Section 68 Addition on Alleged Bogus Loans Remanded to CIT(A) for Independent Verification — ITAT Mumbai

Case Overview

ACIT Vs Sunil Giridhar Raheja HUF (ITAT Mumbai)

Background of the Case

The assessee, a Hindu Undivided Family (HUF), had originally filed its return of income for Assessment Year 2013-14 on 29/09/2013, declaring total income as Nil. The matter did not rest there — the case was subsequently reopened through a notice issued under Section 148 dated 12/07/2018, triggered by specific intelligence received from the Investigation Wing, Mumbai.

The Investigation Wing had conducted a search operation in the case of one Shri Vipul Vidur Bhatt and his associated entities. Based on findings from that search, the Assessing Officer (AO) formed a reasonable belief that income chargeable to tax had escaped assessment in the hands of the assessee, as it was allegedly a beneficiary of bogus accommodation entries channelled through paper companies allegedly operated and controlled by Shri Vipul Vidur Bhatt.

Proceedings Before the Assessing Officer

Show Cause Notice and Assessee's Response

Following the reopening of assessment, the AO issued a show cause notice dated 10/12/2018, calling upon the assessee to explain why a sum of ₹25,00,000/- should not be added to its total income as an alleged accommodation entry received from M/s. Sampada Chemicals Ltd., one of the paper companies purportedly managed by Shri Vipul Vidur Bhatt.

In response, the assessee clarified that it had availed secured loans from M/s. Sampada Chemicals Ltd. — specifically ₹14,00,000/- on 29/10/2012 and ₹11,00,000/- on 30/10/2012 — and that both loans had been duly repaid on 08/10/2013. Bank statements reflecting these transactions were submitted as supporting evidence.

AO's Rejection and Addition Under Section 68

The AO remained unconvinced. Two key observations were recorded:

• The assessee had not furnished loan confirmation from M/s. Sampada Chemicals Ltd. at the initial stage.
• A notice issued under Section 133(6) to M/s. Sampada Chemicals Ltd. elicited no response.

Relying primarily on the Investigation Wing report — which identified M/s. Sampada Chemicals Ltd. as an entry-operator entity — the AO concluded that the transaction was a sham.

Additionally, during the course of verifying the bank statements submitted by the assessee, the AO identified another loan transaction of ₹25,00,000/- from M/s. P. Saji Textiles Ltd., also allegedly controlled by Shri Vipul Vidur Bhatt. Without conducting any further independent enquiry into this second transaction, the AO proceeded to treat both loans as accommodation entries and made a composite addition of ₹50,00,000/- under Section 68 of the Income Tax Act, 1961.

Note: Critically, the reasons recorded for reopening the assessment referenced only M/s. Sampada Chemicals Ltd. and the escaped income of ₹25,00,000/-. The addition pertaining to M/s. P. Saji Textiles Ltd. was made without any corresponding basis in the recorded reasons — an aspect that became central to the dispute.

Proceedings Before CIT(A) / NFAC

The assessee challenged the AO's order before the National Faceless Appeal Centre (NFAC), Delhi, functioning as CIT(A). After examining the submissions and available material, the CIT(A) deleted the entire addition of ₹50,00,000/-, recording the following key observations: