₹12.55 Crore Section 68 Loan Additions Deleted; Revenue Appeals Dismissed by ITAT Ahmedabad

DCIT Vs Shah Asit Surendrabhai HUF (ITAT Ahmedabad)

Section 68 Addition Cannot Rest on Third-Party Suspicion When Loan Records and Repayment Support Genuineness
₹12.55 Crore Section 68 Loan Additions Deleted; Revenue Appeals Dismissed by ITAT Ahmedabad

Background of the Case

The Revenue challenged the deletion of additions under Section 68 of the Income-tax Act, 1961, concerning unsecured loans received by an HUF engaged in the Shroff/finance business.

The assessee had borrowed ₹11 crore during Financial Year 2017-18 and ₹1.50 crore during Financial Year 2018-19 from Aneri Fincap Limited.

The Assessing Officer received information from the Investigation authorities following search proceedings in the One World Group cases. According to the Department, Aneri Fincap Limited was controlled by Rajesh G. Mehta and was a paper company engaged in providing accommodation entries.

Relying on this information, the Assessing Officer treated the loans as unexplained cash credits. The additions challenged in the Revenue’s appeals were ₹11,05,06,713 for AY 2018-19 and ₹1.50 crore for AY 2019-20.

Assessee Produces Loan and Banking Records

The assessee maintained that the transactions were genuine loans received through normal banking channels, recorded in its books and disclosed in its audited accounts.

It furnished ledger accounts and bank statements supporting the receipts. It also demonstrated that the entire principal amount of ₹12.50 crore was subsequently repaid through banking channels.

The repayments were made on various dates between 17 June 2019 and 20 November 2019, during Financial Year 2019-20.

The CIT(A) also noted the absence of cash deposits or withdrawals at the time of receipt or repayment of the loans.

These circumstances were relied upon to contest the allegation that the credits represented the assessee’s own unaccounted money routed through an accommodation-entry provider.

CIT(A) Finds No Independent Evidence Against the Assessee

The CIT(A) deleted the additions after examining the documentary evidence and the assessment findings.

It held that, once the assessee furnished the primary evidence within its control, the Assessing Officer was required to rebut the explanation through enquiry and supporting material.

The CIT(A) referred to the Gujarat High Court’s decisions in CIT v. Rohini Builders, 256 ITR 360, and CIT v. Chanakya Developers, (2014) 43 taxmann.com 91, while examining the evidentiary burden under Section 68.

It also observed that general third-party statements, without an assessee-specific reference or corroboration, did not establish that the particular loan was non-genuine.

The alleged failure of Rajesh G. Mehta to respond to a notice under Section 133(6) arose in third-party proceedings. The CIT(A) considered that this failure could not, by itself, be used against the assessee.

Suspicion Could Not Substitute Investigation

The CIT(A) found an inconsistency in the assessment approach: the Assessing Officer had stated that deeper investigation was required but nevertheless made a substantive addition without conducting that investigation.

It further noted that the excess amount included in the AY 2018-19 addition was not supported by identification of corresponding credits or a reasoned computation.

On the overall facts, the CIT(A) concluded that the additions rested on borrowed information, suspicion and presumptions, rather than tangible evidence disproving the assessee’s explanation.

The Revenue challenged these findings before the Tribunal and relied on the assessment orders.

Repayment Supports Genuineness of the Loans

The Tribunal found that the receipt of loans through banking channels, their disclosure in audited accounts and their subsequent repayment through banking channels were matters of record.

It relied on CIT v. Ayachi Chandrashekhar Narsangji, (2014) 42 taxmann.com 251 (Guj.). In that case, the Gujarat High Court had upheld acceptance of a loan as genuine where repayment in the immediately following financial year had been accepted by the Department without further probing.

The Tribunal treated repayment as strong evidence supporting genuineness, considered alongside the other facts.

It also found that the suspicion arising from the search concerning Rajesh G. Mehta was not supported by facts creating a valid doubt about these particular loan transactions. Accordingly, it declined to interfere with the CIT(A)’s decision.

No Remand Report Required Without Additional Evidence

The Revenue separately argued that the CIT(A) had granted relief on documents furnished during appellate proceedings without obtaining a remand report.

The Tribunal rejected this objection after examining the assessment order and the acknowledgements of submissions dated 30 December 2022 and 28 February 2023.

These records established that the relevant documents had already been submitted during assessment proceedings.

No additional evidence had been filed before the CIT(A). Therefore, the CIT(A) was under no obligation to seek a remand report on that basis.

Decision and Author’s Comments

The Tribunal dismissed both Revenue appeals, upholding deletion of the Section 68 additions.

The ruling rests on the combined evidentiary record: documented loan receipts, audited disclosures, banking records, repayment and the absence of transaction-specific rebuttal.

