriminating material relating to the impugned loans or interest expenditure was found during the search. Accordingly, our findings recorded for assessment year 2013-14 shall apply mutatis mutandis to the remaining assessment years. Consequently, ground Nos.1 to 4 in the respective appeals are allowed and the additions and disallowances impugned therein are deleted.

Since the assessee succeeds on the jurisdictional issue in all the assessment years, the remaining grounds challenging the additions under section 68 and the disallowances under section 69C on merits, including the grounds concerning repayment, creditworthiness, source of source, cross-examination and the evidence furnished during the remand proceedings, are rendered academic and are left open. No finding on the merits of the loan transactions is recorded.

Having decided the jurisdictional issue in the lead assessment year 2013-14, we proceed to examine the consequences for the remaining assessment years. It is not in dispute that the assessments for assessment years 2014-15 to 2017-18 were also completed or unabated on the date of the search. Therefore, an addition in these years could be sustained only if it was founded upon year-specific incriminating material found during the search.

The facts and the jurisdictional issue involved in assessment years 2014-15 to 2017-18 are identical to those considered in the lead assessment year 2013-14. No independent year-specific incriminating material relating to the impugned loans or interest expenditure was found during the search. Accordingly, our findings recorded for assessment year 2013-14 shall apply mutatis mutandis to the remaining assessment years. Consequently, the additions made under section 68 and the corresponding disallowances of interest are deleted in all the years under consideration. Ground Nos.1 to 4 in all five appeals are allowed, while the grounds raised on merits are rendered academic and are left open.

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