DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-25, DELHI, DELHI vs. C NET SOFTWARE SERVICES PRIVATE LIMITED, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’, NEW DELHI Before Sh. Raj Kumar Chauhan, Judicial Member & Sh. Amitabh Shukla, Accountant Member ITA No. 5612/Del/2026 : Asstt. Year : 2021-22 DCIT, Vs C Net Software Services Pvt. Ltd. Central Circle-25, A-37, Mayapuri Industrial Area, New Delhi-110055 Phase-II, New Delhi-110064 (APPELLANT) (RESPONDENT) PAN No. AACCC1030D Assessee by: Sh. Pranshu Singhal, CA & Sh. Rahul Bhardwaj, Adv. Revenue by: Sh. Vikram Singh Sharma, CIT-DR Date of Hearing: 03.09.2026 Date of Pronouncement: 09.09.2026 ORDER Per Raj Kumar Chauhan, Judicial Member: The appeal of the Revenue is directed against the order dated 21.01.2026 of ld. CIT(A)-29, New Delhi passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) wherein the addition made u/s 68 and 69C of the Act vide assessment order dated 24.03.2025 u/s 147 of the Act was deleted and the appeal was partly allowed.

2 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. seizure action u/s 132 of the Act was conducted on 17.11.2021 in the cases of Galaxy Group, Shri Deepak Agarwal and Shri Himanshu Verma, who were allegedly engaged in providing accommodation entries through various paper/non-descript companies controlled and managed by them. During the course of search proceedings, digital data and other documents were allegedly found containing details of bank accounts, income-tax credentials, board resolutions, WhatsApp communications relating to fund transfers and lists of beneficiaries. On the basis of the information emanating from the search proceedings, it was alleged that the assessee was one of the beneficiaries of accommodation entries provided by the entities controlled and managed by Shri Deepak Agarwal and Shri Himanshu Verma. It was further alleged that the assessee had obtained an accommodation entry of RS.50,00,000/- during F.Y. 2020-21 relevant to A.Y. 2021-22 from M/s Syamali Securities & Consultants Pvt. Ltd., which was stated to be a paper company controlled and managed by Shri Deepak Agarwal. Consequently, after obtaining the requisite approval u/s 148/149/151 of the Act, notice u/s 148 was issued to the assessee on 29.03.2024. In response thereto, the assessee filed its return of income on 06.06.2024, declaring total income at Rs. Nil. Thereafter,

3 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. notices u/s 143(2) and 142(1) of the Act were issued through the ITBA portal, in response to which the assessee furnished various submissions and documents. The case was subsequently centralized with Central Circle-25, New Delhi after getting necessary approval. Thereafter, a show-cause notice dated 03.03.2025 was issued to the assessee requiring it to explain the transaction of Rs.50,00,000/- allegedly received from M/s Syamali Securities & Consultants Pvt. Ltd. The assessee furnished its explanation along with documentary evidence in support of the transaction. However, the Assessing Officer was not satisfied with the explanation furnished by the assessee. Relying upon the search material and the alleged modus operandi of the entry providers, the Assessing Officer treated the amount of Rs.50,00,000/- as unexplained credit u/s 68 of the Act. The Assessing Officer further treated the alleged transaction as an accommodation entry and made a consequential addition of Rs.1,50,000/- u/s 69C, being 3% of Rs.50,00,000/-, towards alleged commission paid for obtaining the accommodation entry and penalty proceedings u/s 271AAC were initiated separately.

4 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. assessee has furnished documentary evidence in support of the loan transaction, including evidence relating to the identity and financial position of the lender, banking transactions, confirmation and repayment of the loan. The ld. CIT(A) further observed that the Assessing Officer had not brought sufficient independent material on record to establish that the particular transaction of Rs.50,00,000/- was an accommodation entry. Accordingly, the ld. CIT(A) deleted the addition of Rs.50,00,000/- made u/s 68 and also deleted the consequential addition of Rs.1,50,000/- made u/s 69C of the Act.

