Revenue Appeal Dismissed, Deletion of Sections 68 and 69C Additions Upheld by ITAT

DCIT Vs Mahavir Pulses Pvt. Ltd. (ITAT Delhi)

The Delhi ITAT dismissed the Revenue’s appeals and upheld the deletion of additions under sections 68 and 69C, holding that where an unsecured loan is duly supported by documentary evidence and is subsequently repaid with interest through banking channels, the allegation that it is merely an accommodation entry cannot be sustained on suspicion alone.

The Revenue had challenged the CIT(A)’s order deleting additions under section 68 in respect of unsecured loans received by the assessee, contending that the lender was an accommodation entry provider. The assessee, however, produced the loan agreement, confirmations, PAN, income-tax returns, audited financial statements, bank statements and evidence showing that the loan had been repaid in the subsequent year through banking channels.

The Tribunal noted that the assessee had discharged the primary onus under section 68 by establishing the identity of the lender, its creditworthiness, and the genuineness of the transaction. It also found that the Assessing Officer had not brought any material linking the assessee with cash deposits or demonstrating that the loan represented an accommodation entry. The addition was based only on general information received from the Investigation Wing and statements of third parties without any direct nexus to the assessee’s transaction.

Approving the reasoning of the CIT(A.), the Tribunal relied on its earlier decisions in Real Innerspring Technologies Pvt. Ltd. and Dazzling Construction Pvt. Ltd., holding that repayment of the loan with interest through banking channels is a strong indicator of the genuineness of the transaction. Every transaction must be evaluated on its own facts, and merely because the lender was allegedly controlled by an entry operator, every loan cannot automatically be branded as bogus.

Consequently, the Tribunal also upheld the deletion of the addition under section 69C towards alleged commission and bogus interest, observing that once the loan itself was held to be genuine, there was no basis to presume payment of commission for obtaining accommodation entries. The Revenue’s appeals for both AYs 2016-17 and 2019-20 were accordingly dismissed

Cases Discussed

• Real Innerspring Technologies (P.) Ltd. v. ACIT (ITAT Delhi), ITA No. 647/Del/2023, order dated 27.03.2025
• Dazzling Construction Pvt. Ltd. Vs ITO Ward-7(2), New Delhi (ITAT Delhi), ITA No. 3771/Del/2023
• ACIT vs Filatax India Ltd (ITAT Delhi), 2025 (7) TMI 1285, dated 30.06.2025
• Pr CIT vs Jagmag Builders (Delhi High Court), ITA No. 325/2024
• PCIT vs. Bhupendra Champaklal Dalal (Bombay High Court), (2024) 160 com 645 (Bom)(HC)
• Pr CIT vs. Ambe Tradecorp (P.) Ltd. (Gujarat High Court), [2022] 145 com 27 (Gujarat)
• CIT Vs Skylark Build, 2018-TIOL-2323-HC-MUM-IT
• CIT v. Green Infra Ltd. (Bombay High Court), [2014] 367 ITR 102 (Bom)
• CIT v. Vrindavan Farms Pvt. Ltd. (Delhi High Court), [2015] 63 taxmann.com 333
• CIT v. Kamdhenu Steel & Alloys Ltd. (Delhi High Court), [2012] 361 ITR 220 (Del)
• DIT vs. Modern Charitable Foundation (Delhi High Court), 335 ITR 105 (Del)
• CIT v. P. Mohankala (Supreme Court), [2007] 291 ITR 278 (SC)
• CIT v. Rohini Builders (Gujarat High Court), [2002] 256 ITR 360 (Guj)
• ACIT v. Bhavya Construction (ITAT Ahmedabad), [2012] 139 ITD 90 (Ahd)
• CIT vs Mahavir Crimpers, 95 com 323 (Guj)
• CIT vs Karaja Singh, 15 com 70 (P&H)
• CIT vs Ayachi Chandrashekhar Narsangji, 42 Com (Guj)
• Panna Devi Chowdhary (Bombay High Court), 1994 (3) TMI 80 – BOMBAY HIGH COURT

FULL TEXT OF THE ORDER OF ITAT DELHI

1. These appeals filed by the Revenue are against the order of the ld. Commissioner of Income-tax (Appeals)-29, New Delhi [for short ‘ld. CIT (A)] dated 22.08.2025 for the Assessment Years 2016-17 and 2019-20.

2. 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.8156/Del/2025 for AY 2016-17 as lead case.

3. At the time of hearing, ld. AR of the assessee made a submission that the issue under consideration is squarely covered in assessee’s own favour. He prayed that he may be heard first.

4. At the outset, ld AR submitted that the relevant facts of the case and submitted his submissions as under. He submitted that in the present appeal, the grievance of the Revenue is deletion of addition under section 68 of the Income-tax Act, 1961 (for short ‘the Act’) on account of unsecured loan accepted from M/s CEA Consultants P Ltd.. He submitted that the Ld CIT(A) dealt the above issue in para 6.2 to 6.17 of the appellate order and the Ld CIT(A) took into account the fact that the assessee has filed all the evidences in support of genuineness of the loan under appeal which is dealt in para 6.4. Further, he submitted that the ld CIT(A) has also took note of the fact that the loan has been duly repaid by the assessee in subsequent financial year i.e. FY 2016-17 relevant to AY 2017-18 in support of which the confirmation of loan accepted and repaid was submitted and placed in paper book at pages 159-160 respectively. He further submitted that the copy of the relevant period bank statement was also produced showing acceptance of loan at pages 163 and 165 of the paper book. He submitted that the fact of repayment of loan has been duly brought to the notice of AO vide reply dated 06.03.2023 reproduced in order u/s 148A(d) and the same is placed at relevant pages 117-118 of the paper book.

5. Ld. AR further submitted that the ld CIT(A) in para 6.14 and 6.15 has followed the co-ordinate bench decisions in the case of Real Innerspring Technologies P Ltd vs ACIT ITA No.647/Del/2023 dt 27.03.2025 and Dazzling Construction P. Ltd vs ITO ITA No.3771/Del/2025 to hold that when the assessee takes loan and repaid the same with interest which fact clearly shows the transaction to be genuine. He further brought to our notice that in the case of Real Innerspring Technologies P. Ltd (supra), authored by Accountant Member herein, the alleged accommodation entry provider entity had been same as in present case. He submitted that it was also held that in above decisions when loan itself has been repaid, the assessee does not stand to gain any spurious benefit from such alleged unexplained cash credit and in both the decisions, the co-ordinate Bench took into account the fact that all the evidences to support genuineness of transaction has been filed by the respective assesses which fact qualified them to take the benefit of repayment of loan being reason for accepting the genuineness of the cash credit involved.

6. Further, he also placed reliance on the following decisions wherein it was held that when unsecured loans were paid back may be in subsequent years, this shows that loans were genuine loans taken by the assessee :-

(A) Jurisdictional Delhi High Court and ITAT Delhi Bench;

• • DIT vs. Modern Charitable Foundation, 335 ITR 105 (Del);
  • Pr CIT vs Jagmag Builders ITA No.325/2024 (Del);
  • ACIT vs Filatax India Ltd 2025 (7) TMI 1285 [ITAT Delhi] dated 30.06.2025

(B) Other High Courts/ITAT:

• • CIT vs Mahavir Crimpers 95 com 323 (Guj);
  • CIT vs Karaja Singh 15 com 70 (P&H);
  • CIT vs Ayachi Chandrashekhar Narsangji 42 Com (Guj);
  • PCIT vs. Bhupendra Champaklal Dalal (2024) 160 com 645 (Bom)(HC);
  • Pr CIT vs. Ambe Tradecorp (P.) Ltd. [2022] 145 com 27 (Gujarat);
  • Panna Devi Chowdhary [1994 (3) TMI 80 – BOMBAY HIGH COURT];
  • CIT Vs Skylark Build 2018-TIOL-2323-HC-MUM-IT

7. Further, ld. AR submitted that the next relief allowed by the Ld CIT(A) is deletion of addition u/s 69C of the Act on account of unexplained expenditure being alleged commission paid for arranging accommodation entry in question. He submitted that since the basic transaction of loan cannot held to be accommodation entry, there is no justification to assume that any expenditure had been incurred. He further submitted that the Ld CIT(A) on that ground allowed relief which is justified for the reason that for accepting loan, the assessee has paid the interest of Rs.1,04,250/- which is duly accounted for and is not disallowed by the Ld AO.

7. On the other hand, ld. DR of the Revenue submitted that the order passed by the Assessing Officer is ex-parte under section 147/144 of the Act. Ld. DR submitted that the issue under consideration is accommodating entry. He brought to our notice the relevant findings from the assessment order. He submitted that ld. CIT (A) has given relief to the assessee on the basis of repayment of loan. In this regard, he brought to our notice page 24 of the first appellate order and he objected to the observations made by the ld. CIT(A). In this regard, he relied on the decision of ITAT, Bombay Bench in ITA No.3990/Bom/2025 dated 20.03.2026. He brought to our notice page 14 of the Tribunal order.

