ACIT, Central Circle 25, Delhi vs Mukul Agencies Private Limited

PER S.RIFAUR RAHMAN,AM:

These appeals are filed by the Revenue against the order passed by the ld. Commissioner of Income-tax (Appeals)-29, New Delhi (‘ld. CIT (A) for short) dated 06.11.2025 for the Assessment Years 2019-20 and 2020-21.

Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee’s appeal being ITA No.2419/Del/2026 for AY 2019-20 as lead case to adjudicate the issues under consideration.

Brief facts of the case are, the respondent assessee, M/s Mukul Agencies Pvt. Ltd. (now converted into M/s MGM Paper LLP), filed its return of income for the year under consideration declaring a total income of Rs.1,55,19,319/-, which was processed u/s 143(1) of the Income-tax Act, 1961 (for short ‘the Act’). Subsequently, based on information received from the Investigation Wing pursuant to a search conducted on the Galaxy Group and certain alleged entry operators, reassessment proceedings u/ss 147/148 of the Act were initiated alleging that the assessee had received accommodation entries in the guise of unsecured loans. The reassessment proceedings were completed vide order u/s 147 dated 29.03.2025 after making additions of Rs.10,81,00,000/- and Rs.6,15,00,000/- u/s 68 towards alleged unexplained unsecured loans and consequential additions of Rs.32,43,000/- and Rs.14,96,565/- u/s 69C towards alleged commission and interest expenditure, respectively.

Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A). The ld. CIT(A), after examining the documentary evidence and the material on record and the fact that the all the loans stood repaid, held that the assessee had duly established the identity and creditworthiness of the lender companies and the genuineness of the loan transactions and that the Assessing Officer had failed to bring any independent material to dislodge the evidence furnished by the assessee. Accordingly, the ld. CIT(A) deleted all the additions on merits while leaving the legal grounds challenging the validity of the reassessment proceedings unadjudicated, having become academic.

Aggrieved with the above order, Revenue is in appeal before us whereas the assessee has filed an application under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 seeking to support the impugned order on the legal grounds relating to the validity of the reassessment proceedings. The revenue has raised following grounds:-

In the application under Rule 27, the assessee is challenging the validity of the assessment order on the following grounds:

At the time of hearing, ld. DR strongly relied upon the assessment order and assailed the findings recorded by the ld. CIT(A). It was submitted that the Assessing Officer had made the impugned additions on the basis of credible information received from the Investigation Wing pursuant to a search conducted on the Galaxy Group and the alleged entry operators, Shri Himanshu Verma and Shri Deepak Agarwal, wherein it was unearthed that several shell entities were engaged in providing accommodation entries in the guise of unsecured loans. It was argued that the lender companies from whom the assessee claimed to have received loans were found to be part of the network of paper companies controlled by the said entry operators and lacked genuine financial capacity to advance such huge loans. The ld. DR submitted that the assessee had failed to satisfactorily establish the creditworthiness of the lender companies and the genuineness of the transactions and had merely furnished routine documentary evidence, which could not override the cogent material gathered during the course of search and investigation. He placed rreliance upon the principle of human probabilities to contend that the Assessing Officer had rightly invoked the provisions of section 68 of the Act. It was further contended that once the unsecured loans were rightly treated as unexplained credits, the consequential additions made u/s 69C on account of alleged commission and interest expenditure were also justified. Ld. DR, therefore, prayed that the order of the ld. CIT(A) deleting the additions be set aside and that of the Assessing Officer be restored.

On the other hand, ld. AR of the assessee supported the impugned order of the ld. CIT(A) and submitted that the findings recorded therein were based on a comprehensive appreciation of the documentary evidence placed on record and orders passed by Hon’ble Delhi High Court and Coordinate Bench of Tribunal. It was contended that the assessee had discharged the entire onus u/s 68 cast upon it by furnishing confirmations, PAN, audited financial statements, income-tax returns, bank statements and other statutory records of all the lender companies besides establishing that the loans were received and subsequently repaid through normal banking channels and that interest paid thereon had been subjected to deduction of tax at source. Ld. AR stressed that the lender companies are RBI registered NBFCs, the identity of them is fully established. It was argued that the Assessing Officer had made the additions solely on the basis of generalized information received from the Investigation Wing and third-party statements recorded behind the back of the assessee, without conducting any independent enquiry u/ss 131 or 133(6) of the Act or affording the assessee an opportunity to cross-examine the persons whose statements were relied upon. It was vehemently argued that the so called information/material referred in the assessment order relating to Himanshu Verma and Deepak Aggarwal were not even pertaining to search action dated 17.11.2021 which formed the basis of reopening u/s 147 and same was collected in the past searches in year 2012 and 2017 and thus belated use of such information is arbitrary and beyond scope. The Ld. AR further submitted that no material whatsoever had been brought on record to establish any nexus between the assessee and the alleged accommodation entry operators or to demonstrate that the funds received by the assessee had emanated from its own undisclosed sources. It was also contended that the addition of Rs.6.15 crore was dehors the reasons recorded for reopening and was made without any incriminating material or independent satisfaction. The Ld. AR, therefore, submitted that the ld. CIT(A) had rightly appreciated both the facts and the law in deleting the additions u/ss 68 and 69C. Ld. Counsel filed paperbook containing various decisions of Coordinate Bench where relief was granted on almost identical facts. Without prejudice, ld. AR also pressed the application filed under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, contending that the reassessment proceedings were themselves without jurisdiction and liable to be quashed on the legal grounds raised before the CIT(A), which remained unadjudicated.

Considered the rival submissions and material placed on record. We observed that the grievance of the Revenue is against the action of the ld. CIT(A) in deleting the additions of Rs.10,81,00,000/- and Rs.6,15,00,000/- made u/s 68 of the Act and the consequential additions of Rs.32,43,000/- and Rs.14,96,565/- made u/s 69C of the Act. It is an undisputed fact that lender companies are NBFC companies and loans were repaid in subsequent period and such repayment was prior to issuance of notice u/s 148 of the Act.

With regard to the addition of Rs.10,81,00,000/- u/s 68 in respect of loans from M/s. Highrise Securities & Trading P. Ltd. (Rs. 5,10,00,000/-), M/s. RCM Finance and Leasing P. Ltd. (Rs. 4,11,00,000/-) and M/s. Sarvottam Securities P. ltd. (Rs. 1,60,00,000/-), the Assessing Officer proceeded to make the impugned additions primarily on the basis of information received from the Investigation Wing alleging that certain concerns controlled by alleged entry operators had advanced accommodation loans to the assessee. The assessment order further proceeds on general observations regarding the activities of the alleged entry operators and statements recorded during search proceedings in cases of third parties. However, it is noted that the AO has not brought on record any specific material found during the third party search on 17.11.2021 and the reliance has been placed on stale information arising from search action carried out in the very same group in 2012 and 2017 which has no relevance to the transactions taken place in year under reference i.e. AY 2019-20. Further, except placing reliance upon such investigation material, no independent enquiry whatsoever was conducted by the Assessing Officer to establish that the loans received by the assessee represented its own unaccounted money introduced in the guise of unsecured loans.

Ld. CIT(A), after extensively examining the documentary evidence furnished by the assessee, has recorded categorical findings that the assessee had discharged the initial onus cast upon it u/s 68 by furnishing complete documentary evidence establishing the identity of the lender companies, their corporate existence, PAN, audited financial statements, confirmations, bank statements, income-tax returns and complete details of the loan transactions carried through regular banking channels. The findings recorded by the ld. CIT(A) in paragraph 5.13 further reinforce the creditworthiness of the lender companies. The ld. CIT(A), instead of merely accepting the documentary evidence at face value, independently analysed the audited financial statements of each of the three lender companies, namely M/s Highrise Securities & Trading Pvt. Ltd., M/s Sarvottam Securities Pvt. Ltd. and M/s RCM Finance & Leasing Pvt. Ltd., all of which are admittedly RBI-registered NBFCs, and examined their financial position with reference to their share capital, reserves and surplus, loans and advances, revenue from operations and profitability for the relevant as well as the preceding financial year. On such analysis, the ld. CIT(A) found that these companies possessed substantial net worth running into several crores of rupees, had sizeable loan portfolios as part of their regular financing business and were generating significant operational revenue, thereby clearly demonstrating their financial capacity to advance the loans in question. The ld. CIT(A) also observed that the allegations of the Investigation Wing regarding meagre taxable income or cross-holding of shares could not override the undisputed financial strength reflected in the audited balance sheets of the lender companies. We find ourselves in agreement with the aforesaid factual analysis. The financial parameters examined by the ld. CIT(A) unmistakably establish that the lenders possessed adequate financial resources to extend the impugned loans, thereby fully satisfying the requirement of creditworthiness u/s 68 of the Act. In the absence of any material brought on record by the Assessing Officer to discredit these audited financial statements or to demonstrate that the funds advanced to the assessee had actually emanated from the assessee itself, the findings recorded by the ld. CIT(A) deserve to be affirmed.

We also find considerable force in the contention of the ld. AR that the lender companies in question are Non-Banking Financial Companies (NBFCs) duly registered with the Reserve Bank of India and are subject to a stringent regulatory framework governing their lending activities. The Assessing Officer has neither disputed their legal existence nor brought any material on record to demonstrate that their RBI registration had been cancelled or that they were prohibited from carrying on financing activities during the relevant period. Merely because certain allegations were made against some of the entities in the report of the Investigation Wing could not, by itself, justify the conclusion that every loan advanced by such entities was a sham transaction, particularly in the absence of any independent enquiry or tangible material establishing that the funds received by the assessee represented its own unaccounted money. Significantly, the documentary evidence placed on record demonstrates that the impugned loans were subsequently repaid in their entirety through normal banking channels, along with payment of contractual interest after deduction of tax at source, much prior to the issuance of notice under section 148 of the Act and the AO has not disputed the factual position to this effect. It is worth noting that had the transactions been mere accommodation entries or colourable devices, there would have been little commercial rationale for the assessee to discharge the entire liability by repaying the loans with interest from disclosed banking channels long before any reassessment proceedings were even contemplated. The subsequent repayment of the loans, effected in the ordinary course of business without any intervention from the Department, constitutes a significant contemporaneous circumstance lending credence to the assessee's claim regarding the genuineness of the borrowing transactions and completely demolishes the allegation that the loans were fictitious or represented the assessee's undisclosed income.

We also find that the additions have substantially been made merely because the Investigation Wing had allegedly unearthed accommodation entry operations in respect of certain entities. However, it is now well settled that information received from another wing of the Department, by itself, cannot constitute evidence against an assessee unless the Assessing Officer independently verifies the material and establishes a live nexus between such information and the assessee's transactions. Mere reliance upon third-party statements, without affording opportunity of cross-examination and without conducting any independent enquiry, cannot form the sole basis for making additions u/s 68. In the present case, the assessment order does not demonstrate any investigation into the funds actually transferred to the assessee or establish that the monies received originated from the coffers of the assessee itself and no enquiry u/ss 131 or 133(6) was conducted with the lender companies after the assessee had furnished complete documentary evidence. No material has been brought on record to rebut the evidences filed by the assessee. Ld. DR has not been able to place any supporting documents to corroborate the findings of the AO or dispute the genuineness of the documents furnished by the assessee before AO and CIT(A). Further, no opportunity of cross examination was afforded to the assessee even though specifically requested.

It is worth appreciating that ld. CIT(A) has dealt with the concept of accommodation entry and shell companies in comprehensive manner and we are in agreement with ld. CIT(A) that the allegation of the AO is unsubstantiated and uncalled for.

We also note that the Assessing Officer has neither questioned the repayment nor established that the monies so repaid ultimately reverted to the assessee in any manner. In these circumstances, we find no infirmity in the conclusion reached by the ld. CIT(A) that the assessee had duly discharged the onus cast upon it under section 68 of the Act and that the impugned additions were made merely on suspicion and generalized allegations, unsupported by any cogent evidence.

We further find that the decisions of the Coordinate bench relied upon by the ld. AR are squarely relevant and supports the conclusion arrived by us:

In the view of the aforesaid discussion, the factual finding recorded by the CIT(A) does not warrant any interference on our part and accordingly, the deletion of addition u/s 68 amounting to Rs.10,81,00,000/- and the consequential addition of Rs.32,43,000/- u/s 69C by CIT(A) is upheld.

