Darshita Sureshkumar Chauhan Vs ITO (ITAT Mumbai)
Section 68 Cannot Turn Both Loan & Repayment Into Income — Same-Year Repayment With Documents Knocks Out Addition
A ₹10 lakh short-term loan becomes an accommodation-entry dispute
The assessee obtained an unsecured loan of ₹10 lakh from Consultshah Financial Services Pvt. Ltd. on 09.01.2019 for an urgent commercial requirement.
The loan was not carried forward indefinitely. It was repaid on 12.02.2019, barely a month later, together with interest. The total repayment made through banking channels amounted to ₹11,17,800.
The assessee furnished the lender’s confirmation, PAN, bank statements, ledger account & financial statements to establish the identity of the creditor, genuineness of the transaction & creditworthiness of the lender.
Nevertheless, information received through the Investigation Wing alleged that one Sanjay Shah, CA, was engaged in providing accommodation entries through dummy entities. On the allegation that the assessee was one of the beneficiaries of such entries, proceedings were initiated u/s 147.
AO counts money coming in—and money going out
The reassessment was based on alleged escapement of income of ₹20,11,178, though the actual loan transaction was only ₹10 lakh.
In response to the show-cause notice, the assessee specifically explained that the loan had been repaid during the same financial year. She also furnished a copy of the lender’s confirmation & ledger account.
The AO recorded the assessee’s explanation but did not meaningfully deal with it. Instead, he treated both the credit entry representing receipt of the loan & the debit entry representing its repayment as unexplained and made an addition u/s 68 of ₹20,11,178.
Thus, the very repayment which supported the assessee’s case was counted once again against her.
The CIT(A) declined to grant relief. The assessee therefore approached the ITAT, challenging the reopening, approval u/s 151, addition u/s 68, rejection of additional evidence & violation of natural justice.
The assessee’s defence
The assessee contended that the transaction was a genuine, short-term commercial borrowing. The money was received through banking channels, interest was paid & the principal together with interest was repaid through banking channels within the same financial year.
The foundational documents, including confirmation, PAN, bank statements & ledger accounts, were already furnished during the assessment proceedings. Therefore, the allegation that the assessee had failed to produce supporting material was factually incorrect.
The assessee also argued that the addition rested entirely upon generalised information from the Investigation Wing & third-party statements. No incriminating material specifically connecting her transaction with an accommodation-entry arrangement had been furnished.
Further, the statement of the alleged entry operator had reportedly been retracted & no opportunity of cross-examination was granted.
A bank account is not the assessee’s “books”
The assessee additionally contended that section 68 could not be invoked because she did not maintain books of account. A credit reflected only in a bank statement or bank passbook could not be regarded as a credit appearing in the books maintained by the assessee.
However, since the Tribunal granted complete relief by accepting the loan transaction on facts & following its earlier decision, it was unnecessary for it to separately decide this legal proposition.
Family member’s identical case provides the answer
The assessee relied upon the Mumbai ITAT’s earlier decision in Bhavana Suresh Chauhan v. ITO, ITA No. 7290/Mum/2025, dated 29.01.2026.
In that case, arising from a similar factual background, the Tribunal had deleted the addition where:
- The loan had been received & repaid through banking channels;
- The assessee had furnished the supporting documentary evidence;
- No independent adverse material had been brought against the assessee; &
- The Revenue had principally relied upon a retracted third-party statement concerning alleged accommodation entries.
The present transaction was materially identical. The lender, nature of allegation & documentary explanation were part of the same factual pattern.
AO cannot ignore an inconvenient repayment
The ITAT noted that the assessee’s reply dated 07.04.2023 specifically stated that the loan was repaid during the same financial year. The ledger account & lender’s confirmation corroborating the transaction were also furnished.
The AO neither appreciated this material nor offered any reason for rejecting it. Instead, he proceeded to add the credit as well as the corresponding debit.
An amount received as a loan cannot be treated as unexplained merely because the lender is generally alleged to be connected with an accommodation-entry operator. The Revenue must examine the assessee’s specific transaction & evidence and bring material demonstrating that the apparent transaction is not genuine.
More importantly, adding the receipt as well as its repayment produces an inherently distorted result. Repayment is an application of money—it does not constitute a second unexplained credit or an independent receipt of income.
Consistency is not optional
The Tribunal held that an identical addition involving the assessee’s family member had already been deleted by the Coordinate Bench. There was no material factual distinction justifying a contrary conclusion in the assessee’s case.
Following the principle of consistency & considering that the entire loan had already been repaid during the same year, the ITAT held that no addition was warranted.
