Section 68 Addition Deleted Where Loans Were Fully Documented and Routed Through Banks: ITAT Delhi
Background of the Dispute
The Revenue’s appeal in DCIT Vs Shomit Finance Limited (ITAT Delhi) arose from an order dated 23.10.2025 passed by the Commissioner of Income Tax (Appeals)-29 for Assessment Year 2020-21. The central controversy related to additions made under Section 68 and Section 69C of the Income Tax Act 1961, treating certain loan transactions as accommodation entries and related outgoings as unexplained expenditure.
The Assessing Officer reopened the assessment under Section 147/143(3) and concluded that unsecured loans aggregating to ₹1,49,50,000 received by the assessee from two corporate entities were not genuine. Based on this premise, the Assessing Officer:
- Treated loan receipts of ₹1,49,50,000 as unexplained cash credits under
Section 68 - Assumed that commission at 3% was paid in cash for obtaining these alleged accommodation entries and added ₹4,48,500 under
Section 69C - Disallowed interest expenditure of ₹2,65,488 on these loans as unexplained expenditure under
Section 69C
The Revenue contended that the lending companies were part of a network controlled by alleged entry operators and that the assessee had in substance routed its own unaccounted money in the guise of loans.
The CIT(A) deleted all the additions, which led the Revenue to approach the ITAT Delhi. The Tribunal, after examining the order of the CIT(A) and the material on record, upheld the relief granted and dismissed the Revenue’s appeal.
Nature of Loans and Additions Made
Loan Transactions in Question
During AY 2020-21, the assessee had obtained the following loans:
- ₹99,50,000 from M/s LVS Financial Services Pvt. Ltd.
- ₹50,00,000 from M/s CEA Consultant Pvt. Ltd.
These sums, totaling ₹1,49,50,000, were received through regular banking channels. The assessee had:
- Executed loan agreements
- Paid interest after deducting TDS
- Subsequently repaid the entire principal in the following year (AY 2021-22), again through banking channels
Despite this, the Assessing Officer treated these credits as unexplained under Section 68, labelling the lending entities as shell concerns controlled by alleged entry operators.
Additions Under Section 68 and Section 69C
The Assessing Officer’s approach can be summarised as follows:
Addition under
Section 68- Treated the entire amount of ₹1,49,50,000 as unexplained cash credit.
- The reasoning was mainly anchored on search-related material and statements recorded in unrelated search operations on groups allegedly run by entry operators such as Himanshu Verma and associates.
Addition under
Section 69C– Commission- Assumed that commission at 3% was paid in cash for arranging alleged accommodation entries.
- On this notional basis, added ₹4,48,500 as unexplained expenditure under
Section 69C.
Addition under
Section 69C– Interest- Disallowed interest expense of ₹2,65,488 paid on the impugned loans.
- Treated the interest as unexplained expenditure on the footing that the underlying loans themselves were fictitious.
The Revenue’s grounds before the Tribunal further emphasised that entities associated with Himanshu Verma and Deepak Agarwal had already been categorized in various proceedings as accommodation entry providers and that their transactions, by default, lacked credibility.
Key Submissions and Evidence Produced by the Assessee
Documentary Evidence Furnished
Before the CIT(A), the assessee produced an extensive set of documents to support the genuineness of the loans and related interest payments.