Entry Operator Link Alone Cannot Make Unsecured Loan Bogus: ITAT Delhi

DCIT Vs Kamadgiri Exports Pvt. Ltd. (ITAT Delhi)

An Entry Operator’s Reputation Cannot Turn Every Repaid Loan into Bogus Income: Delhi ITAT

Search Information Led to Reassessment

In DCIT v. Kamadgiri Exports Private Ltd. (ITA Nos. 4117 and 4118/Del/2026), the Delhi Income Tax Appellate Tribunal considered whether an unsecured loan could be added under section 68 because the lender was allegedly controlled by a known accommodation entry operator. The Revenue’s appeals concerned assessment years 2019–20 and 2020–21.

A search conducted on 17 November 2021 in the Galaxy Group and entry operator cases led the Department to information suggesting that Kamadgiri Exports had received an accommodation entry from Albatross Homes Private Ltd. For AY 2019–20, the transaction under examination was a ₹2 crore unsecured loan. The Assessing Officer treated the loan as unexplained, relying substantially on material concerning Himanshu Verma, who was said to control the lender and had been identified as an entry provider in earlier proceedings.

The Assessing Officer also added ₹6 lakh as presumed commission for obtaining the alleged entry, calculated at 3% of the loan, and ₹61,274 relating to interest paid to the lender. The CIT(A) deleted these additions. The Revenue carried the matter to the Tribunal.

The Documents Behind the Loan

The assessee’s case was that it had taken a genuine business loan and subsequently repaid it through banking channels. It furnished the lender’s PAN, confirmation, audited balance sheet, bank statements and ledger records. The records also showed payment of interest and repayment of the principal.

The assessee argued that these documents established the lender’s identity and creditworthiness and the genuineness of the transaction—the three matters central to an explanation under section 68. It maintained that a general allegation against the person associated with the lending company could not replace an examination of this particular loan.

The Department’s position was that the lender was a dummy entity associated with an accommodation entry operator. It relied on the search findings and the Assessing Officer’s conclusion that the transaction was not genuine. Thus, the dispute was not simply whether money had moved through a bank account. It was whether the evidence concerning this borrower and lender had been displaced by material showing that this loan was an accommodation entry.

Why the Tribunal Upheld Deletion of the Loan Addition

The Tribunal found that the CIT(A) had correctly examined the lender’s identity and creditworthiness and the genuineness of the loan. It noted the banking channel receipt, the lender’s confirmation, the bank and ledger records, the interest payments, and the subsequent repayment. On that record, it held that the assessee had discharged its burden under section 68.

The Bench followed its coordinate bench’s decision in Real Innerspring Technologies (P.) Ltd., which had considered loans from companies associated with alleged entry operators. The principle applied was that each transaction must be evaluated on its own evidence. The involvement of a person alleged to provide accommodation entries does not, by itself, establish that every loan involving an associated company is fictitious.

Repayment was an important fact, but the decision should not be read as saying that repayment alone proves genuineness. The Tribunal considered it along with the confirmation, financial records, movement of funds through bank accounts and payment of interest. The Revenue had not persuaded the Tribunal to disturb the CIT(A)’s assessment of that combined evidence.

Presumed Commission and Interest Also Deleted

Once the CIT(A) found the loan genuine, the related additions also fell for consideration. The ₹6 lakh commission addition rested on the assumption that the assessee had paid 3% to obtain an accommodation entry. As the CIT(A) recorded, the Assessing Officer had not identified evidence of an actual commission payment by this assessee or a cash trail connected to this transaction. A general account of how entry operators charge commission did not establish expenditure in this particular case under section 69C.

The ₹61,274 interest addition was likewise deleted. The CIT(A) found that the interest related to the loan accepted as genuine and had been paid through verifiable banking channels with TDS compliance. The Tribunal declined to interfere with the CIT(A)’s findings and dismissed both Revenue appeals.

