KAILASH CHAND MAHESHWARI,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, JAIPUR

P a g e 11 ITA Nos. 404 & 494 & 501/JPR/2025 Kailash Chand Maheshwari IN THE INCOME TAX APPELLATE TRIBUNAL; JAIPUR BENCHES, sB" BENCH, JAIPUR BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER SHRI RATNESH NANDAN SAHAY, ACCOUNTANT MEMBER ITA Nos. 404, 494 and 501/JPR/2025 (Assessment Year:2015-16, 2015-16 & 2016-17) Kailash Chand Vs . DCIT CEN CIR 2, Maheshwari, 223 Kirti Jaipur Nagar, Near Kamal And Company Tonk Road, Jaipur,Rajasthan- 302015 Ri4edT /f3s31r./PAN/GIR No: AKQPM5593A Appellant Respondent Appellant by Respondent by Sh. S.L. Poddar; Adv. Mrs. Alka Gautam; CIT Date of Hearing Date of Pronouncement 24.03.2026 04.06.2026 ORDER Per Saniay Garg_Judicial Member:

The captioned appeals have been preferred by the assessee against the separate orders of Ld. Commissioner of Income Tax Appeals -Jaipur-4 (hereinafter referred to as 'Ld. CIT(A) ) passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as cAct ). ITA No.495/JPR/2025 and P a g e 12 ITA Nos. 404 & 494 & 501/JPR/2025 Kailash Chand Maheshwari 501/JPR/2025 for AY 2015-16 and AY 2016-17 respectively are against the separate orders of the Ld. CIT(A) of even date 24.03.2025 confirming the penalty levied by the Assessing Officer (in short; sthe AO) u/s 271D of the Act, whereas ITA No.404/JPR/2025 is against the order of the Ld. CIT(A) dated 28.02.2025 confirming the penalty levied by the AO uls 271E of the Act: 2. The brief facts of the case are that a search and seizure operation was carried out under section 132(1) of the Act on 28.07.2016 at various premises of the Chandra Prakash Agarwal Group, wherein, the assessee was also covered: Subsequent to the search, the assessment of the assessee for the impugned years was framed under section 143(3) read with section 153A of the Act o 14.12.2018. During the course of the assessment proceedings for the assessment year 2015-16, the Assessing Officer observed that the assessee had accepted loans in cash of Rs. 20,00,00,000 from Shri Chandra Prakash Agarwal and paid interest thereon of Rs.87,84,862/- The AO further observed that the assessee had accepted cash loans Rs. 3,61,24,000 from Shri Chandra Mohan Badaya; and had made re-payment of loan of Rs.2,28,87,000/- along with interest of Rs.51,11,569/- The AO held the said interest expenditure in respect of loans from both the parties was from unexplained sources and made the addition of Rs.87,84,862/ - and Rs.51,11,569/- respectively as unexplained expenditure under Section 69C of the Act into the income of the assessee. For the assessment year 2016-17, the AO observed that the assessee had accepted cash loans of Rs. 31,90,00,000/- from Shri Chandra Prakash Agarwal and paid interest thereon of Rs. P a g e 13 ITA Nos. 404 & 494 & S01/JPR/2025 Kailash Chand Maheshwari 1,00,53,088/- The AO accordingly made the addition of the said interest expenditure incurred from undisclosed sources uls 69C of the Act in the assessment carried out for A.Y. 2016-17. The Ld. CIT(A) confirmed the additions so made by the AO. 3 . The AO also initiated penalty proceedings u/s 271D and 271E of the Act; and finally levied penalty of Rs. 23,61,24,000 for A.Y. 2015-16 and of Rs. 31,90,00,000 for A.Y. 2016-17 u/s 271D of the Act for accepting cash loans in violation of the provisions of sections 269SS of the Act. The AO also levied penalty of Rs. 2,28,87,000 uls 27E of the Act for re-payment of loan along with interest in violation of 269T of the Act. The Ld: CIT(A) confirmed the impugned penalties so levied by the AO. The assessee has thus come in appeals before us. 4 We have heard the rival contentions and gone through the record: The Ld. Counsel for the assessee has invited our attention to the impugned penalty orders and has submitted that the allegation of the AO that assessee had accepted cash loans and had made re-payment of loans along with interest was based on certain loose papers and digital data seized from the residential and business premises of the third parties, Shri Chandra Prakash Agarwal and Shri Chandra Mohan Badaya. He has further submitted that though, simultaneous search action u/s 132 of the Act was also carried out at the premises of the assessee, however; no incriminating material relating to the alleged loan transactions was found or seized from the assessee. The Ld. Counsel has further brought our attention to the relevant paras of the impugned penalty orders to show that during the penalty proceedings, the P a g e 14 ITA Nos. 404 & 494 & S01/JPR/2025 Kailash Chand Maheshwari assessee vehemently denied having taken Or repaid any such loans in cash: The assessee repeatedly requested the AO to supply the underlying materials, including statements and confirmations gathered from these third parties, and specifically sought the issuance of summons under section 131 of the Act to cross-examine Shri Chandra Prakash Agarwal and Shri Chandra Mohan Badaya to ascertain the veracity of the entries found in their records The assessee also explained that he merely acted as a broker to identify lands for these individuals, and the investments recorded in the seized documents belonged to them in their own names, completely negating any lender- borrower relationship. However, the AO neither supplied the alleged seized documents nor gave any opportunity to the assessee to cross examine the aforesaid persons from whom the alleged documents were seized stating that the seized documents were self-speaking and part of assessment records and that providing cross-examination was unnecessary, thereby proceeded to confirm the impugned penalties 4. 1. The Ld. Counsel for the assessee further brought to our attention that the foundation of these penalty proceedings has already been demolished by the Co-ordinate Bench of this Tribunal in the assessee's own quantum appeals in ITA Nos. 1463 to 1465/JP/2024, vide order dated 20.05.2025. The relevant part of the order of the Tribunal (supra) is reproduced hereunder: 13. Vide ground no. 4 the assessee challenges addition of Rs: 87,84,862/- in the hands of the assessee being the amount of alleged unexplained expenditure in the form of interest expenditure to Shri Chandra Prakash Agarwal on the alleged loan of Rs: 20 cr: The brief facts related to the dispute are that in the search operation at residential cum business premises of" Shri Chandra Prakash Agarwal, [third party] at 1756, P a g e 15 ITA Nos. 404 & 494 & 501/JPR/2025 Kailash Chand Maheshwari Telipada, SMS Highway, Choura Rasta, Jaipur wherein various incriminating documents found and seized wherein some pages were found and seized aS Annexure-A, Exhibit 12, Page No. 1 2 4 & 6 and 10. These Papers contain details of work out of interest received against cash loan given by Shri Chandra Prakash Agarwal to KB i.e. Shri Kailash Chand Maheshwari: It is worthwhile to mention here that Shri Kailash Chand Maheshwari also known as KG i.e. Shri Kailash Chand Bilwa which is evident from the statement of Shri Kailash Chand Maheshwari recorded uls 132(4) of the Act on 29-07 - 2016. The total aS worked out from those pages comes to Rs: 20,00,00,000/- as cash loan and Rs. 87,84,862/- was worked out as interest expenditure and accordingly the same was considered as income in accordance with the provision of section 69C of the Act. When the issue raised before the ld. CIT(A) he hold 4 view that the ratio as laid down by the apex court in the case of Abhisar Buildwell will not apply as this year waS not abated and therefore, the ld. AO can make the addition. As regards the contention of the assessee that he was not given Copy of papers seized from the residence of Chandra Prakash Agarwal, Copy of statement recorded uls 132(4) of that assessee and Cross- examination was not allowed of Shri Chandra Prakash Agarwal he hold that the assessee has not made any request to Id. AO to supply those records therefore, he hold that 'it was incumbent upon the assessee to make such prayer before the assessing officer during the assessment proceeding and now in appellate stage the appellant is precluded from raising such issue'. Thus, it is clear that Id. CIT(A) has not considered the submission of the assessee on its merits of the dispute. The record reveals that the Id. AO has not made any addition of loan accepted for Rs. 20 cr. Record also shows that in the search there is no record of assets or investment based on these loans were found and there is no finding for utilization of this amount by the assessee for his own purpose and that is why the ld. AO has not made any addition in the hands of the assessee for receipt of loan or that of the investment made. Not only that those records were not found from the premises of the assessee but was found from the premises of Shri Chandra Prakash Agarwal. The ld. AO or that of the Id. CIT(A) did not bring on record that based on these records what was the questions were raised from where these records were found and what was explanation furnished. The bench also noted that even these page were not confronted with the assessee during the search or post search proceeding: In the absence of that finding making addition only of the interest alleged to have been paid by the assessee cannot be held aS unexplained expenditure in the hands of the assessee. Alternatively, even if these loans were routed with the assessee there is no finding that the loans and interest there upon were re-paid by the assessee from his undisclosed source. Thus, when there is no evidence aS to where this investment was made and how that was repaid merely making the addition of interest there is merely a guess work and any addition cannot be made merely on the guess work While making the assessment of income of the assessee there must be something more than bare suspicion to support the assessment which is clearly missing at the stage of the Id. AO and that of with the ld. CIT(A): While dealing with the appeal against the written submission so filed by the assessee, ld. AO through ld. DR did not controvert the facts placed on record. Based on these observations we see no reason to sustain the addition of P a g e | 6 ITA Nos. 404 & 494 & S01/JPR/2025 Kailash Chand Maheshwari Rs. 87,84,862/- in the hands of the assessee. Thus, ground no. 4 raised by the assessee is allowed 14. Vide ground no. 5 the assessee challenges addition of Rs: 51,22,569/- in the hands Of the assessee being the amount of alleged unexplained expenditure of interest paid to Shri Chandra Mohan Badaya on alleged cash loan obtained for Rs. 2,28,87,000/- The facts and contention raised in this ground are similar to that of ground no. 4 raised by the assessee and therefore, it is not imperative to repeat those facts and finding and therefore, the decision taken by uS vide dealing with the ground no. 4 shall apply mutatis mutandis to the ground no. 5 raised by the assessee. Thus, ground no. 5 raised by the assessee also allowed. 