ACE MEGA STRUCTURES PRIVATE LIMITED,UTTAR PRADESH vs. DCIT/ACIT CEN CIR, NOIDA, NOIDA

The captioned cross-appeal filed by the Revenue and assessee are arising from order dated 15.04.2025 of the Ld. Commissioner of Income Tax (Appeals)-3, Noida [“Ld. CIT(A)”] passed under s. 250 of the Income Tax Act, 1961 [the Act] emanating from the assessment orders dated 31.03.2024 passed u/s 147 r.w.s. 143(3) of the Act by the Assessing Officer [“AO”] pertaining to AY 2019-20.

(Revenue’s Appeal) [AY 2019-20] 3. First, we are taking the appeal filed by the revenue in ITA No. 4115/Del/2025.

4. In all the grounds of appeal, the revenue has challenged the action of ld. CIT(A) in deleting the addition of Rs. 40,39,05,000/- made by AO towards the advances received on the sale of immovable assets owned by the assessee from M/s Hallow Securities Pvt. Ltd. treating the same as unexplained cash credits.

19. “Heard the parties and perused the material available on records. In the present case the sole issue before us is the addition made of Rs. 17,74,00,000/- made by AO by holding the loans taken from M/s Hallow Securities Pvt. Ltd as unexplained u/s 68 of the Act which stood deleted by ld. CIT(A). Before going further, the facts leading to the issue are summarized as under: “A search action us/ 132 was carried out on ACE group of cases on 28.07.2021 and further on 04.01.2022. During the year assessee received loan of Rs. 26,74,00,000/- from a company M/s Hallow Securities Pvt. Ltd. which is a NBFC. The AO examined the genuineness of loan and after considering the financials of the lender company M/s Hallow Securities Pvt. Ltd., observed its financial position is not satisfactory to grant such a huge loan to the assessee.”

20. The AO has referred the statements of Sh. Nishant Chajjar, Director assessee company who was also the director of lender company M/s Hallow Securities Pvt. Ltd. who in reply to Q. NO. 14 stated that the cash/Hawala Transaction were handled by the other director of assessee company Sh. Prakash Kumar Jha. AO further observed that Shri Nishant is also directors of many companies managed and controlled by one Shri Ashish Begwani who alleged the key person and engaged in providing accommodation loans to assessee. The also referred the statements of Shri Ashish Begwani, recorded in the year 2017 wherein he explained the modus opernadi for providing accommodation entries to various beneficiaries.

21. During the course of assessment proceedings, assessee had submitted copy of ITR, bank statement, Audited Balance Sheet of M/s Hallow Securities Pvt. Ltd to establish the identity, genuineness of transaction and creditworthiness. Assessee further established that M/s Hallow Securities Pvt. Ltd. had sufficient funds available in its bank account as and when the funds were transferred to the assessee.

22. The AO admitted that M/s Hallow Securities Pvt. Ltd. is registered NBFC however, alleged that it is also engaged in providing accommodation entries of loan to various business houses. Assessee claimed that M/s Hallow Securities Pvt. Ltd has received CCDs amounting to Rs. 300 crores from M/s Teesta Retails Pvt. Ltd. during various financial years which is one of the group company of Reliance group. The AO observed that M/s Hallow Securities Pvt. Ltd. is a shell company as per the Press Release dated 08.06.2018 by Ministry of Finance. The AO has accepted part loans as genuine and made the addition of 17,74,00,000/- by doubting the source of this amount in the hands of the lender company M/s Hallow Securities Pvt. Ltd.

23. It is the contention of the assessee that no incriminating document whatsoever was found / seized during the course of search from the possession of the assessee or any of the directors or its employees. As the assessee no document is referred / relied upon by the AO for making the additions. He solely placed reliance on the statements of the director of assessee company and one of the employees of Ace group and also placed heavy reliance on the statements of one Shri Ashish Begwani, recorded during the search in his case in the year 2016-17 wherein he had admitted engaged in the business of providing accommodation entries. However, such statements were recorded three-four years back where transactions under dispute before us were carried out in the year 2019-20 thus these statements have no direct relevance with the loans taken by the assessee and therefore, cannot be made sole basis for alleging the loan taken by the assessee company in the year under appeal from M/s Hallow Securities Pvt. Ltd. as unexplained/ bogus accommodation entries. The Hon’ble Supreme Court in the case of CIT-III, Pune vs Singhad Education Society in Civil Appeal No.11080/2017 arising out of SLP (C) No.25257/2015 has held as under:- “The seized incriminating material have to pertain to the AY in question and have co-relation, document-wise, with the AY. This requirement u/s 153C is essential and becomes a jurisdictional fact. It is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in S.153A.”

24. The Hon’ble Supreme Court in the case of Pr.CIT v. Abhisar Buildwell (P.) Ltd. reported in [2023] 149 taxman.com 399 (SC) has also held that “no addition could be made dehorse the incriminating material”.