Author’s Comment

The ruling draws an important line between investigation information and proof of a specific addition. Information from a search can justify inquiry into a lender. The resulting assessment, however, must address the documents and transactions of the assessee under examination. A lender’s association with an alleged entry operator is a serious circumstance, but it does not relieve the Assessing Officer of evaluating the particular loan and explaining why its supporting evidence is unreliable.

The same discipline applies to an estimated commission. Before invoking section 69C, there must be a basis for finding that the assessee actually incurred expenditure. Applying a customary percentage to a loan alleged to be bogus does not, without a transaction-specific link, establish payment. Here, the documented receipt, interest and repayment of the loan, together with the absence of evidence of commission expenditure, led the Tribunal to uphold the CIT(A)’s deletions.

Delhi ITAT, order dated 29 September 2026.  

Cases Discussed

• Real Innerspring Technologies (P.) Ltd. Vs ACIT, (2025) 174 taxmann.com 1130 (ITAT Delhi) — Followed. The Tribunal reproduced and followed the coordinate Bench’s reasoning that merely because an operator managed the affairs of lending companies, all transactions could not be labelled non-genuine. Every transaction had to be evaluated on its own merits. The earlier decision also considered receipt and repayment of loans through banking channels with interest.
• DCIT Vs Shri Mahavir Pulses Pvt. Ltd., ITA Nos. 8156 & 8158/Del/2025 (ITAT Delhi), order dated 05.08.2026 — Relied upon by the assessee as a decision stated to involve the same facts on record and supporting deletion of the impugned additions.
• Dazzling Construction (P.) Ltd. Vs ITO, (2025) 172 taxmann.com 860 (ITAT Delhi) — Relied upon by the assessee as another coordinate Bench decision stated to support its case on the same factual issue.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. The Revenue has filed appeals against the order of the Learned Commissioner of Income Tax (Appeals)-29, New Delhi [“Ld. CIT (A)”, for short] dated 10.12.2025 for the AYs 2019-20 and 2020-21.

2. At the time of filing of appeal, the Registry has pointed out a defect that both the appeals are time barred by 15 days. In response thereof, the ld. DR for the Revenue submitted that there was a reasonable cause for the delay in filing the appeal. Accordingly, he prayed that the delay in filing the appeals be condoned. We have heard both the counsels on the issue of condonation of delay. In our considered opinion, there was a reasonable cause for the delay in filing the appeals. Therefore, we condone the delay in filing the appeals before the Tribunal.

3. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the Revenue’s appeal being ITA No.4117/Del/2026 for AY 2019-20 as lead case to adjudicate the issues under consideration.

4. At the time of hearing, ld. AR of the assessee with the permission of the Bench brought to our notice relevant facts on record and his submissions as under. He submitted that the case of the assessee was reopened by the AO for AY 2019-20 on the basis of a search action u/s 132 of the Income-tax Act, 1961 (for short ‘the Act’) conducted on 17.11.2021 on Galaxy Group, entry providers – Shri Deepak Agarwal and Shri Himanshu Verma. The documents seized during the search contains information which show that the assessee is the beneficiary of accommodation entry to the tune of Rs.2,00,00,000/- from the entities controlled by above stated entry operators. It was mentioned therein that the assessee had received accommodation entry amounting to Rs.2,00,00,000/- from one concern, from M/s Albatross Homes Private Ltd., which was controlled and operated by Shri Himanshu Verma during the relevant year.

