Shriganesh Kirana Pvt. Ltd. Vs ACIT (ITAT Delhi)
Entry Operator’s Shadow Cannot Erase a Genuine Loan: ₹1.40 Crore Addition Deleted
Background: Search Information Triggered Reopening
The dispute concerned Assessment Year 2020-21. The assessee company carried on wholesale trading in kirana items, dry fruits and chemicals.
Its assessment was reopened on the basis of information arising from a search conducted on the Galaxy Group and alleged accommodation entry providers Deepak Agarwal and Himanshu Verma.
The information identified the assessee as a beneficiary of an alleged accommodation entry of ₹1,40,00,000 from LVS Financial Services Private Limited, stated to be controlled by the entry operators.
A notice under Section 148 dated 23 March 2024 was issued. In response to subsequent notices, the assessee explained that the amount represented a genuine unsecured business loan, which had subsequently been repaid.
The Assessing Officer rejected the explanation and treated the amount as unexplained cash credit.
Three Adjustments Followed the Accommodation Entry Allegation
The Assessing Officer made an addition of ₹1.40 crore under Section 68 and disallowed interest expenditure of ₹1,44,956 relating to the loan.
A further addition of ₹4,20,000 under Section 69C was made towards alleged commission for arranging the accommodation entry. This was calculated at 3% of the loan amount.
The CIT(A) upheld the additions. The assessee then challenged the appellate order before the Tribunal, raising grounds on both the validity of reopening and the merits of the adjustments.
The Revenue maintained that the lender was a bogus or dummy entity and that the requirements of Section 68 had not been satisfied.
The Assessee Produced a Complete Documentary Explanation
The assessee’s defence extended beyond showing receipt through a bank account.
It furnished the loan agreement, account confirmation, lender’s income-tax return, audited financial statements, bank statements and ledger accounts.
The assessee also placed material showing that LVS Financial Services was an RBI-registered NBFC, incorporated in 1994.
According to the submissions reproduced in the order, the lender had turnover of approximately ₹4.46 crore, taxable income of approximately ₹46.61 lakh, and had paid income tax of approximately ₹12.12 lakh for the relevant year.
The assessee further relied on evidence of interest payments and subsequent repayment of the loan. It contended that the Assessing Officer had not adequately investigated or rebutted this documentary material.
Section 68 Burden Held to Be Discharged
The Tribunal examined the evidence and found that the loan had been received through banking channels, including account-payee cheque, and supported by confirmations.
The bank statements and ledger accounts also demonstrated the payment of interest and return of the loan.
On creditworthiness, the Tribunal observed that the lender’s earning capacity was one relevant factor, while its ability to arrange funds and make the payment also required consideration.
Taking the material together, the Bench expressly held that the assessee had established identity, creditworthiness and genuineness, thereby discharging its burden under Section 68.
The decision therefore rested on the evidence relating to this transaction, rather than merely on the lender’s registration or the use of banking channels.
Earlier Decisions Involving the Lender Supported Relief
The Tribunal referred to DCIT v. Shomit Finance Limited, ITA No.8486/Del/2025, decided on 5 June 2026, concerning the same assessment year.
In that case, deletion of an addition relating to an advance from LVS Financial Services Private Limited had been upheld by the Tribunal.
The Bench also considered Real Innerspring Technologies (P.) Ltd., ITA No.647/Del/2023, decided on 27 March 2025.
That decision emphasised that every transaction must be evaluated on its own merits. Loans supported by documents, received through banking channels and repaid with interest could not be rejected merely because the lenders were allegedly managed by entry operators.
Following these decisions and its own factual findings, the Tribunal granted relief.
Merits Allowed; Reopening Grounds Left Open
The Tribunal allowed grounds 3 to 7, encompassing the loan addition, interest disallowance, alleged commission expenditure and the related tax and interest challenges.
However, the order’s detailed reasoning principally addressed the genuineness of the loan. It did not separately analyse each statutory interest computation.
Since the assessee succeeded on merits, the Tribunal did not adjudicate the reopening grounds, including objections concerning approvals and Section 151A. Those grounds were expressly kept open.
The appeal was allowed.
