Case Law Details
JCIT Vs Khushal Clothing LLP (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) deleting additions made on account of interest expenditure and alleged commission relating to unsecured loans.
The assessee had filed its return of income for Assessment Year 2020-21 declaring a total income of ₹37,74,390. The assessment was reopened based on information that the assessee had allegedly received accommodation entries of ₹1.27 crore in the form of unsecured loans. During the assessment proceedings, the Assessing Officer (AO) found that the entire unsecured loan of ₹1.27 crore had been repaid along with interest of ₹9,93,812. However, the AO treated the loans as accommodation entries and disallowed the interest expenditure of ₹9,93,812. The AO also disallowed ₹2,80,932 as alleged commission paid for obtaining the accommodation entries under Section 69C. The assessment was completed under Sections 147 read with 143(3).
The CIT(A) allowed the assessee’s appeal and deleted both additions. Aggrieved, the Revenue challenged the deletion before the Tribunal.
The Revenue argued that the unsecured loans were obtained from dummy entities providing accommodation entries and that the related interest and commission payments were not genuine. The assessee submitted that the entire loan had been repaid, the identity, creditworthiness and genuineness of the loan transactions had been established, and tax had been deducted at source (TDS) on the interest payments. It also contended that there was no basis for treating the commission expenditure as bogus.
The Tribunal observed that although the assessment had been reopened to examine alleged accommodation entries of ₹1.27 crore, the AO had not made any addition in respect of the unsecured loans themselves. It noted that repayment of the entire loan amount along with interest was undisputed. In these circumstances, the Tribunal held that there was no rationale for treating the loans as accommodation entries. It also observed that the assessee had duly deducted TDS on the interest payments, a fact acknowledged by the CIT(A).
The Tribunal further held that there was no basis for disallowing the commission expenditure, particularly when the AO had admitted that no loan had been obtained during the relevant year. It found that the commission disallowance was based merely on surmise and conjecture. Accordingly, the Tribunal upheld the CIT(A)’s order deleting both additions and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Revenue against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 13.11.2025 for the Assessment Year (A.Y.) 2020-21 in the proceeding u/s. 147 of the Income Tax Act [hereinafter referred as “The Act”].
2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2020-21 on 13.11.2021 declaring total income of Rs. 37,74,390/-. The case of the assessee was reopened on the basis of information received by the AO that the assessee has taken accommodation entries of Rs.1.27 crores during the year under consideration in the form of unsecured loan. In the course of assessment, the AO had examined the matter and it transpired that the entire unsecured loan of Rs.1.27 crores taken by the assessee was repaid along with interest expense of Rs. 9,93,812/-. The AO had disallowed the interest of Rs. 9,93,812/- on the unsecured loans pertaining to this year as the same pertained to accommodation entries and was not genuine expenditure. Further, commission payment of Rs. 2,80,932/- in respect of accommodation entries was also disallowed. The assessment was completed u/s. 147 r.w.s. 143(3) of the Act on 28.03.2025 at total income of Rs. 50,49,134/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the learned CIT(A) vide the impugned order and the appeal of the assessee was allowed.
4. Now the Revenue is in appeal before us. The following grounds have been taken in this appeal:
1. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 9,93,812/- made by the Assessing Officer for disallowance of interest expenditure paid on unsecured loans borrowed from the dummy entity Providing accommodation entries.
2. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,80,932/ made by the Assessing Officer of unaccounted commission payment u/s 69C of the Act on account of charges/expenses of Rs. 2,80,932/- mentioned against unsecured loan of Rs. 1,27,00,000/-taken from the dummy entity Providing accommodation entries.
3. The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.
5. Shri Ashesh R Rewar, the Ld. CIT-DR submitted that the Ld. CIT(A) was not correct in deleting the addition of Rs. 9,93,812/- on account of interest and Rs. 2,80,932/- on account of commission, which all pertained to accommodation entries taken by the assessee. He submitted that the accommodation entries were taken from dummy entities and the interest as well as commission expense was bogus. He, therefore, strongly supported the order of the AO.
6. Per Contra Shri M K Patel, Ld. AR submitted that the fact that the assessee had repaid the entire loan amount was not disputed by the AO. He submitted that the identity, credit-worthiness and genuineness of the loan transactions was duly established and there was no basis to treat the loans as bogus or accommodation entry. Further, that the assessee had duly deducted TDS on the interest payments. Therefore, the Ld. CIT(A) had rightly deleted the additions made by the Assessing Officer. The Ld. AR submitted that the deletion for commission expense was also rightly made by the Ld. CIT(A).
7. We have considered the rival submissions. It is found that the case of the assessee was reopened to examine the accommodation entries of Rs. 1.27 crores in the form of bogus loan. In the assessment, no addition was made by the AO in respect of unsecured loans. The AO had disallowed only the interest expense of Rs. 9,93,812/- and the commission payment of Rs. 2,80,932/-. The fact that the entire loan amount of Rs. 1.27 crores was repaid by the assessee, is also not under dispute. Thus, when the entire loan amount was repaid along with the interest, there was no rational for the AO to treat the loans taken by the assessee as accommodation entries. In fact, no disallowance for the unsecured loans was made by the AO. On the payment of interest, the assessee had duly deducted the TDS, and this fact was acknowledged by the Ld. CIT(A) as well. We, therefore, do not find any infirmity with the order of the Ld. CIT(A) deleting the addition in respect of interest payment. Similarly, there was no basis to treat the commission expense of Rs.2,80,932/- as bogus. As admitted by the AO, no loan was obtained during the current year and, therefore, the disallowance for the commission expense on the ground that the same pertained to loan transactions, was based on mere surmise and conjecture. The decision of the Ld. CIT(A) on this issue is also upheld. The grounds taken by the Revenue are dismissed.
8. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 12/06/2026 at Ahmedabad.
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