Radicool Pharmaceuticals Private Limited vs ACIT

PER RAMIT KOCHAR, AM:

This appeal in ITA No. 2363/Del/2026 for Assessment Year: 2020-21 has arisen form the learned CIT(A)’s appellate order u/s 250 of the Income Tax Act, 1961 dated 09.01.2026 in DIN & Order No: ITBA/APL/M/250/2025-26/1084603848(1), which in turn has arisen from the assessment order dated 08.02.2025 passed by the Assessing Officer, ACIT, Central Circle-32, New Delhi u/s 147 of the 1961 Act(DIN & Order No. ITBA/AST/ S/147/2024-25/1073058668(1)).

The Grounds of Appeal raised by the assessee in memo of appeal filed with the Income Tax Appellate Tribunal, New Delhi, reads as under:

Brief facts of the case are that the assessee filed return of income u/s 139 on 31.03.2021 , declaring total income of Rs.27,41,600/-. The High Risk CRIU/VRU information was received by the AO on the basis of search u/s 132 of the Act conducted by Revenueon 17.11.2021, on Galaxy Group, Shri Pradeep Indra Prasad Agrawalla and entry providers Shri Deepak Agarwal and Shri Himanshu Verma. Documents seized during the search contains information which show that the assessee is the beneficiary of accommodation entry to the tune of Rs.10,00,000/- from the entities controlled by above stated entry operators. Proceedings u/s 147 were initiated by the AO against the assessee after taking approval from the Competent Authorities. The AO issued notice u/s 148 to the assessee on 22.03.2024 requesting assessee to file return of income u/s 148 of the Act. In response thereto to the notice issued by the AO u/s 148, the assesse filed its return of income . Thereafter, notices u/s 143(2) and 142(1) were issued by the AO to the assessee, during the course of reassessment proceedings. The assessee participated in the reassessment proceedings. Show Cause Notice(SCN) was also issued by the AO to the assessee on 21.01.2025 , as to why the amount received from the entities controlled by Shri Deepak Agarwal and Shri Himanshu Verma should not be treated as assessee’s unexplained income. The assesse did not reply to the aforesaid Show Cause Notice(SCN) issued by the AO. Ledger and reasons recorded for reopening of case by invoking provisions of Section 147/148 were provided by the AO to the assessee during the course of reassessment proceedings. The contentions of the assessee were considered by the AO, but the same were rejected by the AO. The genesis of the re-assessment proceedings was the searches conducted by the Revenue u/s 132 of the Act on 17.11.2021 on Galaxy Group, Sh. Pradeep Indra Prasad Agrawalla(Founder of the Galaxy Group) , two Entry providers Sh. Deepak Agarwal and Sh. Himanshu Verma , and their premises as detailed by the AO in reassessment order at page 2 were covered in the search action conducted by Revenue u/s 132. During searches conducted by Revenue, it transpired that that Sh. Deepak Agarwal and Sh. Himanshu Verma were involved in providing various types of accommodation entry to large number of beneficiaries through non-descript entities managed and controlled by them with the help of dummy Directors and Professionals. It transpired that both of them were running a syndicate who form , control and manage large number of non-descript corporate and non-corporate entities for the purpose of providing various types of accommodation entries to various beneficiaries. The field enquiries and departmental data base indicated that such entities do not conduct any actual business and were not found existing at the given addresses. These two entry providers were also searched earlier by Revenue, and they were found indulged in providing various types of accommodation entries through web of non-descript entities. The analysis of the financial of these non-descript entities by Revenue revealed that these entities have declared meager turnover over the past few assessment years , fixed assets recorded are negligible, salaries and wages to employees, statutory benefits such as ESI, PF etc recorded are negligible . The companies have huge reserves and surplus lying in their Balance Sheet . The book value of these companies do not justify high premium. It was also found that these entry providers were regularly opening new companies, and shift the business of accommodation entries to these new entities , to befool law enforcement agencies. It was also found that Directors of many of these companies were found to be same and their financial analysis also indicated that they are persons of no means. It also transpired while conducting physical enquiries by Revenue that no such company/entity was found existing at the address provided . It also transpired during investigations that these entities have poor creditworthiness, identity could not be proved as these entities do not comply with the summons issued nor they were found to exist at the addresses mentioned in return of income. It also transpired that the transactions against the introduction of share capital could not be traced in any of the bank statement declared in the return of income. During Searches conducted by Revenue, it was found that incriminating documents concerning unsecured loans of these non-descript entities were found from Sh. Rajnish Jain one of the key employee of Sh. Pradeep Indra Prasad Agrawalla(Founder of Galaxy Group). In his statement recorded u/s 131(1A) of the Income-tax Act, Shri Rajnish Jain accepted that the companies of Galaxy group have received accommodation entries in the form of bogus unsecured loan , and that Sh. Pradeep Indra Prasad Agrawalla has given said documents to him. Similarly , during