INCOME TAX OFFICER WARD-1 JHUNJHUNU, JHUNJHUNU vs. BAGARIA TRADE IMPEX, CHURU

Whether on the facts and in the circumstances of the case and in law the Ld. CIT (A) (NFAC) is justified in quashing the entire reassessment proceedings u/s 147.

In view of the above provisions of section 68 of the Act and specifically referring the first proviso reads as under: “The person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited.” In view of the above, the proviso specifically, made the person accountable and included in the enquiry to explain the nature and source of the sum so credited in his/her name in the books of the assessee. The provision contained in section 68 of the Act, read with proviso mentioned (supra) do not leave any room for the argument, that the amount received during the year and simultaneously squared up also during the same Financial Year can’t be charged to tax and there is no need to fulfill the conditions pertaining to section 68 of the Act as under: A). Identity of the Creditors; B). Genuineness of the Transaction and C). Creditworthiness of the Party.

These three elements are the basic pillars/conditions to be fulfilled by the assessee to avoid the chargeability of tax u/s. 68 of the Act. Rather, now the proviso went one step ahead by including the creditors also in the list of proving the transaction alongwith the assessee. On this aspect, we referred the order of the AO, as there is no finding in the order of the Ld. CIT (A) on this issue (As the matter was decided by him on legal issue only). Vide para 3 of the assessment order, the AO dealt with this issue vide para 3.1 to 3.10 and the same are reproduced below for ready reference as under: Insert para 3.1 to 3.10 7. In view of the above, it is observed that, there is a categorical denial by the parties mentioned at serial no. 2, 3, 6 and 8 (supra) and about remaining 6 parties either the letter is un-served or no reply has been received. This fact was confronted to the assessee alongwith the fact that even in the case of the parties responded, signatures were not matched. Thereafter, the assessee came forward with a new story by introducing some Mr. Naveen Agarwal, S/o. Mr. Murari Lal Agarwal, Aged 40 Years, Resident of H-19/143, Sector 7, Delhi - 110 085 as mediator for arranging loans for the assessee, without any corroborative evidence about the role of Mr. Naveen Agarwal, e.g. his ITR confirming his profession as mediator to arrange the loans and corresponding income from this activity.

This new character introduced by the assessee further submits that parties arranged by him for the assessee’s loan requirement are not telling the truth about the transactions with the assessee for the reasons best known to them. It is observed on the one hand the copies of the ITR of following parties were furnished as under: Karda Traders (i) Macro IT Systems Pvt. Ltd. (ii) (iii) Sai Infoweb Pvt. Ltd. (iv) Sai Infoweb Pvt. Ltd. (v) Shubh Labh Traders (v) Zen Tradex Pvt. Ltd. On the other hand, the so-called mediator is claiming that he has no control over the parties and why are they giving adverse confirmations/ denial of the transaction with the assessee. We have examined the ITRs of the parties furnished before us vide paper book dated: 11.09.2025 page nos. 15 to 24 and following information relevant to the matter emerged out of that as under:

The table prepared (supra) clearly demonstrates the doubtful nature and absence of creditworthiness of the parties concerned. It’s a typical model of entry operators where they either file return of income below taxable or always claim the refund of T.D.S. deducted out of such transactions. Uptil, the bench is trying to analyse the facts of the matter in the light of documents not under challenge and produced by the assessee himself. It is pertinent to mention here that the Ld. Counsel of the assessee flooded the bench with legal arguments and various judicial pronouncements of coordinate benches, Hon’ble High Courts and Hon’ble Supreme Court also without addressing the specific queries of the bench. So that, the bench can discharges its utmost duty of analyzing the facts and law applicable in the present case. The behaviour of the Ld. Counsel was totally unprofessional and unwarranted and rather was to create an obstacle in the working of the bench by taking hyper technical pleas to cover up the weak factual position of the case.

A total chaos and anarchy were created by the Ld. Counsel of the assessee during the conduct of the bench, despite of several warnings by the bench and request by the Ld. DR. Rather, he tried to hijack the bench with loud voice in a shouting mode by creating a pressure on the Ld. Lady DR. and ultimately she requested him to lower down the voice or she may not be able to persuade the matter with the bench.

Coming back to the facts of the case, despite of several reminders by the bench, the Ld. Counsel ignored the demand that the balance-sheet and bank statements of the parties are required to analyse the element of credit worthiness. Intentionally, the bank statement of the assessee was submitted alongwith its return, which was not required at all and asked for by the bench and what exactly, was asked for and required never delivered to the bench. This act of intentional omission confirms the finding of the AO that the assessee has not anything to say over the strength of the facts of the case.

[1963] 50 ITR 1 (SC) Kale Khan Mohammad Hanif vs. CIT it was observed by the Hon’ble Apex Court that “It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the ITO is entitled to treat it as taxable income. In the instant case, the ITO held the income represented by the credit entries to be income from undisclosed sources, that is, neither from the manihari (general merchandise) nor from the bidi business of the assessee which he had disclosed. It was open to the assessee to raise the question that the finding that those amounts were income received from undisclosed sources was not based on any evidence or was, for other reasons, perverse. He did raise some questions of this type before the Tribunal for reference to the High Court but the Tribunal did not think that those questions legitimately arose and did not refer them to the High Court. The assessee accepted the decision of the Tribunal and did not move the High Court to direct a reference in regard to those questions under section 66(2). Those questions, therefore, could not be raised at this stage.” In the instant case also, the assessee primarily relying on technical issues and effectively has nothing to say on merits of the case.

[1977] 107 ITR 938 (SC) Roshan Di Hatti vs. CIT “Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source.”

We draw strength to arrive at a reasonable conclusion from the following judicial pronouncements by the Hon’ble Apex Court as under: [2021] 127 taxmann.com 275 (SC) Sunil Thomasvs.ITO, Ward No. 2(1) [2021] 129 taxmann.com 44 (SC) C.V Ravi vs. Income-tax Officer “Assessee had claimed to have taken loan of huge amount from an entity, namely, ARC – A survey had taken place at premises of assessee during which statement of assessee was recorded wherein he admitted to not know said creditor ARC, from whom he had claimed to have taken loan of such huge amount - Thus, Assessing Officer held that said loan received by assessee was bogus and, accordingly, made additions under section 68 to income of assessee - High Court by impugned order held that since assessee had failed to produce any confirmation from said alleged creditor ARC or produce its owner in person for cross examination and also failed to establish identity of creditor and genuineness of alleged loan transaction, impugned additions under section 68 was justified - Whether Special Leave Petition against said impugned order was to be dismissed - Held, yes [Para 2]” [2024] 159 taxmann.com 28 (SC) Virendra Behari Aggarwal vs. CIT “Section 68 of the Income-tax Act, 1961- Cash credits (Loan) - Assessment year 2001-02- High Court by impugned order held that where assessee claimed to have taken loans from his two minor sons and source of loan was stated to be gift received by assessee's sons from their uncle i.e., brother of assessee, since assessee's brother categorically stated that they had not given any gifts to anybody, impugned addition made by Assessing Officer in respect of loan amount was to be confirmed - Whether SLP filed by assessee against said impugned order was to be dismissed - Held, yes [Para 2] [2019] 103 taxmann.com 48 (SC) PCIT (Central)-1 vs. NRA Iron & Steel (P.) Ltd. The use of the words 'any sum found credited in the books' in section 68 indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium.[Para 8.1] ■ as per settled law, the initial onus is on the assessee to establish by cogent evidence, the genuineness of the transaction, and creditworthiness of the investors under section 68. ■ the assessee is expected to establish to the satisfaction of the Assessing Officer: • Proof of identity of the creditors; • Capacity of creditors to advance money; and • Genuineness of transaction ■ This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.[Para 8.2] ■ With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. [Para 8.3] ■ The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the creditworthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9]

Since the assessee did not give the details of the credits appearing in its accounts, those entries stand unexplained and therefore, the addition made under section 68 of the Act is justified. The CIT (A) finding on the issue of applicability of section 68 of the Act was not expressly there by the assessee before the tribunal and therefore, no fresh submissions on this count could be entertained by us and that is too it’s Revenue’s appeal. The key takeaways could be listed as under: (i) When there is credit in the books of account and such credit being loan or borrowing it has to pass the test of section 68 of the Act; (ii) Even if the loan or borrowing is squared up in the year, it could be tested for the purposes of section 68 of the Act. Obviously, in accommodation entries the lending or borrowing may be squared up and therefore, it is also caught in the net of verification of its veracity. The assessee’s arguments and reliance on various judicial precedents will also be dealt in this order later in relevant paras.

Considering the above discussion on facts and law pronounced by the Hon’ble Apex Court, as discussed (supra), action of the AO on this count is sustained and the order of the Ld. CIT (A) is set-aside, as the same is silent on same and simply relied on the technicalities of the matter. Whereas, in such type of the cases, considering the cotemporary situation, the Hon’ble Courts also emphasised on the principle of Substance over Form in their decisions. The entities involved in the malpractice of providing accommodation entry and beneficiary entities can’t simply come out of the glitches of the law, in the guise of some technical issue here and there.[2012] 17 taxmann.com 202 (SC)Vodafone International Holdings B.V. vs. Union of India “It is generally accepted that the group parent company is involved in giving principal guidance to group companies by providing general policy guidelines to group subsidiaries. However, the fact that a parent company exercises shareholder's influence on its subsidiaries does not generally imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Further, if a company is a parent company, that company's executive director(s) should lead the group and the company's shareholder's influence will generally be employed to that end. This obviously implies a restriction on the autonomy of the subsidiary's executive directors. Such a restriction, which is the inevitable consequences of any group structure, is generally accepted, both in corporate and tax laws.

Courts have evolved doctrines like piercing the corporate veil, substance over form etc. enabling taxation of underlying assets in cases of fraud, sham, tax avoidant, etc. However, genuine strategic tax planning is not ruled out. Lifting the corporate veil doctrine can, therefore, be applied in tax matters even in the absence of any statutory authorisation to that effect.

Next issue before us is jurisdictional ground raised

Therefore, for proper administration of the Income-tax Act, 1961 ('Act'), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/guidelines on this subject, hereby directs that the cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non-re- conciliation with 26AS data, the scope of enquiry should be limited to verification of these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.