5_ The Ld. Counsel for the assessee has further brought our attention to para 21 of the aforesaid order of the co-ordinate bench of the Tribunal to show that the assessee in his appeal for AY 2016-17 vide Ground NO.4 of the said appeal had also contested the addition of Rs. 1,00,53,088/- made by the Ao on account 0f alleged interest payment as discussed above. Further, the Tribunal in para 22 of the said order has observed that since the Grounds of Appeal taken by the assessee for AY 2016-17 were identical to that have been taken for AY 2015-16, hence the decision given by the Tribunal on the aforesaid grounds for AY 2015-16 will mutatis mutandis apply for AY 2016- 17 also. Hence the identical addition of alleged unexplained interest payment for AY 2016-17 was also ordered to be deleted by the Co-ordinate Bench of the Tribunal. 5. 1. Relying upon the afore-reproduced findings of the Tribunal, the Ld. Counsel for the assessee has submitted that while adjudicating the substantive additions made under section 69C of the Act on account of the alleged interest payments, the Tribunal categorically recorded that the Assessing Officer had not made any addition for the principal loan amounts. The P a g e 17 ITA Nos. 404 & 494 & 501/JPR/2025 Kailash Chand Maheshwari Tribunal made a crucial finding that during the search, no records of assets o investments based on these alleged loans were found; nor was there any evidence demonstrating the utilization or repayment of these funds by the assessee. The Tribunal has further observed that the incriminating documents were not found at the assessee's premises, were never confronted to the assessee during the search o post-search proceedings, and the assessee was unjustly denied the opportunity to cross-examine the third parties. Consequently, the Tribunal held that making additions purely o the basis of such third-party documents without corroborative evidence amounted to mere guesswork and bare suspicion, thereby deleting the entire interest additions made under section 69C of the Act 6_ The Ld. DR, however; has relied upon the findings of the lower authorities. We have considered the rival submissions and have also gone through the findings of the Tribunal given in appeal pertaining to the quantum additions, as reproduced above. It is a well-settled proposition of law that penalty proceedings are separate proceedings from the assessment order and since the same are sort of penal in nature, the initial burden lies strictly on the Revenue to conclusively establish that the assessee has actually accepted or repaid a loan or deposit in contravention of sections 269SS and 269T of the Act. The impugned penalties have been levied by the AO, solely on the assumption that the transactions recorded in the seized documents from third parties represent actual cash loans and repayments made by the assessee. P a g e 18 ITA Nos. 404 & 494 & 501/JPR/2025 Kailash Chand Maheshwari However; the Co-ordinate Bench has already evaluated the exact same seized material and concluded that the Revenue failed to prove the very existence of these loan transactions. When the Co-ordinate Bench of the Tribunal in appeal pertaining to the substantive assessment order has held that the Revenue has failed to establish that the assessee ever received these loans or paid interest thereon, the consequential assumption that such unproven loans were transacted in cash cannot survive the test of law. Since the primary fact of accepting or repaying a loan; itself; has been found to be based on bare suspicion and the addition made by the AO of alleged interest expenditure paid on such loans has been deleted by the Co-ordinate Bench of the Tribunal holding that neither the acceptance of the loan nor payment of interest thereon has been established, hence, the impugned penalties have no legs to stand upon and hence liable to be deleted. 7. 1. Even otherwise, as noted above, penalty proceedings being separate proceedings from the assessment order and since the same are sort of penal in nature, the initial burden lies strictly on the Revenue to conclusively establish its case, and merely because an addition has been made in the assessment order; that will not ipso facto made sole basis for levy of the penalty. During the penalty proceedings also, the assessee specifically denied the receipt of any loan or re-payment of any loan or interest. The assessee requested the Ao to supply him the relevant seized documents and also requested for opportunity to cross examine the persons from whom the alleged documents were recovered. However; the AO neither supplied the said documents nor gave opportunity to the assessee to cross examine the said persons from the P a g e 19 ITA Nos. 404 & 494 & 501/JPR/2025 Kailash Chand Maheshwari assessee allegedly received such loans. The denial of supply of alleged seized documents and opportunity for cross-examination further renders the third- party evidence unreliable for penalizing the assessee: Further, during the search action at the premises of the assessee no incriminating material was found from which it could be gathered that the assessee had received any alleged loans or made any investment out of such alleged loan amount: The revenue failed to discharge the initial burden of proving of acceptance and repayment of loan and interest in cash by the assessee, therefore, the impugned penalties levied u/s 271D & 271E of the Act; even otherwise also, are not sustainable, the same are accordingly ordered to be deleted: 8_ In the result; all the captioned appeals filed by the assessee stand allowed. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 04.06.2026 (Sanjay Garg) Judicial Member Ratnesh Nandan Sahay) Accountant Member Dated DS, PS 04.06.2026