25. Further no addition could be made solely on the basis of statements of third party without bringing on record any corroborative evidence. In this regard we are in agreement with the observations made by the ld. CIT(A) at pages 91 to 95 of the order which is reproduced as under: Standalone statements without corroborative evidence: “The above, discussion reveals that the statements of Sh. Vishal Kumar and Sh. Nishant Chaijar reproduced by the AO in the assessment order are without corroborative evidence. The Page | 4 statements of the Directors of the Hallow Securities Pvt. Ltd. and the ACE Group le. Sh. Prakash Kumar Jha and Sh. Pratap Singh Rathi which were contrary to the statements of Nishant Chajjar and Vishal Kumar have not been reproduced in the assessment order, It is important for the Assessing Authority to analyze all the evidences available before him. Moreover, the statement of Nishant Chajjar makes no reference of advancing of bogus loan to the appellant meaning thereby that, even if, Hallow Securities Pvt. Ltd. was engaged in providing & receiving bogus loans apart from the regular business of NBFC (being a company of mixed conduct as established by the AO), still documentary evidence needed to be there to prove that funds advanced to the appellant were ingenuine. Such documentary evidence is conspicuously absent in the assessment order despite the fact that both the assessee group and M/s. Hallow Securities Pvt. Ltd. were searched. It is pertinent to mention here that the standalone statement relied upon by the Assessing Officer cannot itself be considered as sufficient evidenceto reach the conclusion as drawn by the AO in the assessment order, moreso, for the reason that the said statements were equally rebutted by the other director of the appellant company. It is a well-settled principle of law that a statement unsupported by corroborative documentary evidence lacks evidentiary value. In the present case, the AO has made the addition solely based on the statement of Sh. Vishal Kumar without producing any documentary evidence to substantiate the claim that cash was exchanged against the loans raised whereas, the director of the company had refuted the said allegation. On the above issue, the Hon'ble Supreme Court of India in the case of Principal Commissioner of Income-tax (Central) vs. Dwarka Prasad Aggarwal reported at [2024] 161 taxmann.com 813 (SC) has held as under: "Section 68 of the Income-tax Act, 1961 - Cash credit (Illustrations) - High Court by impugned order held that where Assessing Officer solely based on statements of Directors recorded during a search operation conducted under section 132 on assessee, made addition under section 68 without probing deeper into income-tax returns of creditor companies and without scrutinizing documents furnished by assessee to prove genuineness of such credits, impugned addition was to be set aside - Whether SLP filed by revenue against impugned order was to be dismissed - Held, yes [Para 1] [In favour of assessee]"

Further, the judgment of Hon'ble High Court of Andhra Pradesh in the case of Commissioner of Income-tax-ll, Hyderabad vs. Naresh Kumar Agarwal reported at [2015] 53 taxmann.com 306 (Andhra Pradesh) has held as under: Where in absence of any incriminating material etc., found from premises of assessee during course of search, statement of assessee recorded under section 132(4) would not have any evidentiary value. Further, the judgment of Hon'ble High Court of Madras in the case of Commissioner of Income-tax, Tiruchirappalli reported at [2016] 74 taxmann. com 35 Madras) has held as under: Where addition of undisclosed income was made on basis of mere statement given by his son under section 132(4) which was not corroborated by any material evidence, neither such statement would be a conclusive evidence, nor any addition could be made. Further, the judgment of Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax (Central) vs. Naresh Nemchand Shah reported at 2023] 156 taxmann.com 346 (Gujarat) has held as under: "Where pursuant to a survey, unsecured loans taken by assessee from GCSL were deemed non-genuine by Assessing Officer on basis of statement of director of GCSL, since apart from said statement, there was no other evidence against assessee and moreover, assessee had filed evidence in form of confirmation from creditor, audited accounts of creditor and copies of banks accounts to prove genuineness and creditworthiness of creditor which was within parameters of section 68, impugned addition made in that respect to be deleted" Further, in the judgment of Hon'ble HIGH COURT OF CALCUTTA in the case of Principal Commissioner of Income-tax vs. Sreeleathers reported at [2022] 143 taxmann.com 435 (Calcutta) it has been held as under: It was noted that show-cause notice issued on assessee was only in respect of one lender company, namely, FGD - Assessee provided various documents in form of PAN card, income-tax acknowledgement, copy of bank statement, certification of incorporation, master data from register of companies, certificate of incorporation and annual account to prove FD's identity and creditworthiness and genuineness of transaction - However, Assessing Officer by relying on statement of one AKA, who was alleged operator of such bogus companies, brushed aside these Page | 6 documents on mere ground that they did not absolve assessee from his responsibility of proving nature of transaction -It was noted that statement of AKA was not recorded in presence of assessee nor an opportunity of cross-examination was provided to it - Whether where there was no evidence brought on record by Assessing Officer to connect statement of AKA with loan transaction of assessee, said statement was of little avail and could not be basis of allegations - Held, yes - Whether, further, since assessee had discharged its initial burden by providing documentary evidences and burden had now shifted to Assessing Officer, who failed to bring on record any reason in writing as to why these documents did not establish identity of lender or proved genuineness of transaction, impugned assessment order passed by casually brushing aside these evidences was utterly perverse and liable to be quashed - Held, yes [Paras 4 and 5] [Matter remanded] Further, the Hon'ble High Court of Kolkata in the case of Principal Commissioner of Income-tax vs. Golden Goenka Fincorp Ltd. reported at [2023] 148 taxmann. com 313 (Calcutta) has held as under: Where Assessing Officer solely based on statement of assessee's director recorded during search operation treated share application money received by assessee-company as undisclosed income and made additions under section 68, since said statement was retracted during search operation and there was no cash trail or any other corroborative evidence or investigation brought on record by AO, impugned additions were to be deleted. Further, the Hon'ble High Court of Gujarat in the case of Commissioner of Income-tax vs. Shardaben K. Modi reported at [2013] 35 taxmann.com 264 (Gujarat) has held as under: In absence of any independent material, statement of assessee's son recorder during survey would not form a valid basis for reopening assessment of assessee Further, the Hon'ble High Court of Mumbai in the case of Principal Commissioner of Income-tax vs. Bairagra Builders (P.) Ltd. reported at (2024) 164 taxmann.com 162 (Bombay) has held as under: Section 68 of the Income-tax Act, 1961 - Cash credit (Loans) - Assessment years 2007-08 and 2012-13 - Assessee-company took unsecured loans from two companies - On basis of statement of one PKJ recorded during search and seizure operation that he had provided accommodation entries to assessee, Assessing Page | 7 Officer treated said loans as fake - Whether since Assessee had submitted all evidence to substantiate loans in question, including confirmation from creditors and loans were taken and repaid through banking channels, Assessing Officer was not justified in treating said unsecured loan as fake and making addition of interest paid on said loan to assessee's income - Held, yes [Para 8] [In favor of assessee) As has already been discussed above, the AO has relied upon statement of Nishant Chajjar and Vishal Kumar in the assessment order whereas, the statements of Prakash Kumar Jha and complete statement of Pratap Singh Rathi have not been discussed in the assessment order. It is also seen that the Investigation on the basis of source to source has been applied only to the funds received from Teesta Retails Pvt. Ltd. and HFCL but no such source-to-source investigation has been conducted with respect to the funds other than those received from Teesta Retails Pvt. Ltd. On the issue of cherry picking of statements/evidences, the Hon'ble Supreme Court in the case of RELIANCE INDUSTRIES LIMITED VERSUS SECURITIES AND EXCHANGE BOARD OF INDIA & ORS. reported at 2022 (8) TMI 423 - SUPREME COURT has held as under: "SEBI's attempt to cherry-pick the documents it proposes to disclose - There is a dispute about the fact that certain excerpts of the opinion of Justice (Retd.) B. N Srikrishna, were disclosed to the appellant herein. It is the allegation of the appellant that while the parts which were disclosed, vaguely point to the culpability of the appellant, SEBI is refusing to divulge the information which exonerate it. Such cherry-picking by SEBI only derogates the commitment to a fair trial. In the case at hand, SEBI could not have claimed privilege over certain parts of the documents and at the same time, agreeing to disclose some part. Such selective disclosure cannot be countenanced in law as it clearly amounts to cherry-picking. Appeal allowed." Further, in the judgment of Ld. ITAT Delhi Bench E in the case of M/s Lumax Industries Limited vs. DCIT, Central Circle- 28, Delhi in vide its order dated 0d4.04.2024, it has been held as under: "24. In the case in hand, the Ld. AO grossly erred in not taking cognizance of all the material found during the course of the search and not making any observation/comments on the other seized material. The Ld. AO cannot just cherry pick a particular piece of information to put reliance while concluding the proceedings against the Assessee. The Ld. A.O. cannot blow hot and cold at the same time by accepting and making a particular Page | 8 piece of evidence found during the course of search as his sole basis of addition and ignore the other documents/material, more particularly relating to the impugned transaction, found during the course of same sealed proceedings. Further, the Ld. ITAT Bangalore Bench in the case of Mohammed Ibrahim Mohideen, Kerala vs. Assistant Commissioner of Income-Tax, reported at to 466, 485 & 486/Bang/2024 on 8 July, 2024 has held as under: In our opinion, even the statement recorded to be considered as true, it has to be considered in its entirety and there shall not be any cherry picking and the AO cannot consider only the portion which is favorable to revenue. Further, the Ld. ITAT Bench of Delhi in the case of HCL SINGAPORE PTE. LTD. C/O HCL TECHNOLOGIES LTD. VERSUS ASST. CIT CIRCLE INTERNATIONAL TAXATION 2(1) (1), DELHI reported at 2024(1) TMI 309 - ITAT DELHI has held as under: From the perusal of the aforesaid statements of various employees which were recorded during the course of survey by the TDS officers, which were heavily relied upon by the Id. AO by cherry picking some of the questions and answers alone given by them, we find that prima facie all the statements of employees actually support the contentions of the assessee herein. Further, the Ld. ITAT Bench of Bangalore in the case of M/S. HASSAN HAJEE & CO. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, MANGALORE (VICE VERSA) reported at 2022(9) TMI 1480 - ITAT BANGALORE has held as under: The AO has taken notice of this statement. However, he intentionally ignored it as it was in favour of the assessee. The A.O. could not do cherry picking, if the Ld. AO considered the statement of Shri B. Kunhi where he has stated that payment of speed money was at Rs. 35 per M.T., there could be no addition on this count. In view of the above discussion and stated judicial pronouncements, it is apparent that the statements reproduced by the AO without any corroborative evidence cannot be a sole basis for making addition in the case of the assessee. This is all the more true because the AO has himself proceeded to enquire into the source of source of the loans and gave relief to the extent of approximately Rs. 140 crores(Rs. 9 crore in the present case) in the whole ACE Group from the total loans received from M/s. Page | 9 Hallow Securities Pvt. Ltd. by ascribing the same to be from genuine sources. Still, it shall be important to examine the other relevant issues in the case in consequence to which enquiry was initiated with M/s. Hallow Securities Pvt. Ltd.”

