ITAT Mumbai on Investigation Wing Information, Reopening and Section 68/69/69C Additions

The Mumbai Bench of the ITAT in ACIT Vs Swikrutee Finance Pvt. Ltd. has delivered an important ruling for cases involving alleged accommodation entries. For AY 2013-14, the Tribunal not only upheld the CIT(A)/NFAC’s order quashing the reassessment but also confirmed the deletion of additions made under Section 68, Section 69 and Section 69C of the Income Tax Act 1961.

The decision is significant for three core reasons:

  1. Reopening of assessment beyond four years was struck down due to absence of any allegation of failure by the assessee to make full and true disclosure, and due to clear non-application of mind by the AO.
  2. Additions under Section 68, relating to unsecured loans alleged to be accommodation entries of “Praveen Agarwal group”, were deleted as the assessee had produced comprehensive documentation proving identity, creditworthiness and genuineness.
  3. Consequential additions under Sections 69 and 69C (unexplained investment and unexplained expenditure) were also deleted, as they were entirely dependent on the Section 68 additions.

This order reiterates that Investigation Wing reports and third-party statements cannot, by themselves, override on-record evidence furnished by the assessee, nor can they substitute the AO’s own independent enquiry and application of mind.

Background of the Case

Swikrutee Finance Pvt. Ltd., a company registered as an NBFC with RBI, had filed its return of income for AY 2013-14. An original scrutiny assessment was completed under Section 143(3) on 29.12.2015. Subsequently, based on information from the Investigation Wing at Kolkata regarding alleged accommodation entries routed through entities controlled by one “Praveen Agarwal”, the AO reopened the assessment.

Key Facts

  • The reassessment notice under Section 148 was issued on 27.03.2019, i.e., beyond four years from the end of AY 2013-14.
  • In the reassessment proceedings, the AO made:
    • Addition of Rs. 2,55,00,000 under Section 68 as unexplained cash credit (unsecured loans from three companies).
    • Addition of interest under Section 69C as unexplained expenditure.
    • Addition under Section 69 treating repayment of certain loans as unexplained investment.
  • The CIT(A) allowed the assessee’s appeal in full, holding the reopening to be invalid and deleting all additions on merits.
  • The Revenue carried the matter in appeal before the ITAT.

The Tribunal examined both jurisdictional and substantive issues.

Revenue’s Grounds Before ITAT

The Revenue challenged the order of CIT(A) broadly on the following lines:

  • CIT(A) allegedly erred in treating the reassessment as invalid without properly considering Section 292B.
  • The proviso to Section 147 was said to be wrongly applied even though the case was, according to Revenue, one of income escaping assessment after completion of assessment under Section 143(3).
  • The deletion of addition of Rs. 2,55,00,000 under Section 68 was contested on the ground that the assessee failed to establish the genuineness of loans from entities figured in Investigation Wing data, which were stated to be shell companies of the “Praveen Agarwal group”.
  • Reliance was placed on the statement of “Praveen Agarwal” recorded under Section 131 in which he allegedly admitted his entities were providing accommodation entries through fund rotation.

The assessee defended the order of CIT(A), contending that both on jurisdiction and merits, the reassessment could not be sustained.

Findings of CIT(A) on Merits (Section 68/69/69C)

Assessment Proceedings and Addition under Section 68

The reassessment addition of Rs. 2,55,00,000 under Section 68 related to unsecured loans from three corporate lenders:

  • M/s Parmeshwar Merchandise Pvt Ltd.
  • M/s Sampark Advisory Services Pvt Ltd.
  • M/s Subhdhrishti Complex Pvt Ltd.

The AO issued notices under Section 133(6) via email and speed post. While some notices sent by post returned unserved, replies were nevertheless received by post and email.

The assessee, instead of physically producing the lenders, submitted:

  • Confirmations of loans.
  • Copies of income-tax returns and acknowledgements.
  • Audited financial statements.
  • Bank statements reflecting loan transactions.
  • MCA master data showing incorporation and active status of the lenders.

Despite these, the AO treated the loans as unexplained on two principal grounds:

  1. Non-production of the lender companies for personal verification.
  2. Reliance on Investigation Wing information and statement of “Praveen Agarwal” branding these entities as shell companies engaged in accommodation entries.

CIT(A)’s Reasoning on Section 68