5. Accordingly, after taking approval from the competent authority, notice u/s 148 of the Income-tax Act, 1961 (for short ‘the Act’) dated 20.03.2024 was issued and duly served on the assessee by the Assessing Officer. In response, assessee filed return of income. Accordingly, notices u/s 143(2) of the Act was issued and served upon the assessee. Subsequently, notices u/s 142(1) of the Act were issued to the assessee by the AO on various dates requiring the assessee to explain the genuineness of transaction with M/s Albatross Homes Private Ltd.. In response to the same, the assessee submitted that it has received unsecured loan of Rs.2,00,00,000/- from M/s Albatross Homes Private Ltd. and subsequently paid back the same. Assessing Officer observed that Shri Himanshu Verma was subject to search action u/s 132 of the Act in past twice i.e. by Investigation Wing, Delhi and Investigation Wing, Noida on 29.03.2012 and 13.04.2017 respectively and in appeal order dated 26.12.2014, the ld. CIT (A) 27, New Delhi stated that Shri HImanshu Verma is an accommodation entry provider and the same has been upheld by the ITAT in his order dated 15.03.2019 that Shri Himanshu Verma is an accommodation entry provider. In view of the facts noted, the AO concluded that genuineness of the unsecured loan transaction taken by the assessee from M/s Albatross Homes Private Ltd., which is a non-descript entity, is not proved and accordingly, the AO completed assessment proceedings u/s 147 of the Act by making addition of Rs.2,00,00,000/- u/s 68 of the Act along with disallowance of Rs.6,00,000/- on account of commission (3% 0f Rs.2,00,00,000/-) being not providing documentary evidence u/s 69C and Rs.61,274/- towards interest being unexplained expenditure u/s 69C of the Act.

6. Aggrieved by the aforesaid order, the assessee preferred an appeal before the ld. CIT (A)-29, New Delhi and filed detailed submissions. Ld. CIT (A), after going through the submissions of the assessee and the assessment order, allowed the appeal filed by the assessee and also relied on various decisions, one of which is ITAT, Delhi Bench in the case of Real Innerspring Technologies (P.) Ltd.. The ld. CIT(A) has given his findings in Paras 5 to 5.31 of his order. For the sake of brevity, the relevant findings in para 5.20 to 5.31 of the ld. CIT (A) is reproduced as under :-

“5.20 To conclude, in view of the foregoing discussion, it can be said that the appellant has satisfied all tests identity, creditworthiness and genuineness of the unsecured loan of Rs.6,00,00,000/- availed from lender i.e. M/s. AHPL. The said loan has also been repaid subsequently via banking channels by appellant. This company has paid taxes and declared profit in the relevant assessment year. It is also to be noted that in income tax every transaction shall be seen separately, labelling a company as paper entity must be backed by cogent evidence as discussed in preceding paras. The investigation report has given general lead about the companies controlled by entry operator. The AO ignored very crucial fact that this lending company has accumulated capital and reserves carried over from previous years. Without refuting the genuineness of capital and reserve and in lack of evidence of movement of unaccounted money from appellant’s coffer to entry operator’s coffers, it is not possible to held transactions as an accommodation entry in such circumstances.

5.21 In view of the detailed discussion above, I am of the considered view that the addition of unsecured business loan received by appellant amounting to Rs.2,00,00,000/- u/s 68 of the Act is made without cogent or circumstantial evidence and hence not sustainable on facts as well as in law and hence, the same is liable to be deleted. As such, this part of grounds of appeal is allowed.

5.22 Further, contention regarding addition of Rs.6,00,000/- u/s 69C of the Act on account of presumptive commission paid for availing accommodation entries to the tune of Rs.2,00,00,000/- from M/s AHPL.

5.23 The appellant contended that the so-called commission addition (3% of unsecured loan amount) is wholly arbitrary. No evidence, direct or circumstantial, of any actual payment was found on record. The AO merely presumed a notional commission solely because of the perception that the transaction was an accommodation entry. Law and jurisprudence require tangible corroboration for such additions, and additions based only on presumption/percentage are unsustainable.

5.24 I have perused the assessment order and found that AO has drawn following presumption for making addition u/s 69C of the Act.

i) The loan has been received from the alleged paper entities controlled by entry operator.

ii) It is admitted fact by entry operator that he takes commission of 3% for providing accommodation entry.

iii) It is also fact that AO has not brought anything in the assessment order about the transaction, whether same was confronted to director of paper entity or entry operator.

iv) The AO has not brought any evidence of cheque-cash nexus in the assessment order.

