ITO-13(2)(1), MUMBAI vs. SHRADDHA SHELTERS PVT. LTD., MUMBAI

These three appeals filed by the Revenue are directed against the separate orders dated 13.02.2026 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “Ld. CIT(A)”], under section 250 of the Income-tax Act, 1961 (“the Act”), for A.Ys. 2016-17, 2017-18 and 2018-19. The impugned orders arise from the assessments framed under section 147 read with section 144B of the Act dated 28.02.2025 for A.Ys. 2016-17 and 2017-18 and dated 03.03.2025 for A.Y. 2018-19. Since the issues arise from loan transactions with the same lender and involve common questions, these appeals are disposed of by this consolidated order. We take A.Y. 2016-17 as the lead year.

The Revenue has raised the following grounds in ITA No. 4620/Mum/2026 for A.Y. 2016-17:

Briefly stated, the assessee is a private limited company engaged in real estate development and forms part of the Transcon Group. It filed its return of income for A.Y. 2016-17 on 15.10.2016 declaring total income of Rs. 7,240/-. Pursuant to information concerning alleged accommodation entries received from M/s. Jagprem Tradelink Pvt. Ltd., the assessment was reopened by issuance of notice under section 148 dated 13.04.2023. In response, the assessee filed its return on 24.04.2023 declaring the same income. The Assessing Officer treated the loan receipts of Rs. 1,47,17,726/- as unexplained cash credit under section 68 and disallowed interest of Rs. 8,107/- on the footing that the underlying loan was non-genuine. The total income was assessed at Rs. 1,47,33,073/-.

Before the Ld. CIT(A), the assessee furnished the lender’s income-tax return acknowledgement, confirmations, ledger accounts, bank statements, audited financial records, details explaining the lender’s source of funds and evidence of payment of interest after deduction of tax at source. The assessee also furnished details of repayment through banking channels. On examining the evidence, the Ld. CIT(A) held that the assessee had established the identity and creditworthiness of the lender and the genuineness of the transaction. He observed that the Assessing Officer had not identified any defect in the documentary evidence or brought independent material connecting the assessee’s loan with the alleged accommodation-entry activity. Relying, inter alia, on the decision of the Tribunal in ITO v. Agripure Tradeware Pvt. Ltd., he deleted the loan addition and the consequential interest disallowance. The challenge to reopening was left open as academic in view of the relief granted on merits.

The Ld. DR supported the assessment order and sought restoration of the additions. The Revenue’s case is that the investigation findings and the statements of persons connected with the lender indicated that M/s. Jagprem Tradelink Pvt. Ltd. was engaged in providing accommodation entries. It was contended that the documents furnished by the assessee did not satisfactorily establish the genuineness of the loan and the creditworthiness of the lender. The Ld. DR accordingly submitted that the Ld. CIT(A) was not justified in deleting the addition under section 68 and the interest disallowance.

The Ld. AR, on the other hand, supported the orders of the Ld. CIT(A) and relied on the consolidated written submissions. He submitted that the receipt of loans, payment of interest and repayment were through banking channels and were recorded in the accounts of both parties. The lender’s identity, the relevant bank transactions and the source of its funds were supported by documentary evidence. He explained that funds earlier advanced by the lender to other Transcon Group entities had been repaid by those entities and were thereafter available for lending to the assessee. He further submitted that the entire loan account had been squared up during the financial year relevant to A.Y. 2018-19, well before issuance of the reopening notices. According to him, the non-response of the lender to the notice under section 133(6), after the transactions had ceased, could not by itself displace the evidence furnished by the assessee. He relied on PCIT v. Bairagra Builders (P.) Ltd. [2024] 299 Taxman 460 (Bom.), PCIT v. Merrygold Gems (P.) Ltd. [2024] 164 taxmann.com 764 (Guj.), CIT v. Orchid Industries (P.) Ltd. [2017] 397 ITR 136 (Bom.), PCIT v. Paradise Inland Shipping (P.) Ltd. [2017] 400 ITR 439 (Bom.) and Rajuram Savaji Purohit v. ITO [2024] 169 taxmann.com 18 (Mumbai–Trib.).

We have heard the rival submissions and perused the material available on record. The issue is whether the Ld. CIT(A) was justified in deleting the addition under section 68 and the consequential disallowance of interest. The explanation concerning the nature and source of the credit has to be examined with reference to the evidence establishing the lender’s identity, its capacity to advance the funds and the genuineness of the transaction. Receipt through a bank account is relevant, but the transaction must be considered in its entirety, including the financial records, confirmation, source of funds, payment of interest and subsequent repayment.

In the present case, the assessee has furnished evidence covering these aspects. The paper book contains the lender’s return acknowledgement, confirmations, bank statements evidencing the movement of funds, the assessee’s audited financial statements and details of the source of funds in the hands of the lender. The Ld. CIT(A) has examined these documents and recorded a finding that the identity, creditworthiness and genuineness stand established. The interest payment was subjected to deduction of tax at source. Further, repayments were made through banking channels and the consolidated submissions show that the loan account was fully squared up by A.Y. 2018-19. Thus, repayment had taken place much before the reopening notices were issued. The significance of this repayment has to be considered along with the evidence supporting the original receipts, rather than in isolation.

The investigation information concerning the lender warranted examination of the transactions. However, it did not dispense with consideration of the evidence furnished in this case. The Ld. CIT(A) has specifically found that no defect or discrepancy was pointed out in the documentary evidence and no independent material was brought on record to establish that the assessee’s loan receipts were accommodation entries. The Revenue has not displaced these findings by identifying any material showing that the confirmations or bank records were false, that the explanation of the lender’s funds was incorrect, or that the repayments were merely entries without actual movement of funds. In these circumstances, the general statements relied upon cannot be treated as sufficient to reject the assessee’s explanation. Likewise, the lender’s non-response, without a contrary finding on the evidence already furnished, does not by itself establish that the loan was non-genuine.

The decision of the co-ordinate Bench in ITO v. Agripure Tradeware Pvt. Ltd., ITA No. 1690/Mum/2018, dated 20.04.2021, relied upon by the Ld. CIT(A), is relevant. The Tribunal considered the supporting documents, payment of interest and repayment of loans and upheld deletion of the addition. Paragraphs 5.7 and 5.8, reproduced in the submissions forming part of the appellate record, read as under:

The principle emerging from the above decision applies to the present case, where the evidence supporting the loan has not been disproved and the amounts have already been repaid. In PCIT v. Bairagra Builders (P.) Ltd. (supra), the Hon’ble Bombay High Court sustained the deletion where the loans were supported by evidence, including confirmations, and had been received and repaid through banking channels, notwithstanding the allegation of accommodation entries based on a third-party statement. The Hon’ble Gujarat High Court in PCIT v. Merrygold Gems (P.) Ltd. (supra) also upheld deletion after considering repayment verified from the ledger accounts and bank statements. These decisions support consideration of actual repayment as material evidence of genuineness when the underlying documentary explanation has not been rebutted. The decisions in Orchid Industries (P.) Ltd. and Paradise Inland Shipping (P.) Ltd. also support the proposition that non- appearance or non-response of a third party cannot, by itself, justify disregarding the evidence establishing the transaction.

Having regard to the evidence furnished, the findings recorded by the Ld. CIT(A) and the fact that the loan account has already been squared up through banking channels, we find no infirmity in the deletion of the addition of Rs. 1,47,17,726/- under section 68. The interest of Rs. 8,107/- was disallowed solely because the loan was treated as non-genuine. Since that basis does not survive and the payment of interest after deduction of tax at source is supported by the record, the deletion of the interest disallowance is also upheld. Grounds Nos. 1 and 2 are dismissed. Grounds Nos. 3 and 4 are general and require no separate decision. Accordingly, the Revenue’s appeal for A.Y. 2016-17 is dismissed.

In ITA No. 4621/Mum/2026 for A.Y. 2017-18, the Revenue challenges the deletion of the loan addition of Rs. 21,75,74,161/- under section 68, the interest disallowance of Rs. 1,31,23,740/- and the addition of Rs. 16,31,806/- under section 69C towards alleged commission expenditure. The loan transactions are with the same lender, M/s. Jagprem Tradelink Pvt. Ltd., and the additions were made on the same basis as in the lead year. The Ld. CIT(A) deleted the additions after considering the documentary evidence and repayment through banking channels. The rival submissions on the loan and interest issues are also similar. Accordingly, our findings for A.Y. 2016-17 apply mutatis mutandis to these issues for A.Y. 2017-18. We uphold the deletion of the loan addition and interest disallowance and dismiss Grounds Nos. 1 and 2.

As regards Ground No. 3 concerning the addition of Rs. 16,31,806/- under section 69C, the Ld. DR relied on the assessment order.

The Ld. AR submitted that the addition was consequential to treating the loans as accommodation entries and that there was no evidence of actual commission expenditure.

We find that the Ld. CIT(A) has recorded that the Assessing Officer neither identified any specific payment nor brought evidence of expenditure actually incurred by the assessee. Since the loan transactions have been accepted as genuine and no independent evidence of unrecorded commission payment has been brought on record, we uphold the deletion of this addition. Ground No. 3 is dismissed. The remaining grounds are general. The Revenue’s appeal for A.Y. 2017-18 is accordingly dismissed.

In ITA No. 4622/Mum/2026 for A.Y. 2018-19, the Revenue challenges the deletion of the loan addition of Rs. 10,00,000/- under section 68 and the interest disallowance of Rs. 44,91,846/-. These additions relate to the same loan account with M/s. Jagprem Tradelink Pvt. Ltd. The Ld. CIT(A) deleted them on consideration of the supporting documents, payment of interest after deduction of tax at source and repayment of the loans. The loan account was fully squared up during this year, before issuance of the reopening notices. The issues and rival submissions being similar, our findings for A.Y. 2016-17 apply mutatis mutandis. We therefore uphold the deletion of both additions and dismiss Grounds Nos. 1 and 2. The remaining grounds are general. The Revenue’s appeal for A.Y. 2018-19 is dismissed.

In the result, all three appeals filed by the Revenue are dismissed.