INCOME TAX OFFICER-12(3)(1), MUMBAI, MUMBAI vs. MANJU DIAMONDS PVT. LTD., MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against the order dated
14.02.2025 passed by the Learned Commissioner of Income Tax
(Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as "Ld. CIT(A)"], for the Assessment Year 2017–18. The Revenue has impugned the findings of the Ld. CIT(A) on several grounds, principally revolving around the deletion of an addition of ₹75,50,000/- made under Section 68 of the Income-tax Act, 1961

("the Act") by the A reproduced as under 1. Whethe law th
75,50,
1961 b assess creditw assess
2. Wheth law, th
Assess search his g accomm assess
3. Whethe law, th apprec accomm four co were fo and cr could notices complie
4. Whethe law, th apprec absolu
1992 D
Gulam additio indepe finding of Sus
2. The primary grieva
Ld. CIT(A) erred in failure, during asses establishing the iden
Ma
ITA

Assessing Officer. The relevan
:
er on the facts and circumstances of the he Id. CITA) erred in deleting the ad
000/-made under Section 68 of the Inc by the Assessing Officer, ignoring the see failed to prove the identity genu worthiness of the lenders during the c sment proceedings.
her on the facts and circumstances of th he Ld CIT(A) erred in deleting the addition sing Officer without considering the fact th h and survey, it was found that Mr Sush group companies were involved modation entries in exchange for commis see company was one of the beneficiaries er on the facts and circumstances of the he Ld. CIT(A) erred in deleting the add ciating the facts that the assessee modation entries in the form of unsecure ompanies linked to Mr. Lahoti, and tha found to be non-genuine? Furthermore, the reditworthiness of the entities providing not be established by the assessee, a s issued under Section 133(6) of the Act ed with?
er on the facts and circumstances of the he Ld. CIT(A) erred in deleting the add ciating the fact that the right of cross-exam ute, as held in Nath International Sales
Del 295) and State of Jammu & Kashm m Mohammad (AIR 1967 SC 122) Add on made by the Assessing Officer w endent enquiry, which was further corrob gs of the search and survey conducted shil Lahoti"
ance of the Revenue in the grou deleting the addition despite sment proceedings, to discharg ntity, genuineness, and creditwo anju Diamonds Pvt. Ltd
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A No. 2766/MUM/2025
nt grounds are e case and in ddition of Rs come Tax Act, fact that the uineness and course of the he case and in n made by the hat during the hil Lahoti and in providing ssion, and the ?
e case and in dition without had availed red loans from at these loans e genuineness g these loans and moreover remained un- e case and in dition without mination is not s vs. UOI (AIR mir vs. Bakshi ditionally, the was based on borated by the d in the case unds is that the the assessee's ge the burden of orthiness of the alleged lenders from been received. It is th from four entities as group companies, wh were found to be en lieu of commission. N to verify the lender inference that the loa contended by the Re to appreciate the effe the search and sei discredit the addition examination. Relian precedents, includin
[(1992) AIR Del 295
Ghulam Mohammad [
cross-examination is certain factual conte conclusion is indepen
3. The assessee, in of the Income-tax Ap impugned appellate o has urged that the Section 148 of the Ma
ITA whom unsecured loans were c he Revenue’s case that the loan ssociated with one Mr. Sushil ho, pursuant to search and sur ngaged in providing accommod
Notices issued under Section 1
rs went unanswered, thereby an transactions were not genui evenue in its grounds that the L ect of the corroborative materia izure operations and wrongly n on the basis of the alleged nce is placed by the Reven ng Nath International Sales v.
5] and State of Jammu & Kas
[(1967) AIR SC 122], to submit s not absolute and may be ci exts, particularly where the Ass ndently founded on primary mat n turn, has filed an application ppellate Tribunal Rules, 1963, order on additional legal ground e reassessment proceedings
Act were without juri iction, anju Diamonds Pvt. Ltd
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claimed to have ns were sourced
Lahoti and his rvey operations, ation entries in 33(6) of the Act reinforcing the ine. It is further
Ld. CIT(A) failed al emerging from y proceeded to denial of cross- ue on judicial
Union of India shmir v. Bakshi that the right to ircumscribed in sessing Officer’s terial.
n under Rule 27
to support the ds. The assessee initiated under as the correct provision in the pre
153C of the Act. In viewed as a proceedin from illegality and pr with the statutory re of the Act. The groun
In the facts reassessment void as the sa the Act and n
Alternatively, reassessment same are in c section 147 r.
3. We have heard riva the grounds raised in We find that the lega the Ld. CIT(A) but th validity of the reass assessee but no spec
No. 1 raised in applic settled that a legal p affects the very jur entertained at any st proper statutory rou
153C — is not mere provision operates in Ma
ITA esent factual matrix would hav n the alternative, it is contend ng under Section 147, the reass rocedural infirmities, including equirements under Sections 147
nds raised are reproduced as und and the circumstances of the case, an t initiated under section 148 of the Act ame should have been initiated under se ot under section 148 of the Act.
the initiation as well as comple t proceeding are bad in law, illegal and contravention of the statutory mandate as w. sections 148 & 151 of the Act."
al submissions on the issue of t n Application filed under Rule 2
al ground raised in Rule 27 we e Ld. CIT(A) though has discuss essment u/s 147 of the Act i cific finding has been given in re cation under Rule 27 of the ITAT plea going to the root of the ma ri iction of the assessing au tage of the proceedings. The obj ute — whether under Section ly academic but foundational, n different factual contexts and anju Diamonds Pvt. Ltd
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ve been Section ded that even if sessment suffers non-compliance
7, 148, and 151
der:
nd in law, the is illegal and ection 153C of etion of the d void as the s contained in the admission of 27 of the Rules.
ere raised before sed the issue of n favour of the espect of ground
T RulesIt is well- atter, and which thority, can be jection as to the 147 or Section given that each d is governed by distinct procedural s in the Rule 27 applic be adjudicated upon the legal ground rais
Rules is admitted for 4. The brief facts the assessee filed its Year 2017–18 on ₹1,70,303/-. The said the Act.
4.1 Subsequently, information from the Circle-2(2), Kolkata, information emanate out under Section 13
Mr. Sushil Lahoti an that entities control providing accommod loans and share capit
4.2 Based on the recorded reasons to escaped assessment
Accordingly, a notice
Ma
ITA safeguards. Consequently, the o cation is not only maintainable b in the interest of justice. In lig sed by the assessee under Rule adjudication.
giving rise to the present proce s original return of income for 31.10.2017, declaring a to d return was processed under S the Assessing
Officer re e Deputy Commissioner of Inco by communication dated 04.03
ed from a search and seizure op
32 of the Act on 27.05.2018 in nd his group entities. It was r lled by Mr. Lahoti were allege dation entries by way of fictit tal in lieu of commission.
aforesaid information, the As o believe that income chargea within the meaning of Section e under Section 148 of the Act anju Diamonds Pvt. Ltd
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objection raised but necessary to ght of the above, e 27 of the ITAT eedings are that the Assessment otal income of Section 143(1) of ceived certain ome-tax, Central
3.2021. The said peration carried the case of one revealed therein edly engaged in ious unsecured ssessing Officer able to tax had 147 of the Act.
t was issued on 31.03.2021 and dul therewith, the asses reiterating the same i
4.3 In the course
Officer noted that aggregating to ₹75,50
to be controlled by M reproduced as under Name of the entity p accommodation entry
Esquire Vyapaar Pvt. L
Indralok Agency Pvt. L
Gateway Agency Pvt. L
Shivdarbar Vanijya Pvt
Total Amount
4.4 The Assessing O the assessee to expl transactions. In resp were taken to meet loan confirmations, correspondence with reply filed on 25.01
Ma
ITA ly served upon the assessee.
see filed its return of income income as declared in the origin of reassessment proceedings, the assessee had received u
0,000/- from the following four
Mr. Sushil Lahoti. The detail o
:
roviding y
PAN
Amount
Ltd.
AABCE9245M
28,50,00
Ltd.
AACCI0219G
10,00,00
Ltd.
AADCG3632J
12,00,00
t. Ltd.
AANCS8451K
25,00,00

