Mumbai ITAT Quashes Rs. 14 Lakh Addition Under Section 69A: Documentary Evidence Prevails Over General Search Reports

In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT) of Mumbai has reinforced the evidentiary value of documentary proof and banking transactions over generalized search reports. The ruling in the case of Funali Rakesh Doshi Vs DCIT (ITAT Mumbai), bearing appeal number ITA 4748/MUM/2026 and pronounced on 30/07/2026, serves as a crucial precedent for cases involving alleged accommodation entries.

The core of the dispute revolved around an addition of Rs. 14,00,000/- made by the assessing authorities under Section 69A read with Section 115BBE of the Income Tax Act 1961. The revenue department had classified a short-term unsecured loan received by the assessee as an unexplained cash credit, relying heavily on search and seizure operations conducted on third parties. However, the Tribunal systematically dismantled the revenue's arguments, emphasizing that an addition cannot be sustained when the assessee has successfully demonstrated the identity, genuineness, and creditworthiness of the lender, coupled with the actual repayment of the loan through proper banking channels.

Factual Matrix of the Case

Initial Assessment and Reopening

The assessee, a practicing Chartered Accountant, filed her income tax return for the Assessment Year 2019-2020 in her individual capacity, declaring a total income of Rs. 28,67,230/-. This return was subsequently revised by the assessee under the provisions of Section 139(5) of the Income Tax Act 1961.

The case took a contentious turn when the revenue authorities initiated reassessment proceedings. The assessing officer (AO) issued notices under Section 148 of the Act, effectively reopening the case based on specific information regarding transactions worth Rs. 14 lakhs with an entity named M/s Aarohi Creations LLP. The reassessment order was ultimately passed under Section 147 read with Section 144B of the Act on 06.02.2025.

The Alleged Accommodation Entry

The trigger for the reassessment was a series of search and seizure operations conducted by the investigation wing of the Income Tax Department. A search was executed on 15/2/2022 on the ARC Group, followed by another operation on 05/07/2022 targeting Shri Lokesh Kumar Khabya and Associates.

During these operations, the department allegedly unearthed seized materials suggesting that Shri Lokesh Kumar Khabya and Associates operated as an entry provider. The revenue department concluded that this entity was facilitating bogus unsecured loans and accommodation entries for various concerns under the ARC Group in exchange for unaccounted cash. Drawing a parallel to the assessee's transaction, the AO presumed that the Rs. 14 lakh loan received from M/s Aarohi Creations LLP was merely the assessee's own unaccounted cash routed back into her books under the guise of an unsecured loan. Consequently, the entire transaction was labeled a sham.