5.25 Before going further to the merit of case, I am reproducing section 69C as under:

Section 69C – Unexplained Expenditure, etc,

“Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof. as the case may be, may be deemed to be the income of the assessee for such financial year.”

5.26 It is established legal position that for invocation of section 69C, it is mandatory for the AO to have concrete evidence of actual expenditure incurred by the assessee. Mere modus operandi statements about general practices by entry operators do not suffice as direct proof of commission payment in the specific case at hand.

5.27 The Hon’ble ITAT has repeatedly held that additions u/s 69C cannot be sustained based on unverified or generalized statements, especially if the assessee was not provided cross-examination or if there is no corroborative evidence to establish that commission was, in fact, paid for the entries involved.

5.28 The onus lies on the AO to demonstrate with evidence (such as statements, seized documents, or admissions specific to the assessee) that unexplained expenditure has actually been incurred. In the absence of such evidence, addition u/s 69C is mere assumption and against principles of natural justice.

5.29 Even if entry operators generally admit to taking commission, unless there is a statement or material indicating that the appellant in this assessment year paid any such commission, the addition is unsustainable. Seized materials or statements describing industry-wide modus operandi are insufficient for a 69C addition without direct nexus to the specific transaction or assessee, Moreover, in the instant case the AO failed to bring circumstantial evidence for generation of cash in the assessment order. This fact may be elaborated with following:

i) AO did not bring anything in the assessment order which can substantiate that the assessee/ appellant is involved in some other activity where he can generate cash for such expenditure.

ii) The AO failed to disturb profit and loss account of the appellant Company to prove see here assessee claimed bogus expenses and cash have been generated by way of these bogus expenses.

5.30 Therefore, from the above discussion it is amply clear that AO failed to bring any evidence of cash expenditure or even circumstantial evidence of unaccounted cash generation by appellant to substantiate the presumption that the appellant must have spent such expenditure for alleged accommodation entry. The addition made by the AO of Rs.6,00,000/- was on mere presumption without any evidence of expenditure cogent or circumstantial. Such addition lacks merit, hence, cannot be sustained and is hereby delete d. Therefore, this part of grounds of appeal is allowed.

5.31 Also, the other contention of appellant under this ground is regarding addition of Rs.61,274/- on account of treating interest paid to the lender i.e. M/s AHPL as unexplained expenditure by AO, Since the addition made u/s 68 pertaining to the loan availed from the said entity is established as genuine business borrowings in the adjudications above, accordingly consequential interest paid through verifiable banking channels and after duly following provision of TDS, is also allowable expense. As such, the AO is directed to delete the addition made u/s 69C on this issue and this part of grounds of appeal is also allowed.”

7. Aggrieved Revenue is in appeal before us raising following grounds of appeal :-

“a. Whether on the facts and under the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of u/s 68 of the I.T. Act, 1961 on account of accommodation entry amounting to Rs.2,00,00,000/- from the entity M/ s Albatross Homes Private Limited despite of the fact, that the entity M/s Albatross Homes Private Limited is a accommodation entry provider associated ,controlled and managed by Shri. Himanshu Verma the entry provider.

b. Whether in law the Ld. CIT(A) was justified in deleting the addition u/s 69C of the LT. Act, 1961 aggregating to Rs.6,61,274/- which is consequential to the receipts from the entity M/s Albatross Homes Private Limited.

c. The Ld. CIT (A) did not appreciated the fact that the findings, of search proceedings which establish that the entity M/s Albatross Homes Private Limited was indulged in accepting huge cash out of books, booked bogus expenses, and taking bogus accommodation entries aggregating ‘routing the unexplained money” in parallel economy through the entry provider Shri. Himanshu Verma willingly to evade taxes as per the requirement of beneficiaries. Hence, the decision on the issue, of the CIT (A) is not acceptable in the case and further appeal is recommended on this ground.

d. The Ld. CIT(A) has not appreciated the fact that Shri Himanshu Verma is only entry provider and willfully involved in the syndicate for organized accommodation entries through ‘there associated entities despite of many search proceedings conducted on them. hence: these entities are’ habitually involved in the racket without any fear of Law in force.

e. The Ld, CIT(A) as well as ITAT has upheld/ confirmed that these entities are accommodation entry operator.

f. That the case falls under exception “h’:’ of Para 3 of the Circular No.5/2024 dated 15.03.2024.

g. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law.”