75,50,0
Officer, by notice dated 28.06.20
lain the nature and purpose o ponse, the assessee submitted its working capital requiremen
, relevant bank statements h Mr. Sushil Lahoti. It was fu
1.2022 that, since the loans anju Diamonds Pvt. Ltd
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A No. 2766/MUM/2025
In compliance on 31.05.2021, nal return the Assessing nsecured loans r entities, stated of the parties is t in Rs.
00
00
00
00
000
021, called upon of the aforesaid that the loans nts. It furnished s, and e-mail urther stated in were facilitated through Mr. Lahoti, subsequently forward
4.5 Notwithstanding communication date documents submitte papers and did not unearthed during the that he had provided show-cause notice w amount of ₹75,50,00
68 of the Act. In re proposed was very opportunity to cros proposed addition wa that the right to cr natural justice. Howe and proceeded to ma
68 of the Act.
4.6 Aggrieved thereb ld CIT(A), challengi proceedings as well a it was contended th copy of the statem
Ma
ITA the confirmations were procur ded to the assessee.
g the aforesaid, the Assessi ed 02.03.2022, expressed the d by the assessee were no mo satisfactorily rebut the incrimi e search, including the stateme d accommodation entries to vari was thus issued proposing to 00/- as unexplained cash credi eply, the assessee submitted th huge and therefore specifica ss-examine Mr. Lahoti, asse as based solely on his untested oss-examination formed an es ever, the Assessing Officer rejec ake the addition of ₹75,50,000/
by, the assessee preferred an ap ing both the validity of the as the merits of the addition. Be at neither was the assessee fu ent of Mr. Lahoti, nor was anju Diamonds Pvt. Ltd
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A No. 2766/MUM/2025
red by him and ing Officer, by view that the ore than routine inating material ent of Mr. Lahoti ous concerns. A treat the said it under Section hat the addition ally sought the erting that the d statement and ssential facet of cted this request
/- under Section ppeal before the e reassessment efore the CIT(A), urnished with a it afforded the opportunity to cros requests to that effec to a grave infraction o
4.7 The ld. CIT(A), found that the e uncorroborated sta purportedly admitted accommodation entri had failed to adher namely. The Ld. CIT( adhere to either of tw
(i) Ensuring fair pro allowing cross-examin
(ii) Discharging the Re submitted primary ev
4.8 The ld CIT(A), vitiated both on acc substantiate the add
Consequently, the a deleted. The relevan under:
Ma
ITA ss-examine him, despite spec ct. It was submitted that such d of the principles of natural justi upon consideration of the mat entire addition was predicat tement of Mr.
Sushil
Lah d to engaging in the busines ies. It was observed that the A re to the foundational requir
(A) observed that the Assessing wo essential mandates :
ocess and compliance with na nation of Mr. Lahoti and evenue’s burden of proof after th vidence.
thus, held that the assessme ount of procedural impropriety dition with independent and c addition made by the Assessi nt finding of the Ld. CIT(A) is anju Diamonds Pvt. Ltd
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ific and timely denial amounted ice.
terial on record, ted upon the hoti, who had ss of providing
Assessing Officer ements of law,
Officer failed to atural justice by he assessee had ent order stood y and failure to cogent evidence.
ing Officer was reproduced as “I have peru assessment submissions order passed entirely upon that he is in clients in lieu
Now wheneve premises of a parties, certa followed faili reduced to a not granted a was the state
This tantamo his back and rebut the 'ev
Timber Indus assessee of statement wa flaw which re to violation of High Courts a above. A few
In Laxmanbh
High Court of recorded beh thereof was opportunity of if the addition to be deleted justice. In M/
1489 of 2013
right to cross the same can grounds and communicatin denial of the against the as In Prarthana
112 (ITAT A documents s statements re assessee bei
Ma
ITA sed the facts of the case and have ex order passed by the AO and also tendered by the assessee. From the by the AO it is clear that the entire addit n the statement of Sh. Lahoti wherein he the business of providing accommodatio of commission.
er an addition is based on evidence disco a third party or is based on the statem ain principles of natural justice have to ing which the assessment loses its f nullity In this case it is seen that the ap an opportunity to cross examine Sh. Lahot ement of Sh. Lahoti made available to th unts to using 'evidence' against the asse d without giving him any opportunity w vidence'. The Hon'ble Supreme Court i tries (2015) 281 CTR 214 (SC) held that the right to cross examine the witn as made the basis of the impugned order enders the order a nullity in as much as f the principles of natural justice. A num and Tribunals have endorsed the princip of these judgments are given as under:- hai S. Patel vs CIT, 327 ITR 281(2010), f Gujrat has considered the legal effect of hind the back of the assessee and wh furnished to the assessee and neith f cross examination granted. The High Co n was made in this manner then the sam on the ground of violation of the principl s R.W. Promotions (P) Ltd., Mumbai v/s A 3) the Hon'ble High Court of Mumbai h examine is a part of the 'Audi Alterem' p n be denied only on exceptional and e that too after recording them in writin ng the same to the assessee. The Cou right to cross examine rendered the o ssessee null and void.
Construction (P) Ltd. v/s DCIT (2001)
Ahmedabad) it was held that loose seized from the premises of third p ecorded behind the back of the assessee ng afforded any opportunity to cross e anju Diamonds Pvt. Ltd
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xamined the the detailed assessment tion is based e has stated on entries to overed on the ents of third o be strictly force and is ppellant was ti and neither he assessee.
essee behind whatsoever to in Andaman denial to the ness whose r is a serious it amounted mber of other le mentioned the Hon'ble f a statement here no copy her was an ourt held that me is required es of natural
ACIT (ITA No.
held that the principle and extraordinary ng and then urt held that order passed
118 Taxman papers and parties and e without the examine and rebut these s undisclosed in In Amarjit Sin was held th recovered from somebody els any opportun made based o
Finally, in Ka
ITR 488 the S of natural jus material that meet it, where evidence gath not tested by cannot be allo
Hence, from t an opportunit had alleged t appellant, the fundamental
'Audi Alteram no evidence/s affording him the statement used against only against t i.e. ShLahoti found and wh thus cannot subjected to a The other iss assessee ha statements to proceedings.
upon him u/s credit worthin transaction. I
AO and it wa evidence filed bringing a s furnished by once the initi
Ma
ITA statements could not be made the basis ncome in the hands of the assessee.
ngh Bakshi (HUF) vs ACIT (2003) 86 ITD hat where the document in questione m the assessee's possession but was rece se's possession and the assessee was nity to cross examine that person no addi on such document in the hands of the ass alra Glass Factory vs Sales Tax Tribuna