5 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. entries in the form of bogus loan/purchase/sales, which were given/taken in so asophisticated manner with taking care of each step to give the image of legal transaction by utilizing web of bank accounts in different banks as well as books of accounts in respective entities. d. The entries shown given in the books of accounts and the account reflecting in the bank statements care only managed arrangement to give the sham transaction, a legal look. e. That the case falls under exception "h” of Para 3 of the Circular No. 5/2024 dated 15.03.2024. f. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law. g. The grounds of appeal are without prejudice to each other.” 5. We have heard the ld. DR and the ld. AR. The ld. DR, on the hand, The ld. DR relied upon the order of the Assessing Officer and submitted that the ld. CIT(A) erred in deleting the addition of Rs.50,00,000/- made u/s 68 of the Act. The ld. DR further submitted that the said lender was a paper company and the transaction was not genuine merely because it was routed through banking channels. It was also contended that the assessee had incurred commission expenditure for obtaining the accommodation entry and, accordingly, the addition of Rs.1,50,000/- u/s 69C was justified. Accordingly, the ld. DR submitted that the order of the AO be restored and the appeal of the Revenue be allowed.

6 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. 6. The ld. AR, at the very outset, submitted that the Assessing Officer has proceeded on the basis of general allegations against the alleged entry providers without bringing any specific evidence to establish that the assessee had obtained an accommodation entry of Rs.50,00,000/-. On the contrary, the assessee had furnished substantive documentary evidence in support of the loan transaction, including the confirmation, ledger account, bank statements, and financial particulars of the lender. The receipt as well as repayment of the loan was through banking channels and interest was also duly paid after deduction of TDS. In the absence of any evidence of cash exchange or payment of commission, the addition u/s 68 and 69C could not be sustained. The ld. CIT(A), therefore, rightly deleted the additions and the order deserves to be upheld.

7 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. CIT(A) for deleting the addition, we find it necessary to extract the relevant portion of the impugned order from para 6.18 onwards extracted below as under: “6.18 I have further carefully gone through the submission of appellant along with paper book. From the reply filed by appellant, following facts emerged by the mere perusal of submissions filed by the assessee during assessment and appellate proceedings. i. The company in the instant case is regularly filing its forms to MCA and AO did not bring anything in the assessment order which shows that there is any adverse finding. ii. The lending company has substantial turnover in the relevant assessment year which has not been questioned by the AO in assessment order. Rather AO relied on general finding of investigation report that "these companies have meagre turnover" iii. The lending company i.e. M/s SSCPL has declared profit before tax of Rs. 9.16 Lacs, in the relevant assessment year which cannot be said that it has meagre income by any imagination as claimed in the investigation report on which AO heavily relied. iv. This company has shown huge share capital, and reserves, which have been purportedly used for the lending of loan. The AO has not brought anything in the assessment order which can establish that these funds are artificial. AO failed to bring anything in the assessment order or from past assessment records which shows that these funds are artificial. v. It is irrefutable fact that the said loan was interest bearing. vi. Above all, the AO has not brought any evidence in the assessment order which reflects that cash originated from the coffer of appellant and travel to lending company or any transaction which shows that cash have been generated by appellant company. The AO has not disturbed the debit side of profit and loss accounts from where cash can be generated. vii. Moreover, nothing found in the assessment order which shows the appellant has its some activity

8 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. by which he can generate unaccounted cash for taking accommodation entry. Therefore, there is not even circumstantial evidence has been brought in the assessment order which shows cash have been delivered to entry operators in lieu of cheque. 6.19 Furthermore, the bona fides of the transactions are substantiated by the subsequent repayment of the loans through recognized banking channels, thereby eliminating any doubt as to its genuineness. The appellant was not beneficiary when the loan was repaid. Further, the over-riding factum of repayment of loan itself repels any form of disguise on the part of the appellant and dispels the perception of any sordid or extraneous affairs. The clinching evidences towards loan procurement discharge the primary onus which lay upon the Appellant under s. 68 of the Act. Besides, the loan itself having been repaid, the appellant does not ultimately stand to gain any spurious benefit from such alleged unexplained cash credit. Such fact justifies the plea of the appellant towards existence of bonafides in the transactions. 6.20 Reliance is also placed on the following judicial pronouncements in this regard: • Pr. Commissioner of Income Tax-12, Delhi vs. Jagmag Builders ITA No. 325/2024 [Hon'ble Delhi High Court] 2. The issue itself pertains to additions under Sections 68 and 37 of the Income Tax Act, 1961 ['Act’] which were made by the Assessing Officer ['AO’] on account of unexplained unsecured loans and disallowance of interest expenses. We note that the Tribunal while affirming the conclusions which were arrived at by Commissioner of Income Tax (Appeals) has observed as follows: "From the evidences .furnished by the assessee before the departmental authorities, it is established that the entire loan, which is subject matter of addition, as unexplained cash credit has been repaid either in the year under consideration or subsequent assessment years. The entire transaction relating to availing of and repayment of loan has been done through banking channel. All details relating to loan

9 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. availed and repayments made have been furnished before the departmental authorities, the details of which have been produced at pages 24 to 29 of the order of learned First Appellate Authority. It is also a fact on record that assessee has furnished all supporting evidences not only to prove the identity of the lenders but even creditworthiness as well as genuineness of the transaction by furnishing their bank statements, income-tax return copy, confirmations etc. Thus, it is evident, assessee has discharged its onus of proving the identity and creditworthiness of the creditors as well as genuineness of the loan transactions. Therefore, in our considered opinion, learned First Appellate Authority was justified in deleting the addition of Rs.2,67,05,959 made under Section 68 of the Act. Since, the addition made under Section 68 of the Act has been deleted, as a natural corollary, the disallowance of interest paid on such loan also has to be deleted. Accordingly, we do so. Grounds are dismissed." 3. Bearing in mind the aforesaid, we are of the considered opinion that no substantial question of law arises. The appeal fails and shall stand dismissed". • Principal Commissioner of Income-tax v. Ambe Tradecorp (P.)Ltd. [2022] 145 taxmann.com 27 (Gujarat). 5. As discussed above, since the requisite material was furnished by assessee showing the identity and since the assessee was not beneficiary when the loan was repaid in the subsequent year, even the ingredients of creditworthiness and genuineness of transaction were well satisfied. 6. The Tribunal rightly recorded in para 29 of the judgment, "Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, were hold that there is no infirmity in the order of the Ld. CIT-A."

10 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. 7. For the reasons recorded above, no question of law much less substantial questions arises in this appeal. • Navyug Iron Traders vs DCIT ITA No. 553/Del/2017 (Hon'ble ITAT Delhi - 24.09.2019] 6. We have considered the rival submissions and perused the material available on record. It is not in dispute that assessee filed copies of ledger account of all the three creditors along with their ITR, confirmation, bank statement and balance-sheet of the investors. The creditors have confirmed giving advances to the assessee. Since the deal could not be materialized, the assessee returned the amount in question in subsequent year. All the transactions are carried out through banking channel and no defects in the books of account have been pointed out. All the creditors are assessed to tax and have disclosed the transactions to the Income Tax Department. The assessee explained that since parties are not in his direct control, therefore, direct enquiry may be made from the creditors, for which, assessee also deposited fees as required for the same. However, no attempt have been made to verify the transactions from the creditors. Since all the creditors were assessed to tax and their PAN were available to the AO, therefore, AO could have examine the source of their income from the income tax record. But the AO did not do anything in the matter. Therefore, decision of the Hon'ble Supreme Court in the case of Orissa Corporation Pvt. Ltd., 159 ITR 78 (SC) would apply. The assessee in these circumstances is able to discharge onus upon it to prove the ingredients of Section 68 of the LT. Act. We rely upon Judgment of the Hon'ble Gujarat High Court in the case of Rohini Builders 256 ITR 360 (Guj.) and Gauhati High Court in the case of Nemichand Kothari 264 ITR 254 (Gauhati). Since in this case the repayment made by assessee in subsequent year have not been disputed by the Revenue Department, therefore, case of assessee would also be covered by Judgment of Hon'ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji (supra) and Hon'ble Allahabad High Court in the case of CIT vs. (supra). The authorities Kapoor Chand Mangesh Chand below rejected the explanation of assessee because in response to notice issued by A.O. the creditors did not respond. The Hon'ble Delhi High Court in the case of

11 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. Divine Leasing and Finance Ltd. 299 ITR 268 (Del.) held that "no adverse inference should be drawn if shareholders failed to respond to the notice issued by the A.O." Similar view is taken by Hon'ble Delhi High Court in the case of CIT vs. Winstrall Petro Chemicals Pvt. Ltd., 330 ITR603 (Del.). Further no material has been brought on record that the credit amount introduced by the creditors was actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. We rely upon Judgment of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd., 307 ITR 334 (Del.). Considering the totality of the facts and circumstances of the case and that when it is explained that trading advances were received and when the material could not be supplied, amounts have been returned in subsequent year, same could not be disputed by the authorities below to delete the same as undisclosed income of the assessee. Considering the totality of the facts and circumstances, we do not find any justification to sustain the addition because assessee is able to prove identity of the creditors, their creditworthiness and genuineness of the transaction in the matter. In this view of the matter, we set aside the Orders of the authorities below and delete the entire addition. • Hon'ble Delhi ITAT in case or Real Innerspring Technologies (P.) Ltd. v. ACIT (Hon'ble ITAT Delhi) vide its order dated 27-03-2025 has held as under: 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-genuine. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. • Hon'ble Delhi ITAT in its recent pronouncement in the case or Dazzling Construction Pvt. Ltd. Vs ITO Ward- 7(2), New Delhi bearing ITA No. 3771/Del/2023 has held as under:

12 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. the factum of repayment quells the ·apprehension entertained by the Revenue. The over-riding 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/or 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. 6.21 To conclude, in view of the foregoing discussion, it can be said that the appellant has satisfied all tests identity, creditworthiness, and genuineness of the unsecured loan of Rs. 50,00,000/- availed from lender i.e. M/ s SSCPL. The said loan has also been repaid in subsequent year via banking channels by appellant. This company has paid taxes and declared profit in the relevant assessment year. It is also to be noted that in income tax every transaction shall be seen separately, labelling a company as paper entity must be backed by cogent evidence as discussed in preceding paras. The investigation report has given general lead about the companies controlled by entry operator. The AO ignored very crucial fact that this lender has accumulated capital and reserves carried over from previous years. Without refuting the genuineness of capital and reserve and in lack of evidence of movement of unaccounted money from appellant's coffer to entry operator's coffers, it is not possible to held transactions as an accommodation entry in such circumstances. 6.22 In view of the detailed discussion above, I am of the considered view that the addition of unsecured business loan received by appellant amounting to Rs.50,00,000/- u/s 68 of the Act is made without cogent or circumstantial evidence and hence not sustainable on facts as well as in law and hence, the

13 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. same is liable to be deleted. As such, this part of grounds of appeal is allowed. 7. Ground No. 10: pertains to addition of Rs.1,50,000/- u/s 69C of the Act on account of presumptive commission paid for availing accommodation entries to the tune of Rs.50,00,000/- from M/s SSCPL. 7.1 The appellant contended that "the so-called commission addition (3% of unsecured loan amount) is wholly arbitrary. No evidence, direct or circumstantial, of any actual payment was found on record. The AO merely presumed a notional commission solely because of the perception that the transaction was an accommodation entry. Law and jurisprudence require tangible corroboration for such additions, and additions based only on presumption/percentage are unsustainable." 7.2 I have perused the assessment order and found that AO has drawn following presumption for making addition u/ s 69C of the Act. i) The loan has been received from the alleged paper entities controlled by entry operator. ii) It is admitted fact by entry operator that he takes commission of 3% for providing accommodation entry. iii) It is also fact that AO has not brought anything in the assessment order about the transaction, whether same was confronted to director of paper entity or entry operator. iv) The AO has not brought any evidence of cheque- cash nexus in the assessment order. 7.3 Before going further to the merit of case, I am reproducing section 69C as under: “Section 69C - Unexplained Expenditure, etc. "Where in any .financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by

14 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year." 7.4 It is established legal position that for invocation of section 69C, it is mandatory for the AO to have concrete evidence of actual expenditure incurred by the assessee. Mere modus operandi statements about general practices by entry operators do not suffice as direct proof of commission payment in the specific case at hand. 7.5 The Hon'ble ITAT has repeatedly held that additions u/s 69C cannot be sustained based on unverified or generalized statements, especially if the assessee was not provided cross-examination or if there is no corroborative evidence to establish that commission was, in fact, paid for the entries involved. 7.6 The onus lies on the AO to demonstrate with evidence (such as statements, seized documents, or admissions specific to the assessee) that unexplained expenditure has actually been incurred. In the absence of such evidence, addition u/ s 69C is mere assumption and against principles of natural justice. 7.7 Even if entry operators generally admit to taking commission, unless there is a statement or material indicating that the appellant in this assessment year paid any such commission, the addition is unsustainable. Seized materials or statements describing industry-wide modus operandi are insufficient for a 69C addition without direct nexus to the specific transaction or assessee. Moreover, in the instant case the AO failed to bring circumstantial evidence for generation of cash in the assessment order. This fact may be elaborated with following: i) AO did not bring anything in the assessment order which can substantiate that the assessee/ appellant is involved in some other activity where he can generate cash for such expenditure. ii) The AO failed to disturb profit and loss account of the appellant company to prove see here assessee claimed bogus expenses and cash have been generated by way of these bogus expenses.