8. Considered the rival submissions and material placed on record. After going through the submissions of both the sides and order of the ld. CIT (A), we observed that this issue is squarely covered by various decisions of Hon’ble High Courts/ITAT. Further we observed that ld. CIT (A) followed the decision of the coordinate Bench in the case of Real Innerspring Technologies P. Ltd (supra) (wherein Accountant Member herein is the author) and deleted the addition. For the sake of brevity, the findings of ld. CIT(A) is reproduced below :-

6. Ground No. 4: is regarding addition of Rs. 71,00,000/- u/s 68 of the Act made by the AO. During the year under consideration, the appellant received loan from M/s Durgapuja Trades and Commerce Private Limited.

6.1 The loan received by the appellant was treated as cash credit u/s 68 of the Act.

6.2 I have carefully considered assessment order and relevant submissions filed by appellant along with paper book. The loan of Rs. 71,00,000/- from M/s Durgapuja Trades and Commerce Pvt. Ltd. received by appellant, was treated as cash credit. The J^dihgSx made by AO, submissions made by appellant, counter argument 61 appellant on evidences relied upon by Assessing Officer while making additions, other relevant facts and relevant decisions are discussed herein above while adjudicating above addition made in case of appellant.

6.3 The AO placed reliance on an information received from DIT(System) and has contended that appellant has taken accommodation entry in the form of unsecured loan from the said entity which was a shell company, during the year.

6.4 The appellant submitted detailed submission. Summary of written submissions filed by the appellant and the documents placed on record is as under: –

i. The loans of Rs. 71,00,000/- from above mentioned entity was received through account payee cheque/NEFT/RTGS.

ii. Loan agreement, Confirmations, PAN, ITRs, bank statements and audited financials were furnished.

iii. The said loan was repaid to the lender in the subsequent year i.e. AY 2020-21, which further evidences the genuineness of the transaction.

iv. The AO has not demonstrated any specific cash deposit linked to the appellant or lender to support the allegation of accommodation entry.

v. Reliance was placed by AO on statements of third parties which were either vague, obtained under duress, or unrelated to the appellant. No opportunity for cross-examination was afforded, violating principles of natural justice.

6.5 I have carefully considered the facts of the case, the contentions of the appellant, the findings recorded by the AO, and the judicial precedents relied upon. The central issue is whether the loan of Rs. 71,00,000/- from M/s Durgapuja Trades and Commerce Pvt. Ltd. received by the appellant can be treated as unexplained u/s 68 of the Act, despite the fact that the loan was subsequently repaid through banking channels and was supported by confirmations, ITRs, financials, and other documentary evidences.

6.6 It is now a settled position of law that for making an addition u/s 68, the assessee is required to prove: (i) identity of the creditor, (ii) creditworthiness of the creditor, and (iii) genuineness of the transaction. Once these three pillars are duly established, the burden shifts to the revenue to bring contrary evidence to disprove the assessec’s claim. In the present case, the appellant has discharged the primary onus by furnishing PAN details, income-tax returns, financial statements, confirmation letters, bank statements. Furthermore, the loan was repaid in full during the year itself, thereby negating the suspicion of any layering or retention of unexplained cash.

6.7 It is pertinent to refer here to the judgment of the Hon’ble Gujarat High Court in the case of CIT v. Rohini Builders [2002] 2S6 ITR 360 (Guj), wherein it was held that where the loans are received by account payee cheque, confirmations are filed, and repayments are also made, no addition u/s 68 can be sustained, even if the creditworthiness of the lender is not conclusively established. The court emphasized that mere non-enquiiy into the affairs of the creditor cannot be the sole basis for treating the loan as unexplained.

6.8 Similarly, in CIT v. Green Infra Ltd. [2014] 367 ITR 102 (Bom), the Hon’ble Bombay High Court held that once a loan is repaid and the genuineness of the transaction is shown through banking channels, no addition can be made u/s 68 solely based on suspicion. In that case, the department had raised doubts on the source of the creditor’s funds, but the court rejected the revenue’s stand and held in favour of the assessee.

6.9 The Hon’ble Delhi High Court, in the case of CIT v. Kamdhenu Steel & Alloys Ltd. [2012] 361 ITR 220 (Del), observed that the department cannot merely reject the explanation of the assessee without conducting proper investigation. The court emphasized that where identity and transaction are supported by documentary’ evidence and repayment is made, no addition can be made u/s 68.