Supreme Court held that it is an element stice that the assessee should have know is being used against him so that he ma e for instance the statement of a person is hered behind the back of the assessee bu y cross examination, such a statement owed to be used to the prejudice of the as the above discussion it is clear that by n ty to the assessee to cross examine Sh.
that he had provided accommodation e e order of the AO has been vitiated as tenet of the principles of natural just mPartem' i.e. that the other side will be he statement shall be used against the asse m an opportunity to cross examine the pe t and thus enabling him to rebut the ev t him. The presumption u/s 132(4A) ca the person in whose case the search wa and from whom incriminating document hose statement has been recorded. The be used against the appellant who a search.
sue which needs to be considered here ad duly furnished loan confirmations o the AO during the course of the re
Thus, the assessee discharged the initi s 68 by the AO by furnishing details of ness of the lenders and the genuineness
In other words, the onus was shifted ba as for him to advance evidence in order d by the assessee. This the AO failed t single piece of evidence to discount t the assessee. This proposition of Income ial burden cast by section 68 is dischar anju Diamonds Pvt. Ltd
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s for adding
D 13 (Delhi) it ed was not eovered from not allowed ition could be sessee.
al (1987) 167
tary principle wledge of the ay be able to s recorded or t the same is or evidence ssessee.
not affording
. Lahoti who ntries to the it violates a tice, namely, ard and that essee without erson making vidence being an be drawn as authorised ts have been presumption was never e is that the s and bank e-assessment ial onus cast the identity, s of the loan ack onto the to rebut the to do by not the evidence tax law that rged, the AO has to produ addition is su
Trading Co.
Calcutta whil
68 of the Act h
Section 68 of Officer to trea the assessee explanation a explanation o
Assessing Of sources and c that previous assessing off subject to its power is abso satisfaction w safeguard in provides for a and source of assessing off whether the used in the s explain the n is offered, the of the assess an explanati consider the principles of l based on ma power of the produced by examining as Officer is emp nature of the power of exam produce furth from other so process of en assessee has basis of the perversity in t undertaken. I considered. It reasonable or such that the Ma
ITA ce further evidence in order to be able upported by numerous decisions. In Hin
Ltd. 263 ITR 289(Cal), the Hon'ble Hi le examining the scope of powers of AO u held:
f the income-tax Act, 1961, empowers th at any sum found credited in the books o for any previous year, if the assessee f about the nature and sources of such fu offered by the assessee is not, in the op
Officer, satisfactory, as income from charge the same to tax as income of the s year. Therefore, it appears that the p ficer under section 68 is not an absolu s satisfaction where an explanation is olute where the assessee offers no expl with regard to the explanation is in effec section 68 protecting the interest of the an opportunity to the assessee to explai f the fund. Once it is explained, it is incum fficer to consider the same and form explanation is satisfactory or not. The section clearly lays the burden on the ature and source of the fund. Unless an e Assessing Officer is free to treat the fun see from undisclosed sources chargeable on is offered, the Assessing Officer same. Such consideration is guided law. The opinion so formed must be rea aterials and shall not be perverse. The e e Assessing Officer while considering th the assessee is very wide. It is a s to whether the apparent is real. Th powered to lift the corporate veil and exam e transaction. In the process, he may mining the materials. He may require the her materials if so required. He may seek ources on the basis of the material prod nquiry, the assessee has no right of hea s a right to challenge the conclusion arriv enquiry made. The assessee may p the finding. It may question the validity of It may point out that aw particular mate t may also point out that the enquiry ma r was half-heartedly done. The process e assessee has to offer the explanation anju Diamonds Pvt. Ltd
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to make the ndustan Tea igh Court of under section he Assessing of account of fails to offer und or if the pinion of the undisclosed e assessee of power of the ute one. It is offered. The lanation. The ct an in-built assessee. It in the nature mbent on the an opinion e expression assessee to n explanation nd as income to tax. Once is bound to d by sound asonable and extent of the he materials question of he Assessing mine the real exercise its e assessee to k information duced. In the ring. But the ved at on the oint out the f the process erial was not ade was not of enquiry is and produce the material i further. The materials an purpose of sc seek attendan exercise of its from other sou a reasonable further excep materials. If interest of the intimate or inf
The Hon'ble
[2007] 161 Ta of the section the explanati required to be attending circ assessing offi to the materia quo non for fo submits prim worthiness of onus shifts on independent evidence or assessee. The the assessee without bring document or satisfactory."
axman 169 (SC) while dealing with scope n 68 of the Act held that "The opinion of on furnished by the assessee as not sa e based on proper appreciation of materi cumstances available on record. The op ficer is required to be formed objectively w al available on record. Application of min orming the opinion." In other words, once mary evidence with regard to identity f creditor and the genuineness of the tra n the AO to consider the material provide inquiry in order to find out genuine bring material contrary to fact explai e AO cannot reject the primary evidence f without appreciating the facts available ging contrary material to form the belief r explanation furnished by the asses ove discussion, it is clear that the orde fatal short comings. The order has bee ll the established principles of natural ju essee will be given full opportunity to cr e evidence gathered behind his back and that respect. Further, once the initial onu by the AO u/s 68 was discharged, the evidence to rebut the assessee's sub y on the statement made by Sh. Lahot ucted on Sh. Lahoti. Hence, the AO's o both these counts and fails the test of de by the AO of Rs. 75,00,000/- u/s 6
he assessee's appeal is allowed.”
anju Diamonds Pvt. Ltd
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it can do no crutinise the reof. For the its powers to nformation in k information on 133. Once cer can do no asis of such n part to the ing Officer to essee."
Mohanakala e of provision f the AO that atisfactory is ial and other pinion of the with reference nd is the sine the assessee y and credit ansaction the ed and make eness of the ined by the furnished by on record or that primary ssee is not er of the AO en passed in ustice namely ross examine d that he will us cast upon e AO did not bmission but ti during the order stands appeal. The 68 is hereby

