Short-Term Commercial Loan Repaid with Interest Cannot Be Branded as Bogus Entry: ITAT Deletes ₹80 Lakh Section 68 Addition

ITO Vs Sagar Vyapaar Pvt. Ltd. (ITAT Kolkata)

Short-Term Commercial Loan Repaid with Interest Cannot Be Branded as Bogus Entry: ITAT Deletes ₹80 Lakh Section 68 Addition

The Kolkata ITAT upheld deletion of ₹80 lakh addition made under Section 68 after holding that a short-term commercial loan received and repaid through banking channels with interest and TDS compliance cannot be treated as a bogus accommodation entry merely on the basis of investigation wing allegations.

The reassessment against Sagar Vyapaar Pvt. Ltd. was reopened alleging that the assessee had received accommodation entry in the guise of unsecured loan from M/s Tedium Sales Pvt. Ltd. The Assessing Officer treated the loan as unexplained cash credit by alleging that the lender was a shell company and that the transaction merely represented routing of assessee’s own unaccounted money.

However, the CIT(A) and subsequently the Tribunal noted that the assessee had taken the loan purely for commercial purposes and had repaid the same within the very same financial year along with interest after deducting TDS. The records showed that ₹30 lakh was borrowed in May 2012 and repaid within six days, while the balance ₹50 lakh borrowed in August 2012 was repaid within six months during the same year itself. Interest payment was also subjected to TDS compliance.

The Tribunal further observed that the lender company was duly assessed to income tax, possessed substantial net worth exceeding ₹10.90 crore and all transactions were carried out through account-payee banking channels. Loan confirmations, bank statements and supporting documentary evidences were furnished before the authorities.

Relying upon Gujarat High Court decisions including CIT vs. Ayachi Chandrashekhar Narsangji, PCIT vs. Ambe Tradecorp (P) Ltd. and Ojas Tarmake (P) Ltd., the ITAT reiterated that once the assessee proves identity, creditworthiness and genuineness of the transaction, additions under Section 68 cannot survive merely on assumptions or investigation reports unsupported by concrete evidence.

The Tribunal held that the Assessing Officer failed to establish that the assessee had routed its own unaccounted money through the lender company and accordingly dismissed the Revenue’s appeal in full.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the Revenue is directed against the order dated 31.03.2022 of the National Faceless Appeal Centre (NFAC) passed under Section 142(1)(c) of the Assessment Year 2013-14 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

2. The brief facts of the case of the assessee is that the assessee filed its return on 27.09.2013 showing a total income of Rs.9,35,670/-, Then the matter was selected for scrutiny and assessment u/s. 143(3) was completed on 11.01.2016. Thereafter, notice u/s 148 of the Income Tax Act. 1961 was allegedly issued on 31.03.2021 on the alleged ground that the assessee was the beneficiary of receipt of accommodation entry of Rs.80 lakhs from M/s. Tedium Sales Pvt. Ltd. In compliance to the notice, the assessee filed return of income on 19.04.2021 declaring a total income of Rs. 9,35,670/-. Then notices u/s. 143(2) and 142(1) were issued from time to time which had been duly complied by the assessee by filing requisite documents. Then the Ld. A.O. completed the reassessment by passing an order u/s. 147 r.w.s 144B of the Act.AO opined that that assessee received an accommodation entry through M/s Tedium Sales in the shape of loan which was nothing but assessee’s own money which has been channelize to the assessee’s books of paying any tax on it. Even if the transaction has been carried through banking channel yet it has been carried out by proper planning to show it as genuine transactionwithout paying any penny of tax on the inaccounted money. Accordingly an addition of Rs. 80,00,000/- u/s 68 is made to the income of the assessee by holding the transaction asunexplained cash credit being bogus/accommodation entry received through bankingchannel of shell/paper companies. I am satisfied that assessee has furnished inaccurateparticulars of its income to the extent of Rs 80,00.000/-, penalty proceedings u/s 271(1)(c)are initiated separately.

Aggrieved by the said order, assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been allowed by observing thus: –

1) In this case, regular scrutiny assessment of A.Y-2013-14 of assessee company was completed u/s. 143(3), in 2016, after then, on the basis of information received from Investigations Wing, that assessee has received Rs.80,00,000/- from M/S Tedium Sales Pvt. Ltd. which is the accommodation entry provider, assessment was reopened and addition was made.

2) During the course of assessment and appellate proceedings assessee has submitted that it has taken loans of Rs.80,00,000/- on commercial terms and it has been repaid also during the same A.Y along with interest payment, on which TDS was also deducted. Assessee has taken this loan in parts spreading from the month of May-2012 to Aug-2012. Assessee has taken Rs.30,00,000/- on 04.05.2012 and repaid it on 10.05.2012 itself, i.e within 6 days itself. Further balance Rs.50,00,000/-loan was taken in the month of Aug-2012 and repaid in the month of Feb-2013 i.e within 6 months itself and in same financial year. Further, on 02.03.2013 interest of Rs.235973/- has been paid after deducting TDS of Rs.23597/-. From all these facts, it is clear that this loan is purely of commercial nature and has been duly repaid also within such a short span of time along with interest and TDS provisions have also been complied.

3) In support of its contention, that when unsecured loan are being repaid, then no addition u/s.68 of the Act can be made, assessee has submitted number of judicial pronouncements, which are reproduced below:

(iv) CIT vs. Ayachi Chandrashekhar Narsangji 221 Taxman 146 (Guj)

“6. Having heard Shri Pranav Desai, learned Counsel appearing on behalf of the revenue and on perusal of the order passed by the CIT(A) confirmed by the ITAT,

It appears that CIT(A) was satisfied with respect to the genuineness of the transaction and creditworthiness of Shri Ishwar Adwani and, therefore, deleted the addition of Rs. 1,45,00,000/- made by the Assessing Officer. It is required to be noted that as such an amount of Rs. 1,00,00,000/- vide cheque no. 102110 and an amount of Rs.60 lakh vide cheque no 102111 was given to the assessee and out of the total loan of Rs. 1.60 crore.

Rs. 15 lakh vide cheque no. 196107 was repaid and, therefore, an amount of Rs. 1,45,00,000/-remained outstanding to be paid to Shri Ishwar Adwani. It has also come on record that the said loan amount’s been repaid by the assessee to Shri Ishwar Adwani in the immediate next financial year and the Department has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the ITAT we see no reason to interfere with the impugned order passed by the ITAT. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed.”

(v) PCIT vs. Ambe Tradecorp (P) Ltd. 290 Taxman 471 (Guj)

“3.4 When the revenue preferred appeal before the Appellate Tribunal, the Tribunal confirmed the findings recorded by the Appellate Authority. The Tribunal referred to the decision of CIT v. Durga Prasad More [1971] 82-(TR 540 (SC)and also in Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC), to further record on the basis of the facts that the assessee had furnished the details such as copy of ledger account, bank statements, income tax returns, balance sheet etc. It was also recorded that notice under section 133(6) of the Act was issued to the said parties which were duly responded by them. The identity of the parties could not be, therefore disputed, recorded the tribunal. The aspect was also noticed that the assessee was not beneficiary of the loan received by it and the loan wasrepaid by the assessee in the subsequent year. It led to unacceptable conclusion that the impugned transaction was a business transaction between the assessee and the loan parties and that they could not be doubted for their genuineness.

3.5 While the revenue has tried to put up a case that the transactions were in the nature of accommodation entries, this case has only presumptive and assumptive value not supported by any factual data. On the contrary, on the basis of the material before the authorities, the transactions were found to be genuine.”

(vi) Poddar Realtors vs. ITO, ITA No. 265/K/23, Order dated 22.06.23

10. We, therefore, under the given facts and circumstances of the case, are of the considered view since the assessee has successfully discharged its onus of proving the identity of the loan creditor, which in the instant case duly registered with Ministry of Corporate Affairs, having PAN and had filed return of income as well. Further creditworthiness of the transaction is proved with the fact that they have been carried through banking channel and sufficient funds were available with the loan creditors to explain the amount of loan given and the genuineness of the transaction is proved with the fact that the assessee company is carrying out regular business activity and the loan was obtained at Commercial rate of interest which was also repaid at a later date in subsequent year, interest was paid on the loans and tax at source has been deducted and duly reflected by the loan creditor in their income tax return. Therefore, we fall to find any justification in the action of it. AD invoking the provisions of Section 68 of the Act. We, thus, set aside the finding of id CIT(A) and delete the addition of Rs 25,00,000/-made u/s 60 of the Act.”

From the above factual analysis and judicial pronouncements, it is evident that assessee company has taken this commercial loan and repaid it back. Nowhere it is proved by AO, that it has channelized its own funds through this loan. AO has simply made addition by relying on investigation wing information, without considering the details and documentary evidences submitted by assessee company. Further, Hon’ble Gujarat High Court has in case of Ojas Tarmake (P) Ltd (2023) 156 Taxmann.com 75 (Gujarat) 22-08-23 has upheld this view. In this case Hon’ble High Court has held as under:

Section 68 of the Income-tax Act 1961 Cash credits (Unsecured loan) Assessment year 2013-14 During assessment proceedings it was noted that assessee had shown particulars of unsecured loan received during relevant assessment year – Assessing Officer issued letters under section 133(6) on creditors of unsecured loans Thereafter, Assessing Officer made additions with respect to unsecured loan on ground that assessee failed to discharge onus of liability as laid down under section 68 On appeal, Commissioner (Appeals) upheld additions on ground that assessee failed to produce any of creditors before Assessing Officer Whether since Tribunal found on facts that amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, no error of law was committed by Tribunal by deleting addition made under section 68-Held, yes [Paras 3 and 4] [In favour of assessee]

11. Accordingly, on the basis of above factual matrix and judicial pronouncements. as discussed above, AO is hereby directed to delete this addition of Rs.80,00,000/-and give relief to the assessee. Accordingly this ground of appeal is hereby allowed.

Since on facts, relief has been granted to assessee, hence all other legal and technical grounds becomes academic in nature and becomes infructuous and hence dismissed.

12. In the result, the appeal of the assessee is hereby partly allowed. In the result the appeal of the assessee is allowed.

Being aggrieved by and dissatisfied the revenue has preferred appeal by taking following grounds:-

1. Whether on the facts and circumstances of the case, the Ld. CIT (A) is justified in deleting the addition of Rs. 80,00,000/- u/s 68 of the Income Tax Act when the assessee failed to discharge its onus to prove the genuineness of the transactions and the credit worthiness of the creditors.

2. Whether on the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) failed to appreciate the fact that from the enquiries conducted by the Investigation Wing it was found that M/s. Tedium Sales Pvt. Ltd. was a shell entity which did not respond to notice u/s.133(6) initially and responded only after show cause notice proposing addition was issued to the assessee during assessment proceedings.

3. Whether on the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) failed to appreciate the fact that in spite of the admission of dummy director of M/s. Tedium Sales Pvt. Ltd., Sri Ankit Todi that the company had no business activity as well as credibility which provided unsecured loan to the assessee.

4. Whether on the facts and circumstances of the case, the Ld. CIT (A) is justified in deleting the addition of Rs. 80,00,000/- u/s 68 of the Income Tax Act when the loan provider company has business of its own and does not have the credibility to provide such huge amount of loan.

3. Contrary to that Ld. AR supports the impugned order thereby submitting that there is no infirmity in the impugned order as assessee took loan from M/s Tedium sales pvt. Limited to the tune of Rs. 80,00,000/- for business purpose which was repaid back by the assessee in the same year.The Ld. AR submits that loan confirmation along with the bank statement established the case of the assessee as the loan were received through account pay cheque and it has been repaid.The Ld. AR submits that M/s Tedium Sales Pvt. Limited have sufficient networth which is more than the loan advanced thus its creditworthiness has proved.His submission is that CIT(A) has not only discussed the documentary evidences rather considered the several judicial pronouncement and thereafter passed the impugned order.

4. Upon hearing the submission of the counsel of the respective parties and on perusal of the impugned order, we find that the sole issue relates to the addition of Rs. 80,00,000/- in respect of loan taken from M/s Tedium Sales Pvt. Ltd.It is important to mention here that Tedium Sales Pvt. Limited have sufficient networth that is 10,90,84,867/- and loan has been advanced only to the tune of Rs. 80,00,000/-.It is also important to mention here that M/s Tedium Sales Pvt. Limited is assessed to the income tax, loan were received through account pay cheque and assessee has also filed the loan confirmation along with the bank statement. CIT(A) in its order has already held that assessee had taken loan in parts spreading from the month of May 2012 and 2012 and it has been repaid in the month of February, 2013 that is within six months and in the same financial year. Further interest has also been paid after deducting TDS of Rs. 23,597/-. Going over the order passed by the CIT(A) as several judicial pronouncement we find substance in the Ld. Counsel of the assessee that there is no infirmity in the order of the CIT(A).

Accordingly, appeal of the Revenue is hereby dismissed.

Kolkata, the 15^th May, 2026.