Anjali Textile Mills Vs DCIT (ITAT Ahmedabad)
Section 68 Addition Cannot Rest on Phantom Credits: Revenue Must First Prove That the Disputed Amount Was Actually Credited
The Ahmedabad ITAT deleted additions made u/s 68 & 69C, holding that an addition cannot be sustained merely on the basis of third-party information describing transactions as accommodation entries when the bank statements and account confirmations reveal an entirely different factual position.
The assessment for AY 2013-14 was reopened u/s 147 on information that the assessee had allegedly received accommodation entries aggregating to ₹17,66,155 from M/s Shambhu Tax Fab and M/s Krishna Enterprises. The AO treated the amount as unexplained cash credit u/s 68 and further added ₹35,323 u/s 69C towards the alleged commission paid for obtaining the entries.
The assessee consistently maintained that the information relied upon by the AO was factually incorrect. It explained that the transactions of ₹7,50,000 each appearing in the bank account were debit entries, representing repayment to M/s Shambhu Tax Fab, and not amounts received by the assessee. Similarly, the amount of ₹16,155 received from M/s Krishna Enterprises represented consideration for sales made to that party. The assessee categorically denied having received the alleged amount of ₹10 lakh from M/s Krishna Enterprises.
Before the CIT(A), the assessee produced additional evidence under Rule 46A, including complete bank statements and account confirmations. Though the CIT(A) called for a remand report, the AO failed to submit it despite sufficient opportunity. The additional evidence was admitted, but the CIT(A) nevertheless confirmed the additions on the ground that the assessee had not established a complete and continuous documentary trail.
The Tribunal found that the documents fully supported the assessee’s explanation. The account of M/s Shambhu Tax Fab showed that the assessee had received ₹15 lakh through three cheques of ₹5 lakh each on 04.03.2013 and repaid the entire amount through two cheques of ₹7.50 lakh each within the same month. The corresponding entries were duly reflected in the bank statements.
In respect of M/s Krishna Enterprises, the confirmation demonstrated that the assessee had made sales of ₹16,155 on 10.11.2010, for which payment was received by cheque on 13.12.2012. As regards the alleged credit of ₹10 lakh, neither the AO nor the CIT(A) could identify any such entry in the assessee’s books or bank account. Even before the Tribunal, the Department could not point out the existence of the alleged credit.
The ITAT observed that where an assessee specifically denies receiving an amount, the Revenue must first establish that such amount was actually credited in the assessee’s books or bank account. A non-existent or unidentified credit cannot be taxed u/s 68 merely because it figures in information received by the Department.
Relying on the Gujarat High Court decision in PCIT v. Ambe Tradecorp Pvt. Ltd. [2022] 145 taxmann.com 27, the Tribunal further held that once repayment of a loan or advance is established through documentary evidence, the credit entries cannot be examined in isolation by ignoring the corresponding debit entries. Since the advance from M/s Shambhu Tax Fab was received and repaid through banking channels within the same month, it could not be treated as an unexplained cash credit.
Accordingly, the Tribunal deleted the addition made u/s 68. Having held the underlying transactions to be genuine business transactions, it also deleted the consequential addition of ₹35,323 u/s 69C towards alleged commission for obtaining accommodation entries.
Author’s Comment: Information available with the Department may justify verification or even reopening, but it cannot substitute evidence at the assessment stage. Before invoking Section 68, the AO must identify an actual credit in the assessee’s books. Section 68 can explain an unexplained credit; it cannot create a credit that never existed.
Cases Discussed
- PCIT Vs Ambe Tradecorp Private Limited — (2022) 145 taxmann.com 27 (Gujarat)
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 20.11.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2013-14.
2. The Assessee has raised following grounds of Appeal:-
“a. The Ld. CIT(A) erred in confirming the order of the AO making additions of 217,66,155 u/s 68 and 35,323 u/s 69C.
b. Any other ground which may be urged before or during the time of hearing of the appeal.”
3. There has been a delay of eight days in filing the present application for which the Assessee has preferred a separate application for condonation of delay. For the reasons stated in the application for condonation of delay, the delay of 8 days occurred in filing of appeal is condoned.
4. The facts of the case are that acting upon the information that the Assessee has received the accommodation entry of Rs. 17,66,155/- as secured loan from M/s. Krishna Enterprise and M/s. Shambhu Tax Feb, the case of the Assessee was reopened u/s 147 of the Act by issuance of notice dated 29.03.2021 u/s 148. The Assessing Officer made addition of the amount observing that the Assessee had not submitted complete bank statements for the year to check transaction. The Assessee, in his reply reproduced at Para 4.1 of the Assessment Order, submitted as under:
“4.1 Accordingly as per SOP a show cause noticed dated 26.03.2022 was issued and duly served upon the assessee in form of the Draft Assessment Order proposing the above mentioned additions. In response assessee submitted its reply on 29.03.2020. The relevant portion of the reply of the assessee is reproduced below.
In regard to the above, it is submitted that during the year under consideration we have given the amount of Rs. 7,50,000/- to Shambhu Tex fab and not taken from them as mentioned in the notice, it is in the nature of advance for trade given and not unsecured loan taken. Further the transaction with M/s. Krishna Enterprise is in the nature of receipts of only Rs. 16,155/- whereas the same is mentioned as withdrawal in the notice. Also we have not entered into transaction of Rs. 10,00,000/- with M/s. Krishna Enterprise.
Extract of the bank statement highlighting the transaction with the mentioned parties are enclosed for your kind consideration. Further it is submitted that we are unable to furnish the ledger accounts from our system because the accounting data for the year under consideration has been corrupted.”
