ITAT Delhi Quashes Bogus Loan Additions: Lenders' Alleged Entry Operator Links Cannot Invalidate Genuine, Repaid Borrowings

The scrutiny of unsecured loans has perpetually been a focal point for the revenue authorities, particularly when the lending entities are suspected of being associated with accommodation entry operators. A recurring dispute in corporate taxation is whether a borrower can be penalized under Section 68 of the Income Tax Act 1961 solely based on the tainted reputation of the lender's management, even when the borrower has submitted unassailable documentary evidence of the transaction.

In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, addressed this exact conundrum in the case of DCIT Vs Kamadgiri Exports Pvt. Ltd.. The Tribunal unequivocally held that an assessee cannot be condemned on the basis of generalized allegations against a lender if the specific loan transaction is backed by robust financial documentation, banking channel routing, and subsequent repayment.

This article provides a comprehensive analysis of the factual matrix, the statutory provisions invoked, the appellate observations, and the broader legal principles established by the ITAT in its order dated 29 September 2026.

1. Factual Matrix of the Dispute

The controversy stems from the assessment proceedings of Kamadgiri Exports Pvt. Ltd. for the Assessment Years (AY) 2019-20 and 2020-21. The Revenue had preferred appeals against the relief granted to the assessee by the Commissioner of Income Tax (Appeals) [CIT(A)].

1.1 The Search and Seizure Operation

The genesis of the reassessment lay in a search and seizure operation conducted under Section 132 of the Income Tax Act 1961 on 17 November 2021. This operation targeted the Galaxy Group and individuals identified by the Investigation Wing as accommodation entry providers, specifically Shri Deepak Agarwal and Shri Himanshu Verma.

During the search, the revenue department gathered intelligence suggesting that various entities controlled by these individuals were merely paper companies used for routing unaccounted funds. Based on this information, the department alleged that Kamadgiri Exports Pvt. Ltd. was a beneficiary of such accommodation entries.

1.2 Reassessment Proceedings and Additions

For AY 2019-20, the department alleged that the assessee had received an accommodation entry in the form of an unsecured loan amounting to Rs. 2,00,00,000 from M/s Albatross Homes Private Ltd. The Assessing Officer (AO) noted that this lending entity was allegedly operated and controlled by Shri Himanshu Verma.

Relying on the search investigation reports and past appellate orders that labeled Shri Verma as an entry operator, the AO concluded that the loan transaction was non-genuine. Consequently, the AO invoked Section 147 of the Act, issued a notice under Section 148, and framed the reassessment with the following adverse additions:

• Addition under Section 68: The entire unsecured loan amount of Rs. 2,00,00,000 was added to the income of the assessee as unexplained cash credit.
• **Addition under Section 69C (Commission)😗* The AO presumed that the assessee must have paid a commission to procure this bogus entry. Applying an estimated rate of 3% on the loan amount, the AO added Rs. 6,00,000 as unexplained expenditure.
• **Addition under Section 69C (Interest)😗* The AO further disallowed the interest paid on this loan, amounting to Rs. 61,274, treating it as unexplained expenditure.

2. The Assessee's Evidentiary Defense

Aggrieved by the reassessment order, the assessee escalated the matter to the CIT(A). The core of the assessee's defense rested on the argument that the transaction was a genuine business borrowing, fully documented and executed entirely through verifiable banking channels.