ITAT Slams Income Tax Dept. For on Third-Party Statements Without Independent Inquiry

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹3.5 crore for Assessment Year (AY) 2015-16 and held that the Assessing Officer (AO) failed to conduct any independent inquiry and relied mechanically on third-party statements and an investigation report without establishing any direct nexus with the assessee. The bench of S. Rifaur Rahman (Accountant Member) and Raj Kumar Chauhan (Judicial Member) has observed that no incriminating material was found during the search specifically relating to the unsecured loan transaction in question. The addition was primarily founded upon (i) the general surrender made by Late Shri Mul Chand Malu during search, and (ii) the investigation report received from the Kolkata Investigation Wing. The matter traces its origin to a search and seizure operation conducted under Section 132 of the Act on October 9, 2014, in the case of the Kuber Group of Companies. The search covered various business and residential premises, including that of the assessee in New Delhi. Following the search, the case was centralized and assessment proceedings were initiated. During the course of search proceedings, statements were recorded from Late Shri Mul Chand Malu, a key person associated with the Kuber Group. In his statements recorded under Sections 132(4) and 131 of the Act, he offered to declare undisclosed income of ₹150 crore in the hands of himself, his family members, and group concerns. Out of this amount, ₹100 crore was broadly attributed to share capital, share premium, and capital formation. For AY 2015-16, the assessee had originally declared an income of ₹35.54 lakh. However, during scrutiny assessment, the Assessing Officer examined certain unsecured loans received by the assessee. It was noticed that the assessee had received unsecured loans amounting to ₹3.5 crore from Hallow Securities Pvt. Ltd. (HSPL). The AO alleged that HSPL was a “jamakharchi” or paper company used for providing accommodation entries. This conclusion was primarily drawn from information received from the Investigation Wing at Kolkata. According to the report, certain companies operating from a particular address were found to be engaged in providing accommodation entries under the control of an alleged entry operator, Shri Vikas Kumar Agarwal. The AO observed that HSPL was operating from the same address where other suspected companies were located. Further, reliance was placed on earlier statements recorded from Shri Vikas Kumar Agarwal and other individuals, wherein they had admitted to providing accommodation entries through various entities. Based on this material and the alleged failure of the assessee to produce the directors of HSPL for examination, the AO treated the unsecured loan of ₹3.5 crore as unexplained cash credit under Section 68 and added it to the income of the assessee. On appeal, the Commissioner of Income Tax (Appeals) sustained the addition. Additionally, the CIT(A) enhanced the income by ₹7 lakh, estimating a 2% commission allegedly paid by the assessee for obtaining accommodation entries. Aggrieved by this, the assessee carried the matter to the ITAT. After examining the material on record and hearing both sides, the Tribunal undertook a detailed analysis of the factual matrix and the legal position. The Tribunal noted that he Assessing Officer had not conducted any independent inquiry of his own to verify the genuineness of the transaction. Instead, he had simply reproduced and relied upon the investigation report and earlier recorded statements of third parties. The Tribunal noted that the statements of Shri Vikas Kumar Agarwal and others were recorded in December 2013 and January 2014—well before the search conducted in the assessee’s case in October 2014. Moreover, upon perusal of the statements and the list of companies identified as entry providers, it was found that the name of HSPL did not appear in those statements or in the list of entities allegedly engaged in accommodation entry activities. The Tribunal emphasized that merely because HSPL was located at an address where other companies were allegedly operating, it could not automatically be presumed to be a paper company or accommodation entry provider. Such presumption, in the absence of specific material connecting HSPL to the alleged activities, was held to be unsustainable. The Bench further took note of the fact that Shri Vikas Kumar Agarwal became a director of HSPL only in May 2016, which was much after the relevant assessment year and even after the search. Therefore, reliance on his earlier statements to implicate HSPL in respect of transactions for AY 2015-16 was found to be misplaced. The Tribunal also observed that the assessee had furnished documentary evidence to discharge the onus under Section 68, including confirmation of the lender, income tax returns, audited financial statements, and bank statements. Once such primary evidence was placed on record, the burden shifted to the Revenue to rebut the same with cogent material. However, apart from drawing inferences from a general investigation report and statements recorded in other proceedings, no specific adverse material was brought on record against the assessee or the lender in relation to the impugned transaction. The Tribunal further referred to its earlier decision in a connected group case, where similar additions had been deleted on identical facts due to lack of independent inquiry and over-reliance on third-party material. In view of these findings, the ITAT concluded that the addition of ₹3.5 crore under Section 68 was not sustainable in law. Consequently, the enhancement of ₹7 lakh towards alleged commission was also set aside, as it was purely consequential and based on the same premise. Allowing the appeal of the assessee in full, the Tribunal set aside the orders of the lower authorities and deleted both the addition under Section 68 and the enhancement made by the CIT(A). Case Details Case Title: Vijaya Devi Malu Versus ACIT Citation: JURISHOUR-214-ITA-2026(Del) Case No.: ITA No.1542/DEL/2022 Date: 02/03/2026 Counsel For Appellant: Gagan R Khandelwal, Adv Counsel For Respondent: Kumar Avikal Manu, CIT DR Click Here To Read Order Read More: DGFT’s Minimum Import Price Can’t Be Adopted for Valuation of EOU DTA Clearances: CESTAT

ITAT Slams Income Tax Dept. For on Third-Party Statements Without Independent Inquiry

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