The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s. 143(2), after generation from AST, is issued to the taxpayer with the remark "Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalised by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date.

Arguments taken by the Ld. Counsel of the assessee is an attempt to create a smoke screen, to deviate the attention of this bench from material. i.e. the taxability of accommodation entry u/s. 68 of the Act. The CBDT’s instruction reproduced (supra) is not applicable to the matter of the assessee. In this regard, we emphasised on para 2 of the same, again reproduced as under: “2. Therefore, for proper administration of the Income-tax Act, 1961 ('Act'), Central Board of Direct Taxes, by virtue of its powers under section 119 of the Act, in supersession of earlier instructions/guidelines on this subject, hereby directs that the cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non-re-conciliation with 26AS data, the scope of enquiry should be limited to verification of these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny.” The scope of this instruction is categorically applied to the matters where cases selected for scrutiny during the Financial Year 2014-2015 under CASS, on the basis of either AIR data or CIB information or for non-re-conciliation with 26AS data, in these cases, further verification, may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned.

The case of the assessee was never selected on the ground of either AIR data or CIB information or for non-re-conciliation with 26AS data. Case of the assessee was selected in the category of full scrutiny and there is no requirement in the law, which specifies that even the scope of the full scrutiny has to be conveyed to the assessee or any approval is required. [2017] 82 taxmann.com 370 (Chennai - Trib.) Parivel Rathnaswamy vs. Income-tax Officer, Ward- 17 (3), Chennai, wherein the coordinate bench also came across the similar matter as before us and held as under: The CBDT has, under section 119(2)(a), the power to issue directions or instructions to the Income-tax authorities (not prejudicial to the assessee) for the purpose of proper and efficient management of the work of assessment and collection of the revenue as to the guidelines, principles or procedures to be followed by them in the work relating to assessment or collection of revenue, and which may be either by way of relaxation of any of the provisions specified therein, which includes section 143, or otherwise. The Instruction F. No. 225/26/2006-ITA.II (Pt), dated 8-9-2010 would, therefore, be binding on the Assessing Officer, an Income-tax authority under section 116. Selection under Computer Assisted Scrutiny Selection (CASS) is on the basis of various criteria listed for selection of returns of income for scrutiny under the Act, including third party information (i.e., information from a party who is not a party to the transaction, as, for example, a registering authority). It is this information, which a third party is statutorily obliged to give to the revenue on an annual basis, that is called the 'AIR information', and the prescribed form for the same as the 'AIR return'. In other words, an AIR case, i.e., a return of income selected for scrutiny on the basis of AIR information is only a sub set of the cases selected on CASS basis. This is confirmed by Instruction No. 7/2014 (F. No. 225/229/2014/ITA.II) dated 26.9.2014 issued by the CBDT. It is made abundantly clear therein that the selection under CASS is only on the basis of either AIR data or CASS information or for non-reconciliation of 26AS data, and that the scope of inquiry in such a case should be limited to verification of those aspects/issues only. Further, that such notice would be issued to the tax payer with the remark 'selected under Computer Assisted Scrutiny Selection (CASS)', as indeed stands notified per the notice under section 143(2) under reference. Further, a wider scrutiny of the return, i.e., on aspects other than for which it was selected for examination, shall be subject to the approval by the higher authorities, in writing, where the income escaping assessment involved is in excess of Rs. 10 lakhs (Rs. 5 lakhs for non-metro charges) (para 4). Though the Instruction dated 26-9- 2014 is after the date of the notice under section 143(2) in the instant case (3-9-2014), the same in fact reiterates what Instruction dated 08.9.2010 states, so that there is no material difference between the two. In fact, the verification commenced only after 26-9-2014, with the assessee being supplied with the requisitions only on 16-1-2015. The non-stamping of the notice as an AIR case, or the Assessing Officer calling for information on other aspects, which is thus in violation of the guidelines, would be of no moment inasmuch as the revenue cannot take advantage of its own wrong. The same would not in any case impart legitimacy to the proceedings. The next question is the validity or otherwise of the impugned notice under section 143(2). The same would critically depend upon the establishment or otherwise of the fact as to whether it is an AIR case, i.e., the notice issued on the basis of AIR data. The notice under reference having been issued only on the basis of AIR information, it is clearly an AIR case. Sure, the assessee is not a party to the transaction in his personal capacity, but it needs to be appreciated that at the time of issue of notice it is the information received through the AIR return/s that is relevant, and there is no scope either for its verification or vetting or explanation at that stage. In fact, it may well be that the assessee, who represents the first party, is liable to be assessed in his representative capacity, treating him as an agent of the non-resident principal under section 163. The 'jurisdictional' fact of the notice being in respect of an AIR case stands established, and its legality, therefore, cannot be questioned.

In view of the above observations, if scrutiny is being initiated on some specific issues, then certainly to expand the scope, necessary approval of the authorities as mentioned are required. But it is nowhere stated and intended also that full scrutiny can’t be done, based on the criteria fixed by the CBDT based on its experience and expectations to collect the tax. Selection of the assessee’s case for full scrutiny fulfilling the criteria of CBDT instructions never challenged before us. In view of the above, this argument raised under Rule 27 of the ITAT Rules, found to be not tenable.