Author’s Comments
An investigation report may justify scrutiny, but the final addition must withstand the evidence produced for the particular transaction. A general allegation against a lender cannot replace examination of the loan agreement, financial capacity, fund movement and repayment.
The ruling also illustrates the evidentiary importance of repayment with interest. Here, those facts reinforced the documentary explanation accepted by the Tribunal.
Nevertheless, repayment or banking channels should not be presented as automatic protection against Section 68. The relief followed a cumulative finding that all three statutory requirements were satisfied. Likewise, acceptance of another transaction involving the same lender supports the explanation but does not dispense with proof of the transaction under examination.
Cases Discussed
- DCIT v. Shomit Finance Limited, ITA No. 8486/Del/2025, dated 05.06.2026 (ITAT Delhi) — The Tribunal relied on the decision involving an advance from the same lender, LVS Financial Services (P.) Ltd., where deletion of the Section 68 addition had been upheld.
- Real Innerspring Technologies (P.) Ltd. v. ACIT, ITA No. 647/Del/2023, dated 27.03.2025 (ITAT Delhi) — Followed for the principle that each transaction must be evaluated on its merits and cannot be rejected merely because the lender is allegedly controlled by an accommodation-entry operator.
- Capital Infra Projects (P.) Ltd. v. DCIT, ITA Nos. 927 & 928/Del/2019, dated 04.09.2020 (ITAT Delhi) — Relied upon in the assessee’s submissions regarding acceptance of the investor/lender’s creditworthiness in another case.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-30, New Delhi [“Ld. CIT (A)”, for short] dated 14.02.2026 for the Assessment Year 2020-21.
2. Brief facts of the case are, the case of the assessee was reopened by the AO for AY 2020-21 on the basis of High Risk CRIU/VRU information received on the basis of the search u/s 132 of the Income-tax Act, 1961 (for short ‘the Act’) conducted on 17.11.2021 on Galaxy Group, Shri Pradeep Indra Prasad Agrawalla and entry providers, Shri Deepak Agarwal and Shri Himanshu Verma and it was mentioned therein that the assessee is the beneficiary of accommodation entry to the tune of Rs.1,40,00,000/- from the entities controlled by above entry operators. AO observed that assessee had received accommodation entry amounting to Rs.1,40,00,000/- from one concern, M/s LVS Financial Services Private Limited, which was controlled and operated by the aforesaid entry operators, Shri Deepaak Agarwal and Shri Himanshu Verma during the relevant year. Accordingly, after taking approval from the competent authority, notice u/s 148 of the Act dated 23.03.2024 was issued and duly served on the assessee. In response, assessee filed its return of income. Accordingly, notices u/s 143(2) and 142(1) of the Act were 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 as recorded in the assessment order requiring the assessee to explain the amount received from entities controlled by Deepak Agarwal and Himanshu Verma i.e. with regard to the transactions with M/s. LVS Financial Services Private Limited along with documentary evidences to discharge the onus regarding identity and creditworthiness of the source and genuineness of the transaction. In response to the same, the assessee submitted in detail that it has received unsecured loan of Rs.1,40,00,000/- from M/s. LVS Financial Services Private Limited and subsequently paid back the same.
3. The Assessing Officer observed that Shri Himanshu Verma was held to be accommodation entry provider in the order passed by the Ld. CIT(A)-27, Delhi and this order of CIT(A)-27 was upheld by Delhi Bench of ITAT vide their order dated 15.03.2019. In view of the facts noted, the AO concluded that the unsecured loan transaction taken by the assessee with M/s. LVS Financial Services Private Limited has failed to meet all three criteria i.e. identity, creditworthiness of the creditor and genuineness of the transaction, which is a non-descript entity, is not proved and accordingly, the AO completed assessment proceedings u/s 147 by making addition of Rs.1,40,00,000/- under section 68 of the Act as unexplained cash credit along with interest expenses of Rs.1,44,956/- and also AO made addition that the assessee has taken accommodation entries in lieu of commissions and assessee did not prefer to file any reply, therefore, the amount of Rs.4,20,000/- (3% of Rs.1,40,00,000/-) to the total income of the assessee u/s 69C of the Act.