Sushil Lahoti yield assessee, therefore, must have been con
153C of the Act and n
5.2 The Departme countered this argum to the assessee was operation conducted there in such seize assessee.. Rather, th statement of Shri Lah admitted to being i entries through comp such a statement, in relatable to the asses
153C. In the reasons about the statemen engaged in provid companies controlled
Lahoti was only forw thus the conditions assessee and inform found in the course of Ld. DR submitted th
Ma
ITA ed documents, materials per any assessment or reassessm ducted strictly under the provi not u/s 148 of the Act.
ental
Representative
(DR), ment by submitting that no mat actually recovered or seized du on Shri Lahoti nor any inform ed material was found to be he only basis for initiating proce hoti recorded under Section 132
in the business of providing panies controlled by him. Accor n the absence of any seized doc ssee, would not attract the provi s recorded, the Assessing Officer nt of Shri Sushil Lahoti admi ding accommodation entries d by him. As the information of warded to the Assessing Officer of section 153C of material p mation contained therein relat of search from party is not fulfill hat statement recorded u/s 132
anju Diamonds Pvt. Ltd
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rtaining to the ment if required isions of section however, has terial pertaining uring the search mation contained related to the eedings was the 2(4), wherein he accommodation rding to the DR, cument or asset isions of Section r has mentioned itting of having through the statement of sh of the assessee, pertaining to the ted to assessee ed. Further, the 2(4) of the Act of Shri Sushil Lahoti di upheld by the Ho
10/03/2016 in the ca
6. We have heard the relevant materia pages 1 to 388. It wo relevant portion of Se clause and reads as u
“Assessment of in 153C. 69 [(1)] 70[No section 147, sectio where the Assessin
(a) a th
(b) a re in a person other tha books of account shall be handed o over such other pe against each such reassess the inco provisions of sectio the books of accou have a bearing on person 73[for six assessment year conducted or requ year or years refer
……………………….
…………………………… ……
Ma
ITA id not constitute any incrimina n'ble Delhi High Court in ase of Harjeevlal Agrawal in I rival submissions of the parti als on record including paper b ould be apposite at this stage t ection 153C, which begins with under:
ncome of any other person. 68
otwithstanding anything contained in on 148, section 149, section 151 and ng Officer is satisfied that,- any money, bullion, jewellery or other hing, seized or requisitioned, 71belongs any books of account or docum equisitioned, pertains or perta nformation contained therein, rela an the person referred to in section 15
or documents or assets, seized or over to the Assessing Officer having erson] 72[and that Assessing Officer s h other person and issue notice an me of the other person in accordan on 153A, if, that Assessing Officer is s unt or documents or assets seized or the determination of the total income assessment years immediately pr relevant to the previous year in whi isition is made and] for the relevant rred to in sub-section (1) of section 153
……………..”
anju Diamonds Pvt. Ltd
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ating material as decision dated
TA 8/2004. ies and perused book containing o reproduce the a non-obstante section 139, section 153, r valuable article or s to; or ments, seized or ain to, or any ates to,
3A, then, the requisitioned g juri iction shall proceed nd assess or nce with the satisfied that requisitioned of such other receding the ich search is t assessment
3A] :]