The last issue for our consideration is ground no. 1 vide A.Y 2013-14. Vide this ground the Revenue challenged the decision of Ld. CIT (A) (NFAC) is justified in quashing the entire assessment proceedings by quashing Notice u/s. 143(2) of the Act issued by ITO, Ward-1, Churu where subsequently jurisdiction transferred to the ACIT, Circle, Jhunjhunu, having jurisdiction over the case, based on the income declared by the assessee without appreciating the fact that the PAN was originally allotted in the jurisdiction of the ITO, Ward-1, Churu on 10/04/2012. The assessee has filed its first ITR for A.Y. 2013-14 declaring total income of Rs. 18.49 Crore in the jurisdiction of ITO, Ward-1, Churu which was subsequently transferred to the correct jurisdiction i.e. ACIT, Circle, Jhunjhunu, having jurisdiction over the cases having income 15 Lacs and above. In fact the assessment u/s. 143(3) of the Act was completed by the ACIT. Circle-Jhunjhunu having jurisdiction over the case.

On this issue, the bench confronted the Ld. Counsel of the assessee with the judicial pronouncement in the case of [2023] 151 taxmann.com 434 (SC) DCIT (Exem.) vs. Kalinga Institute of Industrial Technology, wherein the Hon’ble Apex Court by reversing the decision of the Hon’ble High Court of Orissa, held as under: “The jurisdiction had been changed after the returns were filed. However, the records also reveals that the assessee had participated pursuant to the notice issued under section 142 (1) and had not questioned the jurisdiction of the Assessing Officer. Section 124(3) (a) precludes the assessee from questioning the jurisdiction of the Assessing Officer, if he does not do so within 30 days of receipt of notice under section 142 (1). [Para 1] In the present case, the facts did not warrant the order made by the High Court. At the same time, this Court notices that the High Court had granted liberty to the concerned authority to issue appropriate notice. It is clarified, therefore, that the Assessing Officer is free to complete the assessment (in case the assessment order has not been issued) within the next 60 days. In such event, the question of limitation shall not be raised by the assessee. [Para 2]”

On this issue, the Ld. Counsel of the assessee asked for adjournment to distinguish the ratio as held in Kalinga Institute of Industrial Technology (supra) by Hon’ble Apex Court. Time was granted and matter was left as part heard for the convenience of the assessee. On next, hearing also, the Ld. Counsel of the assessee instead of distinguishing the ratio as held by the Hon’ble Apex Court in the case of Kalinga Institute of Industrial Technology, tried to mislead the bench by raising additional ground pursuant to Rule 27 of the ITAT Rules and on merits by relying on the ratio of following pronouncements by the coordinate bench/Hon’ble High Courts as under:

Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.) o Laid down that for cash credits in the books, the assessee must prove (i) identity of creditor, (ii) capacity of creditor to advance the money, and (iii) genuineness of the transaction. o In that case, the assessee proved only the identity of the creditor and failed to establish the other two elements. Hence, the addition was upheld. o Distinction: In contrast, where the assessee has established all three requirements and has also repaid the loan within the year, Section 68 has no application.  Rohini Builders, Nimbus (India) Ltd., and Shankar Industries deal with different factual scenarios concerning the scope of proof under Section 68 of the Act, unexplained share capital, or incomplete evidence of creditors. None of them directly address the specific fact situation of repayment within the same year, making them distinguishable from the present controversy. to 875 & 901/JP/2024 Kedia Builders and Colonizers Pvt. Ltd. This case law is factually distinguishable, inasmuch as it does not pertain to a situation where loans were repaid or squared off within the same financial year. The controversy in Kedia Builders was limited to the genuineness of alleged accommodation entries and the question of routing unaccounted funds through intermediary companies, and not to the issue of loan repayment resulting in no outstanding balance at year-end.

In all the above pronouncements relied upon by the Ld. Counsel of the assessee, rather it was the argument raised by the counsels of the assessees, that in case the loan account is squared up during the same Financial Year, there is no enrichment to the assessee under consideration. It was the assessee who has taken this ground and not the coordinate benches or Hon’ble High Court which observed so as conveyed by the Ld. Counsel of the assessee before us. This fact of the Ld. Counsel of the assessee has been taken seriously by the bench, where he tried to mislead the bench by the wrong statement that the coordinate bench Jaipur and other benches along with Hon’ble High Courts have held that “if the loan account is squared up during the same F.Y., then on the ground that there is no enrichment to the assessee, hence chargeability of the amount u/s. 68 of the Act can’t be sustained. It’s a fit case where, the assessee is liable for cost, but, the bench took a lenient view as the assessee should not be suffered with a cost on account of wrong doings of its consultant.

