SHARAD AGARWAL,JAIPUR vs. THE INCOME TAX OFFICER, JAIPUR

P a g e | 1 ITA No. 1379/JPR/2025 Sharad Agarwal IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “A” BENCH, JAIPUR BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & SHRI RATNESH NANDAN SAHAY, ACCOUNTANT MEMBER ITA No. 1379/JPR/2025 (Assessment Year:2012-13)

Sharad Agarwal Vs. The Income Tax Officer Ward-6(4), Jaipur D-604, Gandhi Nagar, Jaipur, Rajasthan - 302015 �थायीलेखासं./जीआइआरसं./PAN/GIR No: AFEPA0679L Appellant .. Respondent

Appellant by : Ms. Satwika Jha, Adv. Respondent by : Sh. Rajesh Ojha, CIT

Date of Hearing 26.03.2026 Date of Pronouncement 15.06.2026

O R D E R Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order of Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”) (hereinafter referred to as “Ld. CIT(A)”) dated 12.09.2025. 2. The grounds of appeal raised by the assessee are as under:

P a g e | 2 ITA No. 1379/JPR/2025 Sharad Agarwal “1. On the facts and in the circumstances of the case and in law, re assessment proceedings and assessment order passed by ld.AO u/s 147 and confirmed by Id.CIT(A) is not in accordance with law.

1.1. On the facts and in the circumstances of the case and in law, Id.CIT(A) has grossly erred in confirming action of ld. AO in initiating the proceedings u/s 148 based on the information collected/statements recorded in a third party search, for which specific procedure u/s 153C has been provided under the Act, therefore, entire proceedings as initiated and completed u/s 148 deserves to be held bad in law and consequent order passed be quashed.

1.1 That the Ld. CIT(A) has further erred in confirming the validity of re opening of assessment by ld.AO, which were initiated without recording any subjective belief based on adequate materials for forming opinion as to escapement of income and merely upon suspicion formed on the basis of so-called information received from some other officials. Appellant prays that that suspicion cannot take the place of belief and reassessment proceedings commenced without forming subjective belief even as to actual nature of transaction, are not in accordance with law and deserves to be held void ab initio.

1.2 That, Id.CIT(A) has further erred in confirming the order passed by ld.AO u/s 147 without disposing off objections raised by assessee against reopening of assessment by passing a speaking order, which is not in accordance with settled legal position and consequent assessment order so passed deserves to be set aside.

2.1 That, Id.CIT(A) has erred in confirming addition of Rs. 1,07,50,000/-, made by ld.AO by treating the unsecured loans received from two entities as being bogus and fabricated merely on suspicions based on information received from DDIT (Inv) Gurugram and statements of certain persons said to have been recorded by some officials in some other case and behind the back of assessee, which were not confronted to the assessee and

P a g e | 3 ITA No. 1379/JPR/2025 Sharad Agarwal further erred in confirming addition made without rebutting the evidences furnished during the re-assessment proceedings. Therefore the addition so made merely on presumptions and assumptions, deserves to be deleted. 2.2 That the Id.CIT(A) has further erred in holding that existence of both M/s G.T.Comex Pvt. Ltd. and M/s South Asia Impex Pvt. Ltd. was in doubt, despite the fact that assesse has discharged the initial burden cast upon him by filing complete documentary evidences substantiating the identity, genuineness and creditworthiness of the applicants, thus the addition of Rs. 1,07,50,000/-deserves to be deleted; 2.3 That the Id. CIT(A) has further erred in confirming addition of Rs. 1,07,50,000/-made by ld.AO merely on presumptions drawn by discussing the general modus operandi and excerpts of statements of certain persons absolutely un-connected to the assessee, recorded at the back of the assessee, by some other officer, without providing the complete copy of same to the assessee and without providing any opportunity to the assessee to cross-examine them. Thus the addition made is in gross violation of natural justice and hence bad in law, therefore deserves to be deleted. 2.4 That the Id.CIT(A) has further erred in confirming the entire addition by alleging that assessee has received accommodation entry, by ignoring the fact that loans taken by assessee were repaid in subsequent years and no amount was outstanding at the time of reopening of assessment, thus the addition made deserves to be deleted. 3. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.” 3. The brief facts of the case are that the assessee is an individual and partner in the firm M/s Shree Radhey Govind Bihari Estate, deriving income from salary and interest on his capital contribution. The assessee filed his return of income from the assessment year under consideration u/s 139(1) of the Income Tax Act, which was processed u/s 143(1) of the Act. Thereafter, the assessment of the assessee was reopened u/s 147 of the Act by way of issuing notice u/s 148 of the Act on 30.09.2020. As per the reasons recorded for reopening of the assessment. The AO

P a g e | 4 ITA No. 1379/JPR/2025 Sharad Agarwal received information from the Dy. Director of income tax (Inv.)-III, Gurugram vide letter dated 15.03.2019 that a search u/s 132 of the I.T.Act 1961 was carried in the case of M/s Skylark Group of cases on 25.4.2017 and on the perusal of the financial statements of the company and M/s Skylark Feeds Pvt. Ltd., M/s Skylark Foods Pvt. Ltd., M/s Skylark Polutries Ltd. it was found that non genuine/bogus share capital and share premium has been received by the group through South Asia Impex Pvt. Ltd., KRAC Securities, G.T. Comex Pvt. Ltd., Pooja Equity Advisor Pvt. Ltd earlier known as Pooja Warehousing Pvt. Ltd, Secure Automation India Pvt. Ltd and others during the F.Y 2011-12 relevant to A.Y.2012-13. As per the investigation conducted by the investigation wing of the department and the statements recorded of the concerned persons during the course of search & post search, it was clearly established that no actual business was ever conducted by these companies/concerns. These companies were controlled by the dummies or agents and no identities or present whereabouts were available of the concerned persons. The modus operandi employed was that whenever any client needed any share capital or unsecured loan entry, he would give his bank account details and the required amount in cash. After charging the commission @ 1 to 2%, the said entry provider would transfer the amount in the bank account of the assessee. As per the details/bank accounts statements of the aforesaid concerns, the assessee has also obtained bogus accommodation entries of Rs 1,07,50,000/-. On the basis such information, the AO recorded reason for reopening of the assessment. The AO took prior approval of the competent authority. Thereafter, AO issued notices u/s 148 of the Act on 30.03.2019. The AO also issued various notices u/s 142(1) and show-cause notice. In response to that the assessee filed various submission. In his submissions the assessee denied of having taken any accommodation entry of the aforesaid amount. Further the assessee furnished the requisite details including copies of the income tax returns, copy of the bank statements, etc. it was submitted

P a g e | 5 ITA No. 1379/JPR/2025 Sharad Agarwal that the assessee had taken loan of Rs. 50 lakhs from M/s South Asia Impex (P) Ltd. in the year under consideration, which was repaid during the assessment year 2015-16 through account payee cheque. It was further explained that the assessee had taken loan of Rs. 57,50,000/- from M/s G.T. Comex (P) Ltd., which was repaid along with interest during the assessment year 2015-16 through banking channel. Assessee also furnished the PAN details of the said concerns. 4. After considering submission/explanation given by the assessee, the AO observed that as per the record of the investigation wing, the said concerns M/s GT Comex (P) Ltd. and South Asis Impex (P) Ltd. were used for providing accommodation entries to Skylark Group and that the Chief Operator of the said concerns namely Shri Aniruddh Joshi had admitted that he had used the said concerns for providing bogus/accommodation entries. The AO, therefore, rejected the submissions of the Assessee and made the impugned addition of Rs. 1,07,50,000/- into the income of the assessee, observing that the assessee had taken the accommodation entries as non-genuine share capital, unsecured loans and share premium, vide assessment order passed u/s 147 of the Act. 5. Being aggrieved by the said order of the AO, the assessee preferred the appeal before the Ld. CIT(A) agitating the impugned addition both on legal/jurisdictional grounds and on merits. The Ld. CIT(A), however, dismissed the appeal of the assessee. The assessee, thus, has come in appeal before us. 6. We have heard the rival contentions and gone through the record. First we take up the legal/jurisdictional grounds for adjudication. A. Borrowed satisfaction of the AO: 7. The Ld. Counsel for the assessee has submitted that, in this case, the assessment was reopened by the AO on the basis of the information received from

