Reopening an assessment after four years is invalid without new material or proof of the assessee's failure to disclose.

Reopening an assessment after four years is invalid without new material or proof of the assessee’s failure to disclose.

Issue

Can an assessment be reopened under Section 147 after four years from the end of the assessment year based on information that was already disclosed by the assessee during the original assessment proceedings?

Facts

The assessee’s original assessment was completed.
The Assessing Officer (AO) later issued a reopening notice after four years, citing information from the Insight portal and the Directorate of Investigation about “suspicious” high-value transactions.
However, the bank accounts and transactions in question were already fully disclosed by the assessee in the original proceedings through the tax audit report, financial statements, and income tax return.
The AO did not bring any new or tangible material on record that was not available during the initial assessment.
The “reasons to believe” failed to specify any failure on the part of the assessee to disclose all material facts fully and truly.

Decision

The High Court held that the reassessment proceedings were not sustainable in law and were quashed. It ruled that since the reopening was initiated after four years and there was no failure by the assessee to disclose material facts, the jurisdictional conditions for reopening the assessment were not met.

Key Takeaways

Conditions for Reopening After 4 Years: To reopen an assessment after four years, the revenue must prove two things: (1) income has escaped assessment, and (2) this escapement was due to the assessee’s failure to disclose all material facts fully and truly.
No Fishing Expeditions on Old Facts: An AO cannot simply re-examine the same set of facts and documents that were already on record and form a different opinion. This amounts to a “change of opinion,” which is not a valid ground for reopening.
New Tangible Material is a Must: The basis for reopening must be some fresh, tangible information that came to the AO’s possession after the original assessment was completed. Information already part of the record does not qualify.

An addition for unsecured loans is not justified if the assessee proves genuineness, even if lenders have low income.

Issue

Can an Assessing Officer treat unsecured loans as unexplained cash credits under Section 68 solely on the grounds that the lenders have low declared incomes or have not filed tax returns, even when the assessee provides substantial evidence to prove the transaction’s genuineness?

Facts

The assessee received unsecured loans from four different parties and submitted documentary evidence to prove their genuineness, including:
- Loan confirmations, PANs, ITRs, and bank statements of the lenders.
- Proof that the loans were received through proper banking channels.
- Evidence that the loans were fully or substantially repaid with interest, and TDS was duly deducted.
The AO disregarded this evidence and made an addition under Section 68, reasoning that the transactions were not genuine because the lenders either had low incomes or had not filed returns.
The AO did not conduct any independent inquiry to disprove the evidence furnished by the assessee or to establish that the money actually belonged to the assessee.

Decision

The court held that there was no justification for sustaining the additions under Section 68. However, it remanded the matter back to the Assessing Officer for the limited purpose of verifying the fact of loan repayment.

Key Takeaways

The Three Pillars of Section 68: To discharge the initial onus under Section 68, an assessee must prove three things about the creditor: (1) Identity, (2) Creditworthiness, and (3) the Genuineness of the transaction.
Repayment is Strong Evidence: The subsequent repayment of a loan, along with interest, is a very strong indicator of the genuineness of the transaction.
AO Cannot Act on Suspicion Alone: An AO cannot reject the evidence provided by the assessee based on mere suspicion or assumptions (like the lender’s low income). The AO must conduct their own inquiry and bring contrary evidence on record to disprove the assessee’s claims.
Low Income of Lender is Not Conclusive: While a lender’s financial capacity is relevant, their having a low taxable income is not, by itself, a sufficient reason to treat a loan as non-genuine, especially when the transaction is documented and routed through banks.

IN THE ITAT AHMEDABAD BENCH ‘C’

Nikulbhai Chaturbhai Patel-HUF

NFAC, Delhi

Siddhartha Nautiyal, Judicial Member
and Smt. Annapurna Gupta, Accountant Member

IT Apeal Nos. 45 to 47, 266 & 267 (Ahd.) of 2025
[Assessment years 2014-15 to 2016-17]

SEPTEMBER 18, 2025

Biren Shah and Gulab Thakor, ARs for the Appellant. Rignesh Das, CIT-DR and Hargovind Singh, Sr. DR for the Respondent.

ORDER

Siddhartha Nautiyal, Judicial Member.- These cross appeals have been filed by the Assessee and the Revenue against the orders passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide orders dated 22.11.2024 & 28.11.2024 passed for A.Ys. 2014-15 to 2016-17 respectively.

First we shall deal with Assessee’s Appeal in ITA No. 45/Ahd/2025 (A.Y. 2014-15)

2. The Assessee has taken the following grounds of appeal:-

“1

. In law and in the facts and circumstances of the Appellant’s case, the impugned appellate order passed u/s 250 of the act by Ld. CIT(A) is void and deserves to be quashed.

In law and in the facts and circumstances of the Appellant’s case, the order u/s 250 of the income tax act, 1961 passed by Ld. CIT(A) is without considering facts of Appellant’s case and without giving any opportunity of being heard. This constitutes a material procedural irregularity and renders the order bad in law and void.

In law and in the facts and circumstances of the Appellants case, learned CIT(A) has erred in giving direction to AO to examine bank accounts of the Appellant and retain quantum of addition under section 69 of the Act for credit to its bank account. This direction appears to be based on the alleged insubordination of the Jurisdictional Assessing Officer (JAO) and the non-submission of a Remand Report. The Appellant submits that penalizing the Appellant for the alleged shortcomings of the JAO is unjust and contrary to the principles of natural justice.

3.1.

In law, and in the facts and circumstances of the Appellant’s case, the order of CIT(A) giving direction to retain credit pertaining to bank account of the Appellant is beyond its scope of jurisdiction and is therefore without any legal effect.

