TATER REALTY,MUMBAI vs. ACIT, CENTRAL CIRCLE 8(2), MUMBAI
What did the Tribunal hold?
The Tribunal held that the initiation of assessment proceedings under Section 153A of the Income Tax Act, 1961, was bad in law. It relied on the Supreme Court's decision in PCIT v. Abhisar Buildwell P. Ltd., which clearly states that in cases where no incriminating material is unearthed during a search, the Assessing Officer cannot assess or reassess total income in respect of completed/unabated assessments. The Tribunal noted that the regular assessments for AY 2013-14 and AY 2014-15 were completed and unabated at the time of the search on 04.10.2018. The Tribunal further observed that a Coordinate Bench of the Tribunal, in the case of Sapphire Developers v. ACIT, dealing with the same search and similar issues, had applied the ratio of Abhisar Buildwell. The Sapphire Developers' case also examined the nature of statements recorded during the search, spot verification, post-search inquiries, and third-party statements, concluding that such material, when not found during the assessee's search, cannot form the basis for additions in unabated assessments under Section 153A. Consequently, the additions made under Sections 68 and 69C were quashed as the foundational assessment under Section 153A was invalid. The issue of set-off of losses was not decided as the primary issue of the validity of the assessment itself was decided against the revenue.
What were the facts?
The assessee, Tater Realty, filed appeals against the orders of the Ld. CIT(A)-48, Mumbai, for Assessment Years 2013-14 and 2014-15. The appeals challenge the initiation of assessment proceedings under Section 153A of the Income Tax Act, 1961, and subsequent additions made by the Assessing Officer (AO) and upheld by the CIT(A). The assessments for these years were completed and unabated at the time of a search conducted on 04.10.2018, which involved Shine Shilpi Jewellers Private Limited and its group entities, including the assessee. The assessee contends that no incriminating material was found during this search to justify the Section 153A proceedings. The dispute involves additions of unsecured loans amounting to Rs. 3,15,30,000/- for AY 2013-14 and Rs. 12,00,000/- for AY 2014-15 under Section 68, and disallowance of interest expenses of Rs. 62,94,222/- and Rs. 64,95,751/- respectively, under Section 69C.
What were the issues?
1. Whether the initiation of assessment proceedings under Section 153A of the Income Tax Act, 1961, is valid and legal when the regular assessments for the assessment years 2013-14 and 2014-15 were completed and unabated at the time of the search, and no incriminating material was found during the search conducted on 04.10.2018. The assessee argues that Section 153A proceedings are impermissible in such circumstances, citing the Supreme Court's decision in PCIT v. Abhisar Buildwell P. Ltd. The revenue contends that statements recorded under Section 132(4), third-party inquiries, and spot verifications constitute valid foundational material for additions. 2. Whether the additions of unsecured loans amounting to Rs. 3,15,30,000/- (AY 2013-14) and Rs. 12,00,000/- (AY 2014-15) under Section 68, and the disallowance of interest expenses of Rs. 62,94,222/- (AY 2013-14) and Rs. 64,95,751/- (AY 2014-15) under Section 69C, are justified in the absence of incriminating material found during the search, and when the assessee has discharged its onus regarding the identity, genuineness, and creditworthiness of the lenders, and the loans were advanced through banking channels with TDS deducted and paid. The assessee argues that it is not required to explain the source of source and that principles of natural justice were violated by relying on third-party information without confrontation or cross-examination. The revenue argues that the lender parties were non-traceable and were accommodation entry providers, and the material gathered justifies the additions.
Which sections of the Income-tax Act were involved?
Section 153A,Section 68,Section 69C,Section 132,Section 132(4),Section 143(2),Section 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI BIJAYANANDA PRUSETH
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER:
These two appeals have been filed by the assessee against the orders of the Ld. CIT(A)-48, Mumbai, vide DIN: ITBA/APL/S/250/2025- 26/1087546902(1), dated 18.03.2026, for the Assessment Year 2013-14, and DIN: ITBA/APL/S/250/2025-26/1087547370(1), dated 18.03.2026, for the Assessment Year 2014-15, respectively.
ITA 4223/MUM/2026, The assessee has raised the following grounds:
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.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O. wherein, the assessment proceedings u/s. 153A were initiated even though there is no incriminating material found which would justify the reopening of assessment u/s 153A of the Act.
On the facts and circumstances of the case and in law, the Ld. CIT(A) as well as the Ld.A.O. erred in making the additions without appreciating that unabated assessments cannot be interfered with in absence of incriminating materials unearthed during the search, thereby going beyond the scope of search assessment as laid down by the Honble Supreme Court of India in the matter of PCIT Versus Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) and the Ld. A.O. erred in upholding the assessment order and making additions without appreciating that no incriminating material was found during the course of search of Shine Shilpi Jewellers Private Limited. The authorities failed to consider that (i) statements of directors of Shine Shilpi Jewellers Private Limited recorded under section 132(4), (ii) statements of third parties and findings from spot verification conducted at the premises of lenders, (iii) statement of Mr. Deepak Jain recorded under section 132 of the Act on 10.11.2019 during separate search proceedings, and (iv) post- search enquiries and financial statements furnished during assessment proceedings, do not constitute incriminating material found during the course of search of Shine Shilpi Jewellers Private Limited. Hence, the proceeding and additions made are unsustainable in law.
On the facts and circumstances of the case and in law, the Ld. CIT(A) upholding the order of the Ld. AO wherein, addition of unsecured loans amounting to Rs. 3,15,30,000/- was made u/s 68 of the Income Tax Act, 1961.
On the facts and circumstances of the case and in law, the Ld. CIT(A) as well as the Ld.A.O. erred in disallowing interest expenses of Rs. 62,94,222/- by treating the same as unexplained expenditure u/s. 69C of the Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating the fact that Appellant had already furnished all necessary documents and discharged its onus to prove the identity, genuineness and creditworthiness of the lender party and that it was not required to explain the source of source.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating that the Appellant had availed the loan through regular banking channels, the interest thereon was duly paid after deduction and deposit of TDS with the Government Treasury, and the loan itself was duly repaid. The Ld. CIT(A) further failed to appreciate that the lender parties had duly acknowledged the transactions, furnished supporting documentation, and confirmed the same during the course of remand proceedings. Therefore, no addition in respect of interest thereon under section 69C of the Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition made by the Ld. A.O. in making the impugned additions without appreciating that the same were based solely on third-party information and statement, which is not binding, and which was neither furnished to nor confronted with the Appellant. The Appellant was also denied the right to cross-examine, resulting in a gross violation of the principles of natural justice. Therefore, the additions is unsustainable in law.
Without prejudice to the above grounds, on the facts and circumstances of the case and in law, the Ld.CIT(A) as well as AO erred in making all the above additions without allowing the set off of brought forward and current year losses available to the Appellant.
The appellant craves leave to alter, amend, modify or substitute any ground or grounds and to add any new ground or grounds on or before the appeal is disposed of.
ITA 4224/MUM/2026, The assessee has raised the following grounds:
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.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O. wherein, the assessment proceedings u/s. 153A were initiated even though there is no incriminating material found which would justify the reopening of assessment u/s 153A of the Act.