P a g e | 6 ITA No. 1379/JPR/2025 Sharad Agarwal investigation wing, wherein, it was stated that a search & seizure action u/s 132 of the Act was carried out in the case of M/s Skylark Group of cases, on 25.4.2017. On the perusal of the financial statements of the Skylark Group companies, it was found that non genuine/bogus share capital and share premium had been received by the group through South Asia Impex Pvt. Ltd., GT.Comex Pvt. Ltd., and other shell companies operated by one Mr. Anirudh Joshi. As per the details/bank accounts statements of the aforesaid concerns, the assessee had also obtained bogus accommodation entries of Rs. 1,07,50,000/- and introduced undisclosed cash / income in the shape of unsecured loans / share capital, etc. On the basis such information, the AO formed the belief that the income of the assessee for the assessment year under consideration has escaped assessment. He accordingly, reopened the assessment. He, finally, made the impugned addition of Rs 1,07,50,000/- on account of the accommodation entries as non-genuine share capital, unsecured loans and share premium.

P a g e | 7 ITA No. 1379/JPR/2025 Sharad Agarwal “ 2. Enquiries made by the A.O, as sequel to information collected /received: As per the specific information and evidences collected by the Investigation wing of the department, the assessee has obtained bogus accommodation entries in the shape of share capital/unsecured loans. As the information was specific based on the investigation conducted by the Investigation Wing of the department, therefore, no further enquiries were conducted at the level AO being the specific information/evidences on record.” 9. A perusal of the above recorded reasons would reveal that that the AO admittedly, in this case, did not make any effort to verify the veracity of such information received from the investigation wing and to ascertain the treatment given by the assessee of such credits in his accounts. The only information received by the AO from the investigation wing was that the assessee had received accommodation entries of Rs 1,07,50,000/- Nothing more than that has been mentioned by the AO in any of the different Heads of reasons recorded i.e. ‘Analysis of information received; Enquires made by the AO as sequel to information collected/received’; Findings of the AO’ etc. He just in the last lines has mentioned: “As per the details/bank accounts statements of these concerns, the assessee has also obtained bogus accommodation entries of Rs 1,07,50,000/- and introduced undisclosed cash / income in the shape of unsecured loans / share capital, etc. Therefore, I have reason to believe that the income chargeable to tax on Rs 1,07,50,000/- has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 on failure on the part of the assessee to disclose fully and truly the particulars of his income.” 9.1. As discussed above, the AO though, has recorded lengthy reasons under different heads, yet, failed to point out about the nature of the alleged transaction done by the assessee with the said concerns. The AO in this case, reopened the assessment in a mechanical manner, without corelating and cross verifying the

P a g e | 8 ITA No. 1379/JPR/2025 Sharad Agarwal information received from the investigation wing with the accounts/assessment records of the assessee. This is a case where the AO has reopened the assessment on the basis of borrowed satisfaction and without application of mind hence, and the reasons recorded by the AO do not constitute sufficient and valid reasons for forming belief by the AO of escapement of income of the assessee for the year under consideration. Therefore, it cannot be said that the AO was having valid reasons, which a prudent officer in the ordinary course is supposed to have, to form the belief that income of the assessee for the year under consideration has escaped assessment. The Hon'ble Supreme Court in the case of "Dr. Jagmittar Sain Bhagat & Ors vs Dir. Health Services, Haryana" in Civil Appeal No.5476 of 2013 decided on July 11, 2013, while relying upon another decision of the Hon'ble Supreme Court in the case of "Sushil Kumar Mehta v. Gobind Ram Bohra" (1990) 1 SCC 193 and further placing reliance on the other decisions of the Hon'ble Supreme Court in the cases of "Premier Automobiles Ltd. v. K.S. Wadke & Ors.", (1976) 1 SCC 496; "Kiran Singh v. Chaman Paswan", AIR 1954 SC 340; and "Chandrika Misir & Anr. v. Bhaiyalal", AIR 1973 SC 2391 has observed that where a statute places obligation and enforces the performance in specified manner, "performance cannot be forced in any other manner." Under the relevant provisions of section 147 & section 148 of the Income Tax Act, for assuming jurisdiction to reopen an assessment by the Assessing Officer, there is a condition precedent that the Assessing Officer must have reasons to believe that the income of the assessee for that year has escaped assessment. It has been held time and again that such reasons to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority. Such reason should be held in good faith and cannot merely be a pretence. The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct

P a g e | 9 ITA No. 1379/JPR/2025 Sharad Agarwal nexus or live link between the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. Such an action of the Assessing Officer regarding formation of belief of escapement of assessment and thereby in starting proceedings u/s 147 is open to challenge in a court of law. The entire law as to what would constitute "reason to believe" has been summed up by the hon'ble Supreme Court in the case of "Income Tax Officer v Lakhmani Mewaldas" (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein, making identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notices u/s 148 of the Act was not valid. Similar view has been taken by the Hon’ble Gujarat High Court in the case of “Spectrum Corporation vs ITO” reported in [2024] 168 taxmann.com 477. 9.2 It is pertinent to mention here that even during the assessment proceedings, the assessee duly explained the nature of transactions as ‘loan taken by the assessee’ during the year under consideration and which was duly repaid during the assessment year 2015-16 along with interest. Had the AO verified the bank

P a g e | 10 ITA No. 1379/JPR/2025 Sharad Agarwal statements of the assessee and inquired from the assessee about the aforesaid transactions, the AO would have been in knowledge of the aforesaid relevant factors which could impact and have bearing on the formation of belief by the AO regarding the escapement of the income of the assessee. Therefore, the reopening of the assessment in this case is held as bad in law on account of no valid reasons/borrowed satisfaction/non application of mind by the AO, hence the consequential assessment order passed u/s. 143(3) r.w.s.147 of the Act is also held as bad in law and the same is hereby quashed. B. Whether the AO was supposed to proceed u/s 153C instead of u/s 143 of the Act: 10. The Ld. Counsel for the assessee has raised another Jurisdictional Ground, contending that the reopening of the assessment under sections 147/148 of the Act is bad in law and void ab initio because the Assessing Officer (AO) bypassed the mandatory provisions of Section 153C of the Act. The Ld. Counsel submitted that the entire basis for reopening the assessment was the incriminating material seized during the course of the search conducted under Section 132 of the Act in the cases of Skylark Group of Companies. He has further submitted that the statute provides a special and exclusive code under Section 153C of the Act if the incriminating material pertaining to a "person other than the searched person" is found during the course of search action carried out u/s 132 of the Act. That, therefore, the AO having jurisdiction over the assessee was legally precluded from invoking the general provisions of Sections 147/148 of the Act. The Ld. Counsel relied heavily on the recent judgment of the Hon'ble High Court of Gujarat in the case of “ Paras Chandreshbhai Koticha vs. Income-tax Officer” 182 taxmann.com 204 (Gujarat). He in this respect has also relied upon the decision of the Jurisdictional Hon’ble Rajasthan High Court in the case of “Tirupati Construction