Decision
The addition made u/s 68 was deleted. The Tribunal allowed the assessee’s appeal by following Bhavana Suresh Chauhan v. ITO & taking note of the complete repayment of the loan during the same financial year.
The ruling reinforces that general Investigation Wing information cannot replace examination of the assessee’s actual evidence. A documented loan, received & repaid through banking channels with interest, cannot be condemned merely by association—and the repayment certainly cannot be counted as another unexplained receipt.
Cases Discussed
- Bhavana Suresh Chauhan vs. ITO, ITA No. 7290/Mum/2025, dated 29.01.2026 — relied upon by the Tribunal as a similar case involving the assessee’s family member, where a similar addition was deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by assessee is directed against the order of ld. CIT(A) dated 04.04.2026 for Assessment Year (AY) 2019-20. The assessee has raised following grounds of appeal:
A. REOPENING
1. The learned Commissioner of Income Tax (Appeals) [“CIT(A)”] erred in confirming the reassessment order passed u/s 147 r.w.s. 144 of the Income-tax Act, 1961, which is bad in law, without jurisdiction, void ab initio and liable to be quashed.
2. The learned CIT(A) erred in upholding the validity of notice issued u/s 148 and order passed u/s 148A(d) despite the fact that the reopening was based on incorrect facts, borrowed satisfaction and complete non-application of mind.
3. The learned CIT(A) erred in not appreciating that the Assessing Officer merely relied upon information uploaded on the Insight Portal / RMS information and Investigation Wing report without carrying out any independent enquiry or verification as specifically required in the dissemination note.
4. The learned CIT(A) erred in confirming the reopening despite the fact that no material whatsoever was supplied along with notice u/s 148A(b), including alleged incriminating statements, seized material, WhatsApp chats or other documents relied upon by the department, thereby violating principles of natural justice.
5. The learned CIT(A) erred in confirming the reopening despite the fact that AO has relied upon statements of churasia group when the appellant did not have any connection with the same group
6. The learned CIT(A) erred in confirming the reopening despite the fact that The Learned AO erred in issuing notice under section 148 without any “reason to believe,” as evident from the arbitrary figure of Rs. 20,11,178/- alleged as escaped income without any working, computation, or explanation as to how such amount was derived from the alleged seized Tally data.
7. The learned CIT(A) erred in holding that the Assessing Officer had valid “reason to believe” that income had escaped assessment, despite absence of any live nexus or tangible material connecting the appellant with any alleged accommodation entry.
B. APPROVAL U/S 151
8. The learned CIT(A) failed to appreciate that approval granted u/s 151 proceeded on the erroneous assumption that escapement of income was Rs.20,11,178/-, whereas the actual loan transaction was only Rs. 10,00,000/- and the final addition was also restricted to Rs. 10,00,000/-, thereby rendering the entire reopening proceedings invalid.
9. The learned CIT(A) failed to appreciate that the reassessment proceedings are invalid as the approval granted by the specified authority u/s 151 was mechanical, without independent application of mind and granted on incorrect facts and figures.
C. ADDITTION OF RS.10,00,000/- U/S 68 ON MERITS
10. The learned CIT(A) erred in confirming the addition of Rs. 10,00,000/- u/s 68 of the Act by treating unsecured loan received from M/s Consultshah Financial Services Pvt. Ltd. as unexplained cash credit.
11. The learned CIT(A) failed to appreciate that the appellant had duly discharged the initial onus cast u/s 68 by furnishing complete documentary evidences including confirmation, PAN, bank statements, ledger accounts and financial statements of the lender and there is no adverse findings against the assessee.
12. The learned CIT(A) erred in confirming the addition merely on the basis of third-party statements and generalized Investigation Wing reports without bringing any independent corroborative material on record to establish that the appellant’s transaction was non-genuine.
13. The learned CIT(A) failed to appreciate that the statement of Shri Sanjay Shah relied upon by the department stood subsequently retracted by way of affidavit and therefore could not be relied upon in absence of independent corroborative evidence.
14. The learned CIT(A) failed to appreciate that the addition has been made merely on suspicion, conjectures and surmises without any legally admissible evidence against the appellant.
15. The learned CIT(A) failed to appreciate that section 68 could not have been invoked in the facts of the present case in absence of books of account maintained by the appellant and the bank statement/passbook cannot be treated as books of account for the purposes of section 68.
16. The learned CIT(A) erred in relying upon general observations regarding alleged accommodation entry providers without demonstrating any specific incriminating material pertaining to the appellant.
D. REPAYMNET DONE
17. The learned CIT(A) erred in confirming the addition despite the fact that the loan was received and repaid through proper banking channels and interest thereon was also paid and allowed.
