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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
The above captioned appeal by the Revenue and Cross Objection by the assessee is preferred against order of the ld. Commissioner of Income Tax (Appeals) – 29, Jhandewalan Extension, New Delhi dated 29.10.2025 under section 250 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) arising from the assessment order dated 27.03.2024, passed by the JCIT (OSD), Central Circle-27, New Delhi (hereinafter referred to as the "AO") under section 147 r.w.s. 143(3) of the Income Tax Act, 1961 for the Assessment Year 2016-17.
Since the underlying facts are common in the cross objections of the assessee and in appeal of the Revenue and pertain to same assessee, they were heard together and are disposed of by this common order for the sake of convenience and brevity.
Brief facts of the case are that the assessee has filed its original ITR u/s 139(1) of the 1.T. Act, 1961 for A.Y. 2016-17 on 29.09.2015 declaring total income as 'nil'. The assessee filed its revised return of income on 19.04.2017 declaring total income as 'nil. On the basis of High Risk CRIU/VRU information, gathered from the search u/s 132 of the Act conducted on 17.11.2021 on Galaxy Group, Shri Pradeep Indra Prasad Agrawalla and entry providers Shri Deepak Agarwal and Shri Himanshu Verma, the case of the assessee was reopened u/s 148 read with Explanation 2 of section 148 of the Act, on 30.03.2023. The information referred to the documents seized during the search which contained information showing that the assessee has obtained accommodation entry to the tune of Rs.1,00,00,000/- from the entities controlled by above stated entry operators namely M/s Arti Securities and Services Ltd and M/s Mysore Finlease Pvt. Ltd. In response to notice u/s 148 of the Income Tax Act, 1961, the assessee has filed its return of income on 04.05.2023 declaring total income as 'nil'. Accordingly, notice u/s 143(2) of the Act was also issued through ITBA to the assessee on 22.06.2023. Further, notices u/s 142(1) of the Act dated 15.12.2023, 26.02.2024 were issued to the assessee through ITBA. Finally, the income of the assessee was assessed at Rs. 1,04,16,280/- u/s 143(3)/147 of the Act.
Aggrieved, the assessee preferred an appeal before the CIT(A) in which CIT(A) gave relief to the assessee by observing that the addition of Rs. 1,00,00,000/- made by AO is not sustainable on merits and is directed to be deleted. Now the further aggrieved Revenue is in appeal before us with the following grounds:
“1.Whether Ld. CIT erred in deleting the addition u/s 68 of the IT Act being accommodation entry in form of loan to the tune of Rs.1,00,00,000/ in lieu of cash and 3 percent commission u/s 69C of the Act alongwith interest of Rs.1,16,284/-.
2.The Ld. CIT failed to appreciate that Shri Himanshu Verma and Shri Deepak Agarwal are known entry operators and have been actively engaged in providing organized accommodation entries through their associated entities for a long period, despite multiple search and investigation proceedings conducted against them. These entities have consistently participated in such activities without any regard to the law.
3.The Ld. CIT did not consider the fact that the non-descript entities connected with Shri Himanshu Verma are merely conduits for nongenuine transactions in the nature of accommodation entries such as bogus loans/purchases/sales. These transactions were executed in a sophisticated manner by using a network of bank accounts and manipulated books of accounts to give a color of genuineness.
4.The Ld. CIT failed to appreciate that the existence of such entities at the stated addresses could not be verified, indicating their sham and non-functional nature.
5.The Ld. CIT as well as the Hon’ble ITAT have already confirmed that these entities are accommodation entry providers, which clearly establishes their dubious and non-genuine nature.
6.The order passed by the Ld. CIT is perverse, erroneous, and unsustainable both on facts and in law.”
At the same time, the assessee filed a cross objection in CO 139/D/2026 supporting the CIT(A) order.
At the outset, the ld counsel of the Revenue reiterated the grounds of appeal arguing that Shri Himanshu Verma and Shri Deepak Agarwal are known entry operators and their non-descript entities are merely conduits for nongenuine transactions in the nature of accommodation entries such as bogus loans/purchases/sales. These transactions were executed in a sophisticated manner by using a network of bank accounts and manipulated books of accounts to give a color of genuineness. The ld DR argued that the sham and non-functional nature of such entities are reflected from the fact that their existence at the stated addresses could not be verified.
Per contra, the ld AR relied on the orders of CIT(A).
We have heard the rival submissions and have perused the materials on record. We find the CIT(A) has deleted the additions as follows:
6.1The appellant contended that the impugned addition relates to sum of Rs. 50,00,000/- repaid towards old loan availed from M/s Arti Securities and Services Pvt. Ltd. (ASSL) and Rs. 50,00,000/- repaid towards old loan availed from M/s Mysore Finlease Pvt. Ltd. (MFPL) during F.Y. 2015-16. There were no loans received in the current year; the opening balances were repaid entirely via banking channels, with full details submitted (ledger, TDS, repayment proofs). The AO ignored that the money was always recorded in the books, and such recorded and repaid loans do not fall within the ambit of section 69A, which targets unrecorded or unexplained money.
