Investigation Wing Report Alone Cannot Sustain Section 68 Addition: ITAT Mumbai Rules in DCIT Vs Varsha Prakash Shah

Overview of the Dispute

The Mumbai Bench of the Income Tax Appellate Tribunal recently adjudicated two Revenue appeals along with corresponding cross-objections filed by the assessee, arising from Section 68 additions made in respect of unsecured loans received from M/s Meridian Gems — an entity alleged to be associated with the Bhanvarlal Jain group. Since both appeals concerned the same lender and substantially similar facts, the Tribunal disposed of them through a consolidated order.

The appeals under consideration were ITA No.3545/Mum/2026 (for AY 2008-09) and ITA No.3546/Mum/2026 (for AY 2011-12), filed by the Revenue against the order dated 31.01.2026 of the Commissioner of Income Tax (Appeals). The cross-objections — CO No.223/Mum/2026 and CO No.222/Mum/2026 — were filed by the assessee challenging the validity of the reassessment proceedings.

Note on Source Inconsistency: The cause-title of ITA No.3545/Mum/2026 refers to Assessment Years 2009-10 and 2011-12, while the substantive portion of the order describes it as relating to Assessment Year 2008-09. This inconsistency is present in the source order itself and is retained without alteration.

Background and Profile of the Assessee

The assessee, Varsha Prakash Shah, is an individual and the proprietor of M/s Dynamo Stamping Industries, a business engaged in trading, dealing, and importing CRGO and CRNGO material in irregular shapes, sizes, sheets, and coils. The dispute in both assessment years centres on unsecured loans received from M/s Meridian Gems and the interest paid thereon.

Sequence of Assessments and Reassessments

The original assessments for both years had been completed under Section 143(3) of the Income Tax Act, 1961. Thereafter, the Assessing Officer received specific information from the Investigation Wing alleging that entities controlled by the Bhanvarlal Jain group were engaged in providing accommodation entries in the form of unsecured loans, advances, share capital, and fictitious purchases and sales. M/s Meridian Gems was identified as one such concern within this group. On this basis, both assessments were reopened under Section 147 and Section 148 of the Act.

The year-wise assessment details as recorded in the order are as follows:

Nature of Additions Made by the Assessing Officer

AY 2008-09

The Assessing Officer recorded that the Investigation Wing information indicated that the assessee had received an accommodation entry of Rs.10,00,000/- in the form of an unsecured loan from M/s Meridian Gems during Financial Year 2007-08 (loan date: 07.03.2008). In response to the notice under Section 148, the assessee, by letter dated 09.04.2015, requested that the original return filed on 29.09.2008 be treated as the return filed in response to such notice. Notice under Section 143(2) was issued on 16.04.2015, and reasons for reopening were supplied on the same date. Objections filed on 15.02.2016 were disposed of on 26.02.2016.

AY 2011-12

The Assessing Officer noted that the aggregate outstanding loan from M/s Meridian Gems stood at Rs.60,00,000/-, comprising an opening balance of Rs.10,00,000/- from Financial Year 2007-08 and a fresh loan of Rs.50,00,000/- obtained during Financial Year 2010-11 (loan date: 03.04.2010). The addition under Section 68 for this year was restricted to the fresh loan of Rs.50,00,000/-, and interest on the entire outstanding balance was disallowed.

Documentary Evidence Furnished by the Assessee

The assessee disputed the characterisation of the loans as accommodation entries and placed the following material on record before the Assessing Officer:

• Loan confirmation letters duly signed by both the payer and the payee
• Acknowledgment copies of income-tax returns filed by M/s Meridian Gems
• Profit and loss account, balance sheet, and schedules of the lender for the relevant financial years
• Bank statements of both the assessee and M/s Meridian Gems reflecting fund transfers through banking channels
• Affidavits of Shri Manoj Jain affirming the genuineness of the loan and interest transactions
• TDS certificates evidencing deduction and deposit of tax at source on interest payments
• Proof of subsequent repayment of loans through banking channels

The affidavits of Shri Manoj Jain specifically stated that his affidavits were made in suppression of any statement, declaration, or affirmation previously made by him before any other person or Revenue authority.

The repayment particulars as recorded by the CIT(A) are as follows:

These repayments covered the loans from M/s Meridian Gems across both assessment years, along with other outstanding amounts.

Assessing Officer's Position