The judicial pronouncements relied upon by the assessee to challenge the decision of the Revenue, i.e. transferring the jurisdiction from existing AO, the AO having PAN No. to the AO, i.e. DCIT, Circle, Jhunjhunu are as under: [2023] 151 taxmann.com 70 (Bom.) Ashok Devichand Jain vs. Union of India [2024] 468 ITR 18 PCIT vs. Shree Stoppers Ltd. PCIT vs. Mohd. Rizwan, Dated: 30.03.2017 [2023] 146 taxmann.com 345 (Mad.) Charu K. Bagadia vs. ACIT Sapna Rastogi vs. ITO, ITA No. 617/Del./2024, Dated: 28.08.2024 J Mitra and Bros. vs. ACIT, ITA No. 3643/Del./2023 Mata Road Carriers vs. DCIT, In none of the above citations, the ratio as held by the Hon’ble Apex Court in the case of Kalinga Institute of Industrial Technology (supra) has been referred or discussed at all. Once, on similar facts the Hon’ble Apex Court has decided the issue in dispute, there is no further scope for any other interpretation.

The Ld. Counsel flooded the bench with all the material available in the Income Tax commentary on the earth, except the reply to the bench on the issue of applicability of the Hon’ble Apex Court decision in the case of Kalinga Institute of Industrial Technology (supra). In view of the above discussion on facts and the law applicable, it is observed that the order of the Ld. CIT (A) is perverse in nature as the same has been passed without considering the decision of the Hon’ble Apex Court decision in the case of Kalinga Institute of Industrial Technology (supra). Hence, the same is set-aside and the relevant ground raised by the Revenue is allowed by sustaining the order of the AO on the issue under consideration.

This appeal also pertains to the assessment year 2013-14, but related to the assessment order passed under section 147 r.w.s. 143(3) of the Act. An information was received from the office of JDIT(Inv.) Unit 1 New Delhi on 12.04.2017 i.e. after passing the order u/s. 143(3) of the Act vide dated 31.03.2016. On perusal of the information, it was noticed that a search and seizure operation was conducted on 17.12.2015 in the case of Shri Anand Kumar Jain and Shri Naresh Kumar Jain (the Jain brothers) who are in the business providing accommodation entries to various beneficiaries through cheques/DD/RTGS/NEFT in lieu of cash, through various papers and dummy companies/concerned floated and controlled by them. Both the persons mentioned above are practicing Chartered Accountants. However, their main business at the point of time is restricted to providing accommodation entries.

For this purpose, they have created certain entities such as companies and firms, which are managed and controlled by them. It was established during the investigations, these are only paper companies/entities used to route the unaccounted income and provide bogus accounts for non-existent transactions. In addition, it has been exposed through search and seizure operations and the post search action of investigations, that the Jain brothers control a number of bank accounts of these shell companies/concerns for effectuating the routing of these entries. The 'Jain Brothers' had also accepted that they have charged 2-6% of commission for providing such loan entries. Further, as per information received from the investigation wing, Delhi the assessee had taken accommodation entries in the shape of unsecured loans amounting to Rs. 5,17,00,337/- provided by Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain through various paper and dummy companies/concerns floated and controlled by them.

Thereafter, On perusal of Balance Sheet as on 31/03/2013, it was noticed that the assessee has shown unsecured loans received from the following companies/person’s name of which are reflected in the report of the Investigation Wing of the department as discussed above and made payment of interest to them during the year under consideration:- S. No. Name of Parties Principle Amount Interest 01. Karda Traders Rs. 11 Lacs Rs. 39,060/- 02. Keshav Trading Co. Rs. 1.45 Cr. Rs. 4.97 Lacs 03. Macro IT Systems Pvt. Ltd. Rs. 30 Lacs Rs. 1,00,600/- 04. Mahadev Investments Rs. 1.53 Cr. Rs. 5.26 Lacs 05. Mahalaxmi Trading Co. Rs. 4 Lacs Rs. 14,470/- 06. Sai Infoweb Pvt. Ltd. Rs. 10 Lacs Rs. 35,510/- 07. Shubh Labh Traders Rs. 76 Lacs Rs. 2,59,960/- 08. Subhadra Securities Rs. 27 Lacs Rs. 93,210/- 09. Zen Tradex Pvt. Ltd. Rs. 15 Lacs Rs. 52,770/- 10 Nine Corporate Inceptions Pvt. Rs. 18 Lacs Rs. 58,920/- Ltd. Total Rs. 4.89 Cr. Rs. 16.77 Lacs

Based on the above information a notice u/s. 148 of the Act was issued on 13.11.2017. In response to the notice the assessee filed its return of income on 11.04.2018 declaring total income at Rs. 18,49,16,448/-. Ultimately an addition of Rs. 9.78 lacs was made @ 2% of Rs. 4.89 Cr. u/s. 69C of the Act. The assessee being aggrieved with the same preferred an appeal before the Ld. CIT (A) who in term deleted the addition and allowed the appeal of the assessee. The Ld. CIT (A) allowed the present appeal of the assessee on the premise of appeal of the assessee filed against the original assessment order, which we decided against the assessee and in favour of department vide (supra).

We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee alongwith grounds raised before us. It is observed that the prime issue was decided on technical ground (jurisdiction) by the Ld. CIT (A) and there was no finding on merits of the case. Before us also the Ld. Counsel of the assessee argued based on the premises of the order of the Ld. CIT (A) only and has nothing to say on merits of the addition made u/s. 69C of the Act. We have gone through the order of the AO wherein it was discussed about the roles of Jain brothers as well as name of entity they are controlling and the assessee dealt with them for accommodation entry.