26. As per section 68 of the Act, there must be a credit of amounts in the books maintained by an assessee and such credit has to be of a sum received during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.

27. In the instant case as observed above, assessee has filed following documentary evidences in support of the loan from M/s Hallow Securities Pvt. Ltd. :- (i) Confirmed Copy of account statement; (ii) Bank statement of the lender company; (iii) Audited financial statement of the lender company; (iv) Copy of ITR acknowledgement of the lender company 28. It is further seen that by filing the bank statement, assessee has not only proved the source in the hands of the lender company but further prove the source of source of the loan given to it by explaining each credit entry in the table submitted before then ld. CIT(A) as appearing at pages 100-102 of the order which is reproduced as under for sake of convenience:-

29. It is also relevant to state that an amendment is made vide Finance Act, 2022 wherein second proviso to section 68 is added so as to provide that the nature and source of any sum, whether in the form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or loan provider. However, this additional onus to prove satisfactorily the source in the hands of the creditor, would not apply if the creditor is a well-regulated entity, i.e., it is a Venture Capital Fund, Venture Capital Company registered with SEBI. This amendment has taken effect from 1stApril, 2023 and accordingly applies in relation to the assessment year 2023-24 and subsequent assessment years. The year before us is AY 2020-21 thus this amendment is not applicable, yet the assessee has been able to establish the same as per the table reproduced herein above.

30. As observed above, the requirement of explaining ‘Source’ of ‘Source’ in respect of loans is applicable from A.Y. 2023-24 and subsequent years. Reliance in this regard is placed on the judgement of coordinate bench of Delhi ITAT in the case of M/s Mall Hotels Ltd. Vs. CIT in dated 31.05.2022.

31. Further the Delhi Bench of ITAT in the case of ACIT v Smt. Prem Anand in vide order dated 13.04.2017 held that amendment made in section 68 of the Act w.e.f. 01.04.2013 empowers the A.O. to examine source of source in case of share application money / share capital / share premium from 01.04.2013 and this amendment does not give power to the A.O. to examine source of source of non-share capital cases.

32. As is evident from the chart as reproduced above, assessee has been able to establish the source of source in the hands of the lender company M/s Hallow Securities Pvt. Ltd. and the AO has wrongly under stood the said receipts as loans taken by the lender company whereas the same were repayment of the loans given by the lender company to all those companies thus the allegations made about the financial statements of the companies whose sums were credited in the bank account of the assessee prior to the funds transferred tot eh assessee is totally uncalled for and thus ignored and excluded and cannot be considered for examining the genuineness and creditworthiness of the lender company.

33. It is also relevant to state that the lander company has received funds in the shape of CCD from M/s Teesta Retails Pvt.Ltd who is having strong net worth and during the year assessee has received a sum of Rs. 60.00 crores out of total 300.00 crores received in FY 2019- 20 to 2021-22. It is also observed by ld. CIT(A) that the RBI license issued was also submitted and in the assessment proceedings of one of the group company M/s Bright Buildtech Pvt. Ltd., who is also before us in the captioned appeals, loan received from M/s Hallow Securities Pvt. Ltd. out of the funds received from Teesta Retails were also accepted by the department, thus the funds to such extent cannot be held as unexplained.

34. Another issue raised by the revenue is that the lender company M/s Hallow Securities Pvt. Ltd. was declared as Shell company by the press release issued by the Ministry of Finance dt.08.06.2018 and further no opportunity was given to the Ao to rebut the evidences filed by the assessee which are in the nature of additional evidences u/R 46A of the Act. In this context, it is seen that in order to verify this fact, ld. CIT(A) has made direct enquires from SFIO u/s 250(4) of the Act, who is the nodal agencies in this regard. The SFIO vide reply dt. 23.01,2025, as reproduced herein above, in clear terms has stated that no investigation is initiated/pending/disposal against the company i.e. M/s Hallow Securities Pvt. Ltd. the conclusion drawn by ld. CIT(A) on the basis of aforesaid report of SFIO are fully convincing and we concur these findings given by ld. CIT(A) which are reproduced as under: “From the above press release, following conclusions can be drawn: a. The red flagged companies which had not filed returns for last 2 years were deregistered from the ROC. b. Directors of those companies which had not filed annual returns were disqualified. c. The struck-off companies were restricted from using their bank accounts. d. Genuine corporates were given benefit of condonation of delay scheme for filing the returns. In view of the above, it was felt necessary to make enquiries both with Hallow Securities Pvt. Ltd. and SFIO (the Nodal Authority maintaining the database) to know, if any, proceedings were pending with respect to Hallow Securities Pyt Ltd. with SFIO and whether M/s. Hallow Securities Pvt. Ltd. had been regular in its compliances with ROC and RB etc. The exact correspondences with M/s. Hallow Securities Pvt. Ltd. and SEIO have already been reproduced above in the body of the order. M/s. Hallow Securities Pt. Ltd. in response to enquiry from this office provided the following information: a. Details of the annual returns filed with the ROC from AY 2018- 19 till AY 2024-25. b. Details of the annual returns filed with the RBl from AY 2018- 19 till AY 2024-25. c. No show cause has been received by the above company from the ROC since Financial Year 2017-18 (i.e. even after a period of seven years of the press release quoted by the AO). Enquiry letter was also issued to SFIO to know, if any, proceedings were pending with the Nodal Authority against M/s. Hallow Securities Pvt. Ltd. The response of SFIO authorities has already been reproduced in the body of the order above. The Nodal Authority (SFIO) has clearly reported that no proceedings are pending against M/s. Hallow Securities Pvt. Ltd. with their office”