3.2.

In law and in the facts and circumstances of Appellant’s case, the CIT(A) ought to have deleted addition ofRs. 19,70,00,000/- made under section 69 of the Act in toto.

3.3

In law and in the facts and circumstances of Appellant’s case, the CIT(A) ought to have deleted entire addition made by the Assessing officer more particularly when the Assessing Officer has never provided break up of quantum deposits added u/s 68 of the Act till date of passing appellate order.

In law and in the facts and circumstances of Appellant’s case, the CIT(A) has erred in passing appellate order without waiting for remand report as called by him in appellate proceedings. The ld CIT(A) ought to have appreciated that nonsubmission of remand report on time basis by Assessing Officer does not mean that addition made by Assessing Officer deserves to be upheld.

In law and in the facts and circumstances of Appellant’s case, the CIT(A) has erred in passing appellate order without providing video hearing. “

3. The assessee has raised the following Additional grounds:

“1.

In law and in the facts and circumstances of the appellant’s case, the reassessment notice issued u/s 148 of the Act is bad in law and deserves to be quashed.

The appellant craves to leave, to add, to amend or to raise any further grounds of appeal as case may arise.”

4. The brief facts of the case are that the assessee, Nikulbhai Chaturbhai Patel HUF, filed a return of income for A.Y. 2014-15 declaring income of Rs. 9,33,446, which was processed under section 143(1) of the Income Tax Act, 1961 (Act) and later assessed under section 143(3) on 14.12.2016 at Rs. 9,33,450/-. Subsequently, the case was reopened under section 147 of the Act based on information received from the Directorate of Income Tax regarding suspicious high-value transactions amounting to Rs. 19.70 crore during F.Y. 2013-14, which were not supported by the income declared by the assessee. The information received by the Department showed large non-cash credits through transfers, RTGS, and clearings in various bank accounts of the HUF, with no explanation or supporting evidence. Further, the Assessing Officer observed that the assessee had given a loan of Rs. 1,27,75,176/- to SBPL Finance, which is a non-filer with no return of income filed, and also a loan of Rs. 18,30,000/- to Shreeji Marketing, whereas the latter reported only a sum of Rs. 60,000/- in unsecured loans, casting doubt on the genuineness of the transactions. The Assessing Officer noted that the assessee failed to provide credible evidence or bank details to support the transactions, and accordingly, the Assessing Officer treated these amounts as unexplained and added them to the total income under section 68 of the Act. During the course of assessment proceedings, the assessee could not produce any fresh or satisfactory evidence. Consequently, the Assessing Officer assessed the total income at Rs. 21,25,88,626/-, and penalty proceedings under section 271(1)(c) of the Act were initiated for concealment of income and furnishing inaccurate particulars.

5. In appeal, CIT(Appeals) noted that the Assessing Officer had added the entire amount under Section 68 of the Act without verifying whether all eight bank accounts actually belonged to the HUF and treated the entire amount as unexplained income of the assessee. Before CIT(Appeals), the assessee submitted that only two of the eight bank accounts (Account Nos. 034501003061 and 034505003804 with ICICI Bank) belonged to the HUF, and the remaining accounts were unrelated and held by other individuals or proprietary concerns of the individual Nikul C. Patel, and not by the HUF. The assessee also pointed out that no specific details or transaction-wise breakup of the Rs. 19.70 crores had been provided by the AO, despite repeated requests, which prevented the assessee from responding to the allegations made by the Assessing Officer. The assessee submitted supporting documents like passbook copies and PAN details of unrelated account holders before CIT(Appeals). The CIT(A) observed that the AO had ignored the assessee’s repeated submissions and failed to verify the ownership of the bank accounts before making the addition. The CIT(Appeals) noted that even when a remand report was requested from the jurisdictional AO, there was insufficient response and no proper verification was carried out by the Assessing Officer. Due to this failure of fact-finding on part of the Assessing Officer, the CIT(A) held that the entire addition of Rs. 19.70 crores was unsustainable, as credits in accounts not belonging to the assessee could not be taxed in its hands. However, since the assessee admitted ownership of two of the eight bank accounts, the CIT(A) held that the AO is justified in taxing only those specific credit entries under Section 68 of the Act that appeared in the two accepted bank accounts, but only after proper verification. As for the other two additions Rs. 18.30 lakhs for a loan given to Shreeji Marketing and Rs. 1.27 crores for a loan given to SBPL Finance Corporation, the CIT(A) held that these additions were unjustified. Since both amounts were duly recorded as assets in the assessee’s books and there was no legal provision to treat such loans as income in the hands of the lender, these additions were deleted. The CIT(A) also noted that when the source of funds (bank credits) is already taxed, any use of such funds (like giving loans) should be eligible for telescoping and not taxed again. In the result, CIT(Appeals) partly allowed the appeal of the assessee. The CIT(A) directed the AO to limit the addition only to unexplained credits in the two admitted bank accounts after proper verification and to delete the additions totaling Rs. 1.46 crores made on account of the two loan transactions.

6. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted that initiation of proceedings u/s 147 of the Act were not sustainable since the notice was issued beyond a period of 4 years from end of assessment year and there was no new information which was available with the Assessing Officer to initiate re-assessment-assessment proceedings beyond the four year period. The Counsel for the assessee drew our attention to page 1 of Paper-Book i.e. the “reasons for reopening of assessment”. The Counsel for the assessee submitted that accounts of the assessee were duly audited under section 44AB of the Act and the tax audit report contained full disclosures of all loans taken and repaid during the year. During the relevant assessment year, the assessee operated three bank accounts – two in the name of “Shreejibapa Finance” (Account Nos. 034505003804 and 01220102971) and one in the name of Nikul C. Patel HUF (Account No. 034501003061). All transactions from these accounts were properly recorded in the books of accounts, and the resultant income was offered to tax. The return of income was filed on 30/11/2014 declaring total income of Rs. 9,33,446/-, which was later accepted in scrutiny assessment dated 14/12/2016 without any adverse findings or additions. The Counsel for the assessee objected to the reopening of the assessment and submitted that the reassessment proceedings were initiated based on incorrect and non-existent reasons. The assessee argued that these errors clearly show that the AO did not apply an independent mind before reopening the case and failed to examine the documents already available from the original assessment. The Counsel for the assessee submitted that even in the CIT(Appeals) order, it was noted that there are no adverse findings by the Assessing Officer in the Remand Report submitted by him. All material facts had been disclosed before the Assessing Officer. On merits, the Counsel for the assessee submitted that the AO had claimed that Rs. 19.70 crores in non-cash transactions were found credited in the HUF’s bank account no. 034501003061, but as per the bank statement, the total credits in that account for the year amounted to Rs. 80.74 crores. There was no clarity on how the AO arrived at the Rs. 19.70 crore figure or which transactions were considered unexplained. Therefore, there is clear non-application of mind by the Assessing Officer to the given set of facts. The Counsel for the assessee pointed out that at page 62 of PaperBook, that complete details of bank accounts and PAN of parties were furnished to the Assessing Officer. Therefore, there is no reason to come to the conclusion that there was any non-disclosure on the part of the assessee during the course of original assessment proceedings. Accordingly, it was submitted that the present initiation of re-assessmentassessment proceedings are not sustainable in law.

7. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders.

8. We have heard the rival contentions and perused the material on record.

9. The core issue in this matter pertains to the validity of reopening of the assessment under section 147 of the Act after the expiry of four years from the end of the relevant assessment year, and the correctness of the additions made thereafter. In the present case, the original assessment was completed under section 143(3) of the Act on 14.12.2016, accepting the returned income of Rs. 9,33,446/-. The reassessment notice under section 148 of the Act was admittedly issued beyond four years from the end of the relevant assessment year. Therefore, the provisions of the first proviso to section 147 apply, and the initiation of reassessment can only be sustained if there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. Upon examination of the reasons recorded for reopening and the submissions made by the assessee, we find that the bank accounts relied upon by the Revenue were already disclosed in the course of original assessment proceedings. The assessee had filed a tax audit report under section 44AB, which included full details of loans, repayments, and relevant bank accounts. The return of income, computation, and audited financial statements were also on record during the original assessment proceedings. No material has been brought on record by the Assessing Officer to show that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Further, the reasons recorded for reopening do not refer to any new/fresh tangible material coming into the possession of the Assessing Officer after the original assessment. The so-called information from the Directorate does not specify which transactions were alleged to be unexplained. Even in the subsequent proceedings, the Assessing Officer did not provide transaction-wise details to support the addition of Rs. 19.70 crore. The reopening is, therefore, based on a general presumption without any verification or independent application of mind by the Assessing Officer. We note that in the case of Shree Chalthan Vibhag Khand v. Dy. CIT 469/376 ITR 419 (Gujarat), the High Court held that when there is no failure on part of assessee to disclose fully and truly all material facts necessary for its assessment, reopening of assessment beyond four years from end of relevant year on ground that assessee had paid more cane price than price fixed by Govt. under Sugar (Control) order which was nothing but distribution of profit resulting in escapement of income, was without jurisdiction. In the case of Shree Sayan Vibhag Sahkari v. Dy. CIT 245 (Gujarat)[05-04-2016], the Gujarat High Court held that in absence of any failure on part of assessee to disclose all material facts necessary for assessment, Assessing Officer could not initiate reassessment proceedings after expiry of four years from end of relevant assessment year. In the case of Kothi Steel Ltd. v. Asstt. CIT 252 (Gujarat) [30-03-2016], the High Court held that where Assessing Officer completed assessment under section 143(3), he could not reopen said assessment merely on basis of information received from I & CI that assessee-company had issued shares at premium even though it was a loss making company and, thus, for assessment year 201011, amount so received by assessee was chargeable to tax which escaped assessment. Therefore, in view of the facts as highlighted above and judicial precedents on the subject, we are of the considered view that reassessment-opening in the present facts is contrary to the law laid down in the cases of Shree Chalthan Vibhag Khand (supra), Shree Sayan Vibhag Sahkari (supra ) and Kothi Steel Ltd. (supra), where the Gujarat High Court has held that reopening of completed assessments beyond four years is not permissible in the absence of failure by the assessee to disclose material facts. Having regard to the above facts and in light of the settled legal position, we are of the considered view that the reassessment proceedings initiated under section 147 of the Act beyond the period of four years are not sustainable in law in the absence of any failure on the part of the assessee to fully and truly disclose material facts. Accordingly, the reopening of assessment is quashed and the additions made are liable to be deleted.

10. In the result, the appeal of the assessee is allowed.

Now we shall come to Department’s appeal in ITA 266/Ahd/2025 for A.Y. 2014-15

11. The Department has raised the following Grounds of Appeal:

“(a)

The Ld. CIT(A) erred in admitting additional evidence in the form of details of bank accounts ignoring that the details had never been filed and the supporting documents to explain the source of credit of Rs.19,70,00,000/- in the assessee’s accounts were not filed even during appellate proceedings.

(b)

The Ld. CIT(A) erred in not dismissing the appeal, especially when he himself observed in Para, 7.5 of the appellate order that the assesses had not filed details of the amount credited in the bank account held in the name of the assessee, even during appellate proceeding.

(c)

The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 16,30,000/- & Rs. 1,27,75,176/- made by AO on account of loan given to M/s Shreeji Marketing & M/s SBPL Finance Corporation, respectively despite the fact that the assessee has not furnished corroborative evidences to establish the genuineness of transaction as the source in the assessee hands remained to be proved.

(d)

The appellant craves leave to add, alter and /or to amend all or any the ground before the final hearing of the appeal.”

12. Once having held that re-assessment proceedings are itself bad in law for the impugned assessment year, the appeal of Department is hereby dismissed.

13. In the combined result, for assessment year 2014-15 the appeal of the assessee is allowed and appeal of Department is dismissed.

Now we come to Assessee’s Appeal in ITA No. 46/Ahd/2025 for A.Y. 2015-16

14. The assessee has raised the following grounds of appeal:

“1

. In law and in the facts and circumstances of the appellant’s case, order passed u/s 250 of the Act by the Ld. CIT(A) is void and contrary to the provisions of the law.

In law and in the facts and circumstances of the case of the Appellant, the order u/s 250 of the Income Tax Act,1961 passed by Ld. CIT(A) is without considering the facts of the case and responses filed by the appellant, is bad in law and deserves to be cancelled.

In law and in the facts and circumstances of the appellant’s case, learned CIT (Appeals) has erred in confirming addition amounting to Rs. 1,01,79,388/- u/s 69A of the Act on account of Unsecured loan procured by the appellant from various parties. The addition should be deleted in toto.

In law and in the facts and circumstances of the appellant’s case, learned CIT (Appeals) has erred in passing appellate order without providing video hearing and without providing proper hearing. The order passed by ld CIT(A) should be quashed.

The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”

15. The assessee has raised the following Additional grounds of appeal:

“1.

In law and in the facts and circumstances of the appellant’s case, the reassessment notice issued u/s. 148 ofthe Act is bad in law and deserves to be quashed.

The appellant craves to leave, to add, to amend or to raise anyfurther grounds of appeal as case may raise.”

16. The brief facts of the case are that the assessee filed its return of income for the Assessment Year 2015-16 on 27.03.2016 declaring a total income of Rs. 6,22,840/-. Initially, the return was processed without scrutiny. However, based on information received from the Insight portal and inputs from the Directorate of Investigation and Directorate of Systems, it was noted that the assessee had credited a substantial amount Rs. 1,01,79,388/- in its ICICI Bank account. This led to the reopening of the case under Section 147 of the Income Tax Act, and a notice under Section 148 was issued on 31.03.2021. In response, the assessee filed a revised return on 30.09.2021. The reasons for reopening, as provided to the assessee, indicated suspicion of unexplained credits which were allegedly routed through unsecured loans. The Assessing Officer observed that the assessee had shown deposits in its books from four parties -Dharmendra Shantilal Patel (Rs. 53,00,000/-), Jigar Shivabhai Patel (Rs. 25,79,388/-), Sunil Rambhai Patel (Rs. 14,00,000/-), and Chirag Ambalal Patel (Rs. 9,00,000/-). After examining their records, the AO held that these transactions were not genuine, primarily because the creditors either had not filed returns in earlier years or lacked financial capacity to lend such amounts. The Assessing Officer alleged that the transactions were merely a way to route the assessee’s own unaccounted money, and hence the entire amount was added to the total income under Section 69A of the Act.

17. Aggrieved, the assessee challenged the assessment before the CIT(A), and submitted that the reopening was based on borrowed satisfaction without any independent verification and that the loans were genuine and properly documented. During the appeal, the assessee submitted a paper book containing confirmations from the creditors, their bank statements, PAN, Aadhaar cards, and affidavits. Since these documents were not submitted before the AO, they were accepted as additional evidence under Rule 46A, and a remand report was sought. However, despite reminders, no remand report was filed by the AO. After examining the evidence, the CIT(A) held that although the identity of the creditors had been established, the assessee failed to prove their creditworthiness. It was observed that mere transfer of funds through banking channels or submission of ITRs and confirmations is not enough to prove the genuineness of transactions, especially where large sums are involved. It was further noted by the Ld. CIT(A) that important documents like audited financials, profit and loss accounts, and balance sheets of the creditors were missing. In the case of Dharmendra Patel, the CIT(A) noted suspicious, circuitous entries in his bank account which suggested that he was engaged in providing accommodation entries. In the case of Jigar Patel, his reported income was too low to justify lending over Rs. 25 lakhs. Similar concerns were raised about the other two creditors. The CIT(A) held that the documentation provided was self-serving and it lacked independent corroboration to prove creditworthiness, which is a requirement under Section 68 of the Act. Accordingly, CIT(Appeals) held that since the assessee failed to establish these requirements, he upheld the addition of Rs. 1,01,79,388/- made by the AO as unexplained credit under Section 69A of the Act. Accordingly, all grounds of appeal raised by the assessee were dismissed.

18. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted the loans in question were received during the relevant assessment year from the following persons: (1) Dharmendra Shantilal Patel HUF – Rs. 53,00,000/-, (2) Jigar Shivabhai Patel – Rs. 25,79,388/-, (3) Sunil Rambhai Patel – Rs. 14,00,000/-, and (4) Chirag Ambalal Patel – Rs. 9,00,000/-. These were all unsecured loans, received through proper banking channels, and were partly or fully repaid by the assessee in the subsequent financial years. In the case of Dharmendra Shantilal Patel HUF, the assessee received a total of Rs. 65,00,000/- and repaid Rs. 12,00,000/- during the year, leaving an outstanding balance of Rs. 53,00,000/- at year-end, which was entirely repaid in the following financial year. To substantiate the genuineness of the transaction, the assessee had submitted a confirmation of account, bank statement of the lender showing fund transfer, a ledger account for the next year confirming repayment, and a sworn affidavit of the lender. The AO, however, ignored all these documents solely on the ground that the lender had not filed an ITR, even though his identity and the transaction through bank were well established. Regarding Jigar Shivabhai Patel, the assessee received Rs. 28,50,000/-, repaid Rs. 9,00,000/- during the year, and paid interest of Rs. 1,07,600/-, resulting in a closing payable of Rs. 25,79,388/-, which was fully settled in FY 2019-20. The assessee submitted confirmation, ITR of the lender, bank statement reflecting the transaction, and the ledger account proving repayment. The AO doubted the lender’s creditworthiness based only on the fact that the ITR reflected a low income. The assessee, however, argued that creditworthiness should not be judged solely on income shown in ITRs when sufficient bank balance and documented fund flow exist. For Sunil Rambhai Patel, the assessee received Rs. 14,00,000/- and fully repaid it in the subsequent year. The assessee provided confirmation of account, ITR of the lender, bank statement showing the loan transaction, and ledger account of repayment. The AO again raised the issue of low income, despite all financial documents being furnished and the transaction being routed through banking channels. In the case of Chirag Ambalal Patel, the assessee received Rs. 9,00,000/- and repaid Rs. 8,00,000/- shortly thereafter, on 10.04.2015. The assessee submitted a confirmation, ITR of the lender, and bank statement showing the transaction. In this case, all three elements – identity, creditworthiness, and genuineness were clearly established, yet the AO included the amount in the total addition. Accordingly, the argument of the Counsel for the assessee before us is that since the entire amount has been repaid back by the assessee, there is no occasion to sustain the additions in the hands of the assessee.

19. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders.

20. We have heard the rival contention and perused the material on record.

21. It would be useful to refer to some judicial precedents on the subject. In the case of CIT v. Ayachi Chandrashekhar Narsangji 146 (Gujarat), the Gujarat High Court held that where Department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. While passing the order the Gujarat High Court made the following observations:

“6. Having heard Shri Pranav Desai, learned Counsel appearing on behalf of the revenue and on perusal of the order passed by the CIT(A) confirmed by the ITAT, it appears that CIT(A) was satisfied with respect to the genuineness of the transaction and creditworthiness of Shri Ishwar Adwani and, therefore, deleted the addition of Rs.1,45,00,000/- made by the Assessing Officer. It is required to be noted that as such an amount of Rs.1,00,00,000/- vide cheque no. 102110 and an amount of Rs. 60 lakh vide cheque no. 102111 was given to the assessee and out of the total loan of Rs.1.60 crore, Rs.15 lakh vide cheque no. 196107 was repaid and, therefore, an amount of Rs.1,45,00,000/- remained outstanding to be paid to Shri Ishwar Adwani. It has also come on record that the said loan amount s been repaid by the assessee to Shri Ishwar Adwani in the immediate next financial year and the Department has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the ITAT has held that the matter is not required to be remanded as no other view would be possible, we see no reason to interfere with the impugned order passed by the ITAT. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed. “

22. Further in the case of Pr. CIT v. Ambe Tradecorp (P.) Ltd. 471 (Gujarat), the Gujarat held that where assessee took loan from two parties and assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid in subsequent year, no addition under section 68 could be made on account of such loan. While passing the order the Gujarat High Court made the following observations:

“5. As discussed above, since the requisite material was furnished by assessee showing the identity and since the assessee was not beneficiary when the loan was repaid in the subsequent year, even the ingredients of creditworthiness and genuineness of transaction were well satisfied.

6. The Tribunal rightly recorded in para 29 of the judgment,

“Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, were hold that there is no infirmity in the order of the Ld. CIT-A. ”

7. For the reasons recorded above, no question of law muchless substantial questions arises in this appeal. It stands meritless and accordingly dismissed. “

23. In the case of Pr. CIT v. Ojas Tarmake (P.) Ltd. 75 (Gujarat), the Gujarat High Court held that where assessee showed unsecured loans received during relevant assessment year and AO made addition on ground that assessee failed to discharge onus of liability as laid down under section 68, since amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.

24. In the case of Rajhans Construction (P.) Ltd. v. ACIT 370 (Surat – Trib.), the Surat Tribunal held that where assessee availed unsecured loan from an entity and repaid same within a short span of time, along with interest, Assessing Officer was not justified in making addition under section 68 in respect of said loan.

25. In the case of JCIT(OSD) v. Mieza School (P.) Ltd. [IT Appeal No. 772/Ahd/2019] vide order dated 24.06.2022 while dealing with the similar issue the ITAT Ahmedabad made the following observations:

“7. We have heard the rival contentions and perused the material on record. With regards to addition under section 68 of the Act, we are of the considered view that the Ld. CIT(Appeals) has after appreciation of evidence placed on record by the assessee during the course of appeal proceedings has deleted the additions. During appeal, the assessee was able to produce the confirmation from the creditors in support of genuineness of the transaction, loan agreement with M/s Sandesh Procon LLP, bank statement and audited balance sheet of M/s Sandesh Procon LLP evidencing the above transaction were also placed on record to prove the genuineness of transaction. Further, the fact that the loan was repaid back with interest, on which TDS was duly deducted also lends support to the genuineness of transaction. In the case of Shree Samruddhi OverseasTrading Co. v. DCIT in ITA Number I.T.A. Nos. 909 & 910/Ahd/2018, the Ahmedabad ITAT held that repayment of loan points towards genuineness of transaction in the following words:

The repayment of loan exists as a strong mitigating circumstance and transcends all considerations. We thus find that the documents placed by the assessee before the Revenue authorities sufficiently discharge the onus towards the identity and genuineness of the transaction and creditworthiness of the lender contemplated under s. 68 of the Act.