The AO further referred the statements of various persons related to the shell company owned and managed by the Jain brothers. The assessee asked for cross examination of the concerned persons who had given statements, but the same were not allowed by the AO relying on the Hon’ble Jurisdictional High Court and Hon’ble Apex Court in the case of Rameshwar Lal Mali vs. CIT 256 ITR 536 (Raj.) and State of J&K vs. Bakshi Gulam Mohammad, AIR 1967 SC 122 respectively.

We have thoroughly considered the submissions of the assessee before the lower authorities and the findings of the AO. In view of the findings of the AO, which we found sustainable on the facts of the case and considering the decision of this Bench vide (supra), the order of the Ld. CIT(A) is found to be perverse, resultantly, the order of the AO is sustained and grounds raised by the Revenue are allowed.

In the result, the appeal of the Revenue vide is allowed and the order of the AO is sustained on the issue under consideration.

For this purpose, they have created certain entities such as companies and firms, which are managed and controlled by them. It was established during the investigations, these are only paper companies/entities used to route the unaccounted income and provide bogus accounts for non-existent transactions. In addition, it has been exposed through search and seizure operations and the post search action of investigations, that the Jain brothers control a number of bank accounts of these shell companies/concerns for effectuating the routing of these entries. The 'Jain Brothers' had also accepted that they have charged 2-6% of commission for providing such loan entries. Further, as per information received from the investigation wing, Delhi the assessee had taken accommodation entries in the shape of unsecured loans amounting to Rs. 3,35,86,356/- provided by Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain through various paper and dummy companies/concerns floated and controlled by them.

Thereafter, On perusal of Balance Sheet as on 31/03/2014, it was noticed that the assessee has shown unsecured loans received from the following companies/person’s name of which are reflected in the report of the Investigation Wing of the department as discussed above and made payment of interest to them during the year under consideration:- S. No. Name of Parties Principle Amount Interest 01. Groupone Informative Services Rs. 91 Lacs Rs. 10,87,627/- 02. Karda Traders, Delhi Rs. 78 Lacs Rs. 9,32,515/- 03. Macro IT Systems Pvt. Ltd. Rs. 41 Lacs Rs. 4,90,652/- 04. Purus Marketing Pvt. Ltd. Rs. 90 Lacs Rs. 5.26 Lacs Total Rs. 3 Cr. Rs. 35, 86,356/- Grand Total Rs. 3, 35, 86,356/-

Based on the information mentioned (supra), the case of the assessee was assessed u/s. 147 r.w.s. 143(3) of the Act after making addition of Rs. 3, 35, 86,356/- u/s. 68 of the Act and Rs. 6 Lacs u/s. 69C of the Act as commission @ 2%, which is consequential in nature, based on the statement of Jain Brothers. The assessee being aggrieved with the same preferred an appeal before the Ld.CIT (A), who in turn allowed the appeal of the assessee on techno-legal ground without referring the merits of the case, now the Revenue being aggrieved with the same filed the present appeal before us.

We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee alongwith grounds taken by the Revenue. It is observed that During the course of assessment proceedings, to verify the genuineness of these unsecured loans, the information was called for u/s. 133(6) of the Income Tax Act, 1961 from Macro IT System Pvt. Ltd. vide this office letter No. 363 dated 13/07/2018, Karda Traders Pvt. Ltd. vide this office letter No. 362 dated 13/07/2018, Groupone Informative Services Pvt. Ltd. vide this office letter No. 424 dated 16/07/2018 and Purus Marketing P Ltd. vide this office letter No. 361 dated 13/07/2018 but the letters were received back unserved.

Further, an Inspector was deputed to enquire about the whereabouts of the said companies which were alleged to be managed by the Jain Brothers. From report submitted by the inspector it is gathered that the alleged companies namely (a) Purus Marketing Pvt. Ltd. (b) Groupone informative Services Pvt Ltd. (c) Karda Traders Pvt. Ltd. & (d) Macro IT System Pvt. Ltd. were not working at the given addresses. He had further submitted in his report that no person nearby had ever heard about such companies in the locality. The enquiry report submitted by the inspector of this office is as under:- S. No. Name/Address Remark 1. M/s. Groupone Informative The address is not traceable; it means it is not genuine Services Pvt. Ltd., 7B/11A, address. Sriniwas Puri, East of Kailash, New Delhi-110065 2. M/s. Karda Traders Pvt. Ltd 25, It is residential colony and no such office/company

Further as discussed in above para that the letters sent for seeking information u/s. 133(6) of the IT Act, 1961 returned back undelivered. Thus it is clear that the addresses of the said companies are not genuine. Moreover, as discussed above, these companies were operated/ managed by Shri Anand Kumar Jain and Shri Naresh Kumar Jain, who were engaged in providing accommodation/ paper entry in the form of unsecured loans. This fact was revealed in the search and seizure proceedings conducted by the Investigation Wing of the department at the premise of the said Jain Brothers on 17/12/2015. 43. We deem it fit to be produced the notice issued u/s. 148 of the Act alongwith reasons supplied as under:-