Further, the Ld. ITAT Bench Calcutta in the case of INCOME- TAX OFFICER VS. BAJORIA FOUNDATION reported at [2001] 117 TAXMAN 126 (CAL.) (MAG.) has held as under: "Whether a harmonious interpretation of section 250, even if read with rule 46A, means that if facts of case warrant further enquiries, it is within powers of Commissioner (Appeals) to do so - Held, yes - Whether if prima facie an information is necessary to examine claim of assessee, Commissioner (Appeals) should consider necessary evidence in exercise of his powers under sub- sections (4) and (5) of section 250 - Held, yes" Further, the Ld. ITAT Ahmedabad Bench 'C' in the case of Deputy Commissioner of Income-tax vs. J.A. Infracon (P.) Ltd reported at [2025] 171 taxmann.com 228 (Ahmedabad - Trib.) has held as under: Commissioner (Appeals) called for a remand report from Assessing Officer and issued notice under section 133(6) to aforesaid investor companies and in response to same, parties namely 'ATPL' and 'ALPL' confirmed transactions With assessee company with necessary documents and evidences - These Confirmations were not controverted by Assessing Officer by way of bringing anything adverse on record - Further in spite of availability of all documents transaction with share applicant companies who had made share application on record, nothing had been brought on record by Assessing Officer to doubt in assessee company - Whether, on facts, Commissioner (Appeals) rightly deleted addition made by Assessing Officer - Held, yes [Paras 7, 8 and 11] [in favour of assessee]" Further, the Hon'ble Supreme Court in the case of CIT vs. Kanpur Coals Syndicate [1964] 53 ITR 225 has held that "the appellate Commissioner has plenary powers in disposing of an appeal. The Hon'ble Court further held that the scope of the power of CIT(A) is coterminous with the AO." Further, the Hon'ble High Court of Karnataka in the case of CIT vs. K. S. Dattatreya [2011] 197 taxman 151 has held that "as a revisional authority commissioner appeal can revise not only the ultimate computation arrived at but every process which lead to the ultimate computation or assessment". Further, the Hon'ble Kerala High Court in the case of V. SubramoniaAiyr vS. CIT 1978] 113 ITR 685 held that "the power conferred on Appellate Authority by Section 246 which is exercised in accordance with procedure with Section 250 indicate and amplitude and width which is no less wide than that of an ITO and the Appellate Authority could substitute the order of the ITO by one of his own."

On the above issue, the Hon'ble Supreme Court in the case of Assistant Commissioner of income-tax vs. Gujarat Television (P.) Ltd. reported at [2024] 159 taxmann.com 739 (SC) has held as under: "SLP dismissed against order of High Court that where unsecured loans given to assessee were squared up on same date and nothing remained outstanding at end of day, much less at end of financial year, impugned reassessment proceedings to tax same under section 68 deserved to be quashed” On the above issue, the Hon'ble High Court of Mumbai in the case of Principal Commissioner of Income-tax vs. Bairagra Builders (P.) Ltd. reported at [2024] 164 taxmann.com 162 (Bombay) has held as under: "Where assessee had taken unsecured loan from two companies and had submitted all evidences to substantiate loan including confirmation from creditors and loan was taken and repaid through banking channels, Assessing Officer was not justified in treating said unsecured loan as fake and unexplained cash credit" Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax (Central vs. Dharmesh Padamshibhai Patel soner reported at [2023] 156 taxmann.com 491 (Gujarat) has held as under: However, Tribunal remanded matter back to Assessing Officer to verify identity of parties -It was noted that Tribunal had observed that assessee had furnished bank accounts of all lenders wherein loans claimed were duly reflected - Creditors were assessed to tax and their confirmations were filed - Further, loans were returned through banking channels before close of subsequent Financial year - Whether, on facts, an opportunity was rightly allowed by Tribunal to assessee to prove identity of lenders when their creditworthiness and genuineness of transactions as was held by Commissioner (Appeals), were already proved - Held, yes [Paras 15 and 16] In favour of assessee] Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax (Central), Surat vs Neotech Education Foundation reported at [2023] 148 taxmann.com 372 (Gujarat) has held as under: It was noted that Commissioner (Appeals) had observed that assessee had discharged its onus by furnishing necessary details such as a copy of PAN, bank details and ITRetc. in support Page | 21 of identity and creditworthiness of creditor and genuineness of transaction - He further noted that payment of loan to assessee as well as repayment of loan and interest by assessee were made by account payed cheques - Further, both lower authorities had concurrently held that initial burden of proof even if not discharged by assessee at level of Assessing Officer but every transaction was explained by production of documents by assessee before Commissioner (Appeals) where two remand reports were called for - Whether, on facts, impugned addition on account of loan amount made by Assessing Officer was to be deleted - Held, yes [Paras 9 to 11] [In favour of assessee] Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Merrygold Gems (P.) Ltd reported at [2024] 164 taxmann.com 764 (Gujarat) has held as under: Section 68 of the Income-tax Act, 1961 - Cash credit (Scope of provision) - Assessment year 2016-17 - Assessing Officer made addition of certain amount to assessee's income on account of unsecured loan treading same as unexplained cash credit under section 68 - Whether since amount of loan received by assessee was returned within same financial year, appellate authorities had rightly deleted addition made by Assessing Officer - Held, yes [Paras 9 and 11] [In favour of assessee] Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Ambe Tradecorp (P.) Ltd reported at [2022] 145 taxmann.com 27 (Gujarat) has held as under: Where assessee took loan from two parties and assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid in subsequent year, no addition under section 68 could be made on account of such loan Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Ojas Tarmake (P.) Ltd. reported at [2023] 156 taxmann.com 75 (Gujarat) has held as under: Where assessee showed unsecured loans received during relevant assessment year and AO made addition on ground that assessee failed to discharge onus of liability as laid down under section 68, since amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.”