During the course of such operations, it w hil Lahoti group companies are involved accommodation entries in lieu of commi re controlled and managed by Mr. Sushi hese companies are dummy directors an ons of Mr. Sushil Lahoti. During the cour d survey proceedings (supra), Mr. Sushi his recorded statement that he ha on entries in the form of bogus Unsecure l/Premium in lieu of commission. From p mation, it revealed that the assessee co accommodation entries in the form ans from the companies controlled and s follows:
y providing ntry
PAN
Amou t. Ltd.
AABCE9245M
28,50,
Ltd.
AACCI0219G
10,00, t. Ltd.
AADCG3632J
12,00,
Pvt. Ltd.
AANCS8451K
25,00,

75,50
d details gathered coupled with the da to the assessee company had led to the ncome to the extent of Rs 75,50,000/- h for the A.Y. 2017-18.”
the extract of the reasons record of any seized material found fro nd only reference of the inform i
Sushil
Lahoti that he y in the form of bogus unsecure e assessee was one of the be anju Diamonds Pvt. Ltd
17
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was revealed in providing ission. These il Lahoti. The nd they work rse of search il Lahoti has ad provided d Loans and perusal of the ompany had of fictitious managed by unt in Rs.
,000
,000
,000
,000
0,000
ata available formation of has escaped ded, we find that om the search of mation based on had provided ed loan in lieu of neficiary of the unsecured loan from Sushil Lahoti. In the indicate that any su were found in the co or related to the asse portion of which wa
02.03.2022 — only statement under Sec accommodation entr document relating to the Assessing Officer of the Act. The Hon’
Aggrawal (supra) ha
132(4) of the Act do
Since, no cash, mon the assessee was fou and no books of ac assessee or informat was found from the provisions of section thus the non-obstan assessee. Hence, r initiated u/s 147 of under Rule 27 is acco
Ma
ITA m the entities managed and con e instant case, the materials on uch books of accounts or docum ourse of search of Shri Lahoti th essee. The reasons recorded for as reflected in the show caus mention the admission of Shr ction 132(4), wherein he confess ries. There is no reference the assessee. Therefore, we are r has validly reopened the asses
’ble Delhi High Court in the ca as clearly held that statemen oes not constitute an incrimin ney or valuable article or jewelle und in the course of search of M ccounts or the documents pe tion contained therein related e premises of Shri Sushil La n 153C of the Act are validly n te clause was not applicable in reassessment proceedings has the Act. The ground No. 1 of ordingly rejected.
anju Diamonds Pvt. Ltd
18
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ntrolled by Shri n record do not ments or assets hat pertained to r reopening — a se notice dated ri Lahoti in his sed to providing to any seized e of opinion that ssment u/s 147
ase of Harjeevlal nt recorded u/s nating material.
ery belonging to Mr. Sushil Lahoti ertaining to the to the assessee ahoti, therefore, not invoked and n the case of the s been validly the application

