ITAT Mumbai: Section 68 Addition Cannot Rest Solely on Third-Party Statement Without Supporting Evidence
Background of the Dispute
The case of ACIT Vs Shree Developer before the ITAT Mumbai revolves around an addition made under Section 68 of the Income Tax Act 1961 on account of unsecured loans allegedly received from accommodation entry providers. The Revenue sought to tax these loans as unexplained cash credits, primarily relying on the sworn statement of an alleged entry operator. The Tribunal, however, upheld the deletion of the addition by the CIT(A), stressing that a bare third‑party statement, without any corroborative material, is not enough to sustain an addition under Section 68.
Initiation of Reassessment Proceedings
Information from Investigation Wing
For assessment year 2012-13, the assessee had originally filed a return of income on 14/09/2012 declaring Nil income. Subsequently, based on intelligence received from the office of DDIT (Investigation), Unit-7(2), Mumbai, the Assessing Officer (AO) reopened the assessment under Section 147 by issuing a notice under Section 148 on 30/03/2019.
The Investigation Wing information stated that:
- Certain companies controlled by Shri Jitendra Salecha were engaged in providing accommodation entries such as:
- loans
- purchase/sale entries
- share premium
- letters of credit
- expense entries
- These entities allegedly included M/s Induja Traders Pvt Ltd and M/s Vanquish Investments & Leasing Pvt Ltd.
A statement of Shri Jitendra Salecha was recorded under Section 131, wherein he purportedly admitted that the above companies were floated and operated for the purpose of giving accommodation entries on commission.
Alleged Bogus Loans to the Assessee
During the relevant previous year, the assessee had obtained unsecured loans aggregating Rs. 60,00,000/- from the following parties:
- Rs. 20,00,000/- from M/s Induja Traders Pvt Ltd
- Rs. 40,00,000/- from M/s Vanquish Investment and Leasing Pvt Ltd
On the strength of the Investigation Wing report and the statement of Shri Jitendra Salecha, the AO issued a show-cause notice to the assessee, calling upon it to explain why these loans should not be treated as unexplained cash credits and added as undisclosed income under Section 68.
Assessee’s Response and Supporting Documentation
The assessee consistently maintained that the loans were genuine business borrowings. In response to the show cause, and in the course of reassessment proceedings, the assessee submitted:
- Loan confirmations from both creditor companies
- Bank statements of the creditor entities reflecting the loan transactions routed through banking channels
- Acknowledgements of income tax returns of the creditor companies for the relevant year
- Audited financial statements of both creditors
- Evidence of repayment of loans in subsequent years, including details of:
- principal repayments through banking channels; and
- interest payments with TDS deduction as per law
The assessee argued that these documents conclusively established:
- Identity of the creditors
- Creditworthiness of the creditors
- Genuineness of the loan transactions
Despite this, the AO rejected the assessee’s explanation and proceeded to make an addition under Section 68.
Assessment Order and Addition Under Section 68
AO’s Reasoning
In the reassessment order dated 16/12/2019 passed under Section 143(3) read with Section 147, the AO concluded that the unsecured loans were unexplained and made an addition of **Rs.