PRAMOD SURENDRAKUMAR MEHTA,MUMBAI vs. ACIT. CENTRA CIRCLE 8(2), MUMBAI

A search and seizure action under section 132 of the Act was conducted on 4 October 2018 at the business premises of M/s Shine Shilpi Jewellers Pvt. Ltd. The residential premises of the assessee, a director of that company, were also searched. The assessee’s case was thereafter centralised and notices under section 153C were issued on 11 November 2019 for Assessment Years 2013–14 to 2018–19. For AY 2013–14, the Assessing Officer treated the unsecured loan of ₹80,00,000 received from M/s Tanman Jewels Pvt. Ltd. as an unexplained cash credit under section 68 and added interest expenditure of ₹2,17,726 under section 69C. For AYs 2014–15 to 2018–19, the Assessing Officer disallowed interest claimed on the same loan in the respective amounts of ₹7,20,000, ₹7,84,800, ₹7,86,950, ₹9,00,000 and ₹9,00,000. The Assessing Officer’s conclusion rested principally on the assessee’s inability during the search to identify the agent through whom the loan was allegedly arranged, spot

In the appellate proceedings, the assessee furnished further material concerning the lender. During remand proceedings, Shri Rakesh Jain, a director of M/s Tanman Jewels Pvt. Ltd., appeared before the Assessing Officer on 25 April 2025, confirmed the loan and its repayment, and furnished financial statements, income-tax returns, bank statements and ledger details. The assessee also relied on evidence that the loan and interest had moved through banking channels, tax had been deducted at source on the interest, and the loan had been repaid on 28 June 2018, before the search. The learned CIT(A), notwithstanding the remand material, upheld the additions and disallowances, accepting the Assessing Officer’s view that the search findings and subsequent enquiries established that the lender was an accommodation-entry provider.

The assessee challenges the assumption of jurisdiction under section 153C, the absence of year-specific

The learned Authorised Representative submitted that the loan was reflected in the assessee’s regular books and supported by confirmations, PAN details, income-tax returns, audited financial statements, bank statements and ledger accounts of the lender. He emphasised that the lender’s director appeared during remand proceedings, confirmed the transaction and repayment, and furnished supporting records. The loan had been repaid through banking channels before the search, and interest had been paid through banking channels after deduction of tax at source. The Assessing Officer, it was submitted, relied principally on subsequent enquiries, spot verification and third-party statements, none of which constituted incriminating material found during the search and having the requisite nexus with the additions made in the completed assessment years.

We first take up the additional ground concerning the permissible block period for AY 2013–14. The appellate record indicates that satisfaction under section 153C was recorded on 10 November 2019 and notice was issued on 11 November 2019. Applying the principle laid down by the Hon’ble Supreme Court in CIT v. Jasjit Singh (2023) 458 ITR 437 (SC), the relevant date for reckoning the period in the case of an “other person” is the date on which the seized material is received by the Assessing Officer having jurisdiction over that person, and not merely the date of search in the searched

AY 2013–14 could be brought within the extended period contemplated by the fourth proviso to section 153A, as applicable to proceedings under section 153C, only if the statutory conditions were fulfilled. Those conditions require the Assessing Officer to possess books of account, documents or evidence revealing escaped income represented in the form of an asset of ₹50 lakh or more in the relevant assessment year or in aggregate. The expression “asset” includes, among other things, immovable property, shares and securities, loans and advances, and deposits in bank accounts. In the present case, the addition was made by treating an unsecured loan of ₹80 lakh, recorded in the assessee’s books, as an unexplained cash credit under section 68. The record before us does not identify any asset acquired or held by the assessee which represents the alleged escaped income, nor does it show that the satisfaction or assessment was founded on evidence revealing an undisclosed asset of the prescribed value. The loan was, on the assessee’s case, repaid on 28 June 2018, before the search. The loan entry, recorded as a liability, cannot, without further evidence, be treated as an

We now consider AYs 2014–15 to 2018–19. In Abhisar Buildwell (P.) Ltd. (supra), the Hon’ble Supreme Court held that, in respect of completed or unabated assessments, additions under the search-assessment provisions cannot be made in the absence of incriminating material found during the search. The same restriction applies to proceedings under section 153C, which requires the assessment of the other person to be made in accordance with section 153A. Further, Sinhgad Technical Education Society (supra) underscores the need for the material relied upon to bear the requisite relation to the assessment year and the addition in question. The inquiry is thus whether the additions in the unabated years rest on incriminating material found during the search and

The assessment orders and the orders of the learned CIT(A) show that the loan and related interest claims were identified from the assessee’s accounts and documents furnished during assessment. The adverse material relied upon comprised the assessee’s inability to identify an alleged agent, spot verification at the lender’s premises, statements recorded from third parties and information gathered in subsequent or collateral enquiries, including a separate search concerning Shri Deepak Jain. The record does not identify a seized document or other material found in the search of the assessee that establishes that the loan or corresponding interest entries, already disclosed in the books, were false or represented undisclosed income in the particular assessment years. The search statement, without an admission concerning this specific loan, does not establish that the transaction was bogus. Nor can an enquiry at the lender’s address or a third-party statement recorded in a separate proceeding be treated as material found during the search of the assessee merely because it later informed the Assessing Officer’s view. Such matters may furnish grounds for investigation on merits, but they do not, without more, satisfy the jurisdictional requirement for disturbing a completed assessment under section 153C.

The Coordinate Benches have considered materially similar evidence arising from the same search action in Sapphire Developers, Nikita Shilpin Tater, Neelam Pramod Mehta and Tater Realty. Those decisions distinguish material found during the search from information generated through subsequent or collateral enquiries and apply the rule in Abhisar Buildwell to additions in unabated assessments. We find no material distinction in the nature of the search material relied upon in the present case that would warrant a different conclusion for AYs 2014–15 to 2017–18. Those assessments had attained finality and were unabated on the date of search. The additions for those years comprise interest expenditure claimed in the assessee’s regular accounts on the loan received in the earlier year, and the orders below identify no year-specific incriminating material found during the search relating to those interest entries. The disallowances were made consequentially, on the footing that the underlying loan was non-genuine. Applying Abhisar Buildwell and the coordinate Bench decisions, the additions under section 69C for AYs 2014–15 to 2017–18 cannot be sustained and are deleted.

AY 2018–19 stands on a different footing. On the dates available in the record, the assessment for that year was pending on the date of search and had abated; the restriction

The learned CIT(A) rejected the lender’s confirmation and supporting records principally by relying on the earlier spot verification and the lender’s modest reserves in comparison with its turnover. Those observations called for evaluation, but they do not displace the documentary and banking evidence, the lender’s appearance and confirmation during remand, or the evidence of repayment before the search. The addition under section 69C was made on the premise that the interest payment was unexplained. In view of the material furnished and the absence of a specific finding that the payment was made from an unexplained source, that premise is not sustainable. The interest disallowance of ₹9,00,000 for AY 2018–19 is accordingly deleted on merits.

In the result, the appeal for AY 2013–14 is allowed and the assessment for that year is quashed as being beyond the permissible block period. The appeals for AYs 2014–15 to 2017–18 are allowed by deleting the interest disallowances for want of incriminating material having the requisite nexus with the unabated assessments. The appeal for AY 2018–19 is allowed on merits by deleting the interest disallowance. The claim for TDS credit for AY 2014–15 shall be verified and given effect to in accordance with law.