S. Joshi v. ITO [2010
that reasons which reopening in assess considered when the held that recording o subjective exercise of us, assessee has no therefore, allegation o
7.3 Further, the Ld
Bombay High Court
Wadkar [2004] 268
reasons are required
Assessing Officer. N additions can be m should be self-expla guessing for the reas has not filed a copy extract referred by th have been based on requirement laid dow in the case of Rajesh
7.4 Upon careful co the material available
Ma
ITA

0] 324 ITR 154 (Bombay HC) wh h are recorded by the Assess sment are the only reasons formation of the belief is impugn of the reasons distinguishes an f power. We find that in the inst ot filed any copy of the reason of the assessee cannot be substa d. Counsel referred to the deci in the case of Hindustan Lev
ITR 332 (Bombay) wherein d to be read as they were r
No substitution or deletion is made to those reasons. The re anatory and should not keep sons. We find in the instant cas y of the reasons recorded, ho he Assessing Officer, we find th n the relevant material and thu wn in the decision of the Hon’ble
Jhaveri Stock brokers P Ltd (su onsideration of the submissions e on record, we are satisfied tha anju Diamonds Pvt. Ltd
21
A No. 2766/MUM/2025
herein it is held sing Officer for which can be ned. It is further objective from a tant case before ns recorded and antiated.
ision of Hon’ble ver Ltd. v. R.B.
it is held that recorded by the permissible. No easons recorded p the assessee se, the assessee owever from the hat the reasons us fulfilling the Supreme Court upra).
s advanced and at:

 The preconditio no material rel search;
 The AO has rec information tha
 The procedural been adequately
 There is no mat was unverified non-specific.
7.5 Accordingly, the Section 147 of the raised in the appli
8. Now, we take u challenging the meri has mainly allowed t the Assessing Officer and neither further in examination was pro reproduced as under “I have perus assessment o submissions order passed based entirely
Ma
ITA ons for invoking Section 153C lating to the assessee was fou corded reasons based on speci t prima facie indicated escapem safeguards envisaged under Se y complied with; terial to support the claim that or that the reasons recorded reassessment proceedings i e Act are held to be legally valid ication under Rule 27 stand reje up grounds of appeal raised b it of the addition. We find that the appeal of the assessee for r has relied only on the stateme nquiry was carried out nor oppo ovided. The relevant finding of :
sed the facts of the case and have exam order passed by the AO and also the tendered by the assessee. From the as d by the AO it is clear that the entire a y upon the statement of Sh. Lahoti where anju Diamonds Pvt. Ltd
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A No. 2766/MUM/2025
are not met, as und during the ific and credible ment of income; ection 147 have the information were vague or initiated under d. Both grounds ected.
by the Revenue t the Ld. CIT(A) the reason that ent of Mr. Lahoti ortunity of cross the ld CIT(A) is mined the e detailed ssessment addition is ein he has stated that h entries to clien

Now wheneve the premises third parties, strictly follow and is reduc appellant was Lahoti and n available to t against the a any opportun
Supreme Cou
214 (SC) held examine the the impugned nullity in as m natural justic have endorse judgments are In Laxmanbh
High Court o statement rec no copy there an opportunit held that if t same is requi principles of Mumbai v/s A of Mumbai he
'Audi Alterem exceptional a recording the the assessee examine rend and void.