We have gone through the above notice issued after receiving the information from the office of JDIT (Inv.) consequent to search U/s. 132 of the Act on 17/12/2015. The assessee filed its return of income U/s. 148 of the Act on 11/04/2018 and thereafter reasons for the reopening of the matter were supplied to the assessee vide office communication dated 06/07/2018. The assessee’s argument that the decision of the Hon’ble Apex Court in the case of G.K. N. Drive Shaft 259 ITR 19 was not followed found to be untenable. The AO while disposing the objections raised by the assessee relied upon the decision of the Hon’ble Supreme Court in the case of M/s Raymond Woollen Mills Pvt. v/s. Income Tax Officer and Others reported in 236 ITR 34- “We have only to see whether there was prima facie some material the basis of which the department could re-open the case. The sufficiency or correctness of the material is not a thing to be considered at this state that prima facie there should be some element of belief which recording U/s.148.”

The AO further relied upon the Hon’ble Apex Court in 224 ITR 382, The Hon’ble Madras High Court in 242 ITR 176 and the Hon’ble P&H High Court in 242 ITR 554, wherein it has been held that even a letter from the DDIT (Inv.) constitutes information for the purposes of re-opening. We have examined the ITRs of the parties furnished before us vide paper book dated: 11.09.2025 page nos. 188 to 191 and following information relevant to the matter emerged out of that as under:

The table prepared (supra) clearly demonstrates the doubtful nature and absence of creditworthiness of the parties concerned. It’s a typical model of entry operators where they either file return of income below taxable or always claim the refund of T.D.S. deducted out of such transactions. Uptil, the bench is trying to analyse the facts of the matter in the light of documents not under challenge and produced by the assessee himself. It is pertinent to mention here that the Ld. Counsel of the assessee flooded the bench with legal arguments and various judicial pronouncements of coordinate benches, Hon’ble High Courts and Hon’ble Supreme Court also without addressing the specific queries of the bench. So that, the bench can discharges its utmost duty of analyzing the facts and law applicable in the present case.

Coming back to the facts of the case, despite of several reminders by the bench, the Ld. Counsel ignored the demand that the balance-sheet and bank statements of the parties are required to analyse the element of credit worthiness. Intentionally, the bank statement of the assessee was submitted alongwith its return, which was not required at all and asked for by the bench and what exactly, was asked for and required never delivered to the bench. This act of intentional omission confirms the finding of the AO that the assessee has not anything to say over the strength of the facts of the case.

[1963] 50 ITR 1 (SC) Kale Khan Mohammad Hanif vs. CIT it was observed by the Hon’ble Apex Court that “It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the ITO is entitled to treat it as taxable income. In the instant case, the ITO held the income represented by the credit entries to be income from undisclosed sources, that is, neither from the manihari (general merchandise) nor from the bidi business of the assessee which he had disclosed. It was open to the assessee to raise the question that the finding that those amounts were income received from undisclosed sources was not based on any evidence or was, for other reasons, perverse. He did raise some questions of this type before the Tribunal for reference to the High Court but the Tribunal did not think that those questions legitimately arose and did not refer them to the High Court. The assessee accepted the decision of the Tribunal and did not move the High Court to direct a reference in regard to those questions under section 66(2). Those questions, therefore, could not be raised at this stage.” In the instant case also, the assessee primarily relying on technical issues and effectively has nothing to say on merits of the case.

[1977] 107 ITR 938 (SC) Roshan Di Hatti vs. CIT “Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source.”

We draw strength to arrive at a reasonable conclusion from the following judicial pronouncements by the Hon’ble Apex Court as under: [2021] 127 taxmann.com 275 (SC) Sunil Thomasvs.ITO, Ward No. 2(1) [2021] 129 taxmann.com 44 (SC) C.V Ravi vs. Income-tax Officer “Assessee had claimed to have taken loan of huge amount from an entity, namely, ARC – A survey had taken place at premises of assessee during which statement of assessee was recorded wherein he admitted to not know said creditor ARC, from whom he had claimed to have taken loan of such huge amount - Thus, Assessing Officer held that said loan received by assessee was bogus and, accordingly, made additions under section 68 to income of assessee - High Court by impugned order held that since assessee had failed to produce any confirmation from said alleged creditor ARC or produce its owner in person for cross examination and also failed to establish identity of creditor and genuineness of alleged loan transaction, impugned additions under section 68 was justified - Whether Special Leave Petition against said impugned order was to be dismissed - Held, yes [Para 2]” [2024] 159 taxmann.com 28 (SC) Virendra Behari Aggarwal vs. CIT “Section 68 of the Income-tax Act, 1961- Cash credits (Loan) - Assessment year 2001-02- High Court by impugned order held that where assessee claimed to have taken loans from his two minor sons and source of loan was stated to be gift received by assessee's sons from their uncle i.e., brother of assessee, since assessee's brother categorically stated that they had not given any gifts to anybody, impugned addition made by Assessing Officer in respect of loan amount was to be confirmed - Whether SLP filed by assessee against said impugned order was to be dismissed - Held, yes [Para 2] [2019] 103 taxmann.com 48 (SC) PCIT (Central)-1 vs. NRA Iron & Steel (P.) Ltd. The use of the words 'any sum found credited in the books' in section 68 indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium.[Para 8.1] ■ as per settled law, the initial onus is on the assessee to establish by cogent evidence, the genuineness of the transaction, and creditworthiness of the investors under section 68. ■ the assessee is expected to establish to the satisfaction of the Assessing Officer: • Proof of identity of the creditors; • Capacity of creditors to advance money; and • Genuineness of transaction ■ This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.[Para 8.2] ■ With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. [Para 8.3] ■ The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the creditworthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9]

