DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-3, JAIPUR vs. SAPNA KARNANI, TONK PHATAK

ITA 709/JPR/2025Status: DisposedITAT Jaipur14 October 2025AY 2013-1491 pages
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What did the Tribunal hold?

The Tribunal held that the CIT(A) was correct in deleting the additions made by the AO under Section 153A for unexplained cash credits, commission expenses, and interest expenses, as there was no incriminating material found during the search to substantiate these additions. The Tribunal further held that the CIT(A) erred in directing the AO to proceed under Section 147 of the Act. Citing the Supreme Court's observation that there must be a point of finality in legal proceedings and stale issues should not be reactivated, the Tribunal found that the CIT(A)'s direction to reopen the assessment under Section 147 was ultra vires its powers. The CIT(A)'s authority ended with deciding the sustainability of the Section 153A additions. Therefore, the cross-objections of the assessee were allowed, and the appeals of the revenue were dismissed. The decision in the lead case was applied mutatis mutandis to the other assessment years.

What were the facts?

The Revenue (DCIT) filed appeals against the orders of the CIT(A) for Assessment Years 2013-14, 2014-15, 2016-17, and 2017-18. The Assessee (Sapna Karnani) filed cross-objections. The appeals stem from assessment orders passed under Section 153A of the Income Tax Act, 1961, by the ACIT. The original returns were filed under Section 139(1). A search and seizure action was conducted on the 'Karnani Group' on 01.10.2018. The dispute in the lead case (AY 2013-14) involves additions made by the Assessing Officer (AO) on account of unexplained cash credits (Rs. 78,50,000), unexplained expenditure (Rs. 1,96,250), and unexplained interest expenses (Rs. 3,79,776). The CIT(A) had deleted these additions.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 78,50,000/- made under Section 68 on account of unexplained cash credits, disregarding that it was an accommodation entry in the nature of a bogus unsecured loan obtained from Kolkata-based companies which were of no means and thus a sham transaction? 2. Whether, on the facts and in the circumstances of the case, the Id. CIT(A) was justified in deleting the addition of Rs. 1,96,250/- made by the AO under Section 69C on account of unexplained expenditure, i.e., commission expenses incurred for acquiring accommodation entry? 3. Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 3,79,776/- made by the AO under Section 69C on account of unexplained interest expenses incurred for obtaining accommodation entry in the form of unsecured loan? 4. Whether, in the facts and circumstances of the case and in law, the Id. CIT(A) erred in giving directions to the AO to proceed as per Section 153C of the Act, making the action illegal, unjustified, arbitrary, and against the facts of the case? Assessee's Contention (for issue 4): The CIT(A) erred in directing the AO to proceed under Section 153C, which was illegal and arbitrary. The CIT(A) should have simply allowed the appeal on the deletion of additions under Section 153A, as there was no incriminating material. The direction to reopen under Section 147 was ultra vires. Revenue's Contention (for issues 1-3): The CIT(A) was not justified in deleting the additions made by the AO on account of bogus unsecured loans, commission expenses, and interest expenses, as these were accommodation entries and sham transactions.

Which sections of the Income-tax Act were involved?

Section 153A,Section 68,Section 69C,Section 147,Section 153C,Section 139(1),Section 127,Section 143(2),Section 142(1),Section 131,Section 132(4)

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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR

Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI,

For Appellant: Shri Deepak Sharma, CA
For Respondent: Ms. Alka Gautam, CIT, DR
Hearing: 11/09/2025Pronounced: 14/10/2025

PER: RATHOD KAM

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