1.

2. The fund flow statement of M/s. Hallow Securities Pvt. Ltd. from AY 2017-18 to AY 2022-23 reveals that there were sufficient funds available with Hallow Securities Pvt. Ltd. out of additions made by AO which were advanced to findings and discussion, it is observed that the bank credits in the hands of various concerns including the appellant. Without prejudice to the above M/s. Hallow Securities Pvt. Ltd. have already been added by the AO in the assessment orders of M/s. Hallow Securities Pvt. Ltd. for AY 2017-18 to Ar 2022- 23, the adding the same money emanating from the said accounts in the hands of the assessee company would amount to double taxation of the same.

3. The AO in the assessment proceedings of Hallow Securities Pt. Ltd. has excluded the funds advanced to ACE Group from the total credits added in the hands of Hallow Securities Pvt. Ltd. The exclusion of the funds advanced to the ACE Group from the total credits added by the AO in the hands of Page | 23 Hallow Securities Pvt. Ltd. is immaterial as when the total addition made in the hands of Hallow Securities Pvt. Ltd. is compared with the increase in the application of funds in its balance sheets over the years, a net surplus persists, clearly demonstrating that same funds have been subjected to multiple and duplicate additions.

5. The loans received from M/s. Hallow Securities Pt. Ltd. have been returned back in future years.

7. The statement of the Directors i.e. Sh. Pratap Singh Rathi (who has denied the facts as narrated by Sh. Vishal Kumar) rebuts the statement of sh. Vishal Kumar.

40. In view of the above discussion and further looking to the fact that when all the relevant details and documentary evidences produced by the assessee to establish the identity, creditworthiness and genuineness of the transactions, the said evidences cannot be rejected based on the statements of third party without any contrary documentary evidence. It is seen that transactions have been done through banking channels and on the date of making of loans, there was sufficient balance available in the bank account of the lender company, which proves the creditworthiness and genuineness of the transactions. It is also relevant that out total amount of loans of 27.27 crores received, the AO has despite of doubting the creditworthiness, had made the addition of INR. 17.74 crores only meaning thereby the creditworthiness for the remaining amount is not doubted though the facts and the circumstances while granting these loans remained the same. This creates serious doubts about the mode and manner of the additions made by the AO. Once it is accepted that the lender has creditworthiness for part of the amount, the remaining amount cannot be held as unexplained. There is no case of any cash deposited in the account of any of the lender company at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, Appellant has duly discharged the burden casted upon it u/s 68 of the Act.

6. From the perusal of the assessment and appellate order, it is seen that on the issue of loan from M/s Hallow Securities Pvt. Ltd., all the observations and allegations made by AO are same as were made in the case of M/s Allure Developers in AY 2020-21 & Others in & Others. It is further seen that in the present case, the amount under dispute was received as advance against the sale of two Farm houses owned by the assessee company in terms of two separate agreements made and executed between the parties. The advances were received by the assessee after due TDS as per section 194I of the Act. However, the deal could be materialized and were got cancelled by the buyer M/s Hallow Securities Pvt. Ltd. and part of the advances were repaid also. All these agreements and cancelled agreement were found and seized during the course of search and are available in the paper book filed by the assessee. Therefore, it cannot be said that the sale if immovable property is a story created by the assessee to justify the receipts from M/s Hallow Securities Pvt. Ltd. Once this amount was received by the assessee as advance against the same of immovable property, it cannot be treated as cash credits and thus provision of section 68 of the Act is not applicable. Accordingly, the AO cannot make the addition of this amount as unexplained cash credits u/s 68 of the act. However, discharged the burden casted upon it as discussed above, the assessee has successfully demonstrated that the company M/s Hallow Securities Pvt. Ltd. has sufficient net worth and thus its creditworthiness cannot doubted.

7. Admittedly there is no change in the facts and circumstances regarding the issue of loan taken from M/s Hallow Securities Pvt. Ltd. where in the case of M/s Allure Developers Pvt. Ltd while dismissing the appeal of the Revenue in & Others for AY 2020-21 & Others, we held the same as genuine, therefore, by following the said observations made by us which are Mutatis Mutandis applied to the facts of present case also if the Page | 26 same is treated as loan, the addition made of Rs. 40,39,05,000/- u/s 68 r.w.s. 115BBE of the Act towards the loan taken from M/s Hallow Securities Pvt. Ltd. is hereby, deleted.