7.1 In the case of Ayachi Chandrashekhar Narsangji 146 (Gujarat), Hon’ble Gujarat High Court held that where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. In view of the above facts and the judicial precedents by the jurisdictional High Court, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in deleting the additions made by the Ld. Assessing Officer u/s 68 of the Act.

7.2 In the result, ground number 1 of the Revenue’s appeal is hereby dismissed. “

26. In the case of Hit Iron & Steel (P.) Ltd. v. ITO [IT Appeal No. 379/Ahd./2018], vide order dated 29.08.2022 while passing the order the Tribunal made the following observations:

“5. We have heard the rival contentions and perused the material on record. In our considered view, the assessee has reasonably discharged the onus case upon it in the instant set of facts. We note that the assessee has been able to demonstrate that he has repaid the loan amount back to the lender in the subsequent year through banking channels. The fact that the loan was repaid back, in our view, also lends support to the genuineness of transaction. In the case of Shree Samruddhi Overseas Trading Co. v. DCIT in ITA Number I.T.A. Nos. 909 & 910/Ahd/2018, the Ahmedabad ITAT held that repayment of loan points towards genuineness of transaction in the following words:

5. 1 In the case of Ayachi Chandrashekhar Narsangji 146 (Gujarat), Hon’ble Gujarat High Court held that where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit.

5. 2 We further note that all details regarding the parties in respect of the loan transaction were duly submitted before the Revenue Authorities. The additions are proposed to be made on the basis of statement of by Shri Praveen Kumar Jain who stated that he was engaged in the business of providing accommodation entries in the form of bogus unsecured loans, bogus share application money etc. The Department has made addition on the ground that the assessee company had received a sum of 1,00,00,000/- from M/s Nakshatra Business Private Limited (Hema trading company Private Limited), which was one of the companies operated by Shri Praveen Kumar Jain Group. However, apparently this figure too was incorrect since the Ld. CIT(Appeals) observed that the assessee had taken loan of Rs. 50 lakhs only and accordingly gave part relief to the assessee. We further note that the Tribunals on various occasions have deleted the additions made in respect of loans taken from the above entities which were later found be repaid back in subsequent years. In the case of Deepak Shah v. ACIT in ITA number 4206/Mumbai/2017, the Mumbai ITAT has on similar facts given relief to the assessee with the following observations:

5. Learned AR vehemently submitted that the order of learned CIT(A) upholding the order of the Assessing Officer is contrary to the law as order of the Assessing Officer was confirmed despite the fact that the assessee has filed all necessary evidence before the AO in the assessment proceedings. Learned AR submitted that by various communications to the Assessing Officer, the assessee filed necessary details submitting therein that the assessee has taken temporary business loans from three companies in the month of March 2012, which were repaid within a period ranging from two to six months duly corroborated with all necessary evidences such as copies of bank statements, ledger accounts, confirmations from the parties, their PANs etc. Learned AR submitted that vide letter dated 8.2.2017, the assessee informed the Assessing Officer on the date of hearing i.e. 9.2.2017 that the assessee is not in a position to attend hearing as the assessee is preoccupied in High Court on 9.2.2017, which was proved by learned AR by placing before the bench a copy of the order from High Court filed at page No. 34 of the paper book. Learned AR submitted that even notices were issued u/s. 133(6) by the Assessing Officer to these parties were duly responded by the said parties by drawing our attention to page No.38 to 40 of the paper book wherein all details as required by the Assessing Officer were duly filed. Thus, learned AR submitted that the assessee has filed copies of confirmations, ledger accounts, bank statements evidencing transactions through banking channel, ITRs, PAN and annual reports alongwith audited profit and loss accounts and balance sheets of these parties. Learned AR submitted that the assessee has repaid loan within a span of two to six months. Thus, the Assessing Officer has totally failed to conduct any meaningful and objective investigation and merely relied on the statement of Shri Praveen Kumar Jain that they were engaged in the business of providing hawala entries though nowhere assessee’s name was ever taken by the said person. Similarly, learned CIT(A) has affirmed the order of Assessing Officer by simply relied on the statement recorded in the course of search u/s. 132(4) of the Act and further harping on the fact that summons issued u/s. 131 were not complied with. Learned AR also referred to the decision of the Coordinate Bench in the case of ACIT v. Shreedham Builders (ITA No. 5589 Mum 2017 for A.Y. 2012-13), wherein all these three entities have lent money and the Coordinate Bench has taken the view that no addition to be made u/s. 68 of the Act as the assessee has duly discharged burden cast upon it u/s. 68 of the Act. Learned AR therefore prayed before the Bench that the order of learned CIT(A) may be set aside and the Assessing Officer be directed to deleted the addition.

6. Per contra, learned DR relied on the order of learned CIT(A) heavily by submitting that facts revealed during the course of search unequivocally proved that the assessee was beneficiary of hawala racket which was being operated by Shri Pravin Kumar Jain and Associate concerns and he even admitted during the course of statement recorded u/s. 132(4) of the Act that business was not being done but only accommodation entries were provided on commission basis. Under these circumstances, learned DR prayed that the order of learned CIT(A) may be affirmed.