On the facts and circumstances of the case and in law, the Ld. CIT(A) as well as the Ld.A.O. erred in making the additions without appreciating that unabated assessments cannot be interfered with in absence of incriminating materials unearthed during the search, thereby going beyond the scope of search assessment as laid down by the Honble Supreme Court of India in the matter of PCIT Versus Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) and the Ld. A.O. erred in upholding the assessment order and making additions without appreciating that no incriminating material was found during the course of search of Shine Shilpi Jewellers Private Limited. The authorities failed to consider that (i) statements of directors of Shine Shilpi Jewellers Private Limited recorded under section 132(4), (ii) statements of third parties and findings from spot verification conducted at the premises of lenders, (iii) statement of Mr. Deepak Jain recorded under section 132 of the Act on 10.11.2019 during separate search proceedings, and (iv) post-search enquiries and financial statements furnished during assessment proceedings, do not constitute incriminating material found during the course of search of Shine Shilpi Jewellers Private Limited. Hence, the proceeding and additions made are unsustainable in law.
On the facts and circumstances of the case and in law, the Ld. CIT(A) upholding the order of the Ld. AO wherein, addition of unsecured loans amounting to Rs. 12,00,000/- was made u/s 68 of the Income Tax Act, 1961.
On the facts and circumstances of the case and in law, the Ld. CIT(A) as well as the Ld.A.O. erred in disallowing interest expenses of Rs. 64,95,751/-by treating the same as unexplained expenditure u/s. 69C of the Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating the fact that Appellant had already furnished all necessary documents and discharged its onus to prove the identity, genuineness and creditworthiness of the lender party and that it was not required to explain the source of source.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating that the Appellant had availed the loan through regular banking channels, the interest thereon was duly paid after deduction and deposit of TDS with the Government Treasury, and the loan itself was duly repaid. The Ld. CIT(A) further failed to appreciate that the lender parties had duly acknowledged the transactions, furnished supporting documentation, and confirmed the same during the course of remand proceedings. Therefore, no addition in respect of interest thereon under section 69C of the Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition made by the Ld. A.O. in making the impugned additions without appreciating that the same were based solely on third-party information and statement, which is not binding, and which was neither furnished to nor confronted with the Appellant. The Appellant was also denied the right to cross-examine, resulting in a gross violation of the principles of natural justice. Therefore, the additions is unsustainable in law.
Without prejudice to the above grounds, on the facts and circumstances of the case and in law, the Ld.CIT(A) as well as AO erred in making all the above additions without allowing the set off of brought forward and current year losses available to the Appellant.
The appellant craves leave to alter, amend, modify or substitute any ground or grounds and to add any new ground or grounds on or before the appeal is disposed of. 2. Since common issues and overlapping facts are involved, both appeals were heard together and are being disposed of by this consolidated order for the sake of brevity and convenience.
Briefly stated, the relevant facts are that the assessee is a partnership firm. A search and seizure action under Section 132 of the Act was initiated and conducted at the business and residential premises of the assessee firm on 04.10.2018. Consequent to the search, statutory notices under Section 153A of the Act were issued. The Assessing Officer (AO) thereafter proceeded to frame the assessments.
For Assessment Year 2013-14 (ITA No. 4223/MUM/2026), the AO made an addition of Rs. 3,15,30,000/- under Section 68 of the Act, treating unsecured loans received from three entities, namely M/s. Antique Exim Pvt. Ltd., M/s. Dhan Kuber Exports Pvt. Ltd., and M/s. Saffron Gems Pvt. Ltd., as unexplained cash credits. Consequentially, the AO also disallowed corresponding interest expenditure amounting to Rs. 62,94,222/- under Section 69C of the Act, paid/payable to M/s. Antique Exim Pvt. Ltd., M/s. Dhan Kuber Exports Pvt. Ltd., M/s. Kurukshetra Diamond Pvt. Ltd., M/s. Saffron Gems Pvt. Ltd., M/s. Surya Diamond Pvt. Ltd., and M/s. Tanman Jewels Pvt. Ltd.
For Assessment Year 2014-15 (ITA No. 4224/MUM/2026), the AO made an addition of Rs. 12,00,000/- under Section 68 in respect of an unsecured loan received from M/s. Saffron Gems Pvt. Ltd. and disallowed interest expenditure amounting to Rs. 64,95,751/- under Section 69C of the Act in respect of interest paid on outstanding unsecured loans to various lenders, including M/s. Antique Exim Pvt. Ltd., M/s. Saffron Gems Pvt. Ltd., M/s. Tanman Jewels Pvt. Ltd., M/s. Surya Diamond Pvt. Ltd., and M/s. Sanmati Gems Pvt. Ltd.
Aggrieved by the additions, the assessee preferred appeals before the Ld. CIT(A), but without success. Against the confirmation of the additions by the first appellate authority, the assessee is in appeal before this Tribunal.
The Ld. AR for the assessee raised a primary legal challenge alongside the merits.
The Ld. AR submitted that the search took place on 04.10.2018 and, therefore, as on the date of search, the assessments for both A.Y. 2013-14 and A.Y. 2014-15 stood completed and unabated. The additions under Section 68 and Section 69C were made without reference to any incriminating material discovered or seized during the course of search at the assessee’s premises. The AO himself, in paragraphs 3.1 and 3.2(1) of the assessment order, admitted that the details of the unsecured loans were picked up merely from the regular books and submissions filed by the assessee. Relying on the landmark judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd. [2023] 454 ITR 212 (SC) / [2023] 149 taxmann.com 399 (SC), the Ld. AR submitted that, in the absence of any incriminating material unearthed during the search, completed assessments cannot be disturbed.
The Ld. AR further submitted that the AO merely relied upon the statements of Shri Pramod Mehta and Shri Shilpin K. Tater recorded under Section 132(4), which contained no specific admission or reference to any accommodation entries or undisclosed income. Statements recorded under Section 132(4) of the Act, absence of corroborative seized material, cannot constitute incriminating material, as held in PCIT v. Best Infrastructure (India) Pvt. Ltd. (2017) 397 ITR 82 (Del) and coordinate Bench decisions in Chandrika Mansukhlal Dodhia v. ACIT [2025] 5 TMI 1387 (ITAT Mum) and Dodhia Pradeep Meghji v. DCIT [IT(SS)A No. 172/Mum/2025].
The Ld. AR also submitted that the reliance placed by the Revenue on a post-search statement of Shri Deepak Jain dated 10.11.2019, recorded in an independent search proceeding nearly a year later and subsequently retracted vide affidavit dated 18.11.2019, is legally impermissible under Section 153A. It was also submitted that, if the Revenue intended to use material gathered from a third-party search, the mandatory jurisdictional procedure under Section 153C had to be followed, as held in PCIT v. Anand Kumar Jain [2021] 432 ITR 384 (Del).
On merits, the Ld. AR also submitted that the loans were recorded in the regular books of account, received through account payee cheques/banking channels, interest was subjected to TDS and, crucially, all the loans were subsequently repaid through regular banking channels in subsequent years. It was also submitted that the Directors of the lending entities also appeared during remand proceedings and filed their PANs, ITRs, bank statements and confirmations. The Ld. AR placed reliance on the Coordinate Bench decision of this Tribunal in DCIT v. Shah and Parikh [2025 (10) TMI 1142 ITAT MUMBAI (LB)], wherein an identical addition under Section 68 in respect of the very same lender, M/s. Saffron Gems Pvt. Ltd., was deleted on the ground of subsequent repayment through banking channels.
On the contrary, the Ld. DR, strongly supported the orders of the lower authorities. He contended that spot verifications revealed that the lender parties were non-traceable at their given addresses, justifying the inference that they were accommodation entry providers. He further argued that statements recorded under Section 132(4) of the Act, alongside third-party inquiries, constitute valid foundational material for making additions under Sections 68 and 69C, and argued for confirmation of the additions.
We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that the it is an undisputed factual position that the search under Section 132 was carried out on 04.10.2018. The assessment years before us are A.Y. 2013-14 and A.Y. 2014-15. As on the date of search, the regular assessments for these two years stood completed and had not abated.
The Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell P. Ltd. (2023) 454 ITR 212 (SC) has settled the law by holding:
“14. (iv) In case no incriminating material is unearthed during the search, the Assessing Officer cannot assess or reassess total income taking into consideration the other material in respect of completed/unabated assessments...”
We further find that the aforesaid legal position has recently been considered and applied by the Coordinate Bench of this Tribunal, Mumbai, with regard to the same search dated 04.10.2018 in the case of Sapphire Developers v. ACIT in ITA Nos. 4344 to 4348/Mum/2026, vide order dated 07.09.2026. In that case, in the context of assessments framed under Section 153A, the Tribunal examined the nature of statements recorded during the search, spot verification conducted at the address of the lender, material gathered during post-search enquiries, and a statement recorded during separate search proceedings in the case of a third party. The Tribunal, after examining the material relied upon by the Assessing Officer in respect of the same search, considered whether such material constituted incriminating material found during the search of the assessee and applied the ratio laid down by the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd. (supra). The said decision also considered the distinction between material found during the search and material subsequently gathered during the assessment proceedings. The facts and circumstances considered by the Coordinate Bench are relevant to the issue before us, particularly since the additions in the present case are also stated to be based upon material other than any specific incriminating document or asset found during the search. The operative portion of the decision of the Coordinate Bench in the case of Sapphire Developers v. ACIT in ITA Nos. 4344 to 4348/Mum/2026, with regard to the same search and for the very same assessment year, is 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 management, the office premises of the assessee were also covered under the search through Warrant No.02/0625 issued in the names of M/s Tater Realty and M/s Sapphire Developers. Consequent to the search, the case of the assessee was centralized with the Assistant Commissioner of Income-tax, Central Circle-8(2), Mumbai.
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.
Facts relating to the lead assessment year 2013-14 4. During the assessment proceedings for assessment year 2013-14, the Assessing Officer noticed that the assessee had received an unsecured loan of Rs.1,00,00,000/- from M/s Antique Exim Pvt. Ltd. and had claimed interest expenditure of Rs.3,11,301/- in respect of the said loan.
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 assessee furnished the ledger confirmation, bank statements and acknowledgment of the return of income of the lender. The Assessing Officer was not satisfied with the documents so furnished and, vide letter dated 07.01.2021, required the assessee to produce the lender. On the failure of the assessee to produce the lender, the Assessing Officer issued a show-cause notice dated 06.04.2021 proposing an addition under section 68 and consequential disallowance of the interest expenditure under section 69C of the Act.
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 subsequently repaid through regular banking channels. Interest had been paid after deduction of tax at source and the tax so deducted had been deposited with the Government Treasury. According to the assessee, the loan confirmation, Permanent Account Number, return of income, financial statements, bank statements and ledger account of the lender collectively established its identity and creditworthiness and the genuineness of the transaction.
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:
Material or Relevant Stage at circumstance paragraphs which it relied upon of the arose assessment order Statement of Shri 4.1 Search Pramod Mehta proceedings regarding loans concerning the group arranged through an unidentified agent at Surat Statement of Shri 4.2 Search Khyalilal M. proceedings Tater expressing concerning the group inability to explain the arrangement of the loans Statement dated 4.3 Search 06.10.2018 of proceedings Shri Shilpin Tater concerning regarding the absence of the assessee address, contact details and particulars of the and related agent concerns
4.4 Spot verification During the at the registered original address of M/s search Antique Exim action Pvt. Ltd. and statement dated 05.10.2018 of Shri Pravinbhai Jasoliya 4.5 Summons issued Assessment proceedings under section 131 to the lender and its response by post Failure of the 4.6 and Assessment assessee and 4.6.1 proceedings the group concerns to produce the lender Financial 5.1 to 5.3 Assessment analysis of M/s proceedings Antique Exim Pvt. Ltd. and aggregate loans advanced by it to the group entities Statement of Shri 5.4 Subsequent Deepak search on a Bhanwarlal Jain third party recorded on 10.11.2019 in a separate search action KYC details 5.4.3 Assessment obtained from proceedings the bank and the alleged connection of M/s Antique Exim Pvt. Ltd. with entities controlled by Shri Deepak Jain
Bank statements 5.4.4 and Assessment and fund-flow 7.6 proceedings analysis involving M/s Surya Diamond Pvt. Ltd., M/s Sanmati Gems Pvt. Ltd. and M/s Antique Exim Pvt. Ltd. 7.1 to 7.6 Consolidated Findings findings recorded in concerning the identity, assessment creditworthiness order and genuineness 10 to 10.2 Rejection of the Findings objection recorded in regarding the absence of assessment incriminating order material
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 4.2, the Assessing Officer referred to the statement of Shri Khyalilal M. Tater recorded under section 132(4) during the search at his residence. According to the Assessing Officer, Shri Khyalilal M. Tater expressed his inability to explain the procedure by which the loans had been arranged and stated that his son, Shri Shilpin Khyalilal Tater, would explain the same.
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:
“Therefore, statement of Shri Shilpin Tater was recorded u/s 132(4) of the Act during the search and seizure action on M/s Tater Realty and M/s Sapphire Developers. In his statement dated 06.10.2018, he also shows his inability to provide the address of the party, contact no any agents and also told that they do not have entered any business transactions or agreement with the loan giving parties.”
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 recorded that the company was not found operating from the said address.
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.
The assessment order does not record that Shri Deepak Jain identified M/s Antique Exim Pvt. Ltd. itself as one of the five companies controlled by him. The Assessing Officer sought to connect M/s Antique Exim Pvt. Ltd. with the entities named by Shri Deepak Jain on the basis of KYC material and bank-account transactions subsequently obtained and examined during the assessment proceedings.
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:
“From the above statement of Shri Deepak Jain and KYC details, it is clearly established that M/s Antique Exim Pvt Ltd was also engaged in providing accommodation entries with the companies formed by Shri Deepak Jain by opening the account in opera house branch, Mumbai.” 25. 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.
On the basis of the fund-flow analysis, the Assessing Officer concluded that there was no stability of funds in the bank account of M/s Antique Exim Pvt. Ltd. and that the company was merely receiving and transferring funds in accordance with the requirements of different beneficiaries. In paragraphs 5.5 and 7.6, the Assessing Officer treated the rotation of funds as evidence that the lender was engaged in providing accommodation entries.
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 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, here the huge funds received in the accounts of all group concerns and same were claimed as unsecured loans.”
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.
Shri Shantilal Paldecha stated that M/s Antique Exim Pvt. Ltd. was engaged in trading in natural and lab-grown rough, cut and polished diamonds. He furnished the financial statements, returns of income, ledger accounts and bank statements concerning the advancement and repayment of the loan. He also stated that the lender was operating from its registered address and that he did not know the person whose statement had been recorded during the spot verification.
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 inquiries initiated as a consequence of the search. The relevant portion of paragraph 9.1.2 reads as under: “The appellant’s contention that no ‘incriminating material’ was found is factually incorrect when analyzed against the findings of the search proceedings. ‘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.”
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.” “Therefore, the reliance on Abhisar Buildwell is misplaced because that judgement protects assessees only when no material is found. Here, specific material pointing to the bogus nature of the loans was unearthed. Accordingly, the AO was fully justified in invoking jurisdiction u/s 153A.”
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 thereon. The year-wise particulars of the additions and disallowances are as under: Asse Unsecur Lender Interest ssme ed loan disallow nt added ed year under section 68 2013 Rs.1,00, M/s Rs.3,11,3 -14 00,000/- Antique 01/- Exim Pvt. Ltd. 2014 Rs.23,00 M/s Rs.10,22, -15 ,000/- Antique 822/- Exim Pvt. Ltd. 2015 Nil Interest Rs.12,12, -16 pertainin 750/- g to the earlier loan from M/s Antique Exim Pvt. Ltd. 2016 Rs.2,81, M/s M/s -17 00,000/- Antique Antique Exim Exim Pvt. Pvt. Ltd.: Ltd.: Rs.1,50, Rs.17,98, 00,000/- 736/-; ; M/s M/s Vallabh Vallabh Diamond Diamond Pvt. Ltd.: Pvt. Rs.1,31, Ltd.:Rs.5, 00,000/- 89,992/-; total:
Rs.23,88, 728/- 2017 Nil Interest M/s -18 pertainin Antique g to the Exim Pvt. earlier Ltd.: loans Rs.27,57, from 218/-; M/s M/s Antique Vallabh Exim Diamond Pvt. Ltd. Pvt. Ltd.: and M/s Rs.12,26, Vallabh 700/-; Diamond total: Pvt. Ltd. Rs.39,83, 918/-
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 paid after deduction of tax at source and that the loan had subsequently been repaid.
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 lenders and genuineness of the transactions. It relied upon confirmations, Permanent Account Numbers, returns of income, audited financial statements, bank statements and ledger accounts. It was also submitted that the loans had been received and repaid through banking channels and that interest had been paid after deduction of tax at source.
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 material pertaining to the impugned loan transactions had been found during the search. The assessee also disputed the reliance placed on third-party statements without furnishing copies thereof or permitting cross-examination.
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 and bank statements evidencing the advancement and subsequent repayment of the loans. The directors stated that the loans had been advanced out of surplus business funds.
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 infrastructure of the lender companies and the movement of funds into and out of their bank accounts immediately before advancement of the loans.
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 assessment as having been completed under section 143(3) read with section 153A and the disputed disallowance as Rs.39,83,918/-, comprising interest 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. However, from paragraph 6.1 onwards, the impugned appellate order reproduces submissions relating to an individual resident assessee, a return of income of Rs.14,05,130/-, proceedings under section 153C, an assessment under section 153C read with section 143(3) and interest expenditure of only Rs.45,000/- paid to M/s Antique Exim Pvt. Ltd. The decision portion of the impugned order also proceeds on those unrelated particulars and purports to sustain a disallowance of Rs.45,000/- under section 69C. The operative paragraph describes the appeal as arising from an order under section 153C read with section 143(3), whereas the appeal before the CIT(A) had arisen from the assessment order dated 29.04.2021 passed in the case of M/s Sapphire Developers under section 143(3) read with section 153A and involved a disallowance of Rs.39,83,918/-. Thus, the reasoning and operative portion of the impugned order for assessment year 2017-18 do not correspond with the name and status of the assessee, the statutory provision under which the assessment was made, the returned income or the amount disputed in the assessment order and in the opening portion of the appellate order.
The material relied upon by the Assessing Officer in the lead assessment year can, therefore, be classified into the following distinct categories: i. statements recorded during the original search between 04.10.2018 and 06.10.2018; ii. spot verification and the statement dated 05.10.2018 recorded at the registered address of the lender; iii. the separate search conducted in the case of Shri Deepak Bhanwarlal Jain on 10.11.2019; iv. KYC particulars and bank statements obtained during the assessment proceedings;
v. fund-flow analysis undertaken during the assessment proceedings; vi. the inability of the assessee to produce the lender during the original assessment proceedings; and vii. the subsequent appearance of the directors of the lenders and production of documents during the remand proceedings in April 2025. 64. The aforesaid categories have been separately noticed since the principal controversy raised by the assessee requires consideration of the precise nature, source, timing and nexus of each item relied upon by the lower authorities and whether the respective item was found during the search of the assessee, arose from a separate third-party search or was gathered subsequently during the course of assessment proceedings.
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. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the order of the Ld. A.O. wherein, the assessment proceedings u/s. 153A were initiated even though there is no incriminating material found which would justify the reopening of assessment u/s 153A of the Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) as well as the Ld.A.O. erred in making the additions without appreciating that unabated assessments cannot be interfered with in absence of incriminating materials unearthed during the search, thereby going beyond the scope of search assessment as laid down by the Honble Supreme Court of India in the matter of PCIT Versus Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) and the Ld. A.O. erred in upholding the assessment order and making additions without appreciating that no incriminating material was found during the course of search of Shine Shilpi Jewellers Private Limited. The authorities failed to consider that (i) statements of directors of Shine Shilpi Jewellers Private Limited recorded under section 132(4), (ii) statements of third parties and findings from spot verification conducted at the premises of lenders, (iii) statement of Mr. Deepak Jain recorded under section 132 of the Act on 10.11.2019 during separate search proceedings, and (iv) post-search enquiries and financial statements furnished during assessment proceedings, do not constitute incriminating material found during the course of search of Shine Shilpi Jewellers Private Limited. Hence, the proceeding and additions made are unsustainable in law. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) upholding the order of the Ld. AO wherein, addition of unsecured loans amounting to Rs. 1,00,00,000/- was made u/s 68 of the Income Tax Act, 1961. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) as well as the Ld.A.O. erred in disallowing interest expenses of Rs. 3,11,301/- by treating the same as unexplained expenditure u/s. 69C of the Act. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating the fact that Appellant had already furnished all necessary documents and discharged its onus to prove the identity, genuineness and creditworthiness of the lender party and that it was not required to explain the source of source. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the addition made by the Ld. A.O. without appreciating that the Appellant had availed the loan through regular banking channels, the interest thereon was duly paid after deduction and deposit of TDS with the Government Treasury, and the loan itself was duly repaid. The Ld. CIT(A) further failed to appreciate that the lender parties had duly acknowledged the transactions, furnished supporting documentation, and confirmed the same during the course of remand proceedings. Therefore, no addition in respect of interest thereon under section 69C of the Act. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition made by the Ld. A.O. in making the impugned additions without appreciating that the same were based solely on third-party information and statement, which is not binding, and which was neither furnished to nor confronted with the Appellant. The Appellant was also denied the right to cross-examine, resulting in a gross violation of the principles of natural justice. Therefore, the additions is unsustainable in law. The appellant craves leave to alter, amend, modify or substitute any 10. ground or grounds and to add any new ground or grounds on or before the appeal is disposed of.”
