Retracted Statement Alone Cannot Justify Section 68 Addition; ITAT Deletes Alleged Accommodation Loan Additions

ITO Vs Rubberwala Shelter (ITAT Mumbai)

Retracted Statement Alone Cannot Justify Section 68 Addition; ITAT Deletes Alleged Accommodation Loan Additions

In a significant ruling, the Mumbai ITAT upheld the deletion of additions made under section 68 in respect of alleged accommodation loans received from entities linked to the Bhanwarlal Jain group. The Assessing Officer had treated unsecured loans of ₹1.45 crore as unexplained cash credits and also disallowed related interest expenditure of ₹10.28 lakh, primarily relying on the statement of a partner/director recorded during survey proceedings wherein he had allegedly admitted that certain loans were accommodation entries.

The Tribunal noted that the assessee had furnished extensive documentary evidence including loan confirmations, lender PAN details, income-tax returns, audited financial statements, bank statements, ledger accounts, and TDS certificates evidencing deduction of tax on interest payments. The assessee had also demonstrated that the loans were received and repaid through banking channels. Further, the statement relied upon by the Revenue had subsequently been retracted through a sworn affidavit, wherein it was explained that the admission was made under stress and without proper understanding of the facts.

Relying on Gujarat High Court decisions, the Tribunal held that once the assessee establishes the identity of the lender, creditworthiness, and genuineness of the transaction, and the loans have been repaid through banking channels, additions under section 68 cannot be sustained merely on suspicion or on the basis of a statement that stands retracted. The Tribunal emphasized that no incriminating material directly disproving the loan transactions had been brought on record by the Revenue.

Accordingly, the Tribunal held that the assessee had successfully discharged the burden cast under section 68 and that the Assessing Officer was not justified in treating the loans as bogus accommodation entries. The deletion of the ₹1.45 crore loan addition and the corresponding interest disallowance was therefore upheld, and all the Revenue’s appeals were dismissed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These appeals have been preferred by the Revenue against the orders dated 15.09.2025 & 17.09.2025, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2012-13 & 2013-14.

2. As the issues involved in the appeals under consideration are more or less based on the identical facts and/or same, except variation in the parties and amounts therefore, for the sake of brevity, the same were heard together and are being discussed by this composite order by taking into consideration ITA No. 8259/M/2025 as a lead case, the result of the same should be applicable mutatis mutandis to all the appeals under consideration.

3. Coming to ITA No. 8259/M/2025, it is observed that the survey action under Section 133(A) of the Act was conducted at the premises of M/s. Rubberwala Housing and Infrastructure Ltd. and its group concern, including the Assessee herein. In the survey action, the Director of Rubberwala Housing and Infrastructure Ltd. namely Shri Tabrez Shaikh, who is also a partner of the Assessee in a statement recorded under Section 131 of the Act before the ADIT (Inv.), Mumbai has admitted to had taken the accommodation entries of unsecured loan for all his group concerns, from the accommodation entries providers based at Surat mainly controlled/operated by Shri Bhanwarlal Jain and Associates.

4. The Assessee during the AY under consideration has also taken alleged accommodation entries from the alleged Surat based parties, as detailed below:

5. Thus, on the aforesaid reasons, the case of the Assessee was reopened under Section 147 of the Act by issuing a notice dated 29.03.2016 under Section 148 of the Act to the Assessee who in response, by filing a letter dated ‘NIL- submitted in Tapal on dated 22.09.2016, claimed that original return filed on 01.10.2013 may be treated as return filed in response to the notice under Section 148 of the Act.

6. Thereafter various statutory notices were issued to the Assessee who from time to time filed its relevant submissions and documents including as mentioned by the AO in para 5 of the Assessment order, which read as under:

1. Copy of ledger account of the lenders in the books of the Assessee.

2. Copy of bank statement of the Assessee duly reflected the sum of loan received during the year.

3. Name, address and name of the lenders.

4. Confirmation of loan from lenders.

5. Copy of ITR of the lender for the AY under consideration.

6. Copy of bank statements of the lenders reflecting loans given.

7. Copy of audited financial statements of the loans for the year under consideration except M/s. Sharda Jems Pvt. Ltd.

8. Copy of TDS Certificate issued to the lenders for interest paid for the year under consideration.

7. The Assessee in order to substantiate its claim also contended as under:

“ix) The AR had contended that Shri Tabrez Shaikh was a layman and did not have proper knowledge of taxation laws and could not properly answer before ADIT(Inv), Mumbai He further stated that he was having high blood pressure and anxiety and other gastric related ailments and under these conditions he admitted the genuine bonafide loan to be bogus and accommodation entry. The representative of the assessee submitted an affidavit dated 29.09.2015 of Shri Tabrez Shaikh wherein he stated that due to stress he had stated that the loans taken by his group concerns were accommodation entries. The representative of the assessee stated that loan confirmation of these three parties have been submitted, the assessee has deducted TDS on interest paid on loans, the assessee has submitted copies of balance sheet of these parties to prove the creditworthiness and the amounts have been received by cheques and therefore the assessee has submitted the identity, creditworthiness of the parties. The representative of the assessee also stated that merely on the basis of the statement by the statement recorded of Shri Tabrez Shaikh cannot be ground for treating a transaction non genuine.”

8. The Assessee in support of its claim, also relied on some judicial pronouncements and also filed an affidavit dated 29.09.2015 retracting the statement made by Mr. Tabrz Shiakh before the ADIT (Inv.), Mumbai during the course of survey operation.

