The Income Tax Appellate Tribunal ( ITAT ), Mumbai, recently in a judgment, upheld the deletion of a ₹1.5 crore addition initially imposed on one assessee/appellant, Amal Corporation, as it was observed that the addition was made with sole reliance on an investigative report without specific evidence to substantiate the claims against the assessee, and hence the addition could not be justified.
The case started from an assessment by the Assessing Officer (AO) for the 2012–13 tax year, who added ₹1.5 crore to the assessee’s income. This amount was attributed to unsecured loans allegedly linked to the Bhanwarlal Jain group, a network suspected of providing bogus accommodation entries to facilitate financial maneuvering for various clients. The AO argued that loans received from Mehul Gems Pvt. Ltd. and White Stone — companies allegedly involved with the Jain group — were not genuine. Supporting this claim, the AO noted certain unusual financial traits of these companies, such as high turnover, minimal capital, and significant loans and advances, allegedly inconsistent with normal business practices.
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During the assessment, the assessee countered by providing extensive documentation, including income tax returns, audited financial statements, and bank statements, which confirmed the loan payments. Furthermore, representatives from White Stone and Nice Diamonds, another involved entity, appeared before the AO and validated the loans, stating they were business-related and backed by adequate turnover. Despite this, the AO dismissed their testimony and supporting documentation, relying on the prior investigation into the Jain group to uphold the addition.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] sided with the assessee, noting that the AO’s assessment lacked direct evidence connecting the unsecured loans to bogus transactions or Jain’s alleged accommodation entries. The CIT(A) observed that the AO’s assumptions were speculative and unsupported by any concrete linkage to Amal Corporation. Consequently, the CIT(A) overturned the ₹1.5 crore addition and related interest disallowances.
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Upon further appeal by the Revenue, the ITAT reaffirmed the CIT(A)’s decision. The Tribunal bench of Mr Amit Shukla and Mr Renu Jauhri observed that while an investigation report might justify further inquiries, it cannot alone substantiate income additions without corresponding evidence implicating the taxpayer. The Tribunal noted that the AO failed to demonstrate that the assessee’s loans were fraudulent or that funds from the Jain group directly benefited the company. Since the assessee had fulfilled its evidentiary obligations and established the legitimacy of its financial sources, the ITAT ruled that the deletion of the addition was appropriate.
In result, the Revenue’s appeal was dismissed.
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