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. Asses Ground Ground smen No.5: No.6: t addition interes year under t section disallo 68 wance under section 69C 4344/Mu 2013- Rs.1,00, Rs.3,11 m/2026 14 00,000/- ,301/- 4345/Mu 2014- Rs.23,00 Rs.10,2 m/2026 15 ,000/- 2,822/- 4347/Mu 2016- Rs.2,81, Rs.23,8 m/2026 17 00,000/- 8,728/-
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, subject to the renumbering of the grounds and the following variation in the amount of interest expenditure challenged in ground No.5:
ITA No. Assessme Interest nt year expenditure challenged in ground No.5 4346/Mum/20 2015-16 Rs.12,12,750 26 /- 4348/Mum/20 2017-18 Rs.39,83,918 26 /-
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 on 24.08.2026. Referring to paragraphs 3.1 and 3.2(1) of the assessment order, he pointed out that the Assessing Officer himself recorded that the unsecured loans came to his notice “from the details filed by the assessee”. He submitted that the loans were already disclosed in the balance sheet and books of account and that the impugned additions originated from the particulars furnished by the assessee during the assessment proceedings. According to him, a disclosed book entry or information subsequently furnished during assessment proceedings could not constitute incriminating material found during the search.
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 (Mumbai) (SB) and the decision of the Hon’ble jurisdictional High Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. reported in 374 ITR 645. The learned AR submitted that, although the Assessing Officer noticed these decisions, he did not examine or apply the ratio of the binding decision of the Hon’ble jurisdictional High Court to the facts of the assessee’s case.
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 further submitted that the Assessing Officer, in paragraph 10.2, expressly proceeded on the footing that incriminating material in the form of any page or digital data was not required in the present case. The Assessing Officer treated the alleged failure of the assessee to establish the creditworthiness of the lender, to produce the lender and to furnish an address at which the Revenue could reach the lender as circumstances which were themselves incriminating in nature.
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. Further, the KYC particulars, bank statements and fund-flow analysis relied upon by the Assessing Officer were obtained or undertaken subsequently during the assessment proceedings. Therefore, according to the learned AR, such subsequently collected material could not be regarded as incriminating material found during the search conducted on 04.10.2018.
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. 80. The learned AR submitted that the expression “incriminating material” may not necessarily be confined to books of account or physical documents. However, the material relied upon must reveal or have a direct nexus with undisclosed income of the assessee. According to him, neither the statements recorded during the search nor the result of the spot verification disclosed that the loan of Rs.1,00,00,000/- received by the assessee from M/s Antique Exim Pvt. Ltd. represented the assessee’s undisclosed income.
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 activities of the lender, advancement of the loan, receipt of interest and subsequent repayment of the principal amount. He had also furnished the returns of income, financial statements, ledger accounts and bank statements of the lender.
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 further inquiry but could not establish that it was a non- existent or shell entity, particularly when it was registered with the Registrar of Companies, held a valid Permanent Account Number, filed returns of income and maintained a disclosed bank account.
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.
Referring to paragraphs 9.1.6 and 9.1.7, the learned AR submitted that the statement of Shri Deepak Bhanwarlal Jain was recorded on 10.11.2019 during a separate third-party search, while the KYC particulars, bank statements and fund-flow analysis were obtained or prepared during the assessment proceedings. These did not constitute incriminating material found during the search conducted on 04.10.2018. He submitted that the CIT(A) had conflated the jurisdictional requirement of incriminating material under section 153A with the evidentiary onus under section 68. Since no seized material having a direct nexus with the impugned loan was identified, the learned AR contended that the addition made in the unabated assessment year was contrary to the decision of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd.
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 decision in PCIT v. Harjeev Aggarwal, held that a statement recorded under section 132(4) could not be considered incriminating material unless corroborated by incriminating evidence found during the search.
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 addition under section 68. According to him, the statements recorded under section 132(4) were corroborated by the spot verification at the registered address of M/s Antique Exim Pvt. Ltd., where the lender was not found operating, and by the statement of Shri Pravinbhai Jasoliya recorded under section 131 on 05.10.2018.
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 unearthed during the search, constitute valid evidence for an assessment under section 153A. He accordingly submitted that the material relied upon by the Assessing Officer had a direct and live nexus with the impugned unsecured loan and that the jurisdictional grounds deserved to be dismissed.
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 loan, the assessee had furnished the return of income, bank statements and audited financial statements of the lender, and the Revenue had questioned the source of the lender’s funds.
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 transferred to the assessee and other entities, without any stability of funds. According to him, the inquiry was directed towards examining the lender’s own creditworthiness and did not amount to requiring the assessee to establish the source of the source.
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. 108. We have considered the rival submissions and perused the material placed on record. Since assessment year 2013-14 is the lead year and the facts relating to the alleged incriminating material have been discussed in detail in the preceding paragraphs, we proceed first to decide the jurisdictional grounds raised for that year. The issue requiring adjudication is whether the additions made in the completed or unabated assessments under section 153A are founded upon incriminating material found during the course of the search conducted on 04.10.2018.
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.… Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search.… However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/148 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148.… 12…The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment.… 13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material. 14. In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.”
The aforesaid decision affirms the view taken by the Hon’ble jurisdictional High Court in CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd., 374 ITR 645 (Bom.), which had, in turn, approved the decision of the Special Bench in All Cargo Global Logistics Ltd., 137 ITD 287 (Mum.) (SB). The Assessing Officer’s reliance in paragraph 10.1 upon the contrary view taken by the Hon’ble Karnataka High Court in Canara Housing Development Co. cannot survive the subsequent authoritative pronouncement of the Hon’ble Supreme Court. Similarly, the fact that a Special Leave Petition against Continental Warehousing Corporation had been admitted did not efface the binding character of the judgment of the jurisdictional High Court.
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 by the assessee”. Thus, the foundation of the additions was the information disclosed by the assessee in its books of account and furnished during the assessment proceedings, and not any material unearthed during the search. A disclosed book entry does not become incriminating material merely because its genuineness is subsequently questioned. The material otherwise relied upon by the Assessing Officer falls into the following categories:
Material relied Our consideration upon Statements of Shri Contain no admission Pramod Mehta, Shri that the impugned loan Khyalilal Tater and was bogus, that cash Shri Shilpin Tater was paid in exchange for it or that the assessee’s unaccounted money was introduced Spot verification and Show only that the lender statement dated was not found operating 05.10.2018 of Shri from the registered Pravinbhai Jasoliya address during the visit; no material relating to the loan was found Failure to produce Circumstances arising the lender and during the assessment incomplete response proceedings; not material to summons found during the search Financial analysis of Undertaken during the the lender assessment proceedings and relevant, if at all, to the merits under section 68 Statement of Shri Recorded in a separate Deepak Bhanwarlal third-party search more Jain dated than one year later; 10.11.2019 neither the assessee nor M/s Antique Exim Pvt. Ltd. was identified in the statement KYC particulars, Obtained or prepared bank statements and during the assessment fund-flow analysis proceedings; not found during the assessee’s search DRI observations Relate to transactions, relied upon by the entities and an learned DR assessment year different from the years presently under consideration Evidence collected Subsequent evidence during remand relevant to the merits; it proceedings also shows that the earlier spot verification was not conclusive of the lender’s non-existence
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 made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr. Jindal, Revenue has failed to produce any corroborative material to justify the additions.… 8…Revenue’s case is hinged on the statement of Mr. Jindal, which according to them is the incriminating material discovered during the search action. This statement certainly has the evidentiary value and relevance as contemplated under the explanation to section 132(4) of the Act. However, this statement cannot, on a standalone basis, without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment.” 117. The Hon’ble Delhi High Court thereafter reproduced and applied the following observations from CIT v. Harjeev Aggarwal: “However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order for an assessment to be based on the statement recorded.” 118. In paragraph 10, the Hon’ble Delhi High Court further held that where the statement relied upon was recorded in a search conducted in the case of a third party and was sought to be treated as material pertaining to another person, the prescribed statutory procedure could not be bypassed.
