Section 68 Addition Can’t Survive Merely on ‘Accommodation Entry’ Allegation When Loan Is Repaid Through Bank” – Mumbai ITAT

Bihari Parmanand Kandhari Vs ACIT (ITAT Mumbai)

Section 68 Addition Can’t Survive Merely on ‘Accommodation Entry’ Allegation When Loan Is Repaid Through Bank” – Mumbai ITAT

In a major relief to the assessee, the Mumbai ITAT deleted a ₹30 lakh addition u/s 68, holding that merely because the lender was allegedly involved in providing accommodation entries, a genuine loan transaction supported by documentary evidence and routed entirely through banking channels cannot be treated as unexplained cash credit.

The assessee, engaged in real estate development, had originally completed assessment u/s 143(3). Subsequently, based on information from the Investigation Wing alleging that the assessee had received accommodation entries from the “Ahuja Group,” reassessment proceedings were initiated.

During reassessment, the assessee explained that it had received an unsecured loan of ₹30 lakh from M/s. Ahuja Properties & Associates and had repaid the same within a short span during the very same year. The assessee produced substantial supporting evidence including income tax returns, bank statements, ledger accounts, loan confirmations and lender details.

However, the AO relied heavily on a statement allegedly given by one of the persons connected with the Ahuja Group admitting to providing accommodation entries and treated the loan as unexplained cash credit u/s 68.

The ITAT noted that not only had the assessee furnished complete documentary evidence, but even in response to summons u/s 131, the principal officer of the lender entity had confirmed the transaction. Further, during remand proceedings before the CIT(A), the lender again filed an affidavit confirming the genuineness of the loan.

The Tribunal held that the assessee had successfully proved all three essential ingredients required under section 68 – identity of the creditor, creditworthiness and genuineness of the transaction.

Importantly, the Bench observed that merely because the lender did not personally appear in response to summons or because allegations existed against the lender group, the transaction could not automatically be branded bogus, especially when the loan had been fully repaid through banking channels within the same year.

The Tribunal also remarked that the original scrutiny assessment had already accepted the loan transaction and reopening based solely on third-party search information could not justify addition when documentary evidence clearly supported the assessee’s case.

Accordingly, the ITAT directed deletion of the entire ₹30 lakh addition u/s 68 and allowed the assessee’s appeal.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This is an appeal by the assessee against order dated 17.11.2025 of National Faceless Appeal Centre (‘NFAC’ for short), Delhi for the assessment year (A.Y. for short) 2009-10.

2. The solitary issue in dispute in the present appeal is in relation to addition of an amount of Rs.30 lacs as unexplained cash credit u/s. 68 of the Income Tax Act, 1961 (‘the Act’ for short). Ofcourse, the assessee has raised an additional ground challenging the validity of the assessment order.

3. At the outset, we propose to deal with the main grounds and, if warranted, will examine the additional ground.

4. As far as the main grounds are concerned, briefly, the facts are, the assessee is a resident individual engaged in the business of real estate development. For the assessment year under dispute, the assessee filed his return of income on 27.09.2009, declaring income of Rs.2,17,46,266/-. Assessment in case of the assessee was completed u/s. 143(3) of the Act, determining the total income at Rs.2,45,90,500/-.

5. Subsequently, the Assessing Officer (A.O. for short) received information from the Investigation Wing of the Department that the assessee is a beneficiary of accommodation entries being unsecured loan availed from M/s. Ahuja group. Based on such information, the A.O. reopened the assessment u/s. 147 of the Act. In course of assessment proceeding, the A.O. called upon the assessee to prove the genuineness of the loan transaction. In response to the query raised by the A.O., the assessee furnished his reply stating that he had availed unsecured loan of Rs.30 lacs from M/s. Ahuja Properties & Associates, which was also repaid within a short span during the year. In support of such claim, the assessee furnished supporting evidences in the form of income tax returns, bank statements, loan confirmations, etc. The A.O. however, was not convinced. Referring to a statement recorded from Shri Jagdish Bhagwandas Ahuja, stated to be the director and promoter of M/s. Ahuja group, he observed that in the said statement, the fact of providing accommodation entries by the said group was accepted. He further observed that though the assessee was asked to produce the lender, however, he failed to do so. He submitted, even summons issued u/s. 139(1) of the Act did not bear any result, as the concerned person sent a reply through speed post. Thus, ultimately, the A.O. disbelieved the loan transaction and treated it as unexplained cash credit u/s. 68 of the Act, thereby adding back the amount of Rs.30 lacs.

6. The assessee contested the addition before the first appellate authority. However, the addition made by the A.O. was sustained.

7. We have considered rival submissions and perused the materials available on record. Undisputedly, the assessee did enter into a loan transaction with M/s. Ahuja Properties & Associates during the relevant previous year by availing unsecured loan of Rs.30 lacs. It is a fact on record that the loan was repaid by the assessee within a short period. Thus, the loan account was squared off during the year itself and nothing remained outstanding. Be that as it may, in course of assessment proceedings, the assessee had furnished various documentary evidences to prove the loan transaction. In fact, in response to summons issued u/s. 131 of the Act, the Principal Officer of M/s. Ahuja Properties & Associates furnished a letter was addressed to the A.O. confirming the loan transaction. It is noteworthy, in course of proceedings before the First appellate authority, the assessee furnished following documentary evidences :

a) Ledger of M/s. Ahuja Properties & Associates in the books of the assessee.

b) Bank statement of the assessee

c) Ledger of assessee in the books of M/s. Ahuja Properties & Associates

d) Bank statement of M/s. Ahuja Properties & Associates

e) Copies of Income tax returns

f) Affidavit of Shri Jagdish Bhagwandas Ahuja, partner of M/s. Ahuja Properties & Associates

8. Based on the submissions and evidence produced, the first appellate authority called upon the A.O. to verify them and furnish a report. In the remand report, the A.O. has accepted the fact that in the Affidavit, the Principal Officer of M/s. Ahuja Properties & Associates has confirmed the loan transaction as genuine. The documentary evidences furnished by the assessee establish not only the identity of the creditor but prove the credit worthiness and genuineness of the transactions, which are crucial ingredients u/s. 68 of the Act. It is further relevant to observe, the entire loan transaction was through banking channel. Merely because the lender did not appear in response to summons issued u/s. 131 of the Act or the assessee failed to produce the books of accounts of the lender and original bank statements of the lender, the loan transaction could not have been treated as unexplained cash credit. When the lender, not only at the stage of the assessment but in course of remand, has confirmed the loan transaction, there could not have been any further doubt regarding the genuineness of the loan transaction. In any case of the matter, it is a fact on record that the loan availed of Rs.30 lacs was repaid during the very same year and within a short span. That itself leaves no room for making the addition u/s. 68 of the Act. We may further observe, the original assessment in case of the assessee was completed u/s. 143(3) of the Act accepting the loan transaction. Merely based on some information found in course of search and seizure operation conducted in respect of a third party, the loan transaction was doubted despite the fact that all the documentary evidences furnished by the assessee including the confirmation from the lender prove the genuineness of the loan transaction. Thus, on over all consideration of facts and materials on record, we are convinced that the assessee has proved the genuineness of the loan transaction. Hence, the addition made u/s. 68 of the Act is uncalled for. Accordingly, we direct the A.O. to delete the addition.

9. In view of our decision on the main ground, the additional ground having become academic, is kept open.

10. In the result, the appeal is allowed.

Order pronounced in the open court on 25.05.2026