4.1 Before the Ld. CIT(A), the Assessee submitted additional evidence under Rule 46A of the Rules, whereby he submitted bank statements and account confirmation relating to the transaction. Ld. CIT(A) sought remand report from the AO, however, despite sufficient opportunity, no remand report was received from the AO. The documents were admitted by Ld. CIT(A). Ld. CIT(A), however, upheld the addition made by the Ld. AO, holding that the Assessee has not provided complete and continuous documentary trail to establish the genuineness of the impugned transactions.
5. Aggrieved against the same, the Assessee is in appeal before us.
6. Ld. AR submits that the entry in respect of a sum of Rs. 7,50,000/- is, in fact, appearing twice in the bank statements of the Assessee, and it is indeed a debit entry paid by the Assessee to Shambhu Tax Fab through bank transactions bearing Nos. 847248 and 847249 and, therefore, the very foundation of the present case is factually wrong. As regards the denial of Rs. 10,00,000/- allegedly received from M/s. Krishna Enterprises, the Assessee categorically denied credit in its bank account both before Ld. AO as well as Ld. CIT(A), despite which the Assessment Order and the appellate order, without identifying the transaction, made addition.
6.1 It was submitted that initially, the onus of bringing credit on record in case of Section 68 of the Act addition lies on the Revenue, which has not been complied with by the AO or Ld. CIT(A), and, therefore, the addition cannot be sustained.
7. Per contra, Ld. Senior DR supported the orders of Ld. AO and Ld. CIT(A).
8. We have heard the parties and perused the material on record. The stand of the Assessee, reproduced by Ld. AO at Para 4.1 of the Assessment Order, clearly reflects that the sum of Rs. 7,50,000/- was indeed paid by the Assessee to Shambhu Tax Fab and not taken from them, as also the transaction of Rs. 16,155/- with M/s. Krishna Enterprises was in the nature of receipt, whereas the same is mentioned as withdrawal in the information/notice. The Assessee also denied having entered into any transaction of Rs. 10,00,000/- with M/s. Krishna Enterprises. Also, the Assessee, before Ld. CIT(A), furnished bank statements and account confirmation of its transaction, and Ld. AO failed to furnish any remand report.
9. As a matter of fact, the Assessee has taken us through its bank statements at page 18 of the Paper Book. Page 17 of the Paper Book is the account confirmation of the Assessee in respect of M/s. Shambhu Tax Fab, wherein it is seen that the Assessee has received an amount of Rs. 15,00,000/- (Rs. 5,00,000/- x 3) on 04.03.2013 by way of cheque numbers 1970, 1971, and 1973, which was repaid by the Assessee vide two cheque Nos. 847248 and 847249 for Rs. 7,50,000/- each dated 18.03.2013 and 19.03.2013 respectively. The transactions are also corroborated by the bank statements appearing at pages 18 and 19 of the Paper Book.
Similarly, the account confirmation of M/s. Krishna Enterprises is available at page 20 of the Paper Book, wherein the Assessee has made sales of Rs. 16,155/- on 10.11.2010, and payment of which has been received under cheque No. 175340 on 13.12.2012. The said receipt is also appearing in the bank statements of the Assessee at page 22 of the Paper Book.
10.1 As regards the last transaction of Rs. 10,00,000/- of M/s. Krishna Enterprises, the Assessee categorically refuted having entered into any transaction of Rs. 10,00,000/- with M/s. Krishna Enterprises, such an assertion by the assessee could not be refuted by the Ld. AO or Ld. CIT(A), nor was Ld. CIT-DR able to point out before us such credit entries appearing in the books of account or the bank statements of the Assessee. Needless to say, all the transactions referred to in the information were duly explained by the Assessee.
10.2 The transaction of Rs. 16,155/- with Krishna Enterprises is duly explained, being sales made by the Assessee to the said party. The transaction of Rs. 10,00,000/- with M/s. Krishna Enterprises was categorically denied by the Assessee, and nothing was brought on record by the AO or Ld. CIT(A) to refuse this denial and, therefore, no addition can be made in respect of the transaction of the Assessee with M/s. Krishna Enterprises.
10.3 The transaction of the Assessee, as submitted by the Assessee, was in the nature of advance purportedly given and not an unsecured loan. We have gone through the account confirmation and bank statements of the Assessee. We find that the amount of Rs. 15,00,000/- advance received from M/s. Shambhu Tax Fab on 04.03.2013 was repaid by the Assessee on 19.03.2013 and 20.03.2013; the said advance receipt, having been paid back by the Assessee in the same month, would not qualify for addition u/s 68 of the Act.
11. Reliance is placed on the judgment of the jurisdictional Gujarat High Court in the case of PCIT vs. Ambe Tradecorp Private Limited, reported as (2022) 145 taxmann.com 27 (Gujarat), wherein the Hon’ble jurisdictional Gujarat High Court, agreeing with the findings of the Ld. Tribunal, held and observed as under:
“6. The Tribunal rightly recorded in para 29 of the judgment.
“Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, were hold that there is no infirmity in the order of the Ld. CIT-A.”
12. In view of the foregoing deliberations, the impugned order of the Ld. CIT(A) cannot be sustained and the same is accordingly set aside. The addition of Rs. 17,60,155/- u/s 68 of the Act is deleted. Furthermore, since the transactions in question are held to be bona fide business transactions, there is no occasion for payment of any commission for obtaining the accommodation entries. Hence, the addition of Rs. 35,323/- made u/s 69C of the Act also, therefore, is deleted.
13. In the result, the appeal of the Assessee is allowed.
The order pronounced on 11.09.2026.