4. Aggrieved by the aforesaid order, the assessee preferred an appeal before the ld. CIT (A)-30, New Delhi and filed detailed submissions. Ld. CIT (A), after going through the submissions of the assessee and the assessment order, dismissed the appeal filed by the assessee.
5. Aggrieved assessee is in appeal before us raising following grounds of appeal:-
“1. That the learned Commissioner of Income Tax (Appeals)-30, New Delhi has grossly erred both in law and, on facts in upholding the determination of Income made by the learned Assistant Commissioner of Income Tax, Central Circle-32, Delhi of the appellant company at Rs.1,49,54,670/- as against declared income at Rs.3,89,710/- in an order of assessment dated 4.3.2025 u/s 147/143(3) of the Act.
2. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserved to be quashed as such.
2.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded mechanically by observing the ledger account recording entries recorded in the books of accounts constitute incriminating material or reflect no application of mind and do not constitute valid basis for assumption of jurisdiction u/s 147 of the Act.
2.2 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that in absence of valid approval under clause (iv) of Explanation 2 to section 148 of the Act, assumption of jurisdiction is illegal.
2.3 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that clause (iv) of Explanation 2 to section 148 of the Act has no application to the facts of the appellant company and therefore assumption u/s 147 of the Act was without jurisdiction, particularly since no incriminating material was detected as a result of search.
2.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that notice u/s 148 issued without validly complying section 151 of the Act were also without jurisdiction. 2.5 That the learned Commissioner of Income Tax (Appeals) has further Tailed to appreciate that notice u/s 148 of the Act was contrary to section 151A OT the Act; and therefore the assumption of jurisdiction was not in accordance with law.
3. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in sustaining an addition of Rs. 1,40,00,000/- representing alleged sum received from M/s LVS Financial Services (P) Ltd. as unsecured loan and erroneously held as unexplained cash credits u/s 68 of the Act read with section 115BBE of the Act.
3.1 That while confirming the above addition, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the factual substratum of the case, statutory provisions of law and as such, addition so sustained is highly misconceived, totally arbitrary, wholly unjustified and therefore, unsustainable. 3.2 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, addition so sustained is absolutely unwarranted.
3.3 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sum of Rs. 1,40,00,000/-received by the appellant company had been fully substantiated by documentary evidence placed on record in the course of appellate/assessment proceedings and, therefore such sum could not in law or on fact be held to be unexplained cash credit u/s 68 of the Act.
3.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sum of Rs. 1,40,00,000/- had been received through banking channels from independent party and as such, addition so sustained is not in accordance with law and untenable.
3.5 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that even otherwise on account of lack of enquiry by the learned Assistant Commissioner of Income Tax and as such, addition so sustained is not in accordance with law and untenable.
4. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an addition of Rs. 1,44,956/- on account of interest paid to the creditor; and eligible for deduction u/s 36(1)(ii) of the Act
5. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in sustaining an addition of Rs. 4,20,000/- representing alleged commission expenditure incurred @ 3% for arranging alleged accommodation entry in the garb of unexplained income by invoking provisions of section 69C of the Act
6. That without prejudice to the above and in the alternative, even otherwise, the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in holding that sum received by the appellant company is taxable as Income under section 68 of the Act and thereafter computed the demand in accordance with the rates specified in section 115BBE of the Act as amended by Taxation Laws (Second Amendment) Act, 2016.
7. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the levy of interest of Rs. 3,039/- u/s 234A of the Act, interest of Rs.67,87,130/- u/s 234B of the Act and interest of Rs.5,116/- u/s 234D of the Act which are not leviable on the facts of the appellant.
Prayer
It is therefore, prayed that, it be held that assessment made by the learned Assessing Officer and sustained by the learned Commissioner of Income Tax (Appeals) be quashed. It be further held that additions made and sustained by the learned Commissioner of Income Tax (Appeals) alongwith interest levied be deleted and appeal of the appellant company be allowed.”
6. Ground No.1 is general in nature, hence the same is not adjudicated.
7. We discuss the issues on merits raised vide Grounds No.3 to 7.
8. At the time of hearing, ld. AR of the assessee submitted his arguments ground-wise with regard to Grounds No.3 to 7 are as under:-
33 Ground 3 to 3.5of grounds of appeal relates to addition of Rs. 1,40,00,000/- representing sums received as unsecured loan from M/s LVS Financial Services (P) Ltd. and erroneously held as unexplained cash credit u/s 68 of the Act read with section 115BBE of the Act.
