Section 68 Addition Upheld: Bogus Unsecured Loans Cannot Be Validated Through Banking Channels or Subsequent Repayment
Case Reference
Global Stainless Vs ACIT (ITAT Delhi)
Assessment Year: 2018-19
Order Date: 20.03.2026
Background and Context
This case revolves around a critical question that frequently arises in income tax assessments — whether an unsecured loan, which has been identified as a bogus accommodation entry under Section 68 of the Income Tax Act, 1961, can be treated as genuine simply because it passed through banking channels and was subsequently repaid. The Income Tax Appellate Tribunal, Delhi Bench, examined this question in depth and delivered a definitive ruling that reinforces the stringent evidentiary standards required for proving the legitimacy of unsecured loans.
The assessee, M/s Global Stainless, was engaged in business activities and had filed its return of income for Assessment Year 2018-19 on 25.09.2018, declaring a gross total income of Rs. 28,60,540/-. The case was processed under Section 143(1) of the Income Tax Act, 1961 on 10.02.2019 and was subsequently selected for scrutiny under CASS specifically on the issue of unsecured loans.
Facts of the Case
During the relevant financial year, the assessee had recorded unsecured loans amounting to a combined total of approximately Rs. 5.91 crore from two entities:
- M/s Steel Impex — Rs. 3,33,00,000/-
- M/s Cloud Zone — Rs. 2,58,21,000/-
The assessee maintained that these loan amounts were received and fully repaid within the same financial year through proper banking channels. Notices under Section 143(2) of the Act dated 22.09.2019 were duly served, and the Assessing Officer called upon the assessee to furnish comprehensive details relating to the unsecured loans, including:
- Names and addresses of the lending parties
- PAN details of the lenders
- Loan amounts accepted and repaid during the year
- Mode of transaction
- Interest paid, rate of interest, and TDS compliance
- Business purpose for which the loans were availed
- Documentary evidence establishing identity, creditworthiness, and genuineness
Submissions Made by the Assessee
The assessee contended that it had furnished the requisite documents including confirmations of accounts, PAN details, addresses, email IDs, and bank statements — initially on 27.03.2021 and subsequently on 30.03.2021 — both dates falling prior to the completion of assessment on 31.03.2021.
With respect to M/s Steel Impex, the assessee explained that the entity was a proprietorship concern owned by its proprietor, and that the PAN submitted (ADIPC0422B) belonged to the said proprietor. A further complication arose because two separate entities operating under the identical name "M/s Steel Impex" had made advances to the assessee — one owned by Mr. Rahul Chawla (Rs. 3,08,00,000/-) and another by a different proprietor (Rs. 25,00,000/-) — resulting in a bookkeeping error where all entries were inadvertently clubbed under a single ledger account.
The assessee also argued that the Assessing Officer had not taken on record the submissions filed on 27.03.2021 and 30.03.2021, and that the assessment order was framed in gross violation of the principles of natural justice. Reliance was placed upon several orders of the Hon'ble Delhi High Court, including:
- DJ Surfactants vs National E-Assessment Centre Delhi, W.P.(C) 4814/2021 dt. 03.05.2021
- Lemon Tree Hotels Limited vs NFAC Delhi, W.P.(C) 5427/2021 dt. 21.05.2021
- Naresh Kumar Goyal vs NFAC Delhi WP(C) 6245/2021 dt. 12.07.2021