7. We have heard the rival submissions and perused the materials on record. The undisputedfacts are that the assessee filed copies of confirmations, ledger accounts, bank statements, ITRs, PANs and audited balance sheets and profit and loss accounts in respect of these three parties who lent money to the assessee. The authorities below have only relied on statement of Shri Pravin Kumar Jain that said he and related entities were engaged in providing accommodation entries of which the assessee was one of the beneficiaries without having brought anything to disbelieve and disprove various documents filed by the assessee. Even in the case of ACIT v. Shreedham Builders (supra), under similar facts the Coordinate Bench has accepted loans given by these three parties, which were also common in the case of the assessee as stated in para 2.15 of the said order, which is as under:-

………

8. Thus, it is clear from the above that the entities which gave loans to the assessee appeared at serial number 1,2 & 6 ofpara 2.15 of the Coordinate Bench decision. The assessee has filed necessary proofs and documents supporting the borrowings of money and repayment thereof. Under these circumstance, we are not in agreement with the conclusion given by learned CIT(A). Accordingly, by respectfully following the decision of the Coordinate Bench, we allow the appeal of the assessee.

9. In the result, appeal filed by the assessee is treated as allowed. “

27. The core issue in the present appeal relates to additions made under section 68 of the Act in respect of unsecured loans received by the assessee during the year under consideration. The assessee has submitted that the loans in question were received through proper banking channels from identified persons whose confirmations, PAN, ITRs, and bank statements were duly furnished. More importantly, the assessee has demonstrated that these loans were fully repaid in subsequent years or substantially repaid back by the assessee within a short duration of time. In several instances, the repayments were made within a short span of time, and interest was also paid, duly accounted for and subjected to TDS. We find that the Assessing Officer rejected the explanation offered by the assessee solely on the ground that in some cases, the lenders had filed returns with low income or had not filed returns at all. However, the identity of the lenders was not in dispute and the transactions were through banking channels. There is no adverse material brought on record by the Assessing Officer to disprove the genuineness of the transactions or establish that the funds actually originated from the assessee. It is also an undisputed fact that the amounts were subsequently repaid, and the repayments were supported by documentary evidence including bank statements and ledger accounts. In this background, and in light of judicial precedents of the Hon’ble Gujarat High Court in the cases of Ayachi Chandrashekhar Narsangji (supra), Ambe Tradecorp (P.) Ltd. (supra), and Ojas Tarmake (P.) Ltd. (supra) where it has been held that once the repayment of the loan is established and the transaction is routed through proper banking channels, no addition under section 68 of the Act can be made merely because of low income of the lender or absence of return filing, we are of the view that the assessee has duly discharged the initial onus laid upon it. Further, the repayment of loan, as consistently held in the decisions of the Coordinate Benches of the Tribunal, serves as a strong mitigating factor pointing towards the genuineness of the transaction. In the absence of any contrary evidence or enquiry conducted by the Assessing Officer to rebut the documents placed on record, we find no justification for sustaining the additions made under section 68 of the Act.

28. However, for the limited purpose of verification of the factum of repayment of loans in the subsequent years, we are inclined to restore the matter to the file of the Assessing Officer. The Assessing Officer is directed to verify, based on the documents already filed or as may be furnished by the assessee during the course of verification proceedings, whether the loan amounts in question have actually been repaid by the assessee. If the repayments are found to have been made through proper banking channels and not controverted by any contrary material, no addition shall be sustained in respect of such loans.

29. Accordingly, the appeal of the assessee is allowed for statistical purposes.

Now we come to Assessee’s Appeal in ITA No. 47/Ahd/2025 for A.Y. 2016-17

30. The assessee has taken the following grounds of appeal:

“1. In law and in the facts and circumstances of the Appellant’s case, the impugned appellate order passed u/s 250 of the act by Ld. CIT(A) is void and deserves to be quashed.

2. In law and in the facts and circumstances of the Appellant’s case, the order u/s 250 of the income tax act, 1961 passed by Ld. CIT(A) is without considering facts of Appellant’s case and without giving any opportunity of being heard. This constitutes a material procedural irregularity and renders the order bad in law and void.

3. In law and in the facts and circumstances of the Appellants case, learned CIT(A) has erred in giving direction to AO to examine bank accounts of the Appellant and retain quantum of addition under section 69 of the Act for credit to its bank account. This direction appears to be based on the alleged insubordination of the Jurisdictional Assessing Officer (JAO) and the non-submission of a Remand Report. The Appellant submits that penalizing the Appellant for the alleged shortcomings of the JAO is unjust and contrary to the principles of natural justice.

3.1. In law and in the facts and circumstances of the Appellant’s case, the order of CIT(A) giving direction to retain credit pertaining to bank account of the Appellant is beyond its scope ofjurisdiction and is therefore without any legal effect

3.2. In law and in the facts and circumstances of Appellant’s case, the CIT(A) ought to have deleted addition ofRs. 13,87,67,924/- made under section 69 of the Act in toto.

3.3 In law and in the facts and circumstances of Appellant’s case, the CIT(A) ought to have deleted entire addition made by the Assessing officer more particularly when the Assessing Officer has never provided break up of quantum of deposits added u/s 68 of the Act till date ofpassing appellate order.

4. In law and in the facts and circumstances of Appellant’s case, the CIT(A) has erred in passing appellate order without waiting for remand report as called by him in appellate proceedings. The Id CIT(A) ought to have appreciated that non submission of remand report on time basis by Assessing Officer does not mean that addition made by Assessing Officer deserves to be upheld.

