The Income Tax Appellate Tribunal, Mumbai, has reaffirmed that once the identity and genuineness of a loan creditor are accepted by the Department in prior assessment proceedings pursuant to a tribunal order, the same cannot be reopened in a subsequent year without fresh, compelling evidence. This judgment provides critical clarity on the principle of consistency in tax administration and the limits of reassessment under Section 68.
Background & Facts
The Dispute
The appellant, Mahesh Vishindas Chandwani, was assessed for the assessment year 2012-13. The Assessing Officer (AO) made three additions totaling Rs. 5,80,366: Rs. 41,00,000 as an unsecured loan from Shri Dipak Bhatija, Rs. 1,00,000 as an unexplained advance to Shri Sudhakar Jagtap, and Rs. 70,366 as interest income not disclosed in the return. The Commissioner of Income Tax (Appeals) upheld all additions. The appellant appealed to the Income Tax Appellate Tribunal (ITAT), Mumbai.
Key Facts
- The appellant filed original return declaring income of Rs. 5,89,04,970 and revised return declaring Rs. 5,88,92,030.
- The case was selected for scrutiny under CASS on 10.09.2014.
- In assessment year 2009-10, the same creditor, Shri Dipak Bhatija, advanced Rs. 19,00,000, which was initially added under Section 68.
- The appellant appealed to ITAT Mumbai in ITA No. 3707/Mum/2013.
- On 07.04.2017, a Coordinate Bench of ITAT set aside the 2009-10 assessment and directed the AO to verify the creditor’s identity, PAN, and income tax returns.
- Pursuant to this direction, the AO passed a set-aside order dated 31.10.2018 under Section 143(3) read with Section 254, accepting the genuineness of Shri Dipak Bhatija as a loan creditor and making no addition.
- The current loan of Rs. 41,00,000 from the same creditor in A.Y. 2012-13 was supported by bank statements, loan confirmation, and the creditor’s ITR.
- The advance of Rs. 1,00,000 to Shri Sudhakar Jagtap lacked verified address or PAN.
- The interest income of Rs. 70,366 was not examined by the AO despite submission of TDS certificate and confirmation.
Procedural History
- 10.09.2014: Notice under Section 143(2) issued.
- 14.03.2016: AO passed assessment order under Section 143(3) making additions.
- 29.08.2025: CIT(A) upheld the additions.
- 13.03.2026: Hearing before ITAT Mumbai.
- 18.03.2026: Judgment pronounced.
The Parties' Positions
For the Appellant
- Relied on the prior ITAT order dated 07.04.2017 and the set-aside assessment order dated 31.10.2018, which had accepted the creditor’s genuineness.
- Submitted bank statements, loan confirmation, and the creditor’s ITR for A.Y. 2012-13.
- Argued that reopening the same creditor’s identity without new evidence violates consistency and natural justice.
- For the advance and interest, submitted documents but sought opportunity for verification.
For the Respondent
- Relied on the AO’s observation that the creditor in A.Y. 2009-10 was previously found non-genuine.
- Cited paragraph 5.9 of the assessment order, quoting prior statements where the creditor claimed ignorance and that cheque books were with the CA.
- Opposed deletion of additions, asserting that each assessment year is independent.
Relief Sought
The appellant sought deletion of the addition of Rs. 41,00,000, deletion of Rs. 1,00,000 advance, deletion of Rs. 70,366 interest, and setting aside of the CIT(A) order.
The Legal Issue
Can the tax department reject the identity and genuineness of a loan creditor in a subsequent assessment year when the same creditor’s legitimacy was previously accepted by the Department in a set-aside assessment order passed pursuant to a tribunal direction?
Arguments Presented
For the Appellant
The appellant relied on the binding precedent established by the Coordinate Bench of ITAT in ITA No. 3707/Mum/2013, which directed the AO to verify the creditor’s credentials. The AO complied and accepted the creditor’s genuineness in the 2009-10 set-aside assessment. The appellant argued that the Department cannot adopt inconsistent positions without fresh evidence. The transaction was routed through banking channels, and documentary evidence was furnished. The principle of res judicata by conduct and estoppel by record applied.
For the Respondent
The Revenue contended that each assessment year is a separate proceeding and the prior acceptance of the creditor was not binding. It relied on the AO’s findings from A.Y. 2009-10, where the creditor had claimed ignorance and that his bank documents were held by his CA. The Revenue argued that the current transaction, though involving the same person, required independent verification and that the appellant failed to rebut the presumption under Section 68.
The Court's Analysis
The Tribunal examined the sequence of events with precision. It noted that the Department, through the AO, had already conducted a detailed verification of Shri Dipak Bhatija’s credentials in response to a tribunal order. The set-aside order dated 31.10.2018 explicitly accepted the creditor’s identity and genuineness, and no addition was made. The Tribunal held that the Department cannot, in a subsequent year, revert to its earlier position without new material or evidence suggesting fraud, collusion, or change in circumstances.
"The identity and genuineness of the said creditor stand accepted by the Department in the subsequent assessment proceedings carried out in pursuance of the Tribunal's directions."
The Tribunal emphasized that Section 68 requires the Department to establish that the creditor is not genuine or lacks the capacity to lend. Once the creditor is verified and accepted, the burden shifts to the Department to show why the same person is now suspect. No such material was produced. The Tribunal further observed that the loan was routed through banking channels, and the documents submitted were consistent with the prior acceptance.
Regarding the advance of Rs. 1,00,000 to Shri Sudhakar Jagtap, the Tribunal found that the appellant had not provided verifiable details of the recipient’s identity, address, or PAN. However, it declined to uphold the addition outright, recognizing the possibility of oversight. The Tribunal directed a fresh inquiry with opportunity of hearing.
Similarly, for the interest income of Rs. 70,366, the Tribunal noted that the appellant had submitted a TDS certificate and confirmation showing the income was declared in A.Y. 2016-17. The AO had failed to examine this. The Tribunal held that taxing the same income twice would be unjust and directed the AO to verify whether the income was already taxed.
The Verdict
The appeal was allowed in part. The addition of Rs. 41,00,000 was deleted. The addition of Rs. 1,00,000 and Rs. 70,366 were set aside and restored to the file of the AO for fresh verification with opportunity of hearing. The CIT(A) order was set aside on these grounds. The appellant was granted costs of Rs. 10,000. Compliance was directed within 8 weeks.
What This Means For Similar Cases
Prior Acceptance of Creditor Is Binding Unless New Evidence Emerges
- Practitioners must cite set-aside assessment orders where the Department accepted a creditor’s genuineness as conclusive for subsequent years.
- The Revenue cannot rely on prior adverse findings if those were overturned by tribunal direction and subsequently reversed by the AO.
- Section 68 additions based on rehashed objections from closed proceedings are unsustainable.
Verification Requires More Than Allegations
- Merely citing a creditor’s past silence or CA-held documents is insufficient to reject a loan in a new year.
- The Department must conduct fresh, documented verification if it seeks to challenge a previously accepted creditor.
- Banks statements, ITRs, and loan confirmations, when consistent, constitute prima facie proof.
Restoration Is Not a Rejection - It Is Procedural Fairness
- When documents are submitted but not examined, restoration for verification is the correct remedy, not outright addition.
- Practitioners should request restoration in cases where the AO has overlooked submissions, especially TDS certificates or prior declarations.
- This avoids double taxation and upholds the principle of natural justice under Article 14 of the Constitution.