9. The AO though considered the aforesaid documents and submissions filed/made by the Assessee, however, not being satisfied with the same and by taking cognizance of the answers given by the Director, allegedly accepting accommodation entries, ultimately treated the amount of Rs.1,45,00,000/- as alleged accommodation entries {which have been claimed by the Assessee as loans} as unexplained cash credit and added under Section 68 of the Act, mainly relying on the conclusion drawn by the investigation wing, during the course of search operation, which read as under:-

i. Employees were name sake proprietor/partner or Director of the concerns and real control over the business activities of these concern was with Bhanwarlal Jain, Gautam Chand Jain.

ii. Employees who were name sake proprietor/partner or Director had no genuine knowledge of diamond business.

The employees were residing in flats owned by Bhanwarlal Jain & family and the business were operated from the premises owned by Bhanwarlal Jain & Family. These employees had no contact with importers.

iv. During the search stock of diamond was not found at any of the premises of Bhanwarlal Jain and his group.

v. Shri Bhawarlal Jain, Gautamchand Jain and their group had admitted in their statement on oath u/s 132(4) of the I.T. Act that all the concerns operated by them were only issuing accommodation bills.

10. The AO also disallowed the interest expenses to the tune of Rs. 10,28,477/- as claimed by the Assessee on such alleged accommodation entries/loans from the aforesaid parties, as not genuine.

11. The ld. Commissioner on appeal, analyzed the factual aspects and documents submitted by the Assessee during the course of assessment proceedings, as well as first appellate proceedings and deleted the additions made on account of alleged loan amounts and interest expenses claimed thereto, by more or less observing as under:

“ That the Assesse has submitted documents related to the aforesaid companies, which includes bank statement reflecting repayment of loan and payment of interest, copy of ITR Acknowledgment, ledger confirmations and financials along with written submissions to prove the identity and credit worthiness and genuineness of the loan taken. Further, the fact that the Assessee has duly paid the interest on the loan amounts, after deducting TDS on the same and not a single incriminating material in relation to unsecured loans, were found and impounded by the officials and the retraction of statements proves that the statement of Director cannot form the only basis for the AO to make the addition and sidelining the answer to the question that Director of Rubberwala Group has also responded/answered that the unsecured loans were genuine and received as per business needs. However, since the details were not readily available, he showed his ability to provide the details immediately and requested that the same shall be submitted in due course. Further, in the Assessee’s Group of Companies i.e. M/s. Rubberwala Hospitality Pvt. Ltd. Case, ITA Nos. 299 and 314/M/2020, the Hon’ble Coordinate Bench of the Tribunal has considered the identical loans/alleged bogus transactions and ultimately deleted the identical additions and the disallowance on account of interest expenses vide order dated 23.11.2021.

12. We have given thoughtful consideration to the peculiar facts and circumstances. The AO treated the loans taken by the Assessee as alleged accommodation entries from the aforesaid parties, as non-genuine. Whereas, the Assessee by filing relevant documents such as copy of ledger account of the lenders in the books of the Assessee; copy of bank statement of the Assessee duly reflected the sum of loan received during the year; name, address and name of the lenders; confirmation of loan from lenders; copy of ITR of the lender for the AY under consideration; copy of bank statements of the lenders reflecting loans given; copy of audited financial statements of the loans for the year under consideration except M/s. Sharda Jems Pvt. Ltd. and copy of TDS Certificate issued to the lenders for interest paid for the year under consideration, as also reproduced by the Ld. Commissioner in the impugned order, prima facie discharged its onus cast under Section 68 of the Act. Further, by making the repayment and deducting the TDS on the repayment and interest expenses paid, also strengthen genuineness of its case. Thus, the addition and disallowance under consideration are not sustainable, specifically in view of judgements rendered by the Hon’ble Gujarat High Court in the cases namely PCIT vs. Ambe Tradecorp (P) Ltd. 2022 Taxpub (DT) 7021(Gujarat HC) and CIT vs. Ayachi Chandrashekhar Narsangji {Tax Appeal No. 992 of 2013, decided on 2nd December 2013} [ 2014 Taxman 146 {Guj HC], wherein it has been as under:

“When the Assessee establishes identity, source, and repayment of loan, the addition cannot be sustained or once identity, source, and repayment are established, creditworthiness cannot be doubted arbitrarily. Further if loan is repaid and accepted by the department, then addition is not justified.”

13. The judgment rendered in the case of J.K. Global vs. Income Tax Officer {ITA no. 3258 to 3260/M/2023 decided on 05.09.2024} by the tribunal, as relied on by the ld. D.R. is not applicable to the instant case, being factually dissimilar and specifically in view of above judgments {supra} by Hon’ble Gujarat High Court.

14. Once the Assessee established the identity, credit worthiness and genuineness of the loan transaction by producing the relevant documents as observed above and prima facie discharged its onus cast under Section 68 of the Act and further by making the repayment and interest expenses by deducting the TDS established the genuineness of the loan transaction in that eventuality, simply on the statement made by the Director of the company being partner on the Assessee’s firm, which was otherwise retracted later on, cannot be made a basis for making and sustaining the addition. Thus, the decision of Ld. Commissioner for deleting the addition and disallowance under consideration to the tune of Rs. 145,00,000/- and Rs.1028477/- respectively, is sustained.

15. In the result, ITA No. 8259/M/2025 filed by the Revenue, is dismissed.

16. Coming to ITA No.8258 & 8260/M/2025, as observed above, the issues involved are same and based on the similar facts and circumstances, except variation in the amounts and parties and therefore, in view of our judgment in ITA No. 8259/M/2025, decisions of the Ld. Commissioner deleting the additions involved in the appeals under consideration, are also upheld, on the similar footings by dismissing the appeals under consideration.

17. In the result, all appeals under consideration stands dismissed.

Order pronounced in the open court on 15.06.2026.