5. In law and in the facts and circumstances of Appellant’s case, the CIT(A) has erred in passing appellate order without providing video hearing.”

31. The assessee has raised the following Additional grounds of appeal:

“1. In law and in the facts and circumstances of the appellant’s case, the reassessment notice issued u/s 148 of the Act is bad in law and deserves to be quashed.

2. The appellant craves to leave, to add, to amend or to raise any further grounds of appeal as case may arise.”

32. The brief facts of the case are that the assessee filed its return of income for A.Y. 2016-17 declaring total income of ^4,19,220/- after incorporating all its banking transactions into its books of account and offering resultant profit to tax. However, based on information received through the Insight Portal regarding high-value non-cash transactions totaling to ^13.87 crores across six bank accounts allegedly linked to the PAN of the assessee, the assessment was reopened under section 147 read with section 144B of the Act. The assessing officer, after issuing notice and providing video hearing, made an addition of ^13,87,67,924/- under section 68 of the Act, treating it as unexplained cash credit, on the grounds that the assessee failed to satisfactorily explain the source of these credits with supporting documentary evidence. In response, the assessee objected to both the reassessment proceedings and the addition made under section 68 of the Act, on the ground that only two bank accounts (ending 3061 and 3804) held with ICICI Bank, Naranpura Branch, belonged to the assessee HUF, and the remaining accounts were either in the name of third parties or proprietary concerns of individuals other than the HUF. Despite repeated requests, the AO did not provide a proper breakup or explanation of how the alleged ^13.87 crore was arrived at, nor were any details of specific credits supplied to the assessee. The assessee contended that all the transactions in its own bank accounts were duly reflected in its books of accounts and supported by bank statements and confirmations, which were also submitted during the proceedings. The AO, however, dismissed these submissions without inquiry or verification and proceeded to make the addition.

33. Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). During the appellate proceedings, the assessee reiterated that only two bank accounts were owned by the HUF and the rest were unrelated. The assessee also highlighted that in a similar case for A.Y. 2013-14, where similar reasons were recorded, the AO had accepted the returned income without making any additions, after due explanation was provided. The CIT(A), after examining the facts, noted that while the reassessment was triggered based on the total credits across six bank accounts allegedly linked to the assessee’s PAN, there was sufficient evidence to support the assessee’s claim that only two of these bank accounts were actually owned by the HUF. The AO had failed to verify this aspect or respond to the assessee’s repeated requests for a detailed breakup of the transactions. Even after directions from the CIT(A), the jurisdictional AO failed to submit a speaking remand report or undertake the required verification, which the CIT(A) viewed as a dereliction of duty. Accordingly, the CIT(A) held that while the addition of the entire ^13.87 crore under section 68 of the Act was unjustified, a partial addition was still warranted to the extent of credits found in the two bank accounts that were admittedly owned by the assessee. Since neither the AO nor the assessee had provided clear details or source-wise breakdowns of the credits in these two accounts, the CIT(A) directed the AO to restrict the addition only to the actual credits in account numbers 034501003061 and 034505003804, and grant relief in respect of the amounts pertaining to the other four accounts which were not owned by the assessee. Thus, the appeal was partly allowed, with the CIT(A) accepting the assessee’s contention that four of the six bank accounts did not belong to it, but maintaining that the assessee had the onus to prove the nature and source of credits in its own two accounts, which it failed to do.

34. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted similar arguments as taken for assessment year 2014-15 which is to the effect that initiation of proceedings u/s 147 of the Act were not sustainable since the notice was issued beyond a period of 4 years from end of assessment year and there was no new information which was available with the Assessing Officer to initiate re-assessment assessment proceedings beyond the four year period. The Counsel for the assessee submitted that even CIT(Appeals) noted that even in the remand report, the Assessing Officer had not given any adverse comments against the assessee.

35. We have heard the rival contentions and perused the material on record. We note that the facts and issues for consideration are identical to assessment year 2014-15, wherein we have held that that reopening of completed assessments beyond four years is not permissible in the absence of failure by the assessee to disclose material facts. Having regard to the above facts and in light of the settled legal position, we are of the considered view that the reassessment proceedings initiated under section 147 of the Act beyond the period of four years are not sustainable in law in the absence of any failure on the part of the assessee to fully and truly disclose material facts.

36. Accordingly, in light of our observations for assessment year 201415 on identical set of facts, the reopening of assessment is quashed and the additions made are liable to be deleted.

37. In the result, the appeal of the assessee is allowed.

Now we shall come to Department’s appeal in ITA 267/Ahd/2025 for A.Y. 2016-17

38. The Department has raised the following Grounds of Appeal:

“(a)

The Ld. CIT(A) erred in admitting additional evidence in the form of details of accounts ignoring that the details never been filed and the supporting documents to the of credit of Rs. 13,87,67,924 / -in the assessee’s accounts were not filed even during appellate proceedings.

(b)

The Ld. CIT(A) in not dismissing the especially when he himself observed in Para 7,5 of the appellate order that the assessee had not tiled details of the amount credited in the bank account held in the name of the during proceeding.

(c)

The appellant craves to add, alter and /or to amend all or any the ground before the hearing of the appeal.”

39. Once having held that re-assessment proceedings are itself bad in law for the impugned assessment year, the appeal of Department is hereby dismissed.

40. In the combined result, for assessment year 2016-17 the appeal of the assessee is allowed and appeal of Department is dismissed.

41. In the combined result, the appeals of the assessee in ITA Nos. 45 & 47/Ahd/2025 are allowed and ITA No. 46/Ahd/2025 is allowed for statistical purposes and the appeals of the Department are dismissed.