ACIT, CENTRAL CIRCLE- 2, VADODARA, VADODARA, GUJARAT vs. M/S K 10 DEVELOPERS, VADODARA, GUJARAT

Facts

The assessee, M/s. K-10 Developers, a partnership firm engaged in real estate development, is in appeal against orders of the CIT(A) for assessment years 2013-14 and 2014-15. These appeals arise from assessments under section 153A r.w.s. 143(3) following a search action on August 22, 2017. For AY 2013-14, the assessee declared Nil income, while for AY 2014-15, it declared Rs. 2,37,46,490. The Assessing Officer (AO) made additions of Rs. 1,00,00,000 for AY 2013-14 and Rs. 25,00,000 for AY 2014-15, treating unsecured loans as non-genuine accommodation entries. The CIT(A) deleted these additions, leading to the present appeals by the Revenue.

Held

The Tribunal held that the orders of the CIT(A) deleting the additions were correct and dismissed the Revenue's appeals. The Tribunal found considerable force in the CIT(A)'s reasoning. It was undisputed that the loans were repaid in full by account payee cheques before the search, and interest was subjected to TDS. Crucially, no material was found during the search at the assessee's premises to indicate cash movement from the assessee to the lenders in lieu of cheques. The additions were based on third-party statements and general investigation reports in the Pravin Jain group case, which lacked a live nexus with the assessee and could not constitute incriminating material for section 153A purposes. The Tribunal reiterated that for unabated assessment years, additions under section 153A must be based on incriminating material found during the search, citing *Sinhgad Technical Education Society* and *Saumya Construction Pvt. Ltd.*. The principle of 'human probability' cannot override the requirement for cogent evidence under section 68, especially when the assessee had produced primary evidence of identity, creditworthiness, and genuineness, which was not rebutted. The Tribunal also noted that section 68 did not obligate the assessee to prove the 'source of the source' at the relevant time. The cross-objections filed by the assessee were dismissed as infructuous as no arguments were advanced and the Revenue's appeals were dismissed on merits.

Key Issues

1. Whether, in assessments under section 153A, additions can be made in respect of unabated assessment years without incriminating material found during the search, specifically concerning unsecured loans treated as accommodation entries under section 68? (Question of law) Assessee's contentions: - No incriminating material was found at the assessee's premises during the search, hence no addition can be made under section 153A for unabated years, relying on *Sinhgad Technical Education Society v. CIT* and *CIT v. Saumya Construction Pvt. Ltd.* - The loans were genuine, supported by confirmations, PANs, ITRs, audited accounts, bank statements, interest payments with TDS, and full repayment through banking channels before the search date. - The AO failed to provide an opportunity for cross-examination of third-party declarants. - Section 68 at the relevant time did not require proving the 'source of the source'. Revenue's contentions: - The additions were justified based on statements recorded in the Pravin Jain group cases, where entities like the lenders were admitted to be paper companies providing accommodation entries. - Reliance was placed on seized Annexure A-3, page 24, and survey results at lender locations. - The principle of 'human probability' as enunciated in *CIT v. Durga Prasad More* and *Sumati Dayal v. CIT* supports the additions.