The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of additions totalling ₹40.95 lakh after finding that the Assessing Officer relied primarily on the statement of an alleged accommodation-entry provider without allowing the taxpayer to cross-examine him.
The bench of Raj Kumar Chauhan (Judicial Member) and S. Rifaur Rahman (Accountant Member) observed that once the third-party statement was excluded from consideration for want of cross-examination, no material remained with the Assessing Officer to support the allegation that the taxpayer had received an accommodation entry.
The case concerned Assessment Year 2017-18 and arose from an order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, dated March 24, 2025.
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The taxpayer had filed its income tax return on November 28, 2017, declaring a total income of ₹13,99,600. According to the order, the company did not undertake any business activity during the relevant year and declared only interest income.
The assessment was reopened under Section 147 of the Income Tax Act on the basis of information received from the Investigation Wing. The information alleged that the taxpayer had received an accommodation entry of ₹39 lakh from Saloni Buildtech Private Limited.
The information originated from a search and seizure operation conducted on December 23, 2019, against Joginder Pal Gupta in connection with the DAG Group. During a statement recorded under Section 132(4), Gupta allegedly admitted that he was engaged in providing accommodation entries to beneficiaries through various paper companies.
Relying on this material, the Assessing Officer treated the ₹39 lakh received by the taxpayer as unexplained money under Section 69A read with Section 115BBE of the Income Tax Act. A further addition of ₹1.95 lakh, calculated at 5% of the alleged entry, was made towards commission allegedly paid for obtaining the accommodation entry.
The taxpayer maintained that the ₹39 lakh was not an accommodation entry but a genuine short-term advance received from Saloni Buildtech.
It submitted that the amount was repaid during the same financial year by making a payment to Steel City on the lender’s instructions. The loan transaction was stated to have remained outstanding for only 32 days.
To substantiate the transaction, the taxpayer furnished the ledger account of Saloni Buildtech, relevant banking records showing receipt and repayment of the amount, an affidavit from the lender’s director and corporate filings in Form AOC-4.
The taxpayer further contended that Joginder Pal Gupta was not a director of Saloni Buildtech during the relevant period. It was also argued that Gupta had not specifically named the taxpayer or stated that he had provided an accommodation entry to it.
According to the taxpayer, the Assessing Officer disregarded the documentary evidence and proceeded solely on the general statement made by Gupta during the search proceedings.
The CIT(A) deleted both additions after examining the documentary evidence produced during the assessment and appellate proceedings.
The appellate authority found that the Assessing Officer had failed to place adequate material on record to substantiate the allegation that the transaction represented an accommodation entry. It also noted that the taxpayer had specifically requested an opportunity to cross-examine Gupta, but the request was not granted.
The Income Tax Department challenged this relief before the Tribunal, arguing that the CIT(A) had deleted the additions solely because cross-examination was not provided and without adequately examining the merits.
The Department contended that Gupta controlled Saloni Buildtech and that the information gathered by the Investigation Wing established that the taxpayer was one of the beneficiaries of the accommodation-entry operation.
The ITAT found that the Assessing Officer had proceeded against the taxpayer merely on the basis of Gupta’s statement and had overlooked the material facts and documents available on record.
The Bench noted that the taxpayer had furnished evidence to establish the identity and creditworthiness of the lender and the genuineness of the transaction. It also took note of the fact that the loan was repaid within 32 days.
Significantly, the Tribunal held that a statement recorded behind the taxpayer’s back could not be used against it without providing an opportunity to cross-examine the person making the statement.
Relying upon the judicial principle reiterated in Malbros International Private Limited, the Bench observed that if a person whose statement is being relied upon is not offered for cross-examination, the statement cannot be used to the prejudice of another person.
Applying that principle, the Tribunal held that Gupta’s statement had to be excluded from the evidence relied upon against the taxpayer. Once that statement was removed, the Assessing Officer was left with no evidence to sustain the additions.
The Tribunal also emphasised that the Assessing Officer had not brought any specific material on record to disprove the documents furnished by the taxpayer.
The repayment of the loan through banking channels within the same assessment year was an important circumstance supporting the taxpayer’s explanation. The Revenue did not demonstrate that the funds represented the taxpayer’s own unaccounted money routed back through the lender.
The ITAT referred to judicial precedents holding that once a taxpayer furnishes supporting documents to establish the identity of the lender, its creditworthiness and the genuineness of the transaction, the initial evidentiary burden stands discharged.
Thereafter, the burden shifts to the Assessing Officer to rebut those documents through cogent and concrete evidence. An addition cannot be sustained merely on suspicion, conjecture or a general statement regarding the alleged activities of a third party.
The Tribunal also relied on decisions recognising that repayment of a short-term loan through regular banking channels is a relevant factor in determining the genuineness of the transaction, particularly when the tax authority fails to bring contrary material on record.
The Tribunal concluded that the taxpayer had substantiated the loan transaction through supporting documents and had settled the liability before the end of the relevant assessment year.
It accordingly rejected the Department’s challenge to the deletion of the ₹39 lakh principal addition and the consequential ₹1.95 lakh commission addition.
The taxpayer had separately challenged the validity of the reassessment proceedings. It argued that the reopening was based on borrowed satisfaction and that the Assessing Officer had not independently verified the Investigation Wing’s information before issuing the notice under Section 148.
However, since the additions had already been deleted on merits and the Revenue’s appeal was dismissed, the Tribunal kept the taxpayer’s other legal objections open. The cross-objections were consequently dismissed as infructuous.
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