Since the assessee did not give the details of the credits appearing in its accounts, those entries stand unexplained and therefore, the addition made under section 68 of the Act is justified. The CIT (A) finding on the issue of applicability of section 68 of the Act was not expressly there by the assessee before the tribunal and therefore, no fresh submissions on this count could be entertained by us and that is too it’s Revenue’s appeal. The key takeaways could be listed as under: (i) When there is credit in the books of account and such credit being loan or borrowing it has to pass the test of section 68 of the Act; (ii) Even if the loan or borrowing is squared up in the year, it could be tested for the purposes of section 68 of the Act. Obviously, in accommodation entries the lending or borrowing may be squared up and therefore, it is also caught in the net of verification of its veracity. The assessee’s arguments and reliance on various judicial precedents will also be dealt in this order later in relevant paras.

Considering the above discussion on facts and law pronounced by the Hon’ble Apex Court, as discussed (supra), action of the AO on this count is sustained and the order of the Ld. CIT (A) is set-aside, as the same is silent on same and simply relied on the technicalities of the matter. Whereas, in such type of the cases, considering the cotemporary situation, the Hon’ble Courts also emphasised on the principle of Substance over Form in their decisions. The entities involved in the malpractice of providing accommodation entry and beneficiary entities can’t simply come out of the glitches of the law, in the guise of some technical issue here and there.[2012] 17 taxmann.com 202 (SC)Vodafone International Holdings B.V. vs. Union of India “It is generally accepted that the group parent company is involved in giving principal guidance to group companies by providing general policy guidelines to group subsidiaries. However, the fact that a parent company exercises shareholder's influence on its subsidiaries does not generally imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Further, if a company is a parent company, that company's executive director(s) should lead the group and the company's shareholder's influence will generally be employed to that end. This obviously implies a restriction on the autonomy of the subsidiary's executive directors. Such a restriction, which is the inevitable consequences of any group structure, is generally accepted, both in corporate and tax laws. However, where the subsidiary's executive directors' competences are transferred to other persons/bodies or where the subsidiary's executive directors' decision making has become fully subordinate to the Holding Company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. Similarly, if an actual controlling Non-Resident Enterprise (NRE) makes an indirect transfer through "abuse of organisation form/legal form and without reasonable business purpose" which results in tax avoidance or avoidance of withholding tax, then the Revenue may disregard the form of the arrangement or the impugned action through use of Non-Resident Holding Company, recharacterize the equity transfer according to its economic substance and impose the tax on the actual controlling Non-Resident Enterprise. Thus, whether a transaction is used principally as a colourable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction. It is in the above cases that the principle of lifting the corporate veil or the doctrine of substance over form or the concept of beneficial ownership or the concept of alter ego arises. There are many circumstances, apart from the one given above, where separate existence of different companies, that are part of the same group, will be totally or partly ignored as a device or a conduit (in the pejorative sense). [Para 67]”

Courts have evolved doctrines like piercing the corporate veil, substance over form etc. enabling taxation of underlying assets in cases of fraud, sham, tax avoidant, etc. However, genuine strategic tax planning is not ruled out. Lifting the corporate veil doctrine can, therefore, be applied in tax matters even in the absence of any statutory authorisation to that effect.

In view of the above the present Bench do have any hesitation in holding that on merits the assessee has miserably failed to establish the essential three ingredients as prescribed in section 68 of the Act and dully discussed and confirmed by the various Hon’ble High Courts and Hon’ble Supreme Court as discussed (supra). As far as the finding of the Ld. CIT (A) that the assessment of the assessee should have been carried out as per the provisions of section 153C of the Act, We have gone through the order of the Ld. CIT (A) and facts of the case alongwith order of the AO. It is observed that the finding of the Ld. CIT (A) is erroneous as the case of the assessee false within the purview of section 148 of the Act and not in section 153C of the Act. In coming over this conclusion the Bench respectfully followed the decision of the Hon’ble Apex Court in the case of [2023] 149 taxmann.Com 399 (SC) PCIT, Central-3 vs. Abhisar Buildwell (P.) Ltd.

It is also worthwhile to mention that the case of the assessee was declared heard on 11/09/2025. But there was a request by the Ld. DR to submit some additional information pertaining to the matter. The Bench given time to her till 15.09.2025 with a direction that advance copy should be served to the Ld. Counsel also (in case she submits any material) and Ld. Counsel has time to respond the same till 25.09.2025. But as nothing submitted by the Ld. DR, there is no occasion for the Bench to examine the same and consequently matter get heard for all the legal purposes on 11/09/2025 itself.

In the result, appeal of the Revenue is allowed and order of the AO is confirmed. In the result, three appeals of the revenue are Allowed, with above remarks. The Order is pronounced in the open court on 29th day of September 2025.