In Prarthana
112 (ITAT A documents s statements re the assessee and rebut th adding undisc

Ma
ITA he is in the business of providing accom nts in lieu of commission.
er an addition is based on evidence disc of a third party or is based on the stat certain principles of natural justice h wed failing which the assessment loses ced to a nullity In this case it is seen s not granted an opportunity to cross ex neither was the statement of Sh. Lah the assessee. This tantamounts to using assessee behind his back and without g nity whatsoever to rebut the 'evidence'. Th urt in Andaman Timber Industries (2015) d that denial to the assessee of the righ witness whose statement was made the d order is a serious flaw which renders th much as it amounted to violation of the pr ce. A number of other High Courts and ed the principle mentioned above. A few e given as under:- ai S. Patel vs CIT, 327 ITR 281(2010), th of Gujrat has considered the legal ef corded behind the back of the assessee a eof was furnished to the assessee and ne ty of cross examination granted. The H the addition was made in this manner ired to be deleted on the ground of violat natural justice. In M/s R.W. Promotions
ACIT (ITA No. 1489 of 2013) the Hon'ble H eld that the right to cross examine is a p m' principle and the same can be denie and extraordinary grounds and that m in writing and then communicating th
. The Court held that denial of the righ dered the order passed against the asse
Construction (P) Ltd. v/s DCIT (2001) 11
hmedabad) it was held that loose pa seized from the premises of third pa ecorded behind the back of the assesse being afforded any opportunity to cross ese statements could not be made the closed income in the hands of the assess anju Diamonds Pvt. Ltd
23
A No. 2766/MUM/2025
mmodation covered on tements of ave to be s its force n that the amine Sh.
hoti made
'evidence'
giving him he Hon'ble
) 281 CTR ht to cross e basis of he order a rinciples of Tribunals w of these he Hon'ble ffect of a and where either was High Court r then the tion of the s (P) Ltd.,
High Court part of the d only on too after he same to ht to cross essee null
8 Taxman apers and arties and ee without s examine basis for ee.

In Amarjit Sin it was held t recovered fro from somebod allowed any addition could of the assesse

Finally, in Ka
167 ITR 488
principle of knowledge of that he may b of a person is the assessee such a statem the prejudice

Hence, from affording an Lahoti who h entries to the it violates a justice, name will be heard against the a cross examin enabling him presumption u in whose case whom incrim statement ha used against search.

The other iss assessee had statements to proceedings.
cast upon him identity, cred of the loan tr back onto the order to rebu failed to do discount the proposition of Ma
ITA ngh Bakshi (HUF) vs ACIT (2003) 86 ITD that where the document in questioned m the assessee's possession but was r dy else's possession and the assessee opportunity to cross examine that p d be made based on such document in t ee.
the above discussion it is clear tha opportunity to the assessee to cross exa had alleged that he had provided accom appellant, the order of the AO has been v fundamental tenet of the principles o ely, 'Audi Alteram Partem' i.e. that the o d and that no evidence/statement shal assessee without affording him an oppo ne the person making the statement to rebut the evidence being used agains u/s 132(4A) can be drawn only against t e the search was authorised i.e. ShLahoti minating documents have been found an s been recorded. The presumption thus t the appellant who was never subje ue which needs to be considered here i d duly furnished loan confirmations a o the AO during the course of the re-as Thus, the assessee discharged the in m u/s 68 by the AO by furnishing deta dit worthiness of the lenders and the gen ransaction. In other words, the onus wa e AO and it was for him to advance ev t the evidence filed by the assessee. Th by not bringing a single piece of ev e evidence furnished by the assess f Income tax law that once the initial bu anju Diamonds Pvt. Ltd
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A No. 2766/MUM/2025
13 (Delhi) d was not receovered e was not person no the hands nal (1987) elementary ould have nst him so statement he back of amination, be used to at by not amine Sh.
mmodation vitiated as of natural other side ll be used ortunity to and thus t him. The the person i and from nd whose cannot be cted to a is that the and bank ssessment nitial onus ails of the nuineness as shifted vidence in his the AO vidence to see. This urden cast by section 68
evidence in o by numerous
ITR 289(Cal) examining the held:

Section 68 of Officer to trea of the assess offer explanat if the explana of the Asse undisclosed s the assessee the power of absolute one explanation assessee offe the explanatio protecting th opportunity to the fund. Onc officer to cons explanation is section clearly nature and so the Assessing assessee from explanation consider the principles of and based on the power o materials pro question of ex
Assessing Off examine the may exercise require the as He may seek material prod no right of he the conclusion assessee ma question the v that aw part
Ma
ITA

