V CITY BUILDERS AND DEVELOPERS LLP,MUMBAI vs. ITO 30(3)(5), MUMBAI

This appeal by the assessee is directed against the order dated 21.10.2025 passed by the National Faceless Appeal Centre, Delhi (hereinafter referred to as "the Ld. CIT(A)") under section 250 read with section 254 of the Income-tax Act, 1961 ("the Act"), arising out of the assessment order passed under section 143(3) read with section 147 of the Act dated 22.03.2016 for the assessment year 2012-13.

Briefly stated, the assessee is a Limited Liability Partnership engaged in the business of builders and developers. It filed its return of income declaring Nil income. The assessment was originally processed under section 143(1). Subsequently, on the basis of information received from the Investigation Wing alleging that the assessee had received accommodation entries from concerns belonging to Bhanwarlal Jain Group and Gautam Jain Group, the assessment was reopened under section 147. During reassessment proceedings, the Assessing Officer treated unsecured loans aggregating to Rs.1,15,00,000/- received from Mahalaxmi Gems Pvt. Ltd. and Marine Gems Pvt. Ltd. as unexplained cash credits under section 68 and further disallowed interest of Rs.4,51,166/- paid on such loans. The Ld. CIT(A) upheld the reopening as well as the additions made by the Assessing Officer.

The Ld. Authorised Representative assailed the reopening contending that the reasons recorded were based merely upon information received from the Investigation Wing without any independent application of mind by the Assessing Officer. It was submitted that the reasons recorded were vague, bereft of material particulars and were supplemented while disposing of the objections, which is impermissible in law.

Per contra, the Ld. Departmental Representative strongly relied upon the orders of the Assessing Officer and the Ld. CIT(A). It was submitted that both lender companies were found during investigation to be concerns engaged in providing accommodation entries and therefore the Assessing Officer was justified in invoking section 68.

We have heard the rival submissions and perused the material available on record. We shall first deal with the validity of reopening. The reasons recorded disclose that the Assessing Officer had received specific information from the Investigation Wing that the assessee was beneficiary of accommodation entries received from concerns controlled by Bhanwarlal Jain Group. During reassessment proceedings, further information was also received in respect of loan obtained from Marine Gems Pvt. Ltd., a concern allegedly controlled by Gautam Jain Group. The Assessing Officer recorded reasons, supplied the same to the assessee, considered the objections raised and disposed of the objections by a speaking order before completing the reassessment.

At the stage of reopening, the Assessing Officer is only required to form a prima facie belief that income chargeable to tax has escaped assessment. Sufficiency of the material cannot be examined at the stage of assumption of jurisdiction. In the present case, the reopening is founded on tangible information received from the Investigation Wing and cannot be said to be based merely on suspicion or conjecture. Whether the information ultimately results in sustainable addition is an altogether different issue. Therefore, in our considered opinion, the Assessing Officer validly assumed jurisdiction under section 147. Accordingly, the grounds challenging reopening are dismissed.

It is also an admitted position that interest was paid after deduction of tax at source. More importantly, both the loans stood repaid in April, 2014 through banking channels, after two years and before initiation of reassessment proceedings. The repayment of the loans has also not been disputed by the Revenue.

We further notice that the partner of the assessee-firm, Shri Kishore Nandu, appeared before the Assessing Officer pursuant to summons issued under section 131 on 19.02.2016 and explained the complete loan transactions including their repayment. Thus, the assessee not only produced documentary evidences but also subjected itself to examination before the Assessing Officer and reaffirmed genuineness of the loan.

The entire addition has been made because the lender companies were stated to be connected with Gautam Jain and Bhanwarlal Jain Groups. In our considered opinion, such information may constitute tangible material for reopening the assessment. However, while deciding the issue on merits, the Assessing Officer is required to independently examine the evidences relating to the assessee's own transactions. Every credit appearing in the books has to be examined on its own facts. General statements recorded from third parties cannot override direct documentary evidence produced in relation to a particular transaction unless such evidence is found to be false or unreliable. 5

The Hon'ble Gujarat High Court in CIT vs. Ayachi Chandrashekhar Narsangji has held that once the loan has been repaid through banking channels, no addition under section 68 is warranted in the absence of material to establish that the transaction was not genuine. Likewise, the Hon'ble Bombay High Court in Pr. CIT vs. Skylark Build has held that where identity, genuineness and creditworthiness are established by cogent documentary evidence, the addition cannot be sustained merely on the basis of general allegations against the lender.

Applying the aforesaid principles to the facts of the present case, we find that the assessee has discharged the burden cast upon it under section 68 by producing confirmations, bank statements, income-tax returns, financial statements and other supporting documents. The Revenue has not pointed out any infirmity in these documents. No material has been brought on record to establish that the monies received by the assessee had flown back to it or that the banking transactions were merely sham entries. The addition has been sustained solely on the basis of investigation reports relating to third parties, which, in our considered opinion, is insufficient to disregard the overwhelming documentary evidences produced by the assessee.

We, therefore, hold that the addition of Rs.1,15,00,000/- made under section 68 is unsustainable and direct the Assessing Officer to 6

In the result, the appeal of the assessee is partly allowed. The reopening under sections 147/148 is upheld. However, the addition made under section 68 amounting to Rs.1,15,00,000/- and the consequential disallowance of interest of Rs.4,51,166/- are deleted.

In the result, the appeal of the assessee is partly allowed.