8. At the time of hearing, ld. AR of the assessee submitted that reopening of assessment u/s 147 is bad in law and void ab initio and further submitted that ld. CIT(A) rightly deleted the additions made by the AO. The reopening was initiated based on generalized third-party information without any independent application of mind or tangible material relating specifically to the assessee. He further submitted that reassessment based on borrowed satisfaction and constitutes mere change of opinion, the AO acted mechanically based on third-party statements and no inquiry was conducted to corroborate allegations with the assessee’s case. He submitted that each case is separate case and the addition made merely on the basis of general statement of third party – Mr Himanshu Verma and the name of assessee was no-where mentioned by Mr Himanshu Verma.

9. He further submitted that there is violation of principles of natural justice as cross-examination was not provided. He submitted that the AO relied upon statements of third parties without granting the assessee opportunity to cross-examine them, which vitiates the assessment.

10. Ld. AR further heavily relied on his submissions that loan was repaid in full. He submitted that the loan taken from M/s Albatross Homes Private Ltd. amounting to Rs.2,00,00,000/- in question was fully repaid by the assessee. He submitted that if a loan amount which was taken previously has been repaid cannot be construed as unexplained loan and added to income of the assessee. In this regard, he relied on various judgments.

11. He further submitted that identity, creditworthiness and genuineness of loan taken from M/s Albatross Homes Private Ltd. amounting to Rs.2,00,00,000/- proved by the assessee. He submitted that the transaction was complete, bank-confirmed, and documented, leaving no outstanding or suspicious element. He submitted that during the course of assessment proceedings, assessee has filed the documents i.e. confirmation of account, copy of bank statement for receipt and payment of loan, PAN, audited balance sheet of M/s Albatross Homes Private Ltd., hence the assessee proved beyond doubt the identity and creditworthiness of party and discharged its onus. He accordingly submitted that the ld. CIT (A) rightly deleted the addition.

12. He further submitted that ld. CIT (A) rightly deleted the interest of Rs.61,274/- which is erroneous, excessive and unjustified. He submitted that AO has disallowed interest alleging that the same pertains to non-genuine loans, However, the assessee had repaid the loan much and had submitted all supporting documentary evidence, including confirmations, bank statements, and interest computation. Accordingly, the said interest expenditure was incurred wholly and exclusively for the purpose of business and is allowable, which the ld. CIT (A) rightly allowed.

13. He further submitted that ld. CIT (A) also deleted the addition of Rs.6,00,000/- made u/s 69C by the AO towards commission paid for procuring accommodation entries without examining the modus operandi, the standard commission rate (3%) established in Investigation Wing Reports and the judicial recognition of the same in cases of this group. He submitted that deletion of the primary addition being incorrect, deletion of consequential addition u/s 69C is equally unsustainable and the same is rightly deleted by the ld. CIT (A).

14. He further submitted that the assessee’s books were never rejected nor any specific defect pointed out. The addition was made arbitrarily despite the existence of audited books of accounts. Accordingly, in view of his submissions and decisions relied upon, he pleaded that the order of the ld. CIT (A) may be upheld who has passed a well-reasoned and detailed order. In this regard, ld. AR submitted that on the same facts on record, the ITAT had decided the issue in favour of the assessee in the following cases :-

(i) Real Innerspring Technologies (P.) Ltd. vs. ACIT (2025) 174 taxmann.com 1130 (Delhi-Trib.);

(ii) DCIT vs. Shri Mahavir Pulses Pvt. Ltd. in ITA No.8156 & 8158/Del/2025 order dated 05.08.2026; and

(iii) Dazzling Construction (P.) Ltd. vs. ITO – (2025) 172 taxmann.com 860 (Delhi-Trib.).

15. On the other hand, ld. DR of the Revenue after relying on the assessment order submitted that the conditions of section 68 was not fulfilled in the transactions carried on by the assessee with the bogus and dummy company and all these facts were found during the search conducted in the case of Shri Himanshu Verma. He heavily relied on the findings of Assessing Officer.

16. Considered the rival submissions and material placed on record. We observed that ld. CIT (A) has rightly deleted the addition of unsecured loan u/s 68 of the Act on the basis of creditworthiness, genuineness of transaction and identity of the lenders. Various Courts have held that to determine the creditworthiness of the lenders, earning capacity is one of the criteria and ability to arrange and make the payment is relevant. We observed that lender has made the payment through banking channel and the lender has filed the confirmations of the same and assessee has brought to our notice bank statements and ledger account for payment of interest as well as repayment of loan subsequently. The above details clearly show that the assessee has taken unsecured loans and also paid the relevant interest and returned the relevant loan subsequently.

17. We observed that burden of the assessee stands discharged. From the records, it is clear that during the instant assessment year, assessee received unsecured loan of Rs.2,00,00,000/- from M/s Albatross Homes Private Ltd. through banking channel vide account payee cheque and further the assessee has led complete evidence. Thus, we observed that the assessee has discharged the burden u/s 68 of the Act by establishing identity of the creditors, creditworthiness of the creditors and genuineness of the transaction.

18. We observed that the similar issue was considered by the coordinate Bench in the case of Real Innerspring Technologies (P) Ltd. (supra) and held as under :-

“10. Considered the rival submissions and material placed on record. We observed that the AO has initiated reassessment proceedings on the basis of information received from the Investigation Wing and search proceedings in the case of Shri Verma. It is brought on record that these two companies were found to be controlled by the accommodation entry providers, Shri Verma and Shri Anil Agarwal. Merely because the assessee has taken the unsecured loan from the companies controlled by them, the addition was made rejecting the various supporting documents provided by the assessee relating to transactions.

11. In our considered view, the additions were made only on the basis of alleging that the loan taken by the assessee from the above said two companies are only accommodation entries and assessee’s own money was routed through these companies with the help of accommodation entry providers. On careful note, the accommodation entries are taken which will remain in the books of account and they will ultimately written off over the period of time. These loans were normally not repaid. In the given case, it is brought to our notice that the assessee has received the unsecured loan through the banking channel and repaid thru the banking channel as under :-

12. From the above, it is clear that the assessee has repaid the loan even before the assessment was reopened. When the assessee takes the loan and repaid along with the interest clearly shows that the transactions are genuine. By returning the loan, the assessee has only utilised the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs and all the transactions cannot be labelled as non-genuine. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. Therefore, in this case, the assessee has submitted all the documents in support of the transaction before the AO and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion. Therefore, we are inclined to allow the grounds raised by the assessee.

13. In the result, appeal filed by the assessee is allowed.”

19. In view of the above and respectively following the aforesaid decision, we observed that the ld. CIT (A) has rightly appreciated the facts and material relying on various decisions. Accordingly, we are inclined not to disturb the findings of the ld. CIT (A) and dismiss all the grounds raised by the Revenue.

20. In the result, appeal filed by the Revenue for AY 2019-20 is dismissed.

21. Since the facts in AY 2020-21 are exactly similar to Assessment Year 2019-20, our above findings in AY 2019-20 are applicable mutatis mutandis in Assessment Year 2020-21. Accordingly, the appeal filed by the assessee for AY 2020-21 is dismissed.

22. In the result, both the appeals filed by the Revenue are dismissed.

Order pronounced in the open court on this 29th day of September, 2026.