With regard to the addition of Rs.6,15,00,000/- u/s 68 in respect of loans from 5 other parties, the details of which as referred at Page 54 of the impugned order is as under:

We have already deleted the addition in respect of the parties which were subject matter of reopening u/s 147 and as such the addition in respect of other parties do not survive in the light of principle laid down by Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. v. CIT [2011] 336 ITR 136 (Delhi).

Even otherwise, it is noted that the assessee has placed on record following documents in support of loan:

We find that ld. CIT(A) has rightly noticed that the allegation in respect of these loans was not even part of the reasons recorded for reopening u/s 147 and was introduced only at the fag end of the assessment proceedings without any fresh incriminating material. Even otherwise, on merits also, the assessee had produced complete documentary evidence in support of these loans, which has not been effectively rebutted by the Assessing Officer through any independent enquiry. We further find that the assessing officer has not brought on record any adverse material or information disputing the genuineness of these loans and the assessee having discharged the primary onus u/s, the action of CIT(A) in deleting the addition cannot be faulted.

Once the additions u/s 68 fail on merits, the consequential additions u/s 69C towards alleged commission expenditure and disallowance of interest expenditure automatically lose their very foundation. Since the principal additions do not survive, there remains no legal basis for sustaining the consequential additions made u/s 69C of the Act.

Thus, we find ourselves in complete agreement with the detailed appreciation of facts and evidence recorded by the ld. CIT(A). The Revenue has not been able to point out any factual infirmity or perversity in the findings recorded by the first appellate authority. We therefore see no reason to interfere with the well-reasoned order of the ld. CIT(A). Accordingly, the order of the ld. CIT(A) deleting the addition Rs.6,15,00,000/- u/s 68 and the consequential addition of Rs.14,96,565/-u/s 69C is upheld. As a result, the grounds raised by the Revenue are dismissed.

In the result, the appeal filed by the Revenue in AY 2019-20 is dismissed.

The assessee has filed an application under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 seeking to support the impugned order on various legal grounds challenging the assumption of jurisdiction u/ss 147/148 of the Act, since the ld. CIT(A), after allowing the appeal on merits, did not adjudicate the legal grounds.

We have considered the Rule 27 application, however, since we have upheld the order of the ld. CIT(A) deleting the entire additions on merits and the Revenue's appeal itself stands dismissed, no further adjudication on the jurisdictional issues raised by the assessee under Rule 27 is called for in the facts of the present case. Any adjudication on those legal grounds would merely be academic and would not have any bearing on the ultimate result of the appeal.

Accordingly, while the application filed under Rule 27 is admitted, having regard to the principles governing Rule 27 and the judgment of the Hon'ble Delhi High Court relied upon by the assessee, we do not consider it necessary to adjudicate the legal grounds on merits, as the same have become purely academic in view of our decision upholding the deletion of the additions on merits. The Rule 27 application is, therefore, treated as infructuous/academic and is disposed of accordingly.

Now we take up appeal for AY 2020-21 bearing ITA No. 2420/Del/2026.

The facts emanating from the record are that the return of income for the Assessment Year 2020-21 was filed declaring a total income of Rs.15,34,090/-, which was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, on the basis of information received from the Investigation Wing alleging that the assessee had availed accommodation entries from certain entities allegedly controlled by entry operators, reassessment proceedings under sections 147/148 were initiated. During the course of reassessment proceedings, the Assessing Officer treated the repayment of loans aggregating to Rs.7,18,20,016/- as unexplained money under section 69A of the Act. The said loans were originally been received in the preceding Assessment Year 2019-20 and treated as unexplained cash credit u/s 68 of the Act. The Assessing Officer also made a separate addition of Rs.2,20,00,000/- u/s 68 in respect of loans received from two other companies, besides making consequential additions under section 69C towards alleged commission and interest expenditure.

Aggrieved with the above order, the assessee preferred an appeal before the ld. CIT(A), who, upon examining the documentary evidence and the factual matrix, held that the repayments represented discharge of genuine opening loan liabilities through normal banking channels and that the assessee had duly established the identity, creditworthiness and genuineness of the fresh loan transactions as well. The ld. CIT(A), accordingly, deleted all the additions on merits.