The decision is relevant here because the statement of Shri Deepak Bhanwarlal Jain was recorded during a separate search on 10.11.2019 and not during the search conducted upon the assessee’s group on 04.10.2018.
The Co-ordinate Bench in Chandrika Mansukhlal Dodhia v. DCIT, IT(SS)A No.199/Mum/2025, order dated 15.04.2025, considered an addition of an unsecured loan in materially similar circumstances. The relevant findings in paragraphs 6.1 and 6.2 read as under: “However, it is evident that there is no reference of any incriminating material or documents either from the premises of the assessee or from any other premises covered under the search in relation to addition of the unsecured loan except the statement of three persons which have been referred by the Ld. CIT(A) but the Hon’ble Delhi High Court in the case of PCIT v. Harjeev Agarwal in ITA No.8/2004 have held that statement recorded u/s 132(4) could not be considered as incriminating material unless corroborated by any incriminating evidence found. …In view of above discussion, we set aside the finding of the Ld. CIT(A) on the issue in dispute and hold that no addition in respect of unsecured loan of Rs.1 crores could be made in the hands of the assessee without aid of any incriminating material found from the premises of the assessee.” 120. Similarly, the Delhi Bench in Genus Apparels Ltd. v. DCIT, ITA No.44/Del/2021, order dated 26.11.2024, held in paragraph 7 as under: “Having heard the Ld. Counsels appearing for the parties and having regard to the facts and circumstances of the case, we find that when admittedly in unabated assessment while making addition the Ld. AO failed to refer any incriminating material unearthed during the course of search conducted in assessee’s premises on 30.07.2015, it appears that no incriminating material has been unearthed during the course of search against the assessee. Hence, the addition made is not sustainable in the eyes of law….”
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 address of M/s Antique Exim Pvt. Ltd. and the statement of Shri Pravinbhai Jasoliya recorded under section 131 on 05.10.2018. The verification was conducted at the premises of the lender and did not result in the discovery or seizure of any material relating to the loan received by the assessee. Even if such field inquiry is regarded as contemporaneous with the search, its contents merely show that the lender was not found operating from the particular premises during the visit. It contains no reference to the impugned loan, any exchange of cash or any undisclosed income of the assessee. Such information could provide a reason for further inquiry but, without a direct nexus with the impugned transaction, could not constitute incriminating material for disturbing a completed assessment.
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 statements, ledger accounts and bank statements. No specific adverse finding concerning these documents was recorded in the remand report. We are not deciding their sufficiency under section 68; however, their production demonstrates why the earlier spot verification could not conclusively establish that the lender was a non-existent entity.
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.” 126. 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 treated photographs and other material collected during the search as incriminating, the conclusion turned upon its own factual record. It does not dilute the controlling requirement laid down in Abhisar Buildwell that the material must be found during the search and must reveal undisclosed income having a nexus with the addition. In the present case, the spot-verification note neither records any loan transaction nor reveals any undisclosed income of the assessee.
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 prepared during the assessment proceedings. Under Abhisar Buildwell, other material already available with or subsequently collected by the Assessing Officer can be taken into consideration only where incriminating material is first found during the search. Such subsequently collected material cannot itself be used to supply the foundational jurisdictional requirement.
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 evidentiary burden imposed upon an assessee under section 68 during assessment proceedings. An alleged failure to discharge the burden under section 68 cannot retrospectively become incriminating material found during the search. Acceptance of such reasoning would render the limitation recognised in Abhisar Buildwell otiose, because every failure to explain a credit during assessment could then be labelled incriminating material.
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 material has been identified in the assessment orders for any of the five years.
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. 16. A careful perusal of the assessment orders for both years reveals that the AO himself notes in paragraphs 3.1 and 3.2(1) that the examination of the unsecured loans was initiated “from the details filed by the assessee”. The loan transactions were duly reflected in the audited balance sheets and regular books of account of the assessee. The AO has not pointed to a single piece of incriminating document, notebook, loose paper or hidden asset unearthed from the premises of the assessee during the search that could substantiate the impugned additions.
It is trite law that statements recorded under Section 132(4) of the Act, in the absence of any incriminating physical material discovered during search, do not by themselves constitute incriminating material, as held in PCIT v. Best Infrastructure (India) Pvt. Ltd. and Chandrika Mansukhlal Dodhia v. ACIT.
Further, the reliance placed by the Revenue on third-party inquiries, spot verifications, or the subsequent statement of Shri Deepak Jain, recorded during a separate search on 10.11.2019 and later retracted, cannot convert unabated assessments into abated proceedings under Section 153A. As held by the Hon’ble Delhi High Court in PCIT v. Anand Kumar Jain [2021] 432 ITR 384 (Del) and by coordinate Benches of this Tribunal in DCIT v. M/s. Skyway Infra Projects Pvt. Ltd. (ITA No. 2665/Mum/2022) and M/s. Genus Apparels Ltd. v. DCIT (ITA No. 44/Del/2021), post-search third-party statements or non-service of summons by an Inspector do not constitute “incriminating material found during the course of search” of the assessee. If material obtained from a third-party search was to be used, the AO was required to invoke Section 153C, which was not done. Even in another decision, the Coordinate Bench of the ITAT, in the case of Nikita Shilpin Tater in ITA Nos. 4095 to 4100/Mum/2026, has dealt with the same search for the very same assessment years. The operative portion of the same is reproduced hereinbelow:
Briefly stated, the assessee is an individual. A search and seizure action under section 132 of the Act was conducted on 04.10.2018 at the premises of the assessee. Consequent thereto, notice under section 153A of the Act was issued, in response to which the assessee filed her return of income.
During the course of assessment proceedings under section 153A read with section 143(3) of the Act, the Assessing Officer (“AO”) noticed from the balance sheet and other details furnished by the assessee that she had availed unsecured loans aggregating to Rs. 57,00,000/- from M/s. Saffron Gems Pvt. Ltd. during the financial year relevant to Assessment Year 2013-14. The said amount comprised of Rs. 30,00,000/- received on 22.06.2012 and Rs. 27,00,000/- received on 11.02.2013.