6.10 Moreover, the Hon’ble Delhi High Court in CIT v. Vrindavan Farms Pvt. Ltd. [2015] 63 taxmann.com 333, (Del), held that where the assessee has discharged the primary onus by submitting PAN, bank details, confirmation, and proof of repayment, then the burden shifts to the AO to disprove the claim. In absence of such evidence from revenue’s side, addition u/s 68 cannot be sustained.

6.11 In the present case, the appellant has gone beyond the ordinary threshold. Not only has the identity- and creditworthiness of the lender been substantiated through financials, tax returns and confirmations, but also the transactions have been conclusively proved by way of repayment of loan with interest through banking channels. This fact has not been denied or disputed by the AO in the assessment order.

6.12 Reliance is also placed on the judgment of Hon’ble ITAT Ahmedabad in ACIT v. Bhavya Construction [2012] 139 ITD 90 (Ahd), where it was held that once the loan is repaid and all necessary documents are filed, the transaction is deemed genuine and cannot be rejected based on mere suspicion or absence of fixed repayment terms.

6.13 Further, in CIT v. P. Mohankala [2007] 291 ITR 278 (SC), the Hon’ble Supreme Court laid down that where the explanation offered by the assessee is reasonable and supported by evidence, and where no material has been found to suggest otherwise, then the addition cannot be sustained u/s 68.

6.14 Further the Hon’ble Delhi ITAT in case of Real Innerspring Technologies (P.) Ltd. v. ACIT (ITAT Delhi) vide its order dated 27-03­2025 held that 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 utilized the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs, all the transactions cannot be labelled as non-genuinc. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. In the instant case, the assessee has submitted all the documents in support of the transaction before the Assessing Officer and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion.

6.15 Similar view has been taken by Hon’ble Delhi ITAT in its recent pronouncement in the case of Dazzling Construction Pvt. Ltd. Vs ITO Ward- 712), New Delhi bearing ITA No. 3771/Del/2023 and it is held that the factum of repayment quells the apprehension entertained by the Revenue. The overriding factum of repayment of loan itself repels any form of disguise on the part of the assessee and dispels the perception of any sordid or extraneous affairs. The clinching evidences towards loan procurement discharge the primary onus which lay upon the assessee under s. 68 of the Act. Besides, the loan itself having been repaid, the assessee does not ultimately stand to gain any spurious benefit from such alleged unexplained cash credit. Such fact justifies the plea of the assessee towards existence of bonafides in the transactions. In the totality of facts, where the trail for obtaining of loan and repayment thereof is proved and the lender has duly filed its return of income encompassing the transaction carried with the assessee, the action of the Revenue cannot be countenanced in law.

6.16 To conclude, I find that the appellant has conclusively proved all three ingredients required u/s 68. The identity and tax status of the lender is not in doubt. The loan was received and repaid along with the relevant interest through proper banking channels. The AO has not brought any credible evidence to establish that the said loan was accommodation entry. The addition is based on general observations without any direct linkage to the appellant’s transaction.

6.17 In view of the above facts, evidences on record, and judicial precedents cited, I am of the considered opinion that the addition of Rs. 71,00,000/- made u/s 68 of the Act by AO, are unsustainable in law and on facts. The same is accordingly directed to be deleted. This part of grounds of appeal is allowed.

7. Ground No. 5 is regarding addition of Rs. 4,93,650/- made u/s 69C of the Act. The AO has held that the appellant must have paid 5% as commission for availing accommodation entries in the form of unsecured loan which comes at Rs. 3,55,000/- and also, it has shown bogus expenditure of Rs. 1,38,650/- as interest payment on the said loan during the year. Such commission must have been paid in cash and interest expense is bogus, therefore, the AO made addition u/s 69C of the Act. However, in view of the above stated decision in para no. 6.16, wherein it has been held that there were no bogus entries taken, the addition of Rs. 4,93,650/- on account of commission and interest docs not survive. Accordingly, Ground No. 5 of appeal is allowed.”

9. Further, we are reproducing the findings of the coordinate Bench in the case of Real Innerspring Technologies P. Ltd (supra) 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. Respectfully following the aforesaid decision, we are inclined not to disturb the findings of the ld. CIT (A) and accordingly upheld the same on both the grounds.

14. In the result, the appeal filed by the Revenue for AY 2016-17 is dismissed.

15. Since the facts in AY 2019-20 are exactly similar to Assessment Year 2016-17, our above findings in AY 2016-17 are applicable mutatis mutandis in Assessment Year 2019-20. Accordingly, the appeal filed by the Revenue for AY 2019-20 is dismissed.

16. To sum up : both the appeals filed by the Revenue are dismissed.

Order pronounced in the open court on this 5^th day of August, 2026.