Aggrieved with the above order, the Revenue is in appeal before us, whereas the assessee has filed an application under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 supporting the impugned order on the legal grounds challenging the validity of the reassessment proceedings, which remained unadjudicated by the ld. CIT(A). The grounds raised by the Revenue are as under:

Considered the rival submissions and material placed on record. We find ourselves in complete agreement with the findings recorded by the CIT(A) in deleting the addition of Rs.7,18,20,016/- made by the Assessing Officer. It is an admitted position that the impugned amount does not represent any fresh loan or credit received by the assessee during the year under consideration. On the contrary, the amount represents repayment of the opening loan balances which had been borrowed by the assessee in the immediately preceding Assessment Year 2019-20. While deciding appeal for AY 2019 -20, we have already upheld the order of the ld. CIT(A) holding that the original borrowings from the very same lender companies were genuine and that the assessee had duly established the identity and creditworthiness of the lenders as well as the genuineness of the loan transactions. Once the receipt of the loans has been accepted as genuine in the year of borrowing, the subsequent repayment thereof, through disclosed banking channels, cannot, by any stretch of imagination, be treated as unexplained money or unexplained investment in the hands of the assessee in the succeeding year and hence the addition is unsustainable on this ground alone.

We further find that the ld. CIT(A) has recorded a categorical finding that the assessee had furnished complete documentary evidence in support of the repayments, including ledger accounts, bank statements evidencing repayment through normal banking channels, confirmations from the lender companies, affidavits of their directors, proof of deduction and deposit of tax at source on interest payments and other contemporaneous records. The Assessing Officer has not disputed the factum of repayment nor has he brought any material on record to establish that the monies repaid had, in fact, reverted to the assessee or represented its own undisclosed income. The entire addition has been made merely on the presumption that since the original lenders were allegedly accommodation entry providers, repayment of the outstanding loans should itself be treated as unexplained money under section 69A. Such an approach, in our considered opinion, is wholly misconceived and contrary to the scheme of the Act. In fact, section 69A contemplates a situation where the assessee is found to be the owner of unexplained money, bullion, jewellery or other valuable article not recorded in the books of account. The provision has no application where duly accounted repayments of existing liabilities are made through banking channels and are fully reflected in the regular books of account.

In any case, the addition in respect of repayment of loan is of duplicate nature as the AO has contemplate addition in respect of the same amount in the year of receipt and as such there is no factual or legal basis for making addition in respect of the very same amount at the time of repayment.

In these circumstances, in the absence of any cogent material demonstrating that the repayments represented unexplained money of the assessee and keeping in view the finding recorded by us while upholding the deletion of addition u/s 68 in respect of these very loans in AY 2019-20, we find no infirmity in the well-reasoned finding of the CIT(A) deleting the addition u/s 69A in respect of repayment of loans. We accordingly affirm the order of the CIT(A) deleting the addition of Rs.7,18,20,016/-, as the same is in consonance with the settled legal principles and the evidence available on record.

Apropos addition of Rs.2,20,00,00/- u/s 68 in respect of loans from M/s. Gaurav Finance P. ltd. and M/s. Vinsan Credit and Securities Ltd., we find that the basis and ground of addition is similar to that in AY 2019-20 wherein the AO had added aggregate loan of Rs.6,15,00,000/- u/s 68 travelling beyond the subject matter of reopening u/s 147. As the facts and finding recorded by ld. CIT(A) is similar to that in AY 2019-20, we uphold the deletion of the addition by CIT(A) in view of our order for AY 2019-20 which applies mutatis mutandis to this ground and accordingly, the same is dismissed.

The addition of Rs. 21,54,600/- and Rs. 36,91,110/- u/s 69C in respect of interest and alleged commission are of consequential nature in absence of surviving addition u/s 69A, the same are not sustainable and rightly deleted by ld. CIT(A). The ground raised by the Revenue to this effect are also dismissed and also we uphold the deletion of the addition by ld. CIT(A) in view of our order for AY 2019-20 which applies mutatis mutandis to this ground and accordingly, the same is dismissed.

With regard to the application under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, the same is admitted and treated as infructuous/academic in line with the observation recorded while deciding appeal for AY 2019-20.

In the result, the appeal filed by the Revenue being ITA No.2420/Del/2026 is dismissed.

To sum up : both the appeals filed by the Revenue are dismissed.

Order pronounced in the open court on this 27^th day of July, 2026.