Repayment was treated as a strong indicator, rather than an automatic answer to every Section 68 enquiry. The decisive deficiency was the Department’s failure to connect its general accommodation-entry allegations with evidence disproving the assessee’s particular transactions.

The order also confirms that re-examination of documents already filed during assessment does not become admission of additional evidence merely because the CIT(A) draws a different conclusion from them.

Cases Discussed

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD

The captioned appeals have been filed by the Revenue against the separate orders dated 30-01-2026 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relate to Assessment Years (A.Ys.) 2018-19 & 2019-20. Since the facts, issues and submissions are identical in both the cases, ITA Nos: 1091 & 1092/Ahd/2026 Assessment Years: 2018-19 & 2019-20 they have been heard together and are disposed of by this common order.

2. The Revenue has raised the following Grounds of Appeal:

Asst. Year 2018-19

1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 11,05,06,713/- made under section 68 of the Act, without appreciating the fact that the assessee had availed accommodation entries by transacting with M/s Aneri Fincap Ltd. one of the entities controlled and managed by Shri Rajesh G. Mehta, which has been identified to be a paper company and not doing any genuine business activity and is only engaged in providing bogus accommodation entries to various beneficiaries.

2. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition made on the basis of documents submitted by the appellant during the appellate proceedings without calling for remand report from the AO to verify the same and allowing the appeal merely on the fact that transactions have been done through the banking channel without cogent supporting documents.

3 The appellant craves leave to amend OR alter any ground OR add a new ground, which may be necessary.

4 It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the assessing officer be restored.

Asst. Year 2019-20

1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,50,00,000/- made under section 68 of the Act, without appreciating the fact that the assessee had availed accommodation entries by transacting with M/s Aneri Fincap Ltd. one of the entities controlled and managed by Shri Rajesh G. Mehta, which has been identified to be a paper company and not doing any genuine business activity and is only engaged in providing bogus accommodation entries to various beneficiaries.

2. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition made on the basis of documents submitted by the appellant during the appellate proceedings without calling for remand report from the AO to verify the same and allowing the appeal merely on the fact that transactions have been done through the banking channel without cogent supporting documents.

3. The appellant craves leave to amend OR alter any ground OR add a new ground, which may be necessary.

4. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the assessing officer be restored.

2.1. The assessee is a Hindu Undivided Family (HUF) engaged in the business of Shroff/Finance. The assessee had taken unsecured loan of Rs.11,00,00,000/- in Financial Year 2017-18 relevant to Asst. Year 2018-19 and Rs.1,50,00,000/- in Financial Year 2018- 19, relevant to Asst. Year 2019-20, from Aneri Fincap Ltd. The Assessing Officer, based upon information received from DCIT, Central Circle-7(2), Mumbai about search and seizure operation on One World Group of cases, treated the loans taken by the assessee from Aneri Fincap Ltd. as unexplained cash credit and added the same u/s. 68 of the Act to the assessee’s income for the Asst. Years 2018-19 and 2019-20.

3. Aggrieved by this, the assessee challenged the orders in appeal before the Ld. CIT(A). The observations and conclusions of the Ld. CIT(A), NFAC in respect of Asst. Year 2018-19 are reproduced below. It is pertinent to mention that the same submissions were considered and same conclusions were drawn by the Ld. CIT(A) for Asst. Year 2019-20. The Ld. CIT(A) has made elaborate noting about the factual and legal position pointed out by the assessee. The significant points are; (i) the transaction was a genuine loan received through normal banking channels duly recorded in the books of account and disclosed in the audited balance sheet, (ii) the said loan was fully repaid in the succeeding year through banking channels and there was complete absence of any cash deposit or withdrawal either at the time of receipt or repayment of the said loan. The Ld. CIT(A) also noted that the allegation about failure of one Mr. Rajesh G. Mehta in response to notice u/s 133(6) could not be held against the assessee in this case because the said failure by Shri Rajesh G. Mehta was in third party proceedings and not in the assessee’s own case. After recording all the above, the Ld. CIT(A) concluded as under:

“6.4.3 I have carefully considered the assessment order, the grounds of appeal and the detailed written submissions filed by the appellant. The core issue that arises for determination is whether the unsecured loan credited in the books of the appellant has been rightly treated as an accommodation entry under section 68 of the Act.