During the course of collateral enquiries, the Department conducted spot verification at the business premises of M/s. Saffron Gems Pvt. Ltd. and recorded the statement of Shri Manishbhai Kalathiya under section 131 of the Act. It was stated that he was not aware of any company by the name of M/s. Saffron Gems Pvt. Ltd. The AO also referred to the statement of Shri Shilpin Tater, husband of the assessee, recorded under section 132(4) of the Act, as well as certain third-party statements.
On the basis of the aforesaid enquiries and material, the AO treated the unsecured loan of Rs. 57,00,000/- as an accommodation entry and made an addition of the said amount under section 68 of the Act. The AO further disallowed interest expenditure of Rs. 2,40,599/- relating to the said loan and added the same under section 69C of the Act.
Aggrieved, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A), however, sustained the additions made by the AO.
Before us, the learned Authorised Representative (“AR”) submitted that the assessment for Assessment Year 2013-14 had attained finality and was, therefore, an unabated assessment as on the date of search. It was contended that no incriminating material relating to the impugned unsecured loan was found during the course of search conducted at the premises of the assessee. The AR submitted that the loan transaction was already duly reflected in the regular books of account and balance sheet of the assessee and that the AO had made the addition on the basis of information and enquiries undertaken subsequent to the search.
The AR placed reliance upon the judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd., (2023) 454 ITR 212 (SC), and submitted that, in respect of completed/unabated assessments, an addition under section 153A can be made only on the basis of incriminating material found during the course of search. It was further submitted that entries already disclosed in the regular books of account cannot themselves be regarded as incriminating material. Reliance was placed, inter alia, on ACIT v. Vinod Kumar Taneja, 2022 (9) TMI 1424 (ITAT Delhi).
The AR further submitted that the statements relied upon by the AO did not constitute incriminating material found during the course of search. It was argued that the statement recorded from the assessee's husband did not contain any admission concerning the impugned loan. It was also submitted that the statement of Shri Manishbhai Kalathiya under section 131 was recorded during a separate enquiry at the premises of the lender and not during the course of search at the assessee's premises. According to the AR, such subsequent or collateral enquiries could not be treated as incriminating material found during the search for the purpose of making an addition in an unabated assessment under section 153A. Reliance was placed on, inter alia, ACIT v. M/s. G Nine Modular Pvt. Ltd. & M/s. G Trade and Capital Venture Pvt. Ltd., 2023 (4) TMI 1402 (ITAT Mumbai), and ACIT v. M/s. GM Modular Pvt. Ltd., 2023 (5) TMI 1428 (ITAT Mumbai).
On the merits of the addition, the AR submitted that the assessee had discharged the primary onus cast upon her under section 68 by furnishing the PAN, income-tax return acknowledgement, confirmation of the lender, audited financial statements and bank statements of M/s. Saffron Gems Pvt. Ltd. It was submitted that the loan was received through banking channels, interest was paid through banking channels after deduction of tax at source, and the lender had confirmed the transaction during the remand proceedings.
It was further submitted that the entire loan amount of Rs. 57,00,000/- was subsequently repaid through banking channels and the account was squared off during financial year 2018-19, with the final repayment having been made on 23.10.2018. The AR placed reliance upon the Coordinate Bench decision of the Mumbai Bench of the Tribunal in DCIT v. Shah and Parikh, 2025 (10) TMI 1142 (ITAT Mumbai) (LB), contending that the said decision involved the very same lender, namely M/s. Saffron Gems Pvt. Ltd., and the same Assessment Year, i.e. Assessment Year 2013-14. Reliance was also placed upon the decisions of the Hon’ble Bombay High Court in PCIT v. M/s. Skylark Build, 2018 (10) TMI 1513 (Bom) and PCIT v. Bairagra Builders (P.) Ltd., [2024] 164 taxmann.com 162 (Bom), as well as the decision of the Tribunal in Jet Speed Realtors v. ACIT, ITA No. 77/Mum/2022.
The learned Departmental Representative (“DR”), on the other hand, supported the orders of the lower authorities. He submitted that the spot verification conducted at the premises of M/s. Saffron Gems Pvt. Ltd. revealed that the lender was not functioning at its registered address and that Shri Manishbhai Kalathiya had denied knowledge of the said company. According to the learned DR, the surrounding circumstances established that the loan was not genuine and that the AO was justified in lifting the corporate veil and treating the transaction as an accommodation entry.
We have heard the rival submissions and perused the material available on record.
The first issue which requires our consideration is whether the impugned addition could validly be made in the assessment framed under section 153A of the Act for Assessment Year 2013-14.
It is an admitted position that the search under section 132 of the Act was conducted on 04.10.2018. The assessment year under consideration is Assessment Year 2013-14. Thus, on the date of search, the assessment for the year under consideration stood completed and had not abated.
The law governing the scope of assessment under section 153A in respect of unabated assessments now stands settled by the judgment of the Hon’ble Supreme Court in PCIT v. Abhisar Buildwell P. Ltd. (supra). The Hon’ble Supreme Court has held that in respect of completed/unabated assessments, the AO can make additions only on the basis of incriminating material found during the course of search under section 132 of the Act.
In the present case, the impugned loan transaction was admittedly reflected in the regular books of account and balance sheet of the assessee. The assessment order itself records that the AO noticed the loan transaction from the balance sheet and details furnished by the assessee. Therefore, the existence of the loan entry in the regular books of account cannot, by itself, constitute incriminating material found during the course of search.
The next question is whether the material relied upon by the AO can be regarded as incriminating material found during the course of search.
On perusal of the assessment order, it is evident that the AO principally relied upon the statement of the assessee's husband, third-party information and the spot verification subsequently conducted at the premises of M/s. Saffron Gems Pvt. Ltd., including the statement recorded from Shri Manishbhai Kalathiya under section 131 of the Act.
In our considered view, such material cannot be equated with incriminating material found during the course of search at the premises of the assessee. The statement under section 131 was recorded in the course of a subsequent enquiry at the premises of the lender. Likewise, the post-search enquiries and documents obtained during the assessment proceedings are not, in themselves, material found as a result of the search conducted on the assessee.
The distinction between material found during search and material subsequently gathered during assessment proceedings is material for determining the jurisdiction to disturb an unabated assessment under section 153A. A disclosed entry in the regular books may subsequently be shown to be false or non-genuine on the basis of independent material; however, that subsequent material cannot, merely by virtue of its being adverse to the assessee, be treated as incriminating material found during the search for the purposes of section 153A.
The Coordinate Bench of the Tribunal in ACIT v. M/s. G Nine Modular Pvt. Ltd. & M/s. G Trade and Capital Venture Pvt. Ltd. (supra) has also considered the distinction between an entry in the books of account and incriminating material demonstrating the falsity of such entry. The Tribunal observed that an entry in the books of account does not itself constitute incriminating material unless its falsity is established on the basis of material found during the search. A similar view was taken by the Coordinate Bench in ACIT v. M/s. GM Modular Pvt. Ltd. (supra).
In the present case, no document or other material found and seized during the course of search at the premises of the assessee has been brought to our notice which establishes that the unsecured loan of Rs. 57,00,000/- was bogus or represented an accommodation entry. The material relied upon by the AO consists essentially of the entries already disclosed by the assessee and information gathered during collateral/post-search enquiries.
We therefore hold that the jurisdictional condition necessary for making an addition in respect of an unabated assessment under section 153A is not satisfied in the present case. Consequently, the addition of Rs. 57,00,000/- made under section 68 of the Act cannot be sustained.