6.2Further, the appellant contended that the AO's reliance on the shell nature of the lenders does not override evidence submitted on identity, creditworthiness, and repayment through verifiable banking means. Legal precedents (e.g. Jagmag Builders Hon'ble ITAT Delhi, Habitat Infrastructure Hon'ble ITAT Delhi) affirm that once repayment and documentation are complete, such sums cannot be again taxed as unexplained under deeming sections. Also, the appellant argued that when receipt of loans is not questioned by AO then how come the repayment of the same are held as bogus.
6.3I have gone through the assessment order, the AO treated loan repayments to alleged shell companies as accommodation entries and presumed that the cash must have been received by appellant in lieu of repayment of loans. However, AO failed to bring anything in assessment order about cheque for cash transaction in respect of these transactions. ******
6.4The Section 69A requires that the assessee must be "found to be the owner of" unexplained money, bullion, jewellery, or valuable article, and such ownership must be supported by facts and evidence. In the present case, the AO has not brought any concrete evidence on record to show that any unexplained cash accrued to the appellant as a result of repayments to the alleged shell companies. The formation of a mere presumption, unbacked by evidence, is not a valid basis for invoking Section 69A.
6.5Jurisprudence also establishes that the onus is on the Revenue to prove actual possession or ownership of unexplained assets. Without such proof, additions u/s 69A are not sustainable. This establishes a clear rebuttal to the addition by emphasizing the evidentiary requirements and the statutory language of Section 69A. The AO failed to bring any evidence which can remotely suggest that appellant is in possession of unrecorded money by way of repayment of loan. The whole basis of this addition is based on mere investigation finding that the companies to whom loans were repaid are nondescript entities. The additions cannot be made u/s 69A on the basis of presumption without any cogent evidences. Therefore, the addition of Rs. 1,00,00,000/- made by AO is not sustainable on merits and is directed to be deleted. Hence, this part of grounds of appeal is allowed.
7.Ground No. 6: is regarding the addition of Rs. 3,00,000/- u/s 69C of the Act on account of presumptive commission on accommodation entry.
7.1The appellant contended that "the so-called commission addition (3% of repayment 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."
7.2I have perused the assessment order and found that AO has drawn following presumption for making addition u/s 69C. i) The loans have been repaid to the alleged paper entity 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******
7.4It 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.
7.5The Hon'ble ITAT has repeatedly held that additions under section 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. 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 under section 69C is mere assumption and against principles of natural justice.
7.6Even 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.
7.7Therefore, 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 was on mere presumption without any evidence of expenditure cogent or circumstantial. Such addition lacks merit and cannot be sustained. Therefore, this ground of appeal is also allowed.
8.Ground No. 7: is regarding addition of Rs. 1,16,284/- u/s 69C of the Act on account of interest expenses being treated as unexplained expenditure.
8.1It is noted that the unsecured loans availed and repaid to M/s Arti Securities and Services Limited (ASSL) and from M/s Mysore Finlease Pvt Ltd (MFPL) are held as routing business borrowings in the adjudication above, therefore, consequential interest paid to the said lending companies through banking channels and after duly complying with the provision of TDS. The TDS credit was also availed by creditors in their respective ITRs. Therefore, the interest paid is also allowable in law. As such, the AO is directed to delete the addition u/s 69C of the Act made on this issue and this part of grounds of appeal is also allowed.
We find that the ld DR could not rebut the CIT(A)’s interpretation of the provisions of section 69A which requires that the assessee must be "found to be the owner of" unexplained money, bullion, jewellery, or valuable article, and such money is not recorded in the books of account maintained by the assessee. We find that it is admitted fact that the assessee made these transactions through bank and these transactions are recorded in its books of account. The assessee has explained the nature and source of acquisition of such money which neither the AO nor the ld DR has countered it with any cogent evidence except for the assertion these entities are dummy entities controlled by accommodation entry providers. In such factual matrix of the instant case, we are of the considered view that the said addition is not supported by evidentiary requirements and the statutory language of Section 69A and no interference is warranted in the order of the CIT(A). Grounds of appeal dismissed.
Similarly, we are of the considered view that no interference is called for in his decision deleting the addition u/s 69C on account of commission on such entries, on account of the AO’s failure to discharge his onus of establishing, with concrete evidence, the actual incurrence of commission expense by the assessee, as required in the provisions of section 69C.
In the like manner, the CIT(A)’s decision to delete the addition on account of interest payment, is upheld for the simple reason that once the repayment of loan could not be proved to be in lieu of cash, the consequential interest paid on such loan is to be considered as allowable.
CO 139/D/2026
We have dismissed the Revenue appeal herein above, hence the assessee CO is rendered infructuous and is accordingly dismissed as infructuous.
In the result, the appeal of the Revenue in ITA No. 1241/Del/2026 is dismissed and the appeal of the assessee in CO No.139/Del/2026 is also dismissed.