34 It is further submitted that during the course of assessment proceedings following replies were filed by the appellant and, it was submitted as under:
i) Reply dated 10.07.2024 (pages 60-63 of Paper Book)
“We are in receipt of captioned notice. In such notice on ANNEXURE [page 3 of 4] page your had self has mentioned as below:
In the above-mentioned case, information has been received from DDIT(Inv). Unit-2(1). New Delhi on the basis of the search u/s 132 of the Act conducted on 17.11.2021 on Galaxy Group. Shri Pradeep Indra Prasad Agrawalla (Founder of Galaxy Group) and entry providers Shri Deepak Agarwal & Shri Himanshu Verma Information has been analysed and it is seen that certain documents were seized during the search, containing information which reveals that the assessee Shriganesh Kirana Pvt. Ltd. (PAN: ABDCS0080R) has entered into fictitious transaction of Rs. 1,40,00,000/- with M/s LVS Financial Sevices Pvt. Ltd., an non-genuine entities during the F.Y. 2019-20 relevant AY 2020-21.
In this regard assessee company wishes to submit that
1. Assessee company is a Private Limited company domiciled in India and incorporated under provision of Companies Act, 2013 as on 03/12/2019. The company is engaged in the business of to carry on the business of Wholesale Trading, Sale and Purchase of kirana items, Dry Fruits and chemicals Items. The registered office of the company is in the national capital territory of Delhi
2. Transaction of Rs. 1,40,00,000/- with LVS Financial Services Pvt Ltd [LVS] is not fictitious transaction, it’s a genuine transaction.
3. LVS is a private limited company domiciled in India and incorporated under provision of Companies Act, 1956 as on 13th October 1994. The Company is engaged in the business of Non-Banking Financial Activity vide RBI certificate of registration no. B-1401818, refer annexure 1 (page 155 of Paper Book). The registered office of the company is in the national capital territory of Delhi.
4. During the FY 19-20, LVS had achieved turnover of Rs. 4.46 crores (refer annexure 2 for the audited financial statements of FY 19-20) and had paid income tax of Rs. 12.12 lacs on taxable income of Rs. 46.61 lacs, refer annexure 3 for ITR AY 20-21 (pages 136-152 of Paper Book). This clearly shows that LVS is engaged in NBFC activity and proceeds from the such activity is the main source of the income. Hence the transactions with LVS of assessee company during the FY 19-20 is a genuine business transaction.
5. During the period under consideration assessee company had taken loan of Rs. 1,40,00,000/- from LVS for its business purpose. In this regard assessee company wishes to submit the loan agreement executed between LVS and assessee company along with confirmation of accounts is attached herewith as annexure 4 (pages 134-135 of Paper Book) and annexure 5 (page 153 of Paper Book) respectively.
Further, we request your good self to kindly provide us the reasons recorded for re-opening the assessment which would enable us to file proper details/objection in this respect.”
ii) Reply dated 19.08.2024 (pages 69-72 of Paper Book)
“3. On perusal of your last submission it is noticed that you have taken loan from LVS Financial Services Pvt. Ltd [LVS] during the year under consideration, kindly provide complete details of the loan and detail when the same was squared up. In support of the same kindly provide copy of ledger and bank statement.
During the period under consideration assessee company had taken loan of Rs. 1,40,00,000/- from LVS for its business purpose. In this regard assessee company wishes to submit the loan agreement executed between LVS and assessee company along with confirmation of accounts is attached herewith as annexure 3 (pages 134-135 of Paper Book) and annexure 4 (page 153 of Paper Book) respectively.
LVS is a private limited company domiciled in India and incorporated under provision of Companies Act, 1956 as on 13th October 1994. The Company is engaged in the business of Non-Banking Financial Activity vide RBI certificate of registration no. B-14.01818, refer annexure 5 (page 155 of Paper Book). The registered office of the company is in the national capital territory of Delhi.