8 is discharged, the AO has to produ rder to be able to make the addition is decisions. In Hindustan Tea Trading Co
), the Hon'ble High Court of Calcu e scope of powers of AO under section 68
the income-tax Act, 1961, empowers the A at any sum found credited in the books o see for any previous year, if the assesse tion about the nature and sources of suc ation offered by the assessee is not, in th essing Officer, satisfactory, as inco sources and charge the same to tax as of that previous year. Therefore, it app f the assessing officer under section 68
e. It is subject to its satisfaction w is offered. The power is absolute w ers no explanation. The satisfaction with on is in effect an in-built safeguard in s e interest of the assessee. It provide o the assessee to explain the nature and ce it is explained, it is incumbent on the sider the same and form an opinion wh s satisfactory or not. The expression us y lays the burden on the assessee to ex ource of the fund. Unless an explanation g Officer is free to treat the fund as inco m undisclosed sources chargeable to tax is offered, the Assessing Officer is same. Such consideration is guided law. The opinion so formed must be re n materials and shall not be perverse. The of the Assessing Officer while consid oduced by the assessee is very wide xamining as to whether the apparent is fficer is empowered to lift the corporate real nature of the transaction. In the pr e its power of examining the materials.
ssessee to produce further materials if so information from other sources on the ba duced. In the process of enquiry, the ass earing. But the assessee has a right to n arrived at on the basis of the enquiry m ay point out the perversity in the findin validity of the process undertaken. It may ticular material was not considered. It anju Diamonds Pvt. Ltd
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ce further supported o. Ltd. 263
utta while
8 of the Act
Assessing of account ee fails to ch fund or he opinion ome from income of pears that is not an where an where the regard to section 68
es for an d source of assessing hether the sed in the xplain the is offered, ome of the x. Once an bound to by sound reasonable e extent of dering the e. It is a s real. The e veil and rocess, he
. He may o required.
asis of the essee has challenge made. The ng. It may y point out may also point out tha half-heartedly assessee has in support of The onus then and form an scrutinising t attendance of exercise of its from other so Once a reaso can do no fur such material the interest o
Officer to int assessee."

The Hon'ble S
[2007] 161 T provision of th

"The opinion assessee as appreciation available on required to be available on r forming the op primary evide of creditor an shifts on the independent evidence or b assessee. The by the asses record or with that primary assessee is n
Taxman 169 (SC) while dealing with he section 68 of the Act held that of the AO that the explanation furnish not satisfactory is required to be based of material and other attending circu record. The opinion of the assessing e formed objectively with reference to the record. Application of mind is the sine qu pinion." In other words, once the assesse ence with regard to identity and credit w nd the genuineness of the transaction
AO to consider the material provided a inquiry in order to find out genuinene bring material contrary to fact explaine e AO cannot reject the primary evidence ssee without appreciating the facts ava hout bringing contrary material to form y document or explanation furnished not satisfactory."
ove discussion, it is clear that the order fatal short comings. The order has been all the established principles of natur the assessee will be given full opportunit rebut the evidence gathered behind his be heard in that respect. Further, once on the assessee by the AO u/s 68 was di not produce any evidence to rebut the a anju Diamonds Pvt. Ltd
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le or was h that the e material no further.
materials purpose of rs to seek rmation in nformation ction 133. sing officer he basis of r in part to Assessing at to the ohanakala scope of ed by the on proper umstances officer is e material uo non for ee submits worthiness the onus and make ess of the ed by the furnished ailable on the belief d by the of the AO passed in ral justice ty to cross back and the initial ischarged, assessee's submission b
Lahoti during
AO's order st test of appeal u/s 68
i appeal is all 8.1 We have heard ri material on record in find that the assesse four parties from S justified in asking fo onus was on the as those companies wer filed a copy of aff statement made dur page 385-387, theref him before the Assess and cross-examinati exercise has been do failed to discharge hi
High Court in the marketing P Ltd in officer fails in carryin matter, then the Ld.
enquires and he can party. The relevant pa
Ma
ITA but relied blindly on the statement mad g the search conducted on Sh. Lahoti. H tands vitiated on both these counts and l. The addition made by the AO of Rs. 75
is hereby deleted and the a lowed.”
ival submission of parties and p ncluding paper book filed by th ee himself obtained confirmatio hri Sushil Lahoti and therefo or cross-examination of Shri Su ssessee to produce him and su re not controlled by him. The as fidavit by Shri Sushil Lahoti ring search, which is available fore, also onus was on the asse sing Officer for his examination ion by the Assessing Officer.
ne by the assessee, therefore, th is onus. Further, we find that th e case of Jansampark Adv n ITA 525/2014 has held that ng out the enquiries which are . CIT(A) is under obligation to nnot sit idle and allow relief t art of decision is reproduced as anju Diamonds Pvt. Ltd
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de by Sh.
Hence, the d fails the 5,00,000/- assessee's perused relevant he assessee. We on in respect of re, he was not ushil Lahoti and ubstantiate that ssessee has also retracting his on Paper Book essee to produce by the assessee
. But no such he assessee has he Hon’ble Delhi vertising and if the assessing required in the carry out such to the either of under:

Copy of the Order forward
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.

////

Ma
ITA he case, we feel it appropriate sue in dispute back to the file o cessary inquiry either himself d adjudicate the issue in dispute y of being heard to the assesse evenue are accordingly allowed the appeal of the Revenue whereas the application und d.
nced in the open Court on 30
/-
S
CHAUHAN)
(OM PRAK
MEMBER
ACCOUNTA ded to :

BY ORDER

(Assistant Re

ITAT, Mu anju Diamonds Pvt. Ltd
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e to restore the of the Ld. CIT(A) or through the e after providing ee. The grounds d for statistical is allowed for der Rule 27 of /07/2025. KASH KANT)
ANT MEMBER
R, gistrar) umbai