18. The Appellant submits that the issue is covered by the decision in the case of Bhavana Suresh Chauhan (ITA No. 7290/MUM/2025), wherein under identical facts:
-
- Loans repaid through banking channels were held to be genuine,
- No addition under section 68 was sustained,
- No adverse material was brought on record,
- Retracted statement of third party was not relied upon.
E. ORDER U/S 144
19. The learned CIT(A) erred in confirming the action of the Assessing Officer in passing assessment order u/s 144 of the Act despite the fact that the appellant had participated in reassessment proceedings and had furnished replies, confirmations, bank statements, ledger accounts and other documentary evidences from time to time.
F. NATURAL JUSTICE
20. The learned CIT(A) erred in confirming the addition despite the fact that no opportunity of cross-examination of Shri Sanjay Shah or any other person whose statements were relied upon was ever provided to the appellant and non-supply of relied material.
21. The learned CIT(A) erred in not considering and adjudicating various legal and factual propositions specifically raised by the appellant in written submissions and thereby passed a non-speaking and incomplete appellate order and therefore the order passed is violative of principles of natural justice.
G. ADDITONAL EVIDENCES
22. The learned CIT(A) failed to appreciate that the reassessment order itself records that replies, confirmations, bank statements and ledger accounts were furnished during assessment proceedings and therefore the finding that evidences were not filed before the Assessing Officer is factually incorrect.
23. The learned CIT(A) erred in law and on facts in not admitting the additional evidences filed by the appellant despite a specific application made under Rule 46A of the Income-tax Rules, 1962 and despite the fact that the evidences were crucial for adjudication of the issues involved and went to the root of the matter and were necessary for proper adjudication of the appeal and therefore refusal to admit the same is arbitrary, unjustified and contrary to law.
H. AMENDED GROUNDS
24. The learned CIT(A) erred in law and on facts in failing to adjudicate and decide the amended grounds of appeal specifically raised by the appellant vide separate written application/letter filed during the course of appellate proceedings.
25. The learned CIT(A) failed to appreciate that the amended grounds raised pure questions of law going to the root of jurisdiction and validity of reassessment proceedings and therefore the same were required to be specifically adjudicated by passing reasoned findings.
I. GENERAL
26. The appellant craves leave to add, amend, alter, modify or withdraw any of the above grounds at or before the time of hearing.”
2. Rival submissions of both the parties have been heard and the record perused. The learned Authorised Representative (ld. AR) of the assessee submits that the assessee had availed an unsecured loan purely as a commercial transaction for an urgent need. The assessee availed a loan of Rs. 10,00,000/- from Consultshah Financial Services Private Limited on 09.01.2019. The loan was repaid on 12.02.2019 along with interest, thus the assessee repaid Rs. 11,17,800/-. Such facts were brought to the notice of the Assessing Officer during the assessment proceedings. The Assessing Officer, despite recording such facts, disregarded the same and added the credit as well as debit entries of Consultshah Financial Services Private Limited. The learned AR of the assessee submits that, on a similar set of facts, the SMC Bench of this Tribunal, in the assessee’s relative’s case in Bhavana Suresh Chauhan, deleted a similar addition. The learned AR further submits that once the loan has been repaid, no addition is warranted on account of the loan transaction in the same assessment year.
3. On the other hand, the learned Senior Departmental Representative (ld. DR) for the Revenue supported the order of the lower authorities. The learned Senior DR for the Revenue submits that the reopening was based on the information that Sanjay Shah, CA, was indulging in providing accommodation entries from dummy entities. The assessee is one of the beneficiaries of such entries.
4. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the case of the assessee was reopened on the basis of information that the assessee was one of the beneficiaries of accommodation entries availed through Sanjay Shah. The Assessing Officer, after recording the reasons, proceeded with the reassessment. We find that, in response to the show cause notice issued by the Assessing Officer, the assessee, in its reply dated 07.04.2023, contended that the loan taken by the assessee has been repaid in the same financial year. The assessee also furnished a copy of the ledger account and confirmation of the lender. The Assessing Officer, instead of appreciating or making any comment on the reply of the assessee, made an addition under section 68 of Rs. 20,11,178/-, being the credit entry as well as the debit entry.
5. We find that, on a similar set of facts, in the case of the assessee’s family member, a similar addition was deleted by the SMC Bench of the Mumbai Tribunal in Bhavana Suresh Chauhan vs. ITO in ITA No. 7290/Mum/2025 dated 29.01.2026. Thus, following the principle of consistency and keeping in view the fact that the assessee has already repaid the entire loan amount, no addition was warranted.
6. In the result, appeal filed by assessee is allowed.
Order was pronounced in open court on 17/08/2026