15 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. 7.8 Therefore, from the above discussion it is amply clear that AO failed to bring any evidence of cash expenditure or even circumstantial evidence of unaccounted cash generation by appellant to substantiate the presumption that the appellant must have spent such expenditure for alleged accommodation entry. The addition made by the AO of Rs.1,50,000/- was on mere presumption without any evidence of expenditure cogent or circumstantial. Such addition lacks merit, hence, cannot be sustained and is hereby deleted. Therefore, this ground of appeal is allowed.” 8. We have gone through the finding of the ld. CIT(A) and also examined the factual matrix and the legal precedents referred in the impugned order, we are convinced that the assessee has established the identity of the lender, its creditworthiness and the genuineness of the transaction. The loan of Rs.50,00,000/- was received through banking channels and was subsequently repaid through banking channels. In that regard, the ld. AR has also filed written synopsis in support of his oral argument alongwith findings in the proceedings to prove the genuineness of the transaction and identity of the party and their creditworthiness, the same is extracted below as under: “During the year under consideration the assessee company has received a loan of Rs 50,00,000/- from M/s Syamali Security & Consultant Pvt. Ltd. on 06.05.2020, and the amount was duly repaid by the assessee in the subsequent year i.e. on FY 2021-22 and 2022-23. In this regard the assessee has submitted the following supporting documents:

16 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. - Copy of PAN Card of Syamali Security & Consultant Private Limited (PB Page No. 43) - Copy of ITR Acknowledgement for the AY 2021-22 of Syamali Security & Consultant Private Limited. (PB Page No. 44) - Copy of Audited Financial Statement of Syamali Security & Consultant Private Limited. (PB Page No. 45-66) - Copy of ledger account of M/s Syamali Security & Consultant Pvt. Ltd. in the books of assessee for the FY 2020-21 (PB Page No. 33) and for the FY 2021-22 & 2022-23 (PB Page No. 91 & 92) - Copy of confirmation of accounts from Syamali Security & Consultant Private Limited for the period 01.04.2020 to 14.06.2022 (PB Page No. 90) - Copy of Bank statement of Syamali Security & Consultant Private Limited reflecting loan given to assessee (PB Page No. 41-42) - Copy of bank statement of assessee reflecting loan received from Syamali Security & Consultant Private Limited and repayment made by the assessee (PB Page No. 93-95) - Copy of the TDS certificate (Form 16A) reflecting the TDS deducted on interest on loan (PB Page No. 34-35) - Copy of challan reflecting fees paid for filing Annual return forms namely AOC-4 & MGT-7A of Syamali Security & Consultant Private Limited (PB Page No. 100-101) The lender company, M/s Syamali Security & Consultants Pvt. Ltd. holds an ‘Active’ status on the MCA Portal. The last Annual General Meeting (AGM) was held on 30.09.2025 in accordance with statutory requirements as per the MCA website. Repayment of Loan: The loan of Rs 50,00,000/- was fully repaid by the assessee as on 14.06.2022 and the said loan has been squared off in the FY 2022-23 along with interest after deducting TDS. The details of loan and interest amount repaid is as under for your ready reference: Date FY Amount Repaid Interest Amount TDS Amount 31.03.2021 2020-21 - 3,61,644/- 27,123/- 16.11.2021 2021-22 3,34,521/- 4,00,000/- 40,000/- 14.06.2022 2022-23 54,33,972/- 82,192/- 8,220/-

17 ITA No. 5612/Del/2026 C Net Software Services Pvt. Ltd. Source of Repayment: The source of the said repayment was LAP (Loan Against Property) availed by the assessee from HDFC Bank on 25.05.2022 amounting to Rs 22,00,00,000/-. - Copy of the HDFC LAP loan ledger account (PB Page No. 96-99) - Copy of relevant bank statement of assessee reflecting repayment (PB Page No. 93-95) Assessment Proceedings Initiated After Complete Repayment of Loan The Ld. AO has failed to acknowledge the fact that the loan in question was fully repaid well before the initiation of the assessment proceedings against the assessee. The notice u/s 148 of the Act was issued on 29.03.2024, whereas the last repayment of the loan was made on 14.06.2022.” 9. Therefore, considering the totality of the facts and circumstances, we find no infirmity in the well-reasoned order of the ld. CIT(A). Accordingly, the deletion of the addition of Rs.50,00,000/- made u/s 68 of the Act and the consequential addition of Rs.1,50,000/- made u/s 69C of the Act is hereby upheld.