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Facts
The assessee's case for AY 2016-17 was selected for scrutiny, and the AO made an addition of ₹70 lacs by treating earnest money received under a joint development agreement as bogus sundry creditors, alleging the developer company was a shell entity. The AO also made an addition of ₹21,07,456/- regarding the repayment of a loan to M/s Wonder Procon Pvt. Ltd., treating the repayment as bogus despite the original loan being considered genuine. Both additions were affirmed by the CIT(A).
Held
The Tribunal held that the ₹70 lacs addition was unsustainable as the joint development agreement was cancelled and the entire earnest money was refunded. Citing a Gujarat High Court decision, the tribunal ruled that once repayment is established, the credit cannot be treated as unexplained. For the second addition, the tribunal held that if a loan was treated as genuine when borrowed, its repayment cannot be treated as bogus, especially with banking channel evidence. Both additions were directed to be deleted.
Key Issues
Whether additions for sundry creditors (earnest money) are justified when the underlying transaction is cancelled and money refunded, and whether repayment of a loan can be treated as bogus if the original loan was deemed genuine.
Sections Cited
143(2), 142(1), 131, 68, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM
Per Rajesh Kumar, AM:
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 09.07.2025 for the AY 2016-17.
The issue raised in the first ground of appeal is against the confirmation of addition of ₹70 lacs by the ld. CIT (A) as made by the ld. AO towards sundry creditors which represented the amount received as earnest money under the joint development agreement.
2.1. The facts in brief are that the assessee filed the return of income on 17.10.2016, declaring total income at ₹12,74,220/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and notice u/s 143(2) of the Act and
2.2. In the appellate proceedings, the ld. CIT (A) affirmed the same.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee received an amount under MOU/ Joint Development Agreement with M/s Combine Infra Ventures Pvt. Ltd. The joint development agreement was executed on on 05.09.2014, a copy of which is available at page no.52 to 56 of the Paper Book. We note that the assessee has received ₹1,10,00,000/- in aggregate in two financial years namely ₹ 40 lacs was received in F.Y. 2014-15 and ₹70 lacs was received n F.Y. 2015- 16 (in three installments). A copy of confirmation is available at page no.57 of the Paper Book. Thereafter, the said amount was repaid when the MOU was cancelled by deed of agreement for cancellation, a copy of which is available at page no.63 to 66 of the Paper Book and the amount of security received of ₹1,10,00,000/- was refunded apparent from the bank account of the assessee. We note that
"3. The issue in this case arose in respect of the assessment year 2012-2013. It appears that the two loan transactions of Rs. 8,50,00,000/- and Rs. 23,70,00,000/- received by respondent assessee from one M/s. J.A Infracon Private Limited and M/s. Satya Retail Private Limited were treated by assessing officer to be sham in the sense that the creditworthiness etc. of the giver of the loan were not established. Accordingly, the assessing officer made addition under section 68 of the Act. 3.1 While the assessing officer dealt with unexplained cash credit from the M/s. Satya Retail Private Limited and from M/s. J.A Infracon Private Limited in his order in paras 5.1 and 5.2 respectively, the Commissioner of Income-tax in the appeal preferred by assessee found on facts and the material before it that the said two cash creditors had been holding there identity, creditworthiness and genuineness in respect of the loan transactions. 3.2 The appellate authority observed that, "In this regard, it has been noticed that ledger accounts and confirmations of the aforesaid two parties have been provided by the appellant to the AO in the assessment proceedings. Thereafter, the AO also carried out the independent inquiries u/s. 133(6) of the I.T. Act and in compliance thereto both the companies have submitted the requisite information." 3.3 The information supplied by assessee was duly noticed by appellate authority and facts in that regard were recorded also to arrive at a finding that the unsecured loans to the aforesaid parties have been paid by account payee cheques from the bank account of the assessee which was not in dispute, muchless in doubt. The accounts were finally settled with the repayment of the loan to the lender companies. 3.4 When the revenue preferred appeal before the Appellate Tribunal, the Tribunal confirmed the findings recorded by the Appellate Authority. The Tribunal referred to the decision of Durga Prasad More (82) ITR 540 and also in Sumati Dayal (214) ITR 801, to further record on the basis of the facts that the assessee had furnished the details such as copy of ledger account, bank statements, income tax returns, balance sheet etc. It was also recorded that
The issue raised in the second ground of appeal is against the confirmation of addition of ₹21,07,456/- by the ld. CIT (A) as made by the ld. AO in respect of repayment of loan of M/s Wonder Procon Pvt. Ltd.
3.2. The ld. CIT (A) in the appellate proceedings, uphold the same.
3.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee repaid the loan of ₹21,07,456/- to M/s M/s Wonder Procon Pvt. Ltd., which was received in the earlier financial year. The assessee filed before the ld. AO the proof of payment through banking channel, ITR and balance sheet, etc. and submitted that there is no provision in the Income tax to treat the repayment of loan as bogus especially when the loan was treated as genuine in the year when the amount was borrowed in the earlier assessment year. However, the ld. AO brushed aside the contention of the assessee and treated the same as bogus and added to the income of the assessee. The ld. CIT (A) affirmed the same. In our opinion, the loan which was taken in the earlier assessment year cannot be treated as bogus in the order of repayment when the same was treated as genuine when the money was borrowed. The assessee has filed before the authorities below all the evidences including the repayment through banking channels. Therefore, we are inclined to set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition by relying the decision as discussed in ground no.1.
The issue raised in ground no. 3 is not pressed at the time of hearing, hence, dismissed as not pressed.
Ground no.5 is general in nature.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 17.02.2026.
Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 17.02.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata