ANKIT AGARWAL,CHURU vs. ITO WARD-1, CHURU

आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM:

This appeal by the assessee is directed against the order dated 17.11.2022 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi[hereinafter referred to as "the CIT(A)"], under section 250 of the Income-tax Act, 1961[hereinafter referred to as "the Act"], for the assessment

2 ITA No. 8/Jodh/2023 Ankit Agarwal year 2015-16. The CIT(A) dismissed the appeal preferred against the assessment order dated 26.11.2018 passed by the Income-tax Officer, Ward-1, Churu, under section 143(3) read with section 147 of the Act, determining the total income of the assessee at Rs. 43,80,740/-.

3 ITA No. 8/Jodh/2023 Ankit Agarwal

Facts of the case 3. The assessee is an individual and proprietor of M/s Churu Overseas, engaged in the trading business of PVC resin. For the assessment year under consideration, the assessee filed his return of income declaring total income of Rs. 3,80,740/-. The assessment order records that the assessee had disclosed business income of Rs. 5,28,622/-, short-term capital gain of Rs. 2,116/- and income from other sources of Rs. 3,660/- and, after claiming deduction under Chapter VI-A, declared the aforesaid total income. 4. The Assessing Officer received information from the Joint Director of Income-tax (Investigation), Unit-1, New Delhi, vide letter bearing F. No. Jt. DIT(Inv.)/U-1/Information Sharing/2016- 17/283 dated 21.03.2017. According to the information, the assessee had obtained an accommodation entry of Rs. 40,00,000/- during the financial year 2014-15 through concerns floated and controlled by Shri Anand Kumar Jain and Shri Naresh Kumar Jain, collectively referred to in the assessment order as the “Jain Brothers”. 5. After obtaining approval from the Additional Commissioner of Income-tax, Range-Jhunjhunu, a notice under section 148 was issued on 10.01.2018. In response thereto, the assessee filed his return of income on 27.06.2018. A notice under section 143(2)

4 ITA No. 8/Jodh/2023 Ankit Agarwal was thereafter issued on 09.08.2018, fixing the hearing on 17.08.2018. The reasons recorded for reopening were supplied to the assessee through ITBA communication dated 25.10.2018. 6. The information received from the Investigation Wing emanated from a search and seizure operation conducted under section 132 on 17.12.2015 in the cases of the Jain Brothers. The Investigation Wing alleged that the Jain Brothers were engaged in providing accommodation entries through paper and dummy companies controlled by them. It was alleged that the bank accounts of these companies were used for routing unaccounted money through cheques, demand drafts, RTGS and NEFT in lieu of cash. 7. The Assessing Officer reproduced an extensive portion of the Investigation Wing’s report describing the alleged modus operandi of the Jain Brothers. The report referred to several companies allegedly operated through dummy directors and employees. It also referred to computers, Tally data, blank signed cheque books, share certificates, bank account opening documents, income-tax return credentials, authorisation letters and other documents stated to have been found during the search. 8. Insofar as the assessee was concerned, the Assessing Officer noticed that M/s Churu Overseas had obtained an unsecured loan of Rs. 40,00,000/- from M/s Ambarnuj Finance and Investment Pvt. Ltd. The transaction was reflected in the audit report furnished in Form No. 3CB dated 09.09.2015 and in

5 ITA No. 8/Jodh/2023 Ankit Agarwal column No. 31(a) thereof. The assessment order itself records that the loan of Rs. 40,00,000/- was repaid during the year. 9. The Assessing Officer issued a notice under section 142(1) dated 25.10.2018, requiring the assessee to furnish the ledger account of M/s Ambarnuj Finance and Investment Pvt. Ltd. According to the assessment order, the requisite details were not furnished on the date fixed for hearing. A notice under section 271(1)(b) was thereafter issued on 19.11.2018, along with a further notice under section 142(1), granting another opportunity to furnish the requisite information. The Assessing Officer recorded that no further details were furnished on 26.11.2018 and, therefore, proceeded on the basis of the information available on record. 10. The Assessing Officer also relied upon the statements recorded during the search proceedings. One such statement was that of Shri Saurabh Aggarwal, Managing Director of M/s Sapphire Polyvinyl Pvt. Ltd., who was stated to have admitted that his company had obtained accommodation entries in the form of unsecured loans from companies controlled by the Jain Brothers. The Assessing Officer further referred to the statement of Ms. Surbhi Chandra. 11. On the basis of the Investigation Wing’s report, the material seized during the search and the statements referred to above, the Assessing Officer concluded that M/s Ambarnuj Finance and Investment Pvt. Ltd. was operated and controlled by the Jain

6 ITA No. 8/Jodh/2023 Ankit Agarwal Brothers and that the unsecured loan received by the assessee was an accommodation entry. The Assessing Officer treated the amount of Rs. 40,00,000/- as unexplained income under section 68 and determined the total income at Rs. 43,80,740/-. Penalty proceedings under section 271(1)(c) were also initiated separately. 12. The assessee preferred an appeal before the CIT(A) on 10.01.2019. As recorded in the appellate order, the assessment order had been served upon the assessee on 12.12.2018. The appeal was subsequently migrated to the National Faceless Appeal Centre. 13. Before the CIT(A), the assessee challenged the validity of the reopening, the sanction obtained under section 151, the addition of Rs. 40,00,000/- under section 68 and the failure to furnish copies of statements and afford an opportunity of cross- examination. An additional ground was also raised contending that, as the assessment was based upon material seized from third parties, the proceedings ought to have been initiated under section 153C instead of section 147. 14. On the merits of the addition, the assessee submitted that the identity and creditworthiness of the lender and the genuineness of the transaction had been established through documentary evidence. The appellate order records that the assessee placed on record the name, address, PAN and return of income of M/s Ambarnuj Finance and Investment Pvt. Ltd., the confirmation of account, the lender’s bank statement evidencing

7 ITA No. 8/Jodh/2023 Ankit Agarwal advancement of the loan through banking channels and the assessee’s bank statement evidencing receipt and repayment of the loan. 15. The assessee contended that the Assessing Officer had not conducted any independent inquiry into the documentary evidence and had made the addition solely on the basis of the Investigation Wing’s report. It was further contended that the persons whose statements were relied upon were not examined by the Assessing Officer and no opportunity of cross-examination was afforded to the assessee. 16. The CIT(A) rejected the grounds challenging the reopening after observing that the Assessing Officer had acted upon information received from the Investigation Wing and had obtained prior approval from the Additional Commissioner of Income-tax, Range-Jhunjhunu. 17. On merits, the CIT(A) observed that the name of M/s Ambarnuj Finance and Investment Pvt. Ltd. appeared in the Investigation Wing’s report and that Shri Saurabh Aggarwal had referred to the said concern while explaining the modus operandi of the Jain Brothers. On this basis, the CIT(A) confirmed the addition of Rs. 40,00,000/- and dismissed the appeal by order dated 17.11.2022. 18. During the course of hearing before us, at the outset, the learned AR submitted that the grounds challenging the validity of

8 ITA No. 8/Jodh/2023 Ankit Agarwal the reopening were not pressed. Ground Nos. 1 and 2 are, therefore, dismissed as not pressed, without adjudication on merits. 19. Adverting to the addition under section 68, the learned AR submitted that the assessee had furnished documentary evidence relating to M/s Ambarnuj Finance and Investment Pvt. Ltd. before the lower authorities. The learned AR referred to the account confirmation of M/s Ambarnuj Finance and Investment Pvt. Ltd., its bank statement and acknowledgement of return of income. He also referred to the assessee’s bank statement evidencing the receipt and repayment of the loan through banking channels. Legible copies of these documents were again placed in the paper book. The acknowledgement of the assessee’s return of income and his financial statements were also placed on record. The learned AR submitted that the aforesaid evidence established the identity of the lender and the genuineness of the transaction. It was emphasised that the loan of Rs. 40,00,000/- had been received and repaid through regular banking channels during the same year. No cash trail or material showing that the assessee had provided cash to the lender before receiving the loan had been brought on record. 20. The learned AR contended that the general report concerning the activities of the Jain Brothers and the statements recorded in the cases of third parties could not, by themselves, establish that the particular loan received by the assessee

9 ITA No. 8/Jodh/2023 Ankit Agarwal represented his unaccounted money. He further submitted that the documentary evidence relating to the lender and the transaction had not been rebutted by any inquiry made by the Assessing Officer. 21. The learned AR placed reliance upon the decision of the Hon’ble Rajasthan High Court, Jaipur Bench, in Principal Commissioner of Income Tax (Central), Rajasthan v. Harsh Stock Portfolio Pvt. Ltd., D.B. Income Tax Appeal No. 59/2025, order dated 12.02.2026. It was submitted that the Hon’ble jurisdictional High Court had upheld the deletion of an addition relating to unsecured loans where the loans had been repaid in the same assessment year and the assessee had furnished documentary evidence relating to the lender companies. 22. Per contra, the learned DR relied upon the orders passed by the Assessing Officer and the CIT(A). He submitted that the addition was supported by the report of the Investigation Wing, the search material and the statements recorded during the search proceedings. The learned DR particularly invited our attention to the statement of Ms. Surbhi Chandra reproduced at pages 13 and 14 of the assessment order. He submitted that Ms. Surbhi Chandra had admitted that she was merely a non-working or employee director of M/s Ambarnuj Finance and Investment Pvt. Ltd. and that the affairs of the company were controlled by the Jain Brothers. According to the learned DR, the assessee had

10 ITA No. 8/Jodh/2023 Ankit Agarwal failed to establish the genuineness of the loan and the addition deserved to be sustained. 23. We have considered the rival submissions and perused the material available on record. The surviving controversy is whether the loan of Rs. 40,00,000/- received by the assessee from M/s Ambarnuj Finance and Investment Pvt. Ltd. could be treated as unexplained cash credit under section 68. 24. It is not in dispute that the assessee received the amount of Rs. 40,00,000/- from M/s Ambarnuj Finance and Investment Pvt. Ltd. through banking channels. The assessment order itself records the amount of the loan as Rs. 40,00,000/- and the repayment thereof as Rs. 40,00,000/-. The receipt and repayment of the loan during the same financial year are, therefore, borne out from the assessment order itself. The material placed before us includes the confirmation of account, the lender’s bank statement and acknowledgement of its return of income. The assessee’s bank statement evidencing receipt and repayment of the loan has also been placed on record. These documents were referred to in the submissions before the CIT(A) and are expressly tabulated in the appellate order. The assessee had thus furnished primary documentary evidence concerning the identity of the lender and the movement of funds through banking channels. 25. The Assessing Officer did not point out any specific discrepancy in the confirmation, return acknowledgement or bank statements furnished in relation to the impugned

11 ITA No. 8/Jodh/2023 Ankit Agarwal transaction. There is no finding that cash was deposited by the assessee in the lender’s bank account immediately before the transfer of Rs. 40,00,000/-. There is also no material tracing any cash belonging to the assessee through the alleged network of companies and ultimately back to the assessee in the form of the impugned loan. 26. The Investigation Wing’s report describes the general modus operandi allegedly adopted by the Jain Brothers. Such information may constitute relevant material for initiating inquiry. However, for sustaining an addition in the hands of the assessee, the information must be connected with the particular credit appearing in the assessee’s books. The general allegation that M/s Ambarnuj Finance and Investment Pvt. Ltd. was controlled by the Jain Brothers does not, by itself, establish that the amount credited in the assessee’s books was his own unaccounted money. 27. We have also considered the statement of Ms. Surbhi Chandra upon which considerable reliance was placed by the learned DR. Her statement indicates that she was a non-working or employee director of M/s Ambarnuj Finance and Investment Pvt. Ltd. and that instructions relating to several companies were given by the Jain Brothers. The statement may be relevant to the question of who actually managed those companies. However, the portion reproduced in the assessment order does not state that the particular loan of Rs. 40,00,000/- advanced to the assessee

12 ITA No. 8/Jodh/2023 Ankit Agarwal was fictitious, nor does it state that the assessee had paid any cash in consideration of receiving the loan. 28. Likewise, the statement of Shri Saurabh Aggarwal relates to accommodation entries allegedly obtained by M/s Sapphire Polyvinyl Pvt. Ltd. It describes the alleged modus operandi adopted in the case of that company. It does not identify the assessee as having paid cash or obtained the impugned loan in consideration thereof. The statements relied upon by the lower authorities, therefore, do not establish a direct nexus between the assessee and any cash allegedly routed through M/s Ambarnuj Finance and Investment Pvt. Ltd. 29. The CIT(A), while confirming the addition, relied upon the presence of the lender’s name in the Investigation Wing’s report and the statement of Shri Saurabh Aggarwal. The CIT(A), however, did not record any finding as to why the confirmation, return acknowledgement, lender’s bank statement and the assessee’s bank statement evidencing receipt and repayment were unacceptable. The documentary evidence furnished by the assessee was not displaced by any transaction-specific inquiry. 30. At this stage, the decision of the Hon’ble jurisdictional High Court in Principal Commissioner of Income Tax (Central), Rajasthan v. Harsh Stock Portfolio Pvt. Ltd. assumes significance. The Revenue had contended before the Hon’ble High Court that the lender companies were shell companies and that the assessee ought to have produced the concerned parties. The

13 ITA No. 8/Jodh/2023 Ankit Agarwal Hon’ble High Court rejected the Revenue’s appeal. The relevant findings contained in paragraphs 2 and 3 of the order are reproduced below:

“2. We notice that the loan taken by the assessee was returned along with interest to the said companies in the same assessment year. Therefore, it is apparent that no addition can be made of such income received by way of loan as the same has already been returned. The assessee has sufficiently proved the genuineness of the companies as their PAN numbers were produced as well as the companies remain duly registered with the ROC and, therefore, cannot be said to be shell companies. 3. The requirement of the companies being produced by the assessee in support, to remove the doubt of the Assessing Officer is only far- fetched and cannot be said to be a question of law to be examined by this Court. All the other aspects have been factually examined by both the CIT as well as ITAT. The present appeal being devoid of merits is accordingly, dismissed.” 31. In the case before us also, the loan was received and repaid during the same year through banking channels. The assessee furnished the lender’s confirmation, PAN particulars through the return acknowledgement, return of income and bank statement, together with his own bank statement evidencing receipt and repayment. The Revenue has not brought any transaction-specific material establishing a cash trail originating from the assessee. The material relied upon by the Assessing Officer relates to the general modus operandi of the Jain Brothers and does not establish that the particular sum of Rs. 40,00,000/- represented the assessee’s unaccounted income.

14 ITA No. 8/Jodh/2023 Ankit Agarwal 32. The aforesaid decision of the Hon’ble Rajasthan High Court is binding upon us. Respectfully following the same and having regard to the documentary evidence and the absence of any direct material connecting the assessee with the alleged cash movement, we hold that the addition of Rs. 40,00,000/- under section 68 cannot be sustained. 33. We accordingly set aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the addition of Rs. 40,00,000/-. Ground No. 3 is allowed. 34. Since the addition itself has been deleted on merits, the grievance raised in Ground No. 4 regarding non-furnishing of statements and denial of cross-examination does not require separate adjudication and is rendered academic. 35. To sum up, Ground Nos. 1 and 2 are dismissed as not pressed, Ground No. 3 is allowed and Ground No. 4 is rendered academic. 36. In the result, the appeal of the assessee is partly allowed. Order pronounced on 03.09.2026.

Sd/- Sd/- (SAKTIJIT DEY) (MAKARAND VASANT MAHADEOKAR) VICE PRESIDENT ACCOUNTANT MEMBER Jodhpur, Dated 03.09.2026 ANKIT, PS

15 ITA No. 8/Jodh/2023 Ankit Agarwal

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, जोधपुर/ DR, ITAT, Jodhpur 5. 6. गार्ड फाईल / Guard file.

आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, जोधपुर / ITAT, Jodhpur