Even otherwise, the addition is not sustainable on merits.
The assessee furnished the confirmation, PAN, income-tax return acknowledgement, audited financial statements and bank statements of M/s. Saffron Gems Pvt. Ltd. The loan was received through banking channels. The assessee also furnished evidence regarding payment of interest through banking channels after deduction of tax at source. Further, the lender confirmed the transaction during the remand proceedings.
It is also not in dispute that the loan amount was subsequently repaid through banking channels and the account was squared off during financial year 2018-19. The material placed before us shows that the final repayment was made on 23.10.2018.
We have also considered the reliance placed by the learned AR on the Coordinate Bench decision of the Mumbai Tribunal in DCIT v. Shah and Parikh (supra). The said decision, as brought to our notice, involved the same lender, M/s. Saffron Gems Pvt. Ltd., and the same Assessment Year, namely Assessment Year 2013-14. The Coordinate Bench considered the effect of subsequent repayment of the loan through banking channels in the context of the genuineness of the loan transaction. The ratio of the said decision, read with the facts available on record before us, supports the assessee's contention.
In these circumstances, and particularly having regard to the documentary evidence furnished by the assessee, the banking trail of the transaction, confirmation by the lender and subsequent repayment of the entire loan, we find no justification for sustaining the addition under section 68 of the Act. Accordingly, the addition of Rs. 57,00,000/- made under section 68 is directed to be deleted. The grounds raised by the assessee on this issue are allowed.
The AO has also disallowed interest expenditure of Rs. 2,40,599/- relating to the aforesaid loan and made a corresponding addition under section 69C of the Act. In our view, once the principal loan addition itself does not survive, the consequential addition in respect of interest attributable to such loan cannot independently be sustained on the facts of the present case. Accordingly, the addition of Rs. 2,40,599/- is also directed to be deleted.
Ground No. 10 is general in nature and does not require any separate adjudication.
In the result, ITA No. 4095/Mum/2026 for Assessment Year 2013-14 is allowed.
ITA Nos. 4096 to 4100/Mum/2026 – Assessment Years 2014-15 to 2018-19
We now take up the appeals for Assessment Years 2014-15 to 2018-19.
The common grievance in these appeals relates to the disallowance of interest expenditure claimed by the assessee in respect of the unsecured loan of Rs. 57,00,000/- obtained from M/s. Saffron Gems Pvt. Ltd.
The learned representatives of both sides agreed that the issue in these appeals is consequential to the controversy adjudicated in the lead appeal for Assessment Year 2013-14.
We have, while deciding ITA No. 4095/Mum/2026, held that the addition of Rs. 57,00,000/- in respect of the unsecured loan from M/s. Saffron Gems Pvt. Ltd. is not sustainable and have directed its deletion. Once the very basis on which the interest expenditure has been disallowed does not survive, the consequential disallowance of interest cannot be sustained independently.
Accordingly, following our findings in ITA No. 4095/Mum/2026, the respective disallowances of interest made in Assessment Years 2014-15 to 2018-19 are directed to be deleted.
Consequently, ITA Nos. 4096 to 4100/Mum/2026 for Assessment Years 2014-15 to 2018-19 are also allowed.
In the result, all the six appeals filed by the assessee are allowed.
Therefore, applying the binding ratio of the Hon’ble Supreme Court in Abhisar Buildwell P. Ltd. (supra), and also the decisions of the Coordinate Bench of the ITAT in the cases of Sapphire Developers v. ACIT in ITA Nos. 4344 to 4348/Mum/2026 and Nikita Shilpin Tater in ITA Nos. 4095 to 4100/Mum/2026, and keeping in view the doctrine of binding precedents and the principle of maintaining judicial consistency, the impugned additions made under Section 68 and consequential disallowances under Section 69C for both A.Y. 2013-14 and A.Y. 2014-15 are without jurisdiction and unsustainable in law on this threshold ground alone.
Even assuming arguendo that the AO was entitled to examine the issue on merits, we find that the additions cannot withstand judicial scrutiny.
The undisputed record demonstrates that all the unsecured loans taken from M/s. Antique Exim Pvt. Ltd., M/s. Dhan Kuber Exports Pvt. Ltd., M/s. Saffron Gems Pvt. Ltd. and other lenders were received through proper banking channels and subsequently fully repaid via account payee cheques/banking channels, thereby squaring off the loan accounts.
It is well settled by the Hon’ble Jurisdictional High Court of Bombay in PCIT v. M/s. Skylark Build (2018) 10 TMI 1513 (Bom) and CCIT/PCIT v. Bhupendra Champaklal Dalal (2024) 3 TMI 436 (Bom), as well as the Hon’ble Gujarat High Court in PCIT v. Merrygold Gems Pvt. Ltd. (2024) 6 TMI 1371 (Guj) and DCIT v. Rohini Builders (2001) 256 ITR 360 (Guj), that where loans are accepted through banking channels and repaid through banking channels in subsequent years, the genuineness and creditworthiness cannot be questioned under Section 68.
Most importantly, we observe that in the case of one of the principal counterparties involved herein, M/s. Saffron Gems Pvt. Ltd., a Three- Member Coordinate Bench of the Mumbai ITAT in DCIT v. Shah and Parikh [2025 (10) TMI 1142 ITAT MUMBAI (LB)] and in the cases of Sapphire Developers v. ACIT in ITA Nos. 4344 to 4348/Mum/2026 and Nikita Shilpin Tater in ITA Nos. 4095 to 4100/Mum/2026 considered the identical issue for the very same assessment year, i.e., A.Y. 2013-14, and deleted the addition under Section 68, holding that where the loan received from M/s. Saffron Gems Pvt. Ltd. had been subsequently squared off and repaid through regular banking channels, no addition under Section 68 is warranted. The parity of reasoning squarely applies to the remaining lenders as well, whose loans were similarly received and repaid through banking channels with complete confirmation, PAN, audited financials and bank records placed on record.
Since the primary additions under Section 68 regarding the principal loan amounts are deleted, the consequential disallowance of interest expenditure claimed under Section 69C of the Act, amounting to Rs. 62,94,222/- for A.Y. 2013-14 and Rs. 64,95,751/- for A.Y. 2014-15, which was duly subjected to tax deduction at source (TDS) and paid through banking channels, has no legs to stand and is hereby directed to be deleted.
In view of the above factual and legal matrix, both the additions made under Section 68 and the disallowances made under Section 69C of the Act for Assessment Years 2013-14 and 2014-15 are deleted.
In the result, both appeals filed by the assessee in ITA No. 4223/MUM/2026 and ITA No. 4224/MUM/2026 are allowed.
Order pronounced in the open court on 29.09.2026.
Sd/- Sd/- BIJAYANANDA PRUSETH SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 29.09.2026 RY-SrPS Copy to: TATER REALTY, 602, SAPPHIRE ARCADE, M G ROAD, 1 RAJAWADI, GHATKOPAR (EAST), MUMBAI-400077, MAHARASHTRA
ACIT, CENTRAL CIRCLE 8(2), ROOM NO. 658, 6TH FLOOR, AAYAKAR 2 BHAVAN, M.K. ROAD, MUMBAI-400020, MAHARASHTRA
3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE
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