In the result, appeal of the Revenue in ITA No. 8. 4115/Del/2025 [AY 2019-20] is dismissed.

(Assessee’s Appeal) for AY 2019-20 9. The assessee has raised following grounds in this appeal:- 1. “That the Ld. CIT(A) erred in confirming the addition of 16.90 crores as unexplained cash payment for Farm House Nos. GM-41 and GM-42, ignoring that the registered triparite sub lease deeds were executed on 30.04.2015, conclusively completing the transaction Accordingly, any alleged cash payment in FY 2018-19 lacks nexus and merits deletion.

2. That the Ld. CIT(A) has erred in failing to appreciate that, post execution of the sale deeds on 30.04.2015, no further liability remained payable by the appellant to the seller in respect of the said farmhouses, and hence, the alleged payments in FY 2018-19 are factually and legally untenable.

3. That the Ld. CIT(A) erred in upholding the reassessment initiated under section 148, which is void ab initio, as the Assessing Officer failed to record proper satisfaction and obtain mandatory prior approval of the Principal Commissioner under Explanation 2(iv) to section 148, before relying on a third-party excel sheet seized under section 132 from Mis Gaursons H-toch Promoters.

4. That the Ld. CIT(A) erred in placing reliance on an uncorroborated and unverified Excel sheet seized from a third party, M/s Gaursons H- tech Promoters Pvt. Ltd., during a search on 02.03.2022, without any direct evidence linking the entries to the appellant or the transaction concluded in 2015, in contravention of settled judicial principles which prohibit additions based solely on untested third-party documents.

5. That the Ld. CIT(A) has failed to consider that during the search proceedings conducted on the appellant under Section 132 of the Act on 28.07.2021 and 04.01 2022, no incriminating material was found or seized indicating any cash payment in connection with the said transaction, thereby rendering the addition baseless.

6. That the Ld. CIT(A) has erred in confirming the addition, without granting an opportunity for cross-examination, thereby violating principles of natural justice.

14. Ld. AR further submits that in first appeal, before Ld. CIT(A), it was claimed by the assessee that since reassessment proceedings under challenged were initiated u/s 148 on the basis of the documents/evidences found during the course of search carried out in its own case on 28.07.2021 and further on 04.01.2022 therefore, no addition could be made for the documents found from the possession of third person during the course of search carried out on some other day without following the procedure u/s 148 Explanation (2) to clause (iv) of the Act. In this regard, Ld.AR of the assessee has made detailed submission before us which is reproduced as under:-

20. “Submissions in respect of Ground No. 1-4 raised by appellant in respect of addition of ₹6.90 Crore– Ace Mega Structure Pvt. Ltd., AY 2019–20 a) That the Ld. CIT(A) has erred in law and on facts in confirming the addition of ₹6.90 crores alleged to have been paid towards the farmhouse GM 41 & 42 transaction during A.Y. 2019–20. b) That the Ld. CIT(A) failed to appreciate that the farmhouse lease deed was duly executed in the name of the appellant on 30.04.2015,( Refer Page No 233-263 of the PB) whereby all rights, title, and interest in the said property were transferred in favour of the appellant. Thus, the question of making any fresh payment in July 2018, more than three years after execution of the sub-lease deed, does not arise. c) That the Ld. CIT(A) failed to appreciate the prevailing business practice, wherein payments are invariably made at the time of registry or prior thereto, and no prudent businessman would defer payment for several years after transfer of title. The addition sustained by the CIT(A) on account of alleged cash payment in July 2018 is therefore untenable, speculative, and devoid of any factual or legal foundation. d) That it is a matter of record that the search conducted in January 2022 on the assessee group did not unearth any incriminating material whatsoever indicating that any cash payment was made by the appellant towards the farmhouse transaction. On the contrary, the appellant holds an allotment letter dated FY 2015–16, which conclusively demonstrates that ownership rights had already been conferred. ( Refer Page No 264-279 of the PB) e) That the document relied upon by the Revenue was not found during the search on the assessee but was allegedly seized in a separate search conducted on M/s Gaursons on 02.03.2022. The assessee’s case, therefore, falls squarely within the ambit of Explanation 2 to Section 148, inserted w.e.f. 01.04.2021, which is parimateria to Section 153C. f) As per Explanation 2, clause (iv) of sec 148, where material pertaining to a person other than the searched person is sought to be used, the Assessing Officer of such other person must record satisfaction and obtain prior approval of the PCIT. In the present case, no such satisfaction or approval has been recorded/provided, vitiating the entire proceedings. g) That the presumption under Section 292C is wholly inapplicable in the present case. The said provision applies only to documents/materials found from the possession of the searched person. Here, the material relied upon was seized from the premises of M/s Gaursons, not from the appellant. Hence, no presumption under Section 292C can be drawn against the appellant. h) The property in question was purchased in F.Y. 2015–16, and the sub-lease deed was duly executed on 30.04.2015.The provisions of Section 56(2)(x) relating to the difference between stamp duty value and consideration in the case of any other person(Company) were made applicable only from 01.04.2017.At the time of purchase (F.Y. 2015–16), no such provision existed in the statute, and therefore, any comparison of circle rate vis-à-vis the sale price has no relevance for the present transaction. ( Refer Page No. 86 of AO order )Consequently, the inference drawn by the AO that the difference between the circle rate and sale price represents cash payment is based on conjecture and not supported by any statutory provision applicable to the relevant assessment year. It is a settled law that a taxing provision cannot be applied retrospectively to create a tax liability or adverse inference for a period when such provision was not on the statute. i) That the Ld. CIT(A)’s reasoning that payment may have been made post execution of the deed is against normal business prudence and trade practice. It is a settled industry norm that no property is transferred without payment being made prior to or at the time of registry. Thus, sustaining the addition on conjectures is wholly unjustified.( Refer Para 6.2 Page No. 147 of CIT(A) order) j) That reliance is placed on judicial precedents holding that additions cannot be made merely on the basis of third-party documents without any independent corroboration, and that presumption u/s 292C is confined to the searched person.