the searches conducted at office premises of Sh. Deepak Agarwal , certain incriminating whatsapp chats were noticed and extracted from phone of Sh. Rasik Agarwal (son of Sh. Deepak Agarwal) , wherein various photos of rupee notes and chats of cash/’kg’ transfer were found. These were confronted to Shri Rasik Agarwal, wherein he admitted that the chats pertained to providing bank entries by these entities on the directions of Sh. Deepak Agarwal against cash. He admitted that ‘1 kg’ in the chat denotes ‘Lakhs’ He also admitted picking up Rs. 40 lacs against Rs. 10 note bearing 47V 685223 using it as token for delivery as per directions of his father Shri Deepak Agarwal. Similarly during the searches conducted at the office premises of entry provider Sh. Deepak Agarwal, statement of Smt. Sonia Sharma, an Employee of Shri Deepak Agarwal and dummy director in M/s Covet Finance Service Ltd. & M/s Phont Real Estate Pvt. Ltd. was recorded u/s 132(4) wherein she accepted of being a sleeping director(dummy director) in both the entities which are controlled by Sh. Deepak Agarwal. She admitted that she was signing documents related to these companies as and when required / directed by Shri Deepak Agarwal. Statement of Ms. Pooja Modi, who was an employee of CA Sh. Rajesh Agarwal and Sh. Deepak Agarwal was also recorded by Revenue u/s 132(4) at the office of entry provider Shri Deepak Agarwal and in her statement she accepted that MPM Reality Pvt. Ltd., Pine View Portfolio Pvt. Ltd. , Sarlokeshwar Constructions Pvt. Ltd. are shell entities controlled by Sh. Rajesh Agarwal (CA.and close associate of Shri Deepak Agarwal) . Similarly, statement of Sh. Himanshu Verma was also recorded by Revenue on oath u/s 131(1A) of the 1961 Act, wherein he admitted that M/s Arti Securities and Services Limited, M/s Saivi Finance Private Limited and Mysore Finlease Private Limited are Managed and controlled by Sh. Deepak Agarwal , and Sh Deepak Agarwal provides accommodation entries in lieu of cash. During the search proceedings at the office premises of Deepak Agarwal, various unsigned board resolution paper, letter head, signed and unsigned POAs (Power of Attorney) of various non-descript entities were found and seized in physical form. These POA’s also included POA’s of many companies which have provided accommodation entries to companies of M/s Galaxy Group. During the course of search proceedings, various incriminating documents such as tally data set of various non-descript entities entries controlled and managed by Shri Deepak Agarwal and Shri Himanshu Verma was found in the possession of both. During the course of post search investigation, statements of various CAs were recorded who were being reported as statutory Tax Auditors on Financial statements of non-descript entities. During statement recorded on oath u/s 131(1A) of CA Shri Pushp Kumar and CA Smt. Swati Mittal, they stated that they did the audit without following procedure as per law and merely signed the documents of such companies without verifying actual business, voucher/bill/invoice and also not verified address of such companies where the books of accounts of such companies were maintained. The AO has recorded in detail in assessment order about the various aspect of the coordinated investigations conducted by Revenue. During search conducted u/s 132 in the case of Mr. Himanshu Verma, a number of non genuine entities were found under control and management of Mr. Himashu Verma. He was also searched by department u/s 132 , in 2012 and also in 2017. It was found that he was sharing details of non-descript entities with various professional and mediators. During recording of statements u/s 132(4) dated 18.11.2021, Shri Himashu Verma gave evasive reply and diverging replies. He argued that he has transferred all the companies to one Mr. Ravi Sharma after last search. On being asked to produce Mr. Ravi Sharma, he could not produce said Mr. Ravi Sharma and even could not given any details to substantiate that any such person actually existed . The Revenue also observed that there is cross holding of shares of these dummy companies controlled by these two aforesaid entry providers , which were created just to create artificial creditworthiness of various companies. These companies further created assets in the form of loans to various beneficiary companies. It was also observed that various dummy companies have provided loans , and has received interest on which TDS was deducted u/s 194A by the beneficiary party, to give legitimacy to accommodation entries. It was also observed that interest income has been set off against the non-genuine expenses. The list of non-descript entities operated by these accommodation entry providers are listed by the AO at page 9-22 of the reassessment order. It was observed by the AO that assessee was also beneficiary of accommodation entry for Rs.10,00,000/- from non-descript entity namely M/s LVS Financial Services Pvt. Ltd. which has no genuine business and has no creditworthiness and thus, assessee is the beneficiary of the accommodation entry. This entity is listed at S.No. 81 at page 19 of reassessment order, which is stated to be managed by Shri Himanshu Verma , and was used to provide accommodation entries in lieu of cash@3%. , wherein the assessee has received Rs.10,00,000/- as unsecured loan from LVS Financial Services Private Limited on 17.12.2019. The ledger account of the assessee in the books of accounts of LVS Financial Services Private Limited was reproduced by the AO in its assessment order at page 23 , which reads as under:

The AO invoked provisions of Section 68 of the Act by holding that the assessee has accepted loan of Rs.10,00,000/- from non-descript entity M/s LVS Financial Services Ltd. which has no genuine business and has no creditworthiness and thus, the assessee is the beneficiary of the accommodation entry. Since, creditworthiness of the transaction remained unsubstantiated, an amount of Rs. 10,00,000/- was added to the income of the assessee as an unexplained income u/s 68 of the 1961 Act. The AO also invoked provision of Section 115BBE of the 1961 Act to apply rate of tax stipulated therein. Further, the AO made addition to the income of the assessee to the tune of Rs.30,000/-(3% of Rs. 10,00,000/-) being commission income in lieu of aforesaid accommodation entry , which was taxed by the AO u/s 69C of the Act.

Aggrieved , the assessee filed first appeal before the Ld. CIT(A), wherein Ld. CIT(A) dismissed the appeal of the assessee by holding as under:-

Aggrieved , the assessee has now filed an appeal with the Tribunal. At the outset, the Ld. Counsel for the assessee submitted that addition of Rs.10,00,000/- has been made with respect to unsecured loan taken by the assessee from M/s LVS Financial Services Ltd. It was submitted that the said amount was taken through banking channel , but the same was held to be accommodation entry. There was a search and seizure operation conducted by the Revenue on Galaxy group , Shri Pradeep Indra Prasad Agrawalla and in the case Himanshu Verma and Deepak Agarwal. It was submitted that based on third party statements, the additions have been made by the Revenue. It was submitted that the copies of statement has not been provided to the assessee nor the cross examination was allowed. It was submitted that bank statements PAN, Address and Confirmation was duly submitted by the assessee , but the same were rejected by the Department. It was submitted that the loan was repaid on 23^rd July, 2025 through banking channel , and the details were submitted before ld. CIT(A) as well before the Tribunal. It was submitted by the Ld. Counsel for the assessee that the repayment of loan was done through banking channel, although after reassessment proceedings were concluded by the AO. The assessee relied upon the order of the Tribunal of ITAT, Agra Bench in the case of Baijnath Agarwal v. ACIT in ITA No.133/Agr/2005

I have heard the contentions of both the parties and perused the materials available on record. I have observed that search and seizure operations were conducted by Revenue u/s 132 of the Act on 17.11.2021 in the case of Galaxy Group ,Shri Pradeep Indra Prasad Agrawalla(Founder of Galaxy Group) and also in the case of Sh. Deepak Agarwal and Himanshu Verma, alleged entry operators. I have observed that detailed coordinated investigations were carried out by the Department , where it was unraveled consequent to investigation that Sh. Himanshu Verma and Shri Deepak Agarwal were alleged accommodation entity providers in lieu of cash and commission. It was also unraveled consequent to detailed investigations carried out by department, that they were controlling and managing more than 300 non-distinct entities (listed by the AO in his assessment order), which were allegedly web of dummy/shell companies incorporated to provide bogus accommodation entries in lieu of cash and commission and both of them were working in tandem. The Department has concluded that these entities do not have adequate capital, had meager assets and had meager business turn over. There was huge share premium reflected in their books of accounts which donot justify their assets and turnovers. They were having very few employees , and main activities of these non-distinct entities were to provide various types of accommodation entries in lieu of commission and cash. It also transpired that there are cross holding by these companies, which were undertaken to boost their net-worth with a view to provide more accommodation entries . It was unraveled consequent to investigations carried out by Revenue that these two entry providers namely Mr. Deepak Agarwal and Mr. Himanshu Verma were acting in tandem while running this 300 non distinct entities who were engaged in providing various types of accommodation entries in lieu of cash and commission. While undertaking physical verification of these entities controlled and managed by Mr. Deepak Agarwal and Mr. Himanshu Verma, it was also unraveled that these entities were not found at the address mentioned of these entities on record. It also emerges during investigations that these two entry operators were regularly incorporating new companies to be used as non-distinct entities for routing accommodation entries. Various statements were recorded by the Department during search operations and post search investigations of these aforesaid persons , their key employees/relatives , professionals , as well employees of Galaxy Group ( details in the preceding para’s of this order), and after detailed investigation it was concluded by Revenue that these persons namely Mr. Deepak Agarwal and Mr. Himanshu Verma were engaged in providing bogus accommodation entry in lieu of commission and cash through web of 300 shell/dummy companies and both of them are working in tandem. It has also transpired that the assessee is also beneficiary of alleged bogus accommodation entry by way of unsecured loan of Rs.10,00,000/- received by the assessee on 17^th December, 2019 in his HDFC Bank Account No.50200027218100. The Department has provided to the assessee the ledger account of the assessee in the books of account of LVS Financial Services Ltd. along with reason recorded for reopening of the assessment. The assessee has brought on record its bank statement where the unsecured loan was received/credited in 2019, confirmation from LVS Financial Services Private Limited and PAN of the lender, to contend that the loan raised by it was genuine. The onus of the assesee u/s 68 in the instant case is very heavy as the Revenue has conducted detailed investigations as to functioning of these entities such as having negligible capital, meager turnover, huge premium raised by these companies which is not justified vis-à-vis their intrinstic worth, non traceability of these companies at the furnished addresses on record, non compliances by these companies and their Directors to the summons issued by the Revenue apart from the incriminating material seized during the search conducted by Revenue such as whatsapp messages/chats and statements recorded during search and post search investigations. Thus, the onus has shifted back to the assessee to rebut the findings of the Revenue, and the onus is very heavy in the instant case. The main bone of contention of the assessee is that the assesse is not provided with the copies of the relied upon statement recorded by the Department nor cross examination of said persons whose statements were recorded was allowed by department. It is pertinent to mention here that the employees of these entry operators, employees of galaxy Group, professionals as well as son of Sh. Deepak Agarwal (detailed in preceding para’s of this order) admitted while recording statements that these entities were engaged in providing different types of accommodation entries in lieu of cash and commission. Under these circumstances the main bone of contention of the assessee is that assessee was not provided with the copies of the statement recorded by the Revenue as well as cross examination was not allowed. The other defense taken by the assessee is that this loan was unsecured loan taken through banking channel in 2019, and it was repaid through banking channel in 2025. The copies of loan confirmation issued by LVS Financial Services Private Limited as well PAN of LVS Financial Services Private Limited is provided by the assessee. The assessee has also furnished its bank statement where the aforesaid loan was credited in 2019 and also its bank statement from where the aforesaid loan was repaid to LVS Financial Services Private Limited in 2025. Under these circumstances I have to examine whether the additions as were made by authorities are sustainable. First I have to examine whether the additions as were made by authorities are sustainable without the aid of the aforesaid statements recorded by the Revenue during the course of search proceedings as well post search investigations. I have observed that the assessee has availed loan of Rs.10,00,000/- from LVS Financial Services Pvt. Ltd. on 17.12.2019 i.e. during the year under consideration. The said loan was admittedly taken through banking channel . The assessee has submitted copy of bank statement of HDFC bank where the loan was credited. I have observed that the assessee has submitted copies of loan confirmation along with PAN and address of the lender. The AO has invoked the provisions of section 68 of the Act. Section 68 of the 1961 Act stipulated, inter-alia, that where any sum is found credited in the books of accounts of the assessee maintained for any previous year , and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not in the opinion of the AO satisfactory, the sum so credited may be charged to income-tax as income of the assessee for that previous year. Thus, the primary onus is on the assessee to satisfy three ingredients, firstly identity and creditworthiness of the creditor, and genuineness of the loan transaction. I have observed that assessee has repaid said loan of Rs. 10,00,000/- availed from LVS Financial Services Private Limited on 23^rd July 2025 through banking channel from bank account No.924030031010069 maintained with Axis Bank. Thus , the loan was availed in the year 2019 and repaid almost after more than five years.I have observed that this loan was repaid after the conclusion of the re-assessment by the AO , on 8^th February 2025, wherein the AO made additions to the income of the assessee wrt aforesaid loan of Rs. 10,00,000/- raised by the assessee by invoking Section 68 of the 1961 Act . Thus, repayment of loan was made in 2025 after additions were already made to the income of the assessee to the tune of Rs. 10,00,000/- by treating such loan as income of the assessee from undisclosed sources u/s 68. I have also observed that the assessee has not demonstrated that any interest has been paid on such loan to LVS Financial Service Ltd. I have observed that in last more than 5 years, the assessee did not pay any amount to the lender. I have also observed that assessee has not placed on record any loan agreement with LVS Financial Services Private Limited. I have also observed that the assessee has not placed on record terms and conditions on which such loan was availed. The loan is raised from LVS Financial Pvt. Ltd. and as the name indicate , the said LVS Financial Services Pvt. Ltd. is purportedly supposed to be engaged in finance activity. It is quite obvious that finance company will provide loan on commercial terms , which may include loan processing fee, interest on loan, security against the loan, guarantees to secure the loan , regular repayments of the loan by monthly , quarterly installments . No such details has been brought on record by the assessee as to whether the loan is provided on commercial terms by charging interest or whether there are any conditions for repayment such as repayments by monthly installment etc. , but the assessee has not produced any loan agreement, the terms and conditions of the loan nature of loan , terms and conditions on loan which was granted , are not brought on record . The assessee could not explain as to why there was no repayment even in part or in installments in the last more than 5 years. No lender and that too a finance company can under normal circumstances grant loan for more than 5 years without interest and without seeking regular repayments , security to secure loans, guarantees to secure the loan. The onus becomes very heavy on the assessee when the conduct of the parties to transactions are against the normal conduct in regular course of business. It is only when the additions were made by the AO, then the assessee came forward to repay the loan recently in 2025 to create an evidence to protect itself against substantive additions and other consequences which may follow. Further, after detailed investigations , the Revenue has unraveled that these are non-distinct entities which are created solely for the purposes of providing different types of accommodation entries in lieu of cash and commission. It was unraveled by Revenue that these companies have meager turnover, meager fixed assets, very less employees, huge premium was raised which does not justify their intrinstic worth, the companies have cross holdings to boost their capital in order to provide more accommodation entries and for circular rotation of funds. No rebuttal was made by the assessee to aforesaid findings of Revenue during investigations. The onus shifted back to assessee to rebut aforesaid finding which are based on the detailed investigations conducted by Revenue, and these findings are not arrived at on the basis of statements recorded by Revenue during search and post search investigations. It was incumbent on the assessee to have brought on record audited financial statements of LVS Financial Services Private Limited to rebut the aforesaid findings of the Revenue, and to substantiate that it is a genuine NBFC engaged in providing genuine loans on commercial terms. No such effort was done by the assessee even as of date . It was incumbent on the assessee to produce Directors of LVS Financial Services Private Limited to prove its contention that the lender is genuinely engaged in NBFC activities. Again no effort was done by the assessee even as of date. In-fact, the assessee has claimed that recently on 23.07.2025, it repaid loan of Rs. 10,00,000/- to LVS Financial Services Private Limited, then now the assessee cannot contend that these documents could not be produced or Directors could not be produced before authorities, as the assessee is in contact with the lender as late as in July, 2025, while the Revenue could not locate the entity at its given address and these entities are not responding to summons issued by Revenue. Thus, the evidence which could be produced but not produced, presumption will lie against the person who withheld the evidences Thus, the assessee is not able to prove the creditworthiness and genuineness of the said lender. It is true that the assessee has provided the identity of the lender by way of PAN details , but on physical inspection the said company is found to be non existent on the address furnished on record. Merely filing of the PAN, bank statement and loan confirmations are not sufficient. On the other hand, the Department has conducted coordinated and detailed investigation where it is brought on record the facts with these entities are not having adequate capital , were having meager turn over and negligible employees. These companies were found to be not existing at their recorded addresses Under these circumstances even the basic ingredient of section 68 are not fulfilled and the assessee is not able to discharge its onus u/s 68 of the Act. Thus, even if the statements are eschewed, the assessee failed to fulfill ingredients of Section 68 of the 1961 Act . The assessee had failed to prove that the loan availed by it was genuine and creditworthiness of the lender is proved. Thus, it is proved even without the aid of the statements recorded by the Revenue during the course of search and during post search proceedings , that the Revenue has rightly invoked Section 68 and made the additions to the tune of Rs. 10,00,000/- wrt alleged loan availed by the assessee from LVS Financial Services Private Limited. Thus, no prejudice is caused to the assessee by not furnishing of statements by the Revenue as also of not allowing of the cross examination of the persons whose statements were recorded by Revenue. Right of cross examination is not absolute .Thus, keeping in view factual matrix of the case, I uphold orders of the authorities below on both the counts viz. addition of Rs. 10,00,000/- wrt alleged loan from LVS Financial Services Private Limited u/s 68 and consequently payment of commission in cash for arranging the aforesaid accommodation entry @3% is also sustained, and I dismiss the appeal of the assessee. I order accordingly.

In the result, the appeal filed by the assessee stands dismissed.