P a g e | 11 ITA No. 1379/JPR/2025 Sharad Agarwal Vs. ITO” (2024) 165 Taxmann.com 176 (Rajasthan), and another decision of Hon’ble Rajasthan High Court in the case of “Shyam Sunder Khandelwal Vs. Asstt. CIT”, 161 Taxmann.com 255. 11. Per contra, the Ld. DR vehemently opposed the submissions of the assessee and supported the orders of the lower authorities. 12. We have considered the rival submissions. In this case, during the course such action in the cases of Skylark Group of companies, the seized material showed that the said group had received bogus/accommodation entries from various paper concerns operated by Anirudh Joshi. The seized material did not pertain to the assessee. It was, however, when a survey action was carried out u/s 133A of the Act in case of M/s KRAC Securities (P) Ltd., Pooja Warehousing (P) Ltd. and Secure Automation India (P) Ltd. on 25.04.2017 and statement of Shri Anirudh Joshi, Chief Operator of aforesaid companies was recorded and further field inquiries and investigations were done, only then, it was found that the said concerns operated by Mr. Anirudh Joshi were paper concerns and were used for providing accommodation entries. The bank statements of the two concerns namely South Asia Impex (P) Ltd. and M/s G.T. Comex (P) Ltd. revealed that those concerns had transferred a total amount of Rs. 1,07,50,000/- to the assessee. Therefore, it was not a case where reopening of assessment was proposed on the basis of seized documents in the case of Skylark Group, rather, it was on the basis of information collected during investigation relating to alleged entry provider companies. Therefore, the provisions of section 153C are not applicable in this case. There is no merit in this ground of appeal. Adjudication on merits 13. In this case, despite the assessee having explained the nature of transactions and repayment of the loan along with interest in the assessment year 2015-16, and

P a g e | 12 ITA No. 1379/JPR/2025 Sharad Agarwal having furnished the requisite details, the AO has chosen to ignore all such details and has made the impugned addition solely on the basis of information received from the investigation wing. The additions have been made by the AO in a mechanical manner without going through the submissions made and evidences furnished by the assessee. The following concluding para of the assessment order is relevant: “During the year under consideration, the assessee had taken the accommodation entries as non genuine share capital, unsecured loan and share premium amounting to Rs. 1,07,50,000/- from the above penny scripts M/s G.T. Comex Pvt. Ltd. amounting to Rs.57,50,000/- and M/s South Asia Impex Pvt. Ltd. to Rs.50,00,000/- which was not surrendered by the assessee for taxation under the Income Tax Act, 1961, hence, the same is treated as undisclosed/unaccounted investment as penny stock transactions and added to the total income of the assessee.” 14. As observed above, the assessee during the assessment proceedings duly explained that the amount in question was received as loan, which was repaid along with interest in the AY 2015-16, and the assessee has furnished the requisite details including the bank statements, copy of the income tax returns along with balance sheets, copy of the PAN Card of the said concerns and all other documents to prove the identity and creditworthiness of the said concerns and genuineness of the transactions. The AO has not discussion a single word about such evidences and details furnished by assessee. He has simply made the additions on the basis of the report of the investigation wing. The above reproduced concluding para of the assessment order would reveal that even the AO did not apply his mind to even the nature of the transactions treated by the assessee in his accounts. He was not sure of the nature of the transactions as he stated that “the accommodation entries as non genuine share capital, unsecured loan and share premium amounting to Rs. 1,07,50,000/”. Even at the time of conclusion of the assessment proceedings, he

P a g e | 13 ITA No. 1379/JPR/2025 Sharad Agarwal has not given any finding as to whether the alleged accommodation entries were on account of share capital, unsecured loan or share premium. Thus, such an addition made in a mechanical manner without application of mind is not sustainable and the same is ordered to be deleted. 15. In view of our findings given above the assessee succeeds on legal grounds as well as on merits. 16. With the above observations, the appeal of the assessee is hereby allowed. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 15/06/2026.

Sd/- Sd/- (Ratnesh Nandan Sahay) (Sanjay Garg) Accountant Member Judicial member Dated 15.06.2026 True Copy DS, PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT By Order, Asst. Registrar ITAT, Jaipur