i.Homelife Buildcon (P.) Ltd. vs. Deputy Commissioner of Income-tax [2025] 176 taxmann.com 614 (Chandigarh - Trib.)[17-07-2025]( Refer Para 24). [Refer Page No. 529-556 of Case Law PB] ii.PCIT (CENTRAL) – 3 VERSUS ANAND KUMAR JAIN (HUF), SATISH DEV JAIN, SAJAN KUMAR JAIN,432 ITR 384 (Del). [Refer Page No. 557-558 of Case Law PB] iii.COMMISSIONER OF INCOME TAX – III VERSUS M/S. CALCUTTA KNITWEARS, LUDHIANA362 ITR 673,. [Refer Page No. 559-561 of Case Law PB] iv.OM PRAKASH TANTIA, NISHA JAIN, MANOJ TANTIA, RENU JAIN, RUCHI TANTIA VERSUS DCIT, CENTRAL CIRCLE – 25, NEW DELHI2025 (3) TMI 1473 - ITAT DELHI. [Refer Page No. 562-568 of Case Law PB] v.ESHA KEDIA VERSUS ASST. CIT, CENTRAL CIRCLE-3, NEW DELHI.2025 (3) TMI 1214 - ITAT DELHI. [Refer Page No. 569-573 of Case Law PB] vi.MUKUL RANI THAKUR VERSUS DCIT, CENTRAL CIRCLE-31, DELHI.2024 (11) TMI 1031 - ITAT DELHI. [Refer Page No. 574-582 of Case Law PB].”

(i) PCIT (CENTRAL)-3 VERSUS ANAND KUMAR JAIN (HUFL, SATISH DEV LAIN, SAJAN KUMAR JAN4364 [Del] [Refer Page No. 557-55 of Case Law PB]; (ii) OM PRAKASH TANTIA, NISHA JAIN, MANOJ TANTIA, RENU JAIN, RUCHI TANTIA VERSUS DCIT, CENTRAL CIRCLE-25 NEW DELHI 2025 (3) TMI 1473-ITAT DELHI. [Refer Page No. 562-568 of Case Law PB (iii) ESHA KEDIA VERSUS ASST. CIT, CENTRAL CIRCLE-3 NEW DELHI 2025 (3) TMI 1214- ITAT DELHI (Rafer Page No. 569-573 of Case Law PB) (iv) MUKUL RANI THAKUR VERSUS DCIT, CENTRAL CIRCLE-31. DELHI.2024 (11) TMI 1031-ITAT DELHI (Refer Page No. 574-582 of Case Law PB).

Based upon the material available on record, facts and circumcenters, assessment proceedings was initiated by issuing notice on 29.03.2023

22. The core question before the Bench is whether, in the facts and circumstances of the case, the assessment ought to have been framed under section 143(3) or under section 147 of the Income-tax Act, 1961. From the plain reading of the statutory provisions and in light of Explanation 2 to section 148, it becomes abundantly clear that the legislature has widened the scope of reassessment, particularly through the Finance Act, 2021, which introduced significant changes to the reassessment regime. These amendments explicitly include instances involving third-party search material and make it incumbent upon the Assessing Officer (AO) to follow the procedure under section 148, including obtaining prior approval from the Principal Commissioner of Income Tax (PCIT).

23. In the present case, the AO proceeded to frame the assessment under section 143(3) despite relying heavily on material found during searches conducted on third parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio.

24. Furthermore, a plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on 20 or after 1st April 2021 within the ambit of the new reassessment regime under section 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation 2 to Section 147, it is evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law-specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT-is followed.

25. In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments.

29. Furthermore, there exists a mandatory statutory requirement that in all cases involving search-related assessments falling within the assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner is required under section 148B of the Income-tax Act, 1961. In the present case, the Assessing Officer (AO) has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. In the present case, approval has been granted for assessment framed u/s 143(3) only. The relevant provision of section 148B reads as under: Prior approval for assessment, reassessment or recompilation in certain case. 148B. No order of assessment or reassessment or recompilation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.

26. In view of above discussion, we delete the addition made on account of the entries found recorded in the documents found and seized from the possession of third person. Ground of appeal No.3 raised by the assessee is thus, allowed.

27. The remaining grounds of appeal are with respect to the merits of the addition.

28. Since we have allowed the legal grounds raised by the assessee in Ground of appeal No.3, therefore, other grounds become academic.

Order pronounced in the open Court on 27.11.2025.