6.5.1 The legal position governing section 68 is well settled. The provision can be invoked where the assessee offers no explanation regarding the nature and source of a credit or where the explanation offered is found to be unsatisfactory on the basis of material on record. Where the assessee furnishes primary evidence within its control, the initial onus stands discharged and the burden shifts upon the Assessing Officer to rebut the same through enquiry and evidence. In this regard, reference may be made to the decision of the Hon’ble Gujarat High Court in CIT v. Rohini Builders (2002) 256 ITR 360 (Guj), wherein it has been held that once the assessee has established the identity of the creditor and the transaction through banking channels, the addition cannot be sustained merely because the creditor does not respond to notices issued by the Assessing Officer. The Hon’ble Gujarat High Court in Commissioner of Income-tax-l v. Chanakya Developers [2014] 43 taxmann.com 91 (Guj) has further affirmed that where the assessee places on record primary evidence in respect of loan transactions, an addition under section 68 cannot be sustained merely on the basis of suspicion or conjectures, unless the Assessing Officer brings on record material to disprove the explanation offered. The reliance placed on general third-party statements, without any assessee-specific reference or corroboration, does not by itself establish that the transaction in question is non-genuine. The Hon’ble Supreme Court in Andaman Timber Industries v. CCE (2015) 62 taxmann.com 3 (SC) has held that where a statement of a third party is relied upon, denial of opportunity of cross-examination amounts to a serious flaw, rendering such material unreliable. The assessment order does not record any finding that the banking transactions are sham or fictitious nor has the character of the transaction been disproved by reference to any tangible material.

6.5.2 The assessment order also suffers from internal inconsistency. On the one hand, it records that further deep investigation is required and on the other hand proceeds to make a substantive addition without carrying out such investigation. Such an approach undermines the very basis of the addition. Further, the quantification of the addition itself is unsupported by reasoning or identification of corresponding entries in the books of account. An addition under section 68 must be confined to specific credits found in the books, which has not been demonstrated in respect of the excess amount added.

6.5.3 On an overall consideration of the facts and circumstances of the case, I am of the considered view that the Ld. A.O. has failed to establish that the unsecured loan credited in the books of the appellant represents an accommodation entry or the appellant’s own unaccounted income. The addition has been made on the basis of suspicion, borrowed information and presumptions without independent enquiry or tangible evidence. Accordingly, the addition of Rs. 11,05,06,713/- made under section 68 read with section 115BBE of the Act is deleted. This ground of appeal is thus allowed.”

4. Per contra Ld. D.Rs. Shri Kiran Unavekar, CIT-DR and Shri Amit Pratap Singh Sr. D.R. have placed reliance on the assessment orders for the two years.

5. The Ld. A.R. Shri Dipak R. Thakkar has pointed out to the Ledger account of Aneri Fincap Ltd. from 1st April 2017 to 31st March 2018 and 1st April 2018 to 31st March 2019 to show the loans of Rs. 11,00,00,000/- and Rs. 1,50,00,000/-. The Ld. A.R. has also invited our attention to the Ledger account from the period 01-04-2019 to 31-03-2020 to show that the entire loan of Rs. 12,50,00,000/- was repaid through banking transactions on various dates from 17 06 2019 to 20 11 2019. He has also produced statements of the Cosmos Co-operative Bank Ltd. for the relevant periods to demonstrate that the loans were received through banking channels and also that the loans were repaid through banking channels.

6. We have carefully considered the facts of the case and the submissions of both the parties. We notice that it is a matter of record that the assessee has obtained unsecured loan through banking channels, disclosed the same in its audited account and has eventually repaid the same loans through banking channels.

7. It has been judicially recognized that repayment of loan is a good indicator of the genuineness thereof. The Hon’ble Gujarat High Court in the case of CIT vs Ayachi Chandrashekhar Narsangji, [2014] 42 taxmann.com 251 held that where the assessee had repaid the loan to the lender in the immediate next financial year and the department has accepted the repayment of loan without probing into it, the genuineness of the loan was rightly accepted by the CIT(A) and the ITAT and no question of law arises against the order of the ITAT.

8. While the repayment of unsecured loans is a strong evidence of genuineness thereof, as held by the Hon’ble High Court, it is also relevant in this case that the suspicion that arose from the search in the case of Rajesh G. Mehta is not founded on any facts that can create a valid doubt on the genuineness of the loan transactions undertaken by the assessee with a company controlled by the said Mr. Rajesh G. Mehta. We therefore find no reason to interfere with the decision of the Ld. CIT(A).

9. The Revenue has raised, in both the appeals, a ground about the error allegedly committed by the CIT(A) by not seeking a remand report from the A.O. We note, from the Assessment Order itself, that the Assessee had submitted all the relevant details at the stage of assessment and the A.O. has noted the same in the assessment order. In the Paper Book filed before us, the assessee has filed the Acknowledgement dated 30-12-2022 and 28-02-2023 clearly listing the documents submitted during assessment. There was no additional evidence filed before the CIT(A) and therefore the CIT(A) was under no obligation to seek a remand report. This ground is dismissed.

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

This Order is pronounced on 12/10/2026