During the FY 19-20, LVS had achieved turnover of Rs. 4.46 crores (refer annexure 6 for the audited financial statements of FY 19-20) and had paid income tax of Rs. 12.12 lacs on taxable income of Rs. 46.61 lacs, refer annexure 7 for ITR AY 20-21 (pages 136-152 of Paper Book). This clearly shows that LVS is engaged in NBFC activity and proceeds from the such activity is the main source of the income. Hence the transactions with LVS of assessee company during the FY 19-20 is a genuine business transaction. Further, copy of ledger and relevant bank statements are enclosed as annexure 8 (pages 157-162 of Paper Book) and annexure 9 (pages 105-179 of Paper Book) respectively
Hope your goodself will found the above as per your subject notice.”
40 That issue under consideration is no longer res-integra in view of the decision of DCIT vs. Shomit Finance Limited in ITA No. 8486/Del/2025 dated 05.06.2026 for assessment year 2020-21 wherein the addition made on account of advance from M/s LVS Financial Services (P) Ltd. has been deleted by the learned CIT(A) and upheld by the Hon’ble ITAT.
41 Reliance is also placed on the following decisions wherein advances from lendors allegedly connected with Himanshu Verma has been deleted by the Hon’ble Income Tax Appellate Tribunal:
(i) ITA Nos. 5750 to 5752/Del/2025 Rise Projects (P) Ltd. vs. ACIT (Pages 16-40 of JPB)
(ii) ITA Nos. 3906 & 3907/Del/2023 DCIT vs. Indian Hydro Electric Power (P) Ltd. (Pages 112-186 of JPB)
(iii) ITA No. 6084/Del/2025 ITO vs. Agarwal Earth Movers (P) Ltd. (Pages 220-234 of JPB)
(iv) ITA No. 5544/Del/2025 Trishul Realcon (P) Ltd. v. ACIT (Pages 235-241 of JPB)
(v) ITA No 2305/Del/2025 Deepak Agarwal vs. DCIT (Pages of 242-260 JPB)
42 THAT ONCE THE ADVANCES OF THE LENDER HAS BEEN ACCEPTED IN OTHER ASSESSEE, ADVANCES OF THE LENDER CANNOT BE VALIDLY ADDED U/S 68 OF THE ACT IN THE CASE OF APPELLANT CHALLENGED IN THE CASE OF ASSESSEE. It is submitted that the appellant has reliance is placed upon the decision of Delhi Bench of Income Tax Appellate Tribunal in the case of Capital Infra Projects (P) Ltd. vs. DCIT, in ITA No. 927 and 928/Del/2019 dated 04.09.2020 wherein it has been held that once investment of investor is accepted in one company then addition u/s 68 for investment in other company is also not permissible:
14. We observed that the similar issue was considered by the coordinate Bench in the case of Real Innerspring Technologies (P) Ltd. In ITA No.647/Del/2023 order dated 27.03.2025, in which Accountant member is the author of the above decision, 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:-
| Name of the Lender | Amount of the Loan | Date on which loan taken | Date of interest payment | Date of repayment of loan |
|---|---|---|---|---|
| M/s. Citzy Infraheights Pvt. Ltd. | 50,00,000 | 09.07.2015 (Pg 38 of the PB) | 30.12.2017 (Pg 40 of the PB) | 06.12.2017 30.12.2017 (Pg 39 & 40 of the PB) |
| M/s. CEA Consultants Pvt. Ltd. | 50,00,000 | 18.03.2016 (Pg 81 of the PB) | 27.04.2016 28.03.2017 (Pg 81 of the PB) | 17.03.2017 18.03.2017 21.03.2017 (Pg 83 & 84 of the PB) |
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.
15. Respectfully following the above decisions and even in the present case, the assessee has taken unsecured loan and repaid the same along with interest proves the genuineness of the transaction. Accordingly, following the aforesaid order, we are inclined to allow the grounds no.3 to 7 raised by the assessee.
16. Since we have allowed the appeal on merits, the legal grounds raised vide grounds no.2 to 2.5 are not adjudicated and the same are kept open.
17. In the result, appeal filed by the assessee is allowed.